Small Business Tips Archives

Starting an eCommerce Business? Bookkeeping Basics You Need to Know

April 20, 2021/by Team

Just like a traditional brick-and-mortar business, your eCommerce business needs a good bookkeeping system for essential functions like tracking revenues and expenditures and filing tax returns. There are a lot of compelling reasons you need a bookkeeper, and for most small businesses, it’s generally more cost-effective to outsource the accounting and bookkeeping services to professionals like xendoo that work with small businesses than trying to do it in-house. If outsourcing just isn’t feasible for your business, here are some bookkeeping basics for eCommerce that you need to know before trying to do it yourself.

Choose an Accounting Method

The first thing you’ll need to do is decide which of two accounting methods is right for your business – cash basis or accrual basis. The key difference between the two lies in when revenues and expenditures are recognized on the books. Let’s take a quick look at the differences between them.

Cash Basis: Transactions are recorded at the time the money enters or leaves the bank. If an invoice comes in during December but you pay it in January, the entry would go on January’s books.
Accrual Basis: Transactions are recorded at the time they are made, regardless of when cash enters or leaves the bank. An invoice dated in December would go on December’s books, even if it gets paid in January.

Cash basis accounting is simpler and easier to keep track of, but accrual basis gives a more accurate picture of the long-term profitability of the business by factoring in accounts payable and receivable ledgers. Most small business owners choose cash basis, but if you do, you may have to adjust your accounting software. QuickBooks, for example, defaults to accrual basis. Once you choose a method, you have to stick with it unless you are willing to go through a lot of government red tape to change it.

Record Your Transactions

Every time money comes into or leaves your business, whether it’s a retail sale, an invoice from a supplier that gets paid, or a loan payment, it has to be recorded “in the books.” Your “books” could be anything from an old-fashioned paper ledger to an Excel spreadsheet, or a full suite of accounting software. If you opt for manual bookkeeping, you’ll need to import all your information from your bank account into your ledger. Most good accounting software will interface with your bank and automatically enter transactions in your books for you, which can save you a lot of time. Whichever way you go, it’s crucial to stay on top of data entry so that you have an accurate picture of your business’s financial health.

A view of a couch on an eCommerce site

Categorize Your Transactions

You’re probably starting to see a trend in these bookkeeping basics for eCommerce, and that is to stay organized. Every transaction that gets recorded has to also be categorized for financial reports and tax returns. The two most basic categories you’ll need are revenue and expenses, although you’ll almost certainly want subcategories of each for your reports to be useful. You’ll need to be able to tell the difference between expenses for rent, payroll, utilities, debt installments, etc.

Another category that you’ll probably want as an eCommerce seller is “Revenue – Returns and Allowances.” This would encompass things like merchandise returns and credit card chargebacks in the event of fraud, which are not expenses, but rather debits to your revenue as essentially a reversal of the sale. However, if your credit card processor charges you a chargeback fee for the return, this would be an expense separate from the return itself.

Monitor Your Budget

If you haven’t already, you need to create a realistic budget that factors things like the seasonality of the business, how much inventory stock you will need to support your sales, cost of goods sold, and overhead expenses like rent, payroll, and utilities. Remember: a budget should not reflect what you hope will happen, but what is likely to actually happen. Many owners tend to be overly optimistic in their budgets and assume a best-case scenario for everything, which rarely happens.

Once the budget is in place, the company’s financial reports have to be checked against the budget regularly to see whether the business is over or under-performing your expectations. This can be simplified by using a budget calculator spreadsheet that uses formulas to compare actual revenue and expenses to budget figures. That way, you can see at a glance where your budget might need adjusting.

Reconcile Bank Statements

Each month when the bank statement arrives, it’s crucial to compare what the bank says you have with what your internal books say you should have. This is done on a transaction-by-transaction basis and is critical for detecting problems early. If you find a discrepancy, you need to identify and resolve it quickly because it may be a sign of theft or another internal issue, or there may be a problem with the way you are keeping your books.

Check Your Cash Flow

Cash basis accounting gives a pretty clear snapshot of cash on hand, but if you’ve chosen accrual basis accounting, your books may show more cash on hand than you really have at the moment. This can be a problem if you need to pay a big invoice, so it’s important to run weekly or monthly cash flow reports to see the real amount of cash on hand and implement good inventory control policies.

