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Month: January 2020

5 Self-Employed Tax Rules You Want to Know Now

Entrepreneur’s Organization is a global network of over 13,000 business owners. Learn how EO New Jersey helps over 100 business owners grow.

 

Written for EO by Jessica Thiefels, social media coach and organic marketing consultant.

 

According to Pew Research, close to 15 million Americans are self-employed. Filing your taxes when you’re self-employed means you’re having to deal with a range of new tax rules and regulations that you’ve never dealt with for personal taxes.

To ensure you understand what you have to do, consider turning to a CPA. This person will walk you through what you should and shouldn’t do. You’ll likely see your CPA a few times throughout the year as well to make sure your income is on track and that there are no surprises come tax time.

Even if have an expert to guide you, it’s important to know what’s expected of you for taxes as a self-employed person. Here are just some of the tax rules that may be new to you and are important to know.

 

1099s

If you’ve paid out more than US$600 to a service provider or received more than US$600 for providing services, you’ll give and get 1099-MISC for each business or person. As someone who’s self-employed, you’ll need to send a 1099 to anyone who you’ve paid more than US$600—think, a freelance writer or web designer. If you use accounting software like Quickbooks, you can do this automatically once you have a W-9 from the person. The companies who owe you a 1099 will send it automatically—there’s no need for you to request it.

Note that you must have the 1099s sent out by January 31, according to Micah Fraim’s Freelance Tax Guide, so put it on your calendar to avoid a penalty.

 

Quarterly Tax Payments

Quarterly tax payments are paid by self-employed individuals who plan to earn more than $1,000 in the tax year. The IRS requires you to pay taxes as you earn income throughout the year and when you work for a company, the amount of money withheld from your paycheck covers this. As a self-employed individual however, you have to make quarterly tax payments to cover these taxes throughout the year yourself.

It’s important that you pay enough quarterly taxes and that each payment is made on time. The IRS explains, “If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.”

This is another reason why it’s important to work with a financial professional or CPA. They will ensure that you know exact payment dates along with the correct estimated totals.

 

Expense Tracking

Keep a receipt for anything that you buy for your business, from stamps for mailing checks to your invoicing software and passes to industry conferences. These expenses are deductible and reduce the overall total dollar amount that you owe taxes on. According to the same tax guide from Micah Fraim, some of the common tax deductions are:

Office supplies and equipment

Travel and meals

Internet

Phone

Advertising

Health insurance premiums

Professional development

Bank fees

Software costs

Keep track of each expense so they can be factored into your taxes at the end of the year. There are a variety of apps you can use for this, and most accounting software allows you to do it as well.

Check out EO member and CPA Greg Crabtree’s perspective on paying taxes. 

 

Home Office Deduction

If you’re a contractor or freelancer, there’s a good chance you work from a home office. If you have an office area designated as a working space, you’re allowed to deduct a percentage of the cost of that space, as well as a percentage of utilities used.

Amy Bergen, writer for Money Under 30, explains: “The home office also needs to be the principal or primary place of your business—your base. If you occasionally work or have meetings elsewhere, you can take the deduction as long as you use the home office consistently.”

There are a few methods for taking advantage of this deduction. Work with your financial advisor to choose the best one for you.

 

Self-Employment Tax

This tax covers your contribution to Medicare and Social Security as a self-employed individual. This is normally taken out of your paycheck, but since you’re no longer a W-2 employee, you’re now responsible for this yourself. As such, this cost is factored into your quarterly tax payments.

Intuit explains:

“When you’re self-employed, you are paid the full amount you earn. Nothing is deducted from your check for Social Security and Medicare taxes. Instead, you make estimated tax payments during the year to pay your SE tax and your income tax. If you don’t make estimated tax payments, then you pay these taxes when you file your return.”

The tax rate for the self-employment tax is 15.3 percent, with 12.4 percent for Social Security and 2.9 percent for Medicare.

