Tax Tips

When navigating the potential of having employees, it can be difficult as a small business owner to keep track of whether you have actual ‘employees’ or you have ‘contract workers.’ This distinction is extremely important, and misidentifying your workers can lead to financial consequences. Fortunately, it’s possible to assess whether you have a contract worker or an employee by considering several key factors. The IRS has a list of twenty key factors to make the determination here and there are a few specifics that can help you make the determination.

As the employer of the average employee, you will be responsible for providing all necessary equipment that allow that employee to do their job. You will provide tools, materials, and software as necessary. However, a contract worker will usually provide these things for themselves. Therefore if you are hiring a new employee but expecting them to ensure they have all of the tools and materials necessary for their job, you are hiring a contract worker.

If you are hiring an employee as part of a specialized group or from another business, you are hiring a contract worker. Contract workers are often part of another business – such as painters, or commercial glass experts – and come to your business on a by-job basis. Some contract workers may be paid an hourly sum, but usually they provide a time estimate for their work and a sum is agreed upon before work begins.

If you mistakenly identify an employee as a contract worker when they are not, the consequences are usually mostly fiscal. You will need to pay your portion of all missed federal, state, and social security taxes and it may even trigger an audit. Call ATS today at 303-232-8300 and schedule your free consultation with our experts to ensure you have not misidentified any of your employees.

As an entrepreneur taking your first steps into owning a small business, a term that will come up frequently in the planning process is ‘Business Plan.’ A business plan is a guide that you create for yourself detailing your goals and how you intend to achieve them. In some cases, a business plan may be a long and complicated document including details on a management team and an exit strategy. However, for businesses that don’t need such things a business plan can be a shorter document focusing only on the pertinent concerns.

The most important, and most commonly cited, reason you will need a business plan is for the purposes of drawing investors or applying for a business loan. You are unlikely to accomplish either of these goals without a formal business plan. It’s important to understand that not everyone is able to see your vision without it being laid out before them with your goals detailed.

Another important reason to create a business plan is to reign in your own fervor. When you’re in the planning stages of your new business it’s easy to become too enthusiastic about your plans and stretch yourself and your resources too thin. A good business plan will help guide you back into what is within reason. A good plan may also provide you with a realistic assessment of the capital you will need to start out, which may help prevent a devastating moment when you realize down the line that you don’t have enough funding to create your small business.

Call Accounting & Tax Solutions today at 303-232-8300 to schedule your free consultation with one of our experts, and let us help you create a plan that will help see you and your new business to success.

When choosing your business entity, your choices aren’t limited only to S-Corp and C-Corp, nor do they stop with LLC. There is another option available to you, DBA. This is known as “Doing Business As” and may be a fourth option available to you.

A DBA, unlike an LLC, is not a legal name for your business. A DBA is simply a name that you can use to provide products or services. Another name for a DBA is a “fictitious name” or a “trade name.” Laws regarding DBAs vary, and some states require a DBA be registered before it can be used by a business owner. A major difference between a DBA and an LLC is that an LLC is not required by state law.

An important note regarding the difference between an LLC and a DBA comes to liability. As the name suggests, an LLC limits your personal liability when it comes to your business. However, a DBA is unable to offer the same protections. Any business decisions made under a DBA are solely attributed to the business owner instead of only to the business.

Registering a DBA or an LLC both require start-up fees, but a DBA is substantially less expensive than an LLC. DBA formation is also usually a one-time fee, in Colorado this fee is usually $25.00. Call ATS today at 303-232-8300 and schedule your free consultation with our business advisors to discuss what business entity is best for you!

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As a small business owner you have likely come in contact with the phrase “excise tax” at least once. This term is a simple term for a very broad tax. Excise tax is what’s called an “indirect tax” on items. This tax can be levied by federal, state, and local governments and there is no country-wide standard. An indirect tax is a tax that is collected from a by a small business and then forwarded to the government, as opposed to a direct tax which is collected directly from the consumer by the government. Most businesses include the excise tax fee in their product’s price.