Save & Organize Records

If there’s one bookkeeping basics for eCommerce rule you need to follow when you are starting out, it’s save everything. Good record-keeping is essential for any business, so you should save everything – receipts, invoices, statements, etc. You might just need to refresh your memory about a transaction you can’t remember, or you might need to validate your tax return for an audit. ecommerce business tips

You might notice that you are paying more than usual for a particular supply item and want to see what you paid for it in the past. You just never know, so be prepared. Here is a sample list of folders you should have in your filing cabinet for the basics of bookkeeping for eCommerce:

Invoices
Receipts
Other proofs of payment
Bank and credit card statements
Financial reports and statements
Shopify or Square revenue records
Cryptocurrency transactions
Previous tax returns
W-2 and 1099 forms for employees and contractors
Other supporting documents for income, deductions, or credits

Be sure to keep these bookkeeping documents in an area where you can easily find them.

File Sales Tax

Since the Supreme Court decision in Wayfair, Inc. v. South Dakota (2018), eCommerce retailers are subject to the sales tax requirements of each state in which they sell goods. That means that potentially, you might have to file 50 different sales tax returns monthly, quarterly, or annually, depending on the state. This is incredibly time-consuming for a small business and creates a lot of extra accounting overhead, which is just one of the reasons it’s generally more cost-effective to outsource your accounting and bookkeeping to a professional service like xendoo.

Several tax documents are on a desk.

Pay Income Tax

Most businesses pay estimated quarterly income taxes and then file an annual return in April, in much the same way individuals have estimated withholding every pay period and then file a return in April. To calculate how much to pay each quarter, you’ll need to estimate your annual business income for the year. If you’ve been in business for a while this may not be too difficult, but if you’re just starting up you may need to make some careful calculations. The IRS has worksheets to help you calculate your quarterly taxes – Form 1040-ES for individuals and Form 1120-W for corporations.

Generate Financial Statements

This may need to be done manually if you’ve opted to keep your books by hand, but generally, your accounting software will be able to generate these for you. You’ll need to go over your monthly profit and loss statements, balance sheets, cash flow statements, and other documents. Once you have insight into all of these, you’ll be able to plan ahead to make your business more efficient. Without them, you’re flying blind. Your P&L statement can reveal several key things:

Administrative Expenses (too high if they are over 20% of gross revenue)
Cost of goods sold (should be less than 75% of gross revenue)
How much you can afford to reinvest in the businesses

Similarly, your balance sheet can provide you with a snapshot of your company’s total assets and liabilities, including debt and equity positions. With this information in hand, you can calculate some key ratios that a lender will look at when you apply for a loan, including:

Assets to Liabilities Ratio (the company’s solvency or ability to pay bills)
Debt to Equity Ratio (financing from creditors in relation to stockholders)
Asset Turnover Ratio (how efficiently you generate sales from assets)

These are the bookkeeping basics for eCommerce that you need to know before you start your online business, but to grow your business and sustain success, you’ll probably need to do more than just manage your books.

At xendoo, we specialize in small business accounting for eCommerce and offer a full suite of accounting and bookkeeping solutions. We can help you every step of the way with automatic bookkeeping entries, tax reporting, financial statements, and much more to keep your new business lean and mean. It’s also a lot more affordable than you probably think because xendoo’s low flat monthly fee is less than half of what you would typically pay an hourly accountant.

The Best Bookkeeping Service For Your Small Business

February 24, 2021/in eCommerce, Small Business Tips /by Team

There are different types of bookkeeping services for small businesses. You can handle it all yourself, utilizing software like Quickbooks and Xero; hire a part-time small business bookkeeper; or opt for a full-service bookkeeping service like xendoo that can handle it all for you.

What are the different types of bookkeeping services for small businesses?

You may choose to handle all of your small business bookkeeping on your own, but keep in mind that it’s more than just simple data entry. You’ll need to familiarize yourself with your software of choice, such as Quickbooks or Xero and set up your Chart of Accounts among other things – and of course make sure your records are always as up-to-date as possible.

A popular option for small business owners is to hire a part-time bookkeeper. This is a great solution for small business owners who have enough time to take on some of the bookkeeping work themselves or who have someone on staff who can manage it. One important aspect of hiring a part-time bookkeeper to keep in mind is that you will still need to oversee and be involved with the part-time bookkeeper’s work. You’ll need to review their data entry, monthly reconciliations, and any communication they have with your accountant. Additionally, you will need to organize receipts, invoices, and any other financial paperwork for them and make sure to stay organized on your end.