 

Know Your Tax Obligations

It’s important that you know your tax obligations as a self-employed individual to avoid fees or penalties. Working with a financial professional ensures that you’re not missing important payments and are totally prepared come tax season. Get familiar with your responsibilities as you step into the world of self-employment to start your tax year on the right foot.

This post was originally published on the EO Global Octane Blog.

How Healthy Are Your Books? Here are Six Questions to Unlock Answers.

Entrepreneur’s Organization is a global network of over 13,000 business owners. Learn how EO New Jersey helps over 100 business owners grow.

I visited a friend the other day who runs a well-organized business and keeps a meticulous office. Every desk is tidy, every scrap of paper is in a binder or folder, and everything is labeled and filed alphabetically and by year.

And yet, despite all this organization, he never quite feels in control of his business. Sure, the organization gives him good control over the workflow and processes, but he could not answer the basic business questions he had about cash flow, profitability and pricing. Despite all the binders and folders, he could not get reliable answers out of his accounting system and so could not make good decisions about the future of the company.

I believe all good answers start with good financial statements, so we sat down to take a look at his. Within just a few minutes, we spotted six areas that needed attention. Here’s a quick test to see if these same six areas can help you get better answers to your financial questions – and make better decisions about your company’s future.

  1. Does your balance sheet have negative accounts?
    A balance sheet is set up so that accounts are always positive (with just two exceptions: Depreciation and Owner Distributions). It’s understandable that your bank account should never show up in the negative, but it is less intuitive that debts (credit cards, loans, etc.) should also be a positive value on the balance sheet. All assets, liabilities and equity accounts should be positive numbers. If they’re not, it’s likely that transactions are being booked incorrectly.
  2. Is it true?
    Since it shows bank account balances that should agree with a monthly bank statement, a balance sheet is easy to fact-check. But not all accounts have objective statements, so look closely. Tax Liability accounts are the most common place to find mistakes (and fraud). See if you’re booking taxes and tax payments correctly, then look into loan balances, leases and credit card accounts. (Remember, a negative balance here means that you have over-paid a loan!)
  3. Does the income statement show negative values?
    Like the balance sheet, a properly set up income statement should have all positive values. If values are negative, it probably means you have an expense account in an income section, or vice-versa. That’s fine if it’s on purpose, but otherwise, you’ve got something backwards.
  4. Are variable costs hiding in the xxpense section?
    The most important part of an Income Statement is the Cost of Goods Sold (also called COGS or Cost of Sales), which helps you determine Gross Margin and thus, to set more accurate pricing. This section should capture all variable costs. If you have costs like Wages (of your revenue-producing workers), credit card processing fees, shipping, or sales taxes hiding in your Expenses category, you are not properly capturing your true cost of sales.
  5. Are payroll expenses properly broken out?
    Payroll is the largest expense for most companies, but given the least attention. Unless you allocate labor to specific jobs (or products) calculating profit margins is impossible. Further, if taxes, insurance and benefits are not allocated properly, you are not seeing the full picture. Workers Comp insurance is a particularly big issue. Properly allocating labor by cost code can result in huge WC savings.
  6. Does your income statement look like your business?
    Because accounting is so boring, many business owners don’t realize the flexibility they have to make their income statement suit their management needs. If a company sells three lines of products, it should have three different income accounts on the P&L. Likewise, within expenses, there should be accounts for those items you want to measure and control – but not so many you get lost in the details. For example, “Utilities” is a reasonable expense account, but separate accounts for water, electricity, gas, cable, phone, mobile phones, and data plans is just too much detail. When properly put together, the Income Statement should paint an easy-to-use and reliable picture of daily operations.

Now Look Again and See the Truth
Looking for problems in your financial reports is not the most fun way to spend the day.  But it’s one of the most important things a business owner can do. Mistakes in common accounting entries can twist the overall results in ways that will confuse and conceal the answers you need to run your business effectively.

When you can rely on the numbers, you can rely on the decisions you make to take your business forward. Review the books, fix the problems, then look again – knowing you can trust the numbers to tell the truth.

