Imagine being able to erase what you thought was an unavoidable cost of living or doing business. That’s exactly what you can do if you reside or locate your business in one of the seven — soon to be eight — U.S. states that don’t have an income tax:

• Alaska

• Florida

• Nevada

• South Dakota

• Texas

• Washington

• Wyoming

• Tennessee will be completely tax-free by 2021

Two more states don’t tax income from wages or earnings. However, they do tax income from interest and dividends on investments:

• New Hampshire: When interest and dividend income for the tax year exceeds $2,400 ($4,800 for joint filers) plus additional exemptions for age, blindness, and disability.

• Tennessee: When interest and dividend income for the tax year exceeds $1,250 ($2,500 for joint filers). This tax will be phased out over the next three years.

What if you live in a tax-free state but earn income in a taxable state?

You will have to file a non-resident tax return in the taxable state.

What if you live in a taxable state but earn income in a tax-free state?

ALL your income — including what you earned in the other state — must be reported on your state tax return.

Of course, you must still file a federal income tax return, no matter what state you live in.

Can you register your business in a state other than your home state?

For both LLCs and corporations, the answer is yes, you can. It’s an excellent way of saving on business taxes and also taking advantage of other money-saving breaks for businesses.

However, it can have drawbacks, such as extra fees, increased paperwork, more logistics hassles, and possible denial of protection against legal and financial liabilities. What you save on income tax may be less than what you lose on these other expenses.

Before you make a decision on what’s best for your business, be sure to consult your Xendoo CPA team about the tax issues, as well as a lawyer about the relevant state government regulations.

 

 

You’ve probably read in some of our other blogs that you shouldn’t put personal expenses on your business credit card (and vice versa). But there are also some business-related expenses that shouldn’t really go on that card, either.

Why Have a Business Credit Card?

In the first place, it just makes life easier for bookkeeping and tax-paying to keep business and personal expenses separate. In addition, business cards offer lower interest rates, higher credit limits, and other perks that personal credit cards don’t.

On the other hand, they don’t offer the same levels of consumer protection as personal cards. For example:
• Interest rates can be raised and credit lines lowered at any sign of financial problems
• No cap on late fees
• Over-limit fees can be applied
• Late or defaulted payments on a business card could affect your personal credit rating

That’s why it’s better to find alternate methods of paying for the following expenses.

Capital Expenditures

When buying big-ticket equipment or other business-related supplies, it really pays to find the lowest possible interest rate to finance that venture. The rate on your business card is almost sure to be higher than that of a bank or personal loan.

A good rule of thumb is to only use the credit card for items you can pay off within a few months.

Payroll

Some online accounting apps and management tools offer the convenience of linking to a credit card for payroll, instead of issuing bank paychecks. But beware, you’ll pay a high price for that convenience — namely, a lot of interest.

If you need to resort to a credit card to pay employees, it’s a signal that your business is in financial trouble.

Cash Advances

This is another sign that you have cash flow problems — which could alert lenders and card issuers if you do it often enough. Plus, with a cash advance, there’s a fee. And interest is charged from the moment you take the money, not starting at the end of the month.

Rather than racking up fees and interest every time you run short, take a hard look at your profit and loss statement and business plan to see what must be changed to prevent recurring cash shortfalls.

High-Risk Investments

We’re not talking about investing in your business, but rather the investing you do to grow your capital. Investments labeled high risk carry a high probability that their value will go down instead of up. Bitcoin, for example, is so risky that many credit card issuers won’t even allow you to use their card to buy it.

Minimize your risk by using another source of money to buy the investment — one that won’t leave you with a mountain of high-interest debt if the investment should go south.

Non-Deductible Travel & Entertainment

The IRS does allow some travel and client entertainment expenses to be deducted from your income tax. But if you go over the top, you’re letting yourself in for an audit. For example, if you fly to Las Vegas for an industry convention, you can deduct airfare, hotel, and meals; but you can’t deduct the costs of bringing your family along and staying an extra couple of days to party.

Put allowable expenses on your business credit card and anything extra on your personal card.

Legal Settlements

Charging a legal settlement to your business credit card is simply broadcasting to the financial world that your business is in trouble. Questions will be asked about your ability to repay a loan or credit card debt.

A better solution is to negotiate a payment plan directly with the other party.

Best Practices for Your Business Credit Card

For small operating expenses, a business credit card offers great convenience — as long as you can pay off balances quickly and avoid high-interest charges. (If you can’t avoid paying interest on a regular basis, the debt should be reflected in your balance sheet so you know how much profit you’re actually making.)

Think of your business credit card as a record-keeping device to track expenditures for accounting and tax purposes — not as a source of working capital.

Business credit card records —items purchased as well as dollar amounts — can and will be looked at by potential lenders and investors. Will those records reflect your good money management, or will they raise a red flag?

Xendoo’s advanced accounting software integrates with your business credit card to automatically import and code transactions. It’s just one of the ways we save business owners like you time and labor on bookkeeping and tax preparation chores. Result: you have more brainpower to focus on the company’s core activities. Not to mention the peace of mind for a good night’s sleep!