As a small business owner, you wear many, many hats. From sales and marketing to employee management and not to mention, your specialty – the good or service you set out to provide in the first place – whether it’s operating a small bakery, selling home goods, or running a childcare center – you do it all. When you are ready to catch up on your bookkeeping and make sure it always stays up to date, you can opt for hiring a full-service bookkeeping service like xendoo. xendoo is proud to support thousands of small business owners with their financial needs to help set them up for success and provide financial peace of mind. It’s one important thing you can take off of your to-do list, and you can rest easy knowing your financials are being properly handled throughout the year by professionals – no more worrying about when you’ll do your bookkeeping, and no more playing catch up when tax time rolls around.

When should a small business hire a bookkeeper?

It is estimated that small business owners spend as many as 120 working days per year on administrative tasks and bookkeeping. That’s almost four months! This is time that could be spent doing the work you love that led you to start a small business in the first place. Perhaps you set out to own and operate a dog grooming business – you never thought you would end up spending all your days at your computer with piles of paperwork! Small grocers, massage therapists, photographers, dentists, even nail salon owners – every small business owner is different, yet they all need someone to handle their bookkeeping.

An excellent time for a small business owner to consider hiring a bookkeeper is when you see that your small business is growing. Perhaps your bookkeeping tasks are taking more time than you can afford, and your books are never up to date. Maybe you recently added on a new location, hired more team members, or have seen a sharp increase in sales – whatever the case is, it looks like your small business is growing. As your business continues to grow, your bookkeeping workload will also increase, so if you’re posting more and more transactions each month, entering data on a regular basis can make bookkeeping more difficult and time-consuming. Even when you use online bookkeeping software solutions such as QuickBooks or Xero, a bookkeeping service for small business service can help you manage and maintain your books accurately and save you a large amount of time and money.

A bookkeeper will keep your company’s financial records accurate and up-to-date by performing basic bookkeeping services, that in the end can take hours and hours that a busy small business owner just doesn’t have. This includes regularly reviewing source documents such as your monthly bank and credit card statements, invoices, expense reports, payroll, and receipts, and recording basic accounting information for you – such as your data entry and monthly reconciliations – in your company’s books.

Small business owners notoriously spend a large amount of time on administrative work, like employee scheduling and management, preparing payroll, reviewing invoices, and especially hours and hours of bookkeeping. When you find you can’t afford to spend your precious time on administrative work like bookkeeping any longer, you know it is time to delegate and outsource the work to a bookkeeping service for small business.

Are there bookkeeping packages for small businesses?

xendoo offers bookkeeping services for small businesses packages of all shapes and sizes. No matter the plan, each one comes with a dedicated financial team – you will have a dedicated bookkeeper assigned to your account who is supported by a full team of bookkeepers that have your back, and are available to talk, text, or email with you as you navigate your busy workday.

xendoo offers five different bookkeeping service for small business plans for small business owners to choose from – and even offers custom plans. To determine which bookkeeping package is right for your small business, check out the pricing page on the xendoo website. You’ll see that the five different packages are determined by the amount of your small business’s monthly expenses. We know every small business is unique, so when necessary, we work with our customers to create custom bookkeeping packages to suit their specific needs and goals.

And it’s easy to change your xendoo plan if you ever need to! Perhaps your monthly expenses have increased and you need to bump up to a more robust plan, or maybe you are in a slow season and need less help with your bookkeeping. Whatever the case may be, you can easily log in to your account and modify your plan.

No matter which bookkeeping service for small business package you choose from xendoo, you will be up to date, compliant, and ready to grow. Not to mention, you will have peace of mind and one less thing on your to-do list. You will rest easy knowing you are not part of the 25% of small business owners who report that they are behind on their bookkeeping.

Do bookkeepers save small businesses money?

Bookkeepers and bookkeeping services for small businesses save both time and money. Small business owners notoriously spend a large amount of time on administrative work, like employee scheduling, preparing payroll, and especially hours and hours of bookkeeping. It is estimated that SMBs spend 120 working days per year on these administrative tasks and bookkeeping. A bookkeeper can save you money by helping to maximize your business’s income, help you determine where you can cut costs, and give back your valuable time to focus on the reasons you started your business in the first place. For a set monthly fee, xendoo’s bookkeeping solutions come with a fully dedicated financial team to save you time, money, and most importantly – stress.

How to Pay Federal Income Tax Online

December 14, 2020/in Bookkeeping, Small Business Tips /by Team

Yes, the IRS has entered the digital age! They offer several ways to pay your tax online.