David Worrell is an award-winning entrepreneur and now helps other business owners as a part-time CFO. He is a partner at Fuse Financial Partners in Charlotte, North Carolina, and author of “The Entrepreneur’s Guide to Financial Statements.”

 

This post was originally published on the EO Global Octane Blog.

My, How EONJ Has Grown!

EONJ has had a strong year of growth, with 16 new members joining us this year! Please help us keep the momentum by continuing to spread the word about how great our chapter is!

EO & YPO Partnership

Entrepreneur’s Organization is a global network of over 13,000 business owners. Learn how EO New Jersey helps over 100 business owners grow.

Considering EO or YPO?

Membership in the Chicago YPO chapter requires that your business have annual revenues of at least $26M. Many EO members are not yet at this stage with their companies, but have at least $1M in revenues and are looking to grow.

EO and YPO have partnered to provide EO members with access to a mentor through YPO Gold. This provides potentially life-changing and business-transforming insight from a person who has “seen it before.”

 

EO Mentorship fosters relationships aimed at high-level leadership and personal development within a structured timeframe. Throughout the mentorship process, Mentees work toward goals and establish personal accountability, while Mentors support them through next-level education and engagement.

How does it work?

EO Mentorship relationships last 10-12 months, during which the Mentee and Mentor meet face-to-face or virtually for one to three hours each month to work toward setting and realizing personalized, measurable and attainable goals. EO will help facilitate the application and matching process, through either a chapter-based program or the global virtual mentorship platform. From there, Mentees drive the relationship. After a year, the relationship ends with a celebration of achievements. As a way to “pay it forward,” Mentees are encouraged to serve as a Mentor to an EO Accelerator and EO GSEA participant, or another EO member.

 

Want to learn more? Register to get invited to a free event and see what EO is all about.

 

This post was originally published on the EO Global Octane Blog.

EO Forum: Your Personal Board of Directors

Entrepreneur’s Organization is a global network of over 13,000 business owners. Learn how EO New Jersey helps over 100 business owners grow.

In the Entrepreneurs’ Organization (EO), every member joins a Forum: a unique, confidential small peer group made of other business owners in non-competitive industries. Forums meet every month to push each other, work through challenges, hold space for each other’s struggles, and celebrate each other’s wins.

 

YOUR PERSONAL BOARD OF DIRECTORS

What would you give for a personal Board of advisors or for the ability to tap into a small group of fellow business owners who can offer you direction based on their experiences? This invaluable access is available through Forum, a unique member-driven experience offered by EO that brings together a group of entrepreneurs for peer-to-peer learning and support. Participants take part in monthly meetings employing special protocols to support a trusting environment in which they can safely explore business and personal growth issues.

 

WHAT HAPPENS AT FORUM MEETINGS?

We can share 95 percent of our lives with anyone. During Forum meetings, members discuss the other five percent – the triumphs and tragedies of life as an entrepreneur. Moderator-trained EO members, not paid facilitators, guide the sessions, which emphasize confidentiality, personal responsibility and the sharing of lessons learned. Members don’t give advice; they speak from prior experience, letting you draw your own conclusions on the best manner to proceed.

 

KEY EXECUTIVE FORUM

Key executives can often exist in a special space between their company’s owner/founder and the general staff of the company that’s just as isolating as the owner role. Executive Forum is meant to connect them with a group of peers addressing experiences related to that special position as a key executive, as well as space to safely share about challenges and wins in their personal life, family life, business life, and larger communities and responsibilities.

 

SPOUSAL/LIFE PARTNER FORUM

Life partners can often exist in extra special spaces—they can be supporters, co-creators, co-founders, executives, co-parents, coworkers, and definitely co-visionaries for the life they’re creating with their partner. Partner Forum is meant to connect them with a group of peers addressing experiences related to those special positions, as well as space to safely share about challenges and wins in their personal life, family life, business life, and larger communities and responsibilities.

Want to learn more? Register to get invited to a free event and see what EO is all about.

This post was originally published on the EO Global Octane Blog.