Excise tax first began following the American Revolutionary War and was placed primarily on goods such as whiskey, tobacco, and refined sugar. While at first these taxes were generally raised briefly only after wars and then dropped again, during The Great Depression they rose into popularity and have remained as such since. Excise taxes are usually used to finance projects such as highways, airports, and vaccine production.

The most common places to find excise tax being charged are fuel, liquor, tires, and airline tickets. In general excise tax is charged on quantities such as a gallon of fuel or a packet of cigarettes. Many companies are expected to pay excise tax themselves initially, and then they are reimbursed by the product being purchased with the excise tax included in the cost.

If your small business is related to the production and/or sale of alcoholic beverages or gasoline, you are the most likely to face excise taxes on your products. There are laws very specific to these sorts of products and they vary from state to state and even the laws may vary from the federal laws. Call ATS today at 303-232-8300 and schedule your free consultation today with one of our experts to ensure your small business is charging and paying excise taxes in accordance with those laws!

When considering your accounting management for your business, the possibilities are endless. However, two of the most popular accounting types are accrual and cash. They are very similar, and in fact mostly differ only when it comes to the timing of when transactions are credited to your accounts. When using the cash accounting method, money is only counted when it is physically received and the accrual accounting method counts income as soon as the order is placed instead of when the actual payment is received.

The cash method is the more commonly used method of the two, especially for small businesses. Businesses that make more than $5mil annually or that stock inventory to be sold to the public with over $1mil year in gross receipts must do their accounting on an accrual basis. Otherwise, it is optional for those with less than $5mil to do accrual or cash based accounting depending on their preferences.

The accrual method is useful to businesses due to its very thorough recording of expenses and payments, giving you a thorough idea of your cash flow. However, because payments and expenses are being recorded when they haven’t actually happened it may be difficult to keep track of your actual current assets.

Cash Flow Accounting has the benefit of offering an accurate, current picture of assets to a small business. At any time you will know exactly how much money you have. A major disadvantage is that it may offer an inaccurate overall profitability report. If business has been slow in a particular month but a lot of bills were paid, the business may show a spectacular month when it reality cash flow is limited.

Your trusted business advisor is the best qualified to sit down with you and go over your options when it comes to the accounting method you prefer for your small business. Call today at 303-232-8300 and speak to one of our experienced representatives to schedule your free consultation!

For many business owners, the threat of an audit is a daunting prospect. A recent survey performed last year by Xero, as summarized here polled 400 accountants and compiled the most common mistakes that a small business owner can make that are known to trigger an audit.

According to the study, the third most common way to trigger an audit with an 11% response rate from CPAs is deducting a home office. This means you’ve turned a room in your home into a home office, and you’re paying yourself rent – which you then deduct as an expense. It’s a controversial deduction and more often than not will draw the attention of the IRS and trigger an audit.

Second on the list, with 27% of CPAs supporting it as a major cause of audits, is misidentifying workers. An independent contractor and an employee are two different types of workers – notably

made different by whether they work for multiple employers independently or just one – and misidentifying an employee as a contract worker means you may actually owe that employee a

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higher wage and overtime, benefits, and back taxes. You should always check with your trusted advisor to ensure you have classified your employees correctly to avoid triggering an IRS audit.

Finally, with 43% of CPAs naming it, the most commonly cited way to trigger a business audit is with excessive deductions. It can be tempting to deduct everything that might possibly be related to the function of your business, but not every purchase can be deducted and taking too many deductions can draw the attention of the IRS, causing an audit as they double check all of those deductions.

Of note, 63% of the CPAs surveyed stated that they feel it’s best to have contact with an accountant all year, instead of just when tax season approaches. That way when taxes are due, there are no surprises and you don’t accidentally stumble into one of the three most common audit triggers. It’s important to have frequent check-ins with your trusted advisor to protect yourself and your business.

Call Accounting & Tax Solutions today at 303-232-8300 and let us help you protect your business from these common mistakes!