Direct Pay with Bank Account

There’s no service charge to have the money taken directly from your bank. To make a payment or look up a payment you already made, go to the Direct Pay page on the IRS website. You can use direct pay service to make payments for:

Installment Agreement

1040, 1040A, 1040EZ, health care Form 1040or civil penalty

Tax Return or Notice

1040, 1040A, 1040EZ, health care Form 1040, retirement plan 5329 or tax-favored account 5329

Extension 486

for 1040, 1040A, 1040EZ

Estimated Tax 1040ES

1040, 1040A, 1040EZ

Notices CP2000, CP2501 or CP3219A

1040, 1040A, 1040EZ or health care Form 1040

Proposed Tax Assessment

1040, 1040A, 1040EZ or health care Form 1040

Amended Return

1040X or health care Form 1040

Civil Penalty

Installment agreement, advance payment or other amounts due

Offshore Voluntary Disclosure

1040, 1040A, 1040EZ or civil penalty

Offshore Streamlined Filing Compliance

1040, 1040A, 1040EZ or civil penalty

Credit Card or Debit Card

You can use an approved payment processor (listed on the IRS website) to pay by internet, phone, or mobile device whether you e-file, paper file or are responding to a bill or notice. The processor will charge a fee, which does not go to the IRS and may be tax-deductible.Note that when you e-file with integrated e-payment, the processing fees may be different. Visit the Debit or Credit Card payment page on the IRS website for more information.

Electronic Federal Tax Payment System

This option is mainly for large businesses or those who need to make large payments. It can be used to make any type of tax payment, including income, employment, estimate and excise taxes. You get 24-hour convenience plus next-level security with 3-step authentication.However, you must enroll in the EFTPS, which can take up to five business days, so it’s not a good choice if you’re trying to make an 11th-hour payment. Learn more about it on the IRS’s EFTPS website page.

Electronic Funds Withdrawal

This can be part of the e-filing process using tax preparation software or a tax professional; it is not available otherwise. The payment will be debited directly from your designated bank account.Visit the IRS Electronic Funds Withdrawal page if you have any questions.

Same-Day Wire

This isn’t really paying online, but it is electronic and thus saves time over snail-mailing a paper check. Inquire at your financial institution if they can wire your tax payment to the U.S. Treasury, and be sure to find out about their service fees and cut-off times. This may be a great option if you’re living overseas or have left your payment to the absolute last minute.To make it happen, go to the IRS Same-Day Wire page, download the Same-Day Taxpayer Worksheet, fill it out and take it to your financial institution.Don’t forget, your xendoo tax professional can answer any questions about paying, calculating, or filing your taxes. It’s all part of our service, which takes the work and worry out of tax season and lets you get back to running your business.

How do hourly pricing models work?

November 4, 2020/in Small Business Tips /by Team

Do you run a business that charges clients by the hour? Whether you’re an accountant, lawyer, designer, or consultant and you’re ready to expand – or hope to one day – there are a few things to consider to make sure your growth strategy is profitable.

Let’s start with the basics…

How does the billable hour pricing model work?

“Billable hours pricing” is a method used by many different services with one thing in common – customers pay by the hour. Businesses that use this model estimate the maximum number of hours in a year that they can generate revenue, and use that number to set hourly rates. Here’s an example:

Dr. John Watson owns a private investigation firm and is the sole investigator. He plans to work a typical 40-hour workweek and take two weeks off for vacation.

40 (hours per week) x 1 (employee) x 50 (workweeks in a year) = 2,000 billable hours

But Dr. Watson is not a robot and has to plan time during the workweek to eat, travel to clients, and handle administrative work in the office. He estimates this will take about 1,000 hours.

2,000 (billable hours) – 1,000 (non-billable hours) = 1,000 maximum billable hours for the year

Watson has already determined that his business’s operating expenses (marketing, administrative, office lease, etc.) will be quite low since he is well-known and works from home. He uses that figure to set his break-even rate.

$20,000 (total expenses) / 1,000 (maximum billable hours) = $20 per hour

If Watson charges just $20/hour, he’ll be able to cover all of his expenses. Anything higher than this number will go straight to the bottom line, which is why he’s decided to charge $60/hour.

So what you’re saying is I should just bill more hours, right?

Unfortunately, it’s not so elementary. Looking at the last equation above, you’ll see that lowering expenses, increasing the number of billable hours, or increasing rates could all send profits skyward. But if you’re a sole proprietor and many of your expenses are fixed, what are you to do?

Grow my team?!