 

 

When your balance sheet isn’t showing a healthy profit margin, there are two routes you can take: raise your prices or cut operating expenses. Which is the riskiest? Most business owners would say it’s raising prices, for a variety of reasons ranging from competitive pressures to possible loss of customers.

So, if your best option is to trim expenses, how do you go about it? Here are seven areas of the business to look at for overhead cost reduction strategies.

Rent/Mortgage

Ways to reduce your monthly payments include:

• Negotiate a new deal with your landlord or mortgage lender

• Reduce the amount of space you rent

• Move to a less expensive space

• Convert to a home-based business

Utilities

This includes electricity, gas, water/sewer, telephone, and internet providers. You may be spending more than necessary.

• Review phone/internet usage over the past year to see if you could switch to a lower level of service

• Bundle services to get a discount

• Get rid of your landline; use cell phones, VoIP or virtual phone lines instead

• Reduce water waste by fixing plumbing leaks, converting from landscape sprinklers to drip irrigation, installing faucet aerators and using pressure washers instead of a hose

• Trim the electricity bill with Energy Star appliances, upgraded insulation, gap seals around doors and windows, and energy-blocking window coverings (curtains or window film)

Equipment

Depending on your type of business, equipment purchasing, maintenance, and repair could be your biggest overhead expense.

• Renegotiate service contracts

• Switch to cloud computing, eliminating the need to update and repair your own servers

• Use fuel-efficient vehicles

• Buy refurbished furniture and equipment offered by manufacturers, for the same quality at lower prices

Administrative

Is your office still stuck in the 20th century?

• Reduce the use of printers and copiers (why are you printing everything out, anyway?); you’ll also save on ink, paper, etc.

• Switch to a digital invoice/payment system and save on mailing supplies, paper costs, and filing cabinet storage space

Payroll

Sometimes it’s a sad necessity that you need to cut staff. Rather than losing good employees altogether, ask if they will accept an alternative work option such as:

• Job sharing

• Flexible scheduling

• Switching to part-time

• Taking unpaid leave

It may be more cost-effective to eliminate some full-time positions completely and bring in outside providers. This not only saves you a full-time salary, but it also saves on benefits, payroll taxes, worker’s compensation premiums, etc. — which can add up to an additional 30% of the employee’s salary.

• Hire independent contractors on an as-needed basis

• Outsource administrative departments such as accounting

Insurance

There’s no question that your business needs protection, possibly including general liability, professional liability, business interruption (due to natural disaster), overhead, vehicle, and bad debt insurance. Keep the premium payments as low as possible by:

• Shopping around for the best deal

• Choosing the highest deductible

• Buying a package policy rather than individual plans for every type of insurance

• Getting premium reductions for using the insurer’s loss prevention strategies

Sales/Marketing

This category includes advertising, promotional materials, trade shows, and incentives/bonuses for sales staff. Take a close look at whether the expensive strategies are delivering a good return on your investment. If they aren’t, consider cheaper options such as:

• Press releases for free media coverage

• Social media posts, videos, podcasts

• Chatting and article writing for professional online groups

• Cross-promoting with businesses near you (for example, a wedding venue and a florist each display the other’s brochures in their stores)

• Giving out your business card or wearing the company T-shirt at leisure events

• Sharing your expertise at seminars, local radio/TV talk shows

Xendoo knows the challenges small businesses face in staying profitable. We’ll keep you up to speed with your financials, help you spot the danger signs, eliminate the need for on-staff bookkeeping — and do it all for a flat monthly fee that’s easy to afford (and budget for). It could be the best cost-saving move you ever made!

 

 

All too often, new start-up businesses go with the accounting software that seems to be cheapest, or most popular, or as recommended by their father-in-law (even though his business is totally different). A couple of years down the road, it becomes clear that their choice is not really meeting their needs — costing them time and money that could have been better spent.

Now they need to go shopping for software again. Here’s how to not make the same mistakes this time.

1. Know What’s Available

There’s an ever-increasing variety of software products designed for small businesses. They fall into four broad categories:

• Accounting and payroll: Provides tools and reports for tracking and utilizing your financial data. Pay bills, send invoices, record expenses and income, manage inventory, calculate profit and loss, process employee paychecks and benefits. Some options are tailored to specific types and sizes of business, avoiding unnecessary expense on features and capacity that you won’t use.

• Business management: All-encompassing solutions integrate data-based processes throughout your business, such as customer relationship management, sales, marketing, job costing, and crew/equipment scheduling. Great efficiencies can be achieved by eliminating duplicated effort, reducing human error and preventing information silos.

• Cloud-based accounting: Ideal for business owners who can’t sit in front of their desktop computers all day. Provides the same features as traditional accounting software, except that it’s web-hosted rather than stored on a company’s own servers. Xendoo uses one of these, Xero, which offers a secure, user-friendly interface that can be accessed from anywhere, anytime.

