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Business Formation:
Business entities offer tax advantages, like saving on self-employment taxes with an S Corp election. After forming an LLC or corporation, file the election with the IRS, set up payroll, and pay yourself a reasonable W-2 salary. For existing entities, the election is typically due by March 15th.
Businesses can also deduct expenses (e.g., advertising, mileage) and access credits for renewable energy, retirement plans, or health insurance. Staying compliant with financials and state requirements is essential. Seek legal advice for personalized guidance, as tax and legal requirements vary.
How you choose a business structure depends on a lot of things. Each structure comes with its own specific rules, requirements, and considerations. The most common types of businesses are:
- Sole Proprietorships
- S Corp
- C Corporations
An Employer Identification Number (EIN) is a unique identifier issued by the IRS for tax purposes. Certain businesses are required to have an EIN, such as partnerships, corporations, and sole proprietorships or LLCs with employees, excise tax obligations, or retirement plans. All of our packages include obtaining an EIN as part of the setup process.
An S Corporation (S Corp) is a tax election for LLCs or corporations that allows income, losses, deductions, and credits to pass through to the owners, avoiding double taxation. The company doesn’t pay taxes; instead, income is taxed at the owner's individual tax rates, potentially reducing tax liability compared to self-employment taxes.
Steps for S Corp Election:
- Obtain original business filing documents (LLC or corporation) and an EIN.
- LLCs must elect to be taxed as a corporation before proceeding.
- File IRS Form 2553, Election by a Small Business Corporation.
Operational Requirements:
- Owners must draw a reasonable salary and handle payroll taxes quarterly.
- Maintain accurate financial records and comply with state-specific annual filings.
Simplified Solutions:
Using professional services simplifies the setup and ensures compliance, saving time and reducing errors.
A sole proprietor typically operates a business without creating a separate legal entity, reporting income directly on their personal tax return. On the other hand, a Limited Liability Company (LLC) is a legal entity that can offer personal liability protection, safeguarding the owner's personal assets from certain business debts or liabilities. For tax purposes, sole proprietors and single-member LLCs are generally treated the same unless the owner elects a different tax classification, such as an S Corporation.
Bookkeeping:
Business owners often realize it's time to hire a professional bookkeeper when they find themselves staying up late, struggling to stay on top of bookkeeping tasks. By then, their financial records are usually disorganized, and they may not even know they’re overpaying in taxes. Bringing in a bookkeeper helps restore order, offering clearer insight into income and expenses, and ensuring accurate financial management that can save money in the long run. That's where we come in!
To someone unfamiliar with the profession, bookkeepers and accountants may appear to have similar roles, as both handle financial records for businesses. However, the distinction between the two is much more complex and nuanced than it might seem at first glance. To truly understand the value each brings to your business, it's important to grasp the specific responsibilities of both positions. For a detailed breakdown of their roles, click here for a comprehensive guide to both professions.
Outsourcing your bookkeeping to a professional has many benefits. Primary among these benefits is preserving the integrity of your books.
Beyond that, outsourcing your bookkeeping to a professional helps to ensure that you are paying the proper amount in taxes, maximizing your profitability, and most importantly, that you have more time to focus on the day-to-day operations of your business.
It's generally best to separate bookkeeping and tax preparation duties. While some tax preparers offer bookkeeping services, they typically specialize in tax law, not the detailed financial reporting that bookkeepers handle. Tax preparers tend to charge more for bookkeeping, and their focus is on tax returns. Bookkeepers, however, provide timely reports that help business owners track performance and profitability.
By using both professionals, you gain the expertise of two specialists—ensuring accurate records and efficient tax filing while maintaining a system of checks and balances.
There are several ways that you can transfer data and materials to us. You can use regular mail to send us receipts. You can drop them off at our office, or scan and e-mail them. Many clients find that it’s easiest to provide us with read-only access to their online bank statements and credit card statements. Additionally, if they want very detailed books that show everything purchased, sending us their receipts is best.
However, if they just want categories tracked and are less interested in the individual details, then the online banking system works well.
Payroll:
Yes. There are four key taxes in the US that apply federally. These include:
- Federal Income Tax
- Social Security Tax
- Medicare Tax
- Federal Unemployment Tax Act (FUTA) Tax
Payroll compliance in the US pertains to the measures that all employers need to adopt in order to adhere to tax laws, regulations governing wages and work hours, and other relevant mandates concerning payroll.
These measures encompass tasks such as keeping accurate records for each employee, deducting and submitting taxes, applying accurate tax classifications for the enterprise, managing and submitting wage garnishments, following federal and state overtime regulations, and similar responsibilities.
Employers must comply with various payroll regulations governed by the government.
The federal labor laws are established by the U.S. Department of Labor (DOL), and the enforcement of federal payroll tax laws is managed by the Internal Revenue Service.
Well, the IRS is unable to invalidate your EIN. Once an EIN is allocated to a business entity, it becomes the permanent federal identification number for that specific entity. Regardless of whether the EIN is employed for filing federal tax returns, it remains unique and will not be reassigned to another business. The EIN remains affiliated with the business entity and can be utilized in the future, if necessary.
However, should you acquire an EIN but subsequently determine that it’s unnecessary (for instance, if the new business doesn’t materialize), the IRS can close your business account.
To deactivate your business account, you can forward a letter to the IRS containing the full legal name of the entity, the EIN, the business address, and an explanation for wanting to close the account.
Typically, the federal payroll tax percentage is approximately 15.3%, divided between employees (7.65%) and employers (7.65%). If you work for yourself, like a sole proprietor or business owner, you’re accountable for the entire 15.3%, often termed as self-employment tax.
Depending on your situation, there might be additional taxes and credits that could alter the payment obligations of your business. Both employers and employees contribute to federal employment taxes, encompassing contributions towards Social Security, Medicare, and unemployment insurance.
Virtual CFO:
Virtual CFOs are professionals in financial management. That is all we do. Accountants are professionals in taxes, financial statement preparation, and auditing. Asking your Accountant to assist your company in financial management and strategic planning is a little like asking your architect to build your building.
Virtual CFOs perform a variety of essential roles, including:
- Financial Strategy: Crafting strategies aligned with long-term business goals.
- Cash Flow Management: Ensuring businesses maintain healthy cash flow.
- Risk Management: Identifying and mitigating potential financial risks.
- Financial Reporting: Overseeing accurate and timely financial reporting.
- Cost Management: Finding ways to reduce costs and increase efficiency.
Choose based on your business size and needs:
- Transactional: For small teams needing basic financial oversight.
- Controller: For mid-sized teams requiring regular financial analysis.
- Virtual CFO: For larger organizations needing strategic support.
It’s ideal for businesses:
- With over $2 million in annual revenue.
- Looking for financial advice without hiring a full-time CFO.
- Replacing an existing CFO or needing strategic financial insights.
You probably do not need a Virtual CFO if your controller: provides you with timely, accurate, and insightful financial and operational information about your business; is the person you trust to help you create and update your strategic plans; can help you assess your organizational efficiency; is helping you lead your company to the next level; has assembled a talented and professional accounting staff; can put together a financial package, effectively present it to your banker, and get the financing you need. If your controller cannot do these things, a Virtual CFO can.