If Dr. Watson hired a junior investigator at $30,000/year…

$30,000 (salary) / 2,000 billable hours = $15/hour nominal cost

could he simply re-bill her at $30/hour? Keep in mind that you have to account for federal holidays, employment tax, vacation and sick time, in-office work, and training for new staff. When all is said and done, the true cost of an employee is actually double their “nominal cost,” which means he’d have to re-bill his junior P.I. at much than $30/hour to make a profit. Expanding your staff could be the answer, you just have to be sure the numbers work out.

So, hire several more people all at once?
This could also be a solution, but with more employees comes more clients to maintain employee turnover, and a need for more office space and support staff. Hiring subcontractors, versus full-time employees, does offset some of those issues, but subs typically charge higher rates since no one is covering their vacation time and health insurance.

Can’t I just increase my prices?

If Dr. Watson increases his hourly rate from $60 to $70, this $10 increase would yield $10K more in pure profit. But he risks driving away loyal clients or attracting a different type of clientele that come with challenges he hasn’t faced before. Increasing your rates is a viable solution, as long as your customers are prepared and see a good reason for it.

As you can see, growing a billable-hours business can be done in a number of ways, but you’ll have to use your powers of observation to determine which method makes the most sense for your business.

How to Collect Sales Tax on Shopify

March 27, 2020/in Small Business Tips /by Team

There’s no doubt about it, sales tax is getting more complicated for all e-commerce businesses. Ever since the 2018 Supreme Court ruling on South Dakota v. Wayfair, U.S. states have been free to make their own tax nexus rules.

No longer is it just about having a physical presence in the state — a store, branch office, employee, or stored inventory — in order to trigger nexus. Now more than 40 states have “economic nexus” which includes any business that sells and delivers taxable merchandise or services into the state. And they each have their own specifications for total annual revenue and/or a number of transactions, as well as types of goods and services being sold, that would make you liable for collecting and remitting sales tax.

That means you could be responsible for sales taxes in 40+ different states, whereas just a few years ago it might have been only one: your home state. Here’s how to do it:

Figure Out Where You Need to Collect Tax

This will involve researching each state’s requirements, then estimating — based on current and previous sales records —whether you’re likely to meet their nexus thresholds.

Don’t forget that physical nexus hasn’t gone away. If you use Shopify Fulfillment Network, you’ll need to know the locations of the warehouses they’re shipping your merchandise from. You’ll need to report taxes in each of those states.

Register for a Sales Tax Permit

Information and application forms are available on each state’s Department of Revenue website.

Once registered, you’ll be assigned a sales tax frequency — monthly, quarterly or annually depending on your sales volumes. Be sure to keep a record of the due dates so you don’t get hit with late penalties and interest.

Set Up Tax Collection on Shopify

Fortunately, the platform does a lot of collecting work for you. Once set up, it will automatically calculate the tax for each state and add it to the customer’s purchase.

1. From your Shopify administrator’s page, go to Settings > Taxes

2. Choose the Tax Region

3. Choose from two ways to set the tax rate:

Automatic rate calculation
Manual rate inputs for the state, county, municipality and shipping charges

4. Exempt certain products if they are not taxable

5. Choose whether to display your prices with taxes included

File Your Return

Although Shopify collects the sales tax from customers, that’s only the first step. It’s up to you to pass that tax money on to the state. There are two ways to do it:

Online through each state’s revenue authority website
Automatically with your accounting software, if it has a sales tax function

Bookkeeping and Accounting: What’s the Difference?

March 16, 2020/in Small Business Tips /by Team

Bookkeeping and accounting keep your small business ship sailing. But, do you know the difference between the two? Are you familiar with how each can benefit your business when done properly? Do you have a clear understanding of how both disciplines impact your small business taxes? Well if not, allow us to clear things up.

The first thing you should know is that bookkeeping and small business accounting is not the same thing. They sound similar but they are not interchangeable roles. And while they are complimentary of each other, they each play a specific role in serving your business. Think about it this way…booking focuses on the everyday tasks that maintain your business’s finances while accounting for small business considers the big picture strategy to keep your business strong and growing.

Bookkeeping tracks and records important financial information. Accounting puts that information to good use. Make sense? Good. Now, you know what to expect from each party. You can also expect both your bookkeeper and account to work closely together to ensure information is accurate and you are set up for success. Especially during tax time, January through April.

Key Differences in Bookkeeping and Accounting

We’ve explained the difference in the concept behind bookkeeping and accounting. But, the difference between the two really is in the details.