• Free programs: There are many free accounting tools out there, but you should bear in mind the classic saying that “you get what you pay for.” We would suggest limiting their use to when you’re just starting up and need to create invoices or print checks in a hurry, but keep sensitive financial data away from them. Also, consider their scalability: will they be able to handle a growing business?

2. Figure Out What You Need

For most small business owners, accounting is not their area of expertise. However, if you want to stay in business, you’ll need to learn some basics, no matter how boring or frustrating you think it is. The software can’t control what data you enter into it, so you should at least know what processes your business performs (paying bills, receiving customer payments, paying employees, etc.) as well as what financial reports you’ll need to generate for taxes and growth planning.

Also, think about the specific activities of your business. Retailers and restaurants need a point of sale system that integrates with the accounting software. Contractors and landscapers need to send crews and equipment to multiple locations, with correct job data in hand. Look for a software solution that targets your industry, or has an optional add-on for the extra features you need.

If you don’t know all the answers, talk to your staff.
• Your accountant can help guide you through the jungle of choices, and ensure that what you buy is compatible with what you already have.

• Your production manager knows the processes — what needs to happen and when.

• Your IT manager will tell you what your current hardware can handle, how soon it will need to be updated, and whether your back-up procedures are adequate. Business accounting databases gobble up disk space really fast, which is one reason why cloud-based accounting services are so popular now.

3. Make a Short List

Now that you have clear objectives, it’s time to review what’s on offer and eliminate the ones that don’t make the grade. Some things to consider:

• Budget: Most of the well-known software is reasonably affordable. It’s when you add on industry-specific upgrades that things can get pricey. If you hire a consultant to help with installation and training or opt for an annual maintenance fee to receive software updates, those costs need to be accounted for as well.

• Quality: Research the software’s reviews, on both the vendor’s and independent websites. Ask for opinions from other business owners in your industry. You want to know if it has the functionality you need, is easy to use, and is supported with good customer service.

• Free trials: Some business accounting programs offer a limited-time test run, so you can get a real-life idea of how it performs. It can be labor-intensive, though, so save your demos for the shortlist.

• Priorities: What’s most important to you. It could be functions, ease of use, scalability, or budget.

Now You’re Ready to Buy

Congratulations, you’ve become an expert in choosing accounting software. Even better, you’re the expert in choosing the one that’s right for your business.

 

 

As a small business owner, you’re always the last one to get paid — after employees, suppliers, lenders, and everyone else who contributes to keeping your doors open. But that doesn’t mean you should never get paid!

After all, you need money to live, too. Struggling with your personal finances will only add to the stress of running a business, and may even affect your performance in both your professional and family life.

Here’s how to figure out when and how much to pay yourself.

Calculate a fair value.

Do some research into standard salaries for your industry and region. Check out:
• What your competitors are paying employees in a position similar to yours
• What salaries or hourly wages are being offered in the want ads
• What your current income works out to as an hourly rate
• How your current income compares to your own employees

There’s nothing to be gained by undervaluing yourself, either — unless your business is founded on the principle of having the lowest prices in town. Customers will value you at the same level that you value yourself. Those who want good quality expect to pay for it and will be loyal to the business that provides it. Those who want cheap prices will always be shopping around or trying to negotiate for a better deal.

Go over your personal budget to see how much money you absolutely need to live on without going deeper into debt each month. Are there places where you can trim expenses?

Find out your legal obligations.

The structure of your business may have a bearing on how you pay yourself. If it’s a sole proprietorship, you can do pretty much whatever you want, whenever it’s convenient.

On the other hand, a corporation is accountable to shareholders and must be able to demonstrate “reasonable compensation.” That’s why this type of business usually has the owner on the payroll, just like every other employee.

You also must keep records of payments to yourself for tax purposes — even (especially!) if you withdraw money from the business as the need arises rather than on a set schedule. Enter these transactions in your accounting software as they happen, and you’ll have less stress when faced with a tax filing or audit.

Decide on a payment structure.

Now that you have a number in mind for paying yourself a fair, livable wage, choose your payment strategy. Which one is right for you and your business will depend on your business structure, applicable tax laws, and cash flow situation. The possibilities include:

• Straight salary

Easiest to manage but not always the most tax-smart.

• Salary plus stock dividends

Dividends from the company stock you own are taxed at a lower rate than salary income, but make sure it’s legal in your location.

• Stock and stock options

Most tax-efficient way of paying yourself.

• Salary plus annual bonus

Could save on taxes in some circumstances.

• A business agreement to pay yourself later

If the business is short of money right now, but still needs to account for your salary.

When NOT to pay yourself.

It’s best not to take any money out of your business if it’s experiencing any of these financial situations.

• Employees haven’t been paid

This would affect staff morale, turnover, and productivity, likely leading to even further losses.

• Creditors haven’t been paid

This will damage supplier relationships and hinder your ability to obtain new credit.

• The business isn’t making a profit

Don’t take money straight out of revenues without first checking your profit and loss (P&L) statement.

If you’d like further advice and insight on setting a fair wage for yourself, tax implications and records, cash flow improvements, or understanding your P&L statements, just ask your expert Xendoo CPA team. We know you’re worth it!