The traditional role of a small business bookkeeper involves managing the day-to-day financial record keeping of a business. As the name implies, they are truly keeping the books. That means transactions get plugged into the QuickBooks or whichever accounting software is being used. Spreadsheets are updated. Bank statements get reconciled at the end of each month. And, financial statements are prepared. In small businesses especially, you’ll often see bookkeepers paying bills, cutting checks to employees, invoicing clients, and making deposits.

So, what’s the accountant doing during this time?

Small business accounting involves analyzing the business’s financial trends and forecasts in order to advise business owners of ways to keep the operation financially sound. They also work to prepare for and minimize your small business taxes. This involves putting together monthly and quarterly statements and making quarterly tax filings. At least, those are the traditional roles of an accountant and a bookkeeper.

Changes in Bookkeeping Methods

It’s perfectly understandable if you thought bookkeepers and accountants did the same thing. After all, they both deal in numbers. And for many of us, numbers turn our minds to mush. But beyond that, dramatic changes in software and technology have streamlined many traditional accounting and bookkeeping processes. As a result, duties are crossing over between the two roles. For instance, new software releases bookkeepers from having to be so focused on data entry. This allows them to spend more time advising their clients, much like an accountant would.

Not Your Grandfather’s Bookkeeping

Speaking of technology…it has become so prevalent in modern bookkeeping and accounting that bookkeepers are now often consulting clients on technology stacks that can help them optimize their business. At the same time, due to the ever-increasing complexity of the tax code, accountants are more often finding themselves in the role of tax coach. They design small business tax strategies for businesses to ensure money stays in the business instead of needlessly going to the government. And, because business income can be directly linked to personal income, the accountant’s tax advice can carry over to the business owner’s personal finances and taxes. Consider it a tax-taming twofer.

Clearly Defining Accountant Roles

Naturally, the blurring of accountant/bookkeeper duties can create some confusion. That’s why certain states are stepping in to define who can or cannot claim to be an accountant. For instance, in some states, like Texas, a person must be a certified public accountant to even be able to call him or herself an accountant. Other states only require you to have a degree in accounting. Regardless of what they call themselves, the most important thing for you to do is ask your prospective accountant or bookkeeper what specific roles they will perform for you and your business.
Which is Best for Your Business?
Ultimately, it’s best for you and your business to have both a bookkeeper and an accountant. Their varied perspectives on your finances can help ensure you’re able to anticipate problems and have the appropriate solutions ready to go. To hire just one or the other could leave you with an incomplete picture of your company’s financial health. The more eyes looking out for your business, the better. That not only allows your bookkeeper and accountant to keep in their respective lanes and focus on what they do best, it also frees you up from those extra tasks and worries to concentrate on running your business. If you wanted to be an accountant you wouldn’t have started your business, right?

Finding The Right Accountant

Finding the right bookkeeper and the right accountant for your small business isn’t as difficult as it might seem. One thing to consider is that many bookkeepers know accountants and vice versa. So, you could always ask them. And because accountants and bookkeepers work so closely together, it’s safe to presume they won’t recommend anyone they don’t like working with themselves.
Here’s another thing to consider: Unlike other companies, xendoo caters to both bookkeeping and accounting needs. We can provide you with excellent financial management as well as long view advice to help you make the best decisions for your company. Why not contact us now? We’re ready to discuss the best solutions for you.

Income Tax Basics: Common Tax Schedules Explained

October 11, 2019/in Small Business Tips /by Team

What do you do when Form 1040 (federal income tax return) doesn’t give you the opportunity to fill in your particular type of income or deductions? The answer is, you attach the appropriate schedule.

What’s a Schedule?

It’s a separate form that’s designed to meet your circumstances, allowing you to report or claim items that aren’t on the standard return form. The following are some of the schedules most commonly used.

Schedule A Tax Form

This is for itemized deductions rather than taking the standard deduction. These deductions include medical/dental expenses, mortgage interest, and charitable contributions. Unless the total amount of those deductions is quite high, it’s more advantageous to take the standard deduction.

Thanks to the Trump tax reform, there’s now a standard deduction for business income and expenses as well. Even for the multiple deductions, a home-based business can claim, the standard deduction usually saves you more. Your tax preparer can do the calculations and tell you which option will benefit you the most.

Schedule B Tax Form

The purpose of this schedule is to list sources of taxable interest and ordinary dividends if your total income from those sources exceeds $1,500. If it’s less than that, you can just list it on Form 1040.

Schedule C and Schedule C-EZ Tax Forms

On these forms, you report self-employment income from your sole proprietorship or qualified joint venture. Business earnings and deductions are used to calculate your net profit or loss, which is then added to Form 1040. Schedule C-EZ is a shorter form for those who own a single business with simple accounting.

Schedule D Tax Form

Capital asset sales are reported on this schedule (unless they’ve already been reported on another form or schedule). Types of assets include stocks, your home, and your car. The gain or loss on the sale will contribute to your final taxable income. Short-term capital gains — on items you owned for less than one year — are taxed at the same rate as other income, but long-term gains have a lower tax rate.

Schedule EIC Tax Form

If you’re entitled to claim earned income credit, this schedule provides information about your qualified children. You must fill this out if you want to get a refund.

Schedule SE Tax Form

For self-employed taxpayers, Schedule SE computes the amount of employment tax (Social Security and Medicare) you owe, since you don’t have an employer paying it for you. You must pay this tax even if you’re receiving Social Security and Medicare benefits.

Still confused about which schedules you need to complete your small business tax return? An expertly prepared return is part of your xendoo accounting and bookkeeping service. And if you have any questions or are facing an audit, we’re always just a click or phone call away!

Florida Resale Certificate — Sales Tax Exemption

June 18, 2019/in Small Business Tips /by Team

If you’re a retailer or similar business, you don’t have to pay sales tax on the goods and services you purchase for the purpose of reselling, renting, or leasing them.

Example 1: Your business sells brand name bicycles to the public. You don’t pay sales tax when you buy those bicycles from the manufacturers.

Example 2: You are a bicycle repair shop. You don’t pay sales tax on the parts you buy for use in the repairs, nor for any services you have to outsource to complete those repairs, such as welding.

Example 3: You custom make bicycles to your clients’ specifications. You don’t pay sales tax on the materials used in construction: parts, paint, etc.

In order to receive the sales tax exemption, you must present a state resale certificate to your supplier at the time of the transaction. Both retailers and suppliers must abide by certain regulations in the use of the Florida resale certificate.

Sales Tax Exemption for Retailers

Purchases that qualify for the sales tax exemption include:

Products that will be resold in their present form
Physical components of products made or repaired by your business
Services used in the manufacture or repair of those products

Purchases that DON’T qualify include:

Tools and equipment used by your business
Materials and services used for capital improvements to your business
Office supplies
Anything for your personal use

In order to get a Florida resale certificate, you must have a Florida sales tax permit. Florida is one of nine U.S. states that do not allow out-of-state resale certificates. The registration number from your sales tax permit must be included on your Florida Resale Certificate.

To obtain a Florida resale certificate, simply print one out from the Florida Department of Revenue website and fill it in. Your resale certificate is good until December 31 of the same year it was issued. So each January, you must make a new one with updated information.

Even if you present your supplier with a resale certificate, they are not obligated to give you the tax exemption. Target, for one, is well-known for refusing to accept resale certificates. The reason they might refuse is that they bear the responsibility for verifying that your certificate is valid, and could end up paying the sales tax plus penalties if it’s not.

Sales Tax Exemptions for Suppliers

When your buyer presents you with a Florida resale certificate, you are required to keep a record of each tax-exempt transaction. You can choose any one of these three methods:

Keep a paper or electronic copy of the certificate in your files for three years (so that it can be inspected by Florida state auditors if necessary).
Obtain a transaction authorization number by calling 877–357–3725, visiting Florida’s certificate verification site, or using the FL Tax-Verify mobile app. You supply your customer’s resale certificate number and receive an authorization number good for that one transaction only.
For your regular customers, get an annual authorization number (which expires each December 31). Then you can batch upload your tax-exempt transactions with that customer at Florida’s certificate verification site.

Of course, in order to accept a resale certificate, your own business must be registered to collect sales tax in Florida.

Whether you’re a retailer or a supplier, we know you’d rather not hassle with all this “taxing” red tape: sales tax exemption, registration, and reporting in the state of Florida. Let our xendoo tax experts and our bookkeeping team in Miami take that load off your shoulders while giving you the time and peace of mind to work on the parts of your business you actually love to do.

How to Report Florida Sales Tax

May 20, 2019/in Small Business Tips /by Team

Whether you’re a brick-and-mortar business located in Florida or an e-commerce seller who ships to customers in the state, one hassle you can’t get away from is collecting and remitting the state sales tax.

The first thing you need to know is that Florida is a destination-based sales tax state. That means you’ll charge customers the Florida tax rate, not the rate of whatever state their purchase shipped from. Currently, the Florida sales tax is:

Complicating things even further is that many counties in Florida also have a discretionary surtax. For a list of the counties and their tax rates, visit the Florida Department of Revenue’s Discretionary Sales Surcharge page.Before you get started, gather the information you’ll need, including:

Records of sales and taxes collected
Your Florida sales and use tax certificate number
Your state-assigned filing frequency
Your Florida electronic filing log-in details (user name, password)
Bank routing and account numbers from which you’ll make the sales tax payment

To file your sales tax return, you’ll need Form DR-15. To submit a physical return with a check or money order payment, print out the form from here.The Florida Department of Revenue also provides instructions on filling out Form DR-15.To file and pay your sales tax online, start at the Florida Sales and Use Tax, Prepaid Wireless E911 Fee, and Solid Waste Tax, Fees and Surcharge Website (which is the same place you’ll be directed to if you start on the Florida Department of Treasury’s home page, and click on the “File and Pay” box).From there, follow the steps outlined in Florida’s e-File and ePay instructions.

You can also print out a comprehensive tutorial if you want to keep it in your office. If you’re a new business, you will first need to register for a Florida sales tax permit (the permit number will be needed on your sales tax filing). Find information and application forms on the Florida Department of Revenue’s Account Management and Registration page. Right about now, you’re probably thinking that all this red tape is not fun — and not what you thought you’d spend your time doing when you went into business. That’s what xendoo is here for. We’ll handle all the sales tax calculations, reports and payments — even if you’re selling in all 50 states (each of which has their own rules and regulations). Now you can get back to doing the fun parts of your business!

Income Tax Q & A: IRS Form 1040 for Individuals

March 19, 2019/in Small Business Tips /by Team

What is Form 1040?
This is the Individual Tax Return for U.S. citizens. The 2018 form has been redesigned, so if you used to file 1040A or 1040EZ in previous years, you will now use Form 1040.

Along with it, there are 6 new Schedules for declaring specific circumstances:

Schedule 1: Report additional income such as capital gains; claim deductions such as self-employment tax.
Schedule 2: Owe AMT or make an excess advance premium tax credit repayment.
Schedule 3: Claim a nonrefundable credit other than the child tax credit or the credit for other dependents.
Schedule 4: Owe other taxes such as self-employment tax, household employment taxes, additional tax on IRAs.
Schedule 5: Claim a refundable credit other than the earned income credit, American opportunity credit or additional child tax credit; or have other payments.
Schedule 6: Have a foreign address or a third party designee other than a paid preparer.

Who must file Form 1040?

Individuals who are employees of another entity, self-employed, members of a partnership and retirees, with a minimum gross income that varies according to age, spouses filing jointly or separately, heads of household and widow(er)s.

Additional conditions may also require you to file, including if you owe special taxes or received health savings account distributions.

The same rules apply if you are:

A resident alien
Married to a U.S. citizen or resident alien
Electing to be taxed as a resident alien

What if I want to claim tax credits anyway?

Even if you’re not required to file based on gross income, you should do so anyway to get these tax credits:

Earned income credit
Additional child tax credit
American opportunity credit
Credit for federal tax on fuels
Premium tax credit
Health coverage tax credit

When must Form 1040 be filed?

April 15, 2019 for residents of all states except Maine and Massachusetts
April 17, 2019 for residents of Maine and Massachusetts

Can I get an extension?

Yes, you can get a 6-month extension if you apply for it by the original filing due date. Use IRS Form 4868 to request an extension.

You may qualify for an automatic 2-month extension without having to apply for it if you:

Live outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico
You are in military or naval service on duty outside the United States and Puerto Rico

Be aware, though, that if you take an extension, the IRS will charge interest on any unpaid tax from the original due date of the return.

Where can I get a Form 1040 and Schedules 1 through 6?

Your tax preparer can take care of all that for you.

Or you can download the forms, instructions and other publications you may need at irs.gov/forms-instructions. Order paper forms to be mailed to you at irs.gov/forms-pubs/order-products.

How do I file Form 1040?

Postal mail: Send it to the IRS address for your state listed on the Form 1040 Instructions or at irs.gov/file-paper-returns. The address may be different if you are requesting a refund than if you are enclosing payment.

Electronic filing: Learn how to file your 1040 return electronically at irs.gov/e-file-options. Information includes using the IRS’s own free fillable forms, commercial tax prep software, and more.

Private delivery service: The IRS authorizes the use of certain services, including DHL, FedEx and UPS, to meet the “timely mailing as timely filing/paying” rule for tax returns. Go to IRS.gov/PDS for the current list of designated services. You must use a IRS mailing address that’s specifically for PDS deliveries, as listed in IRS.gov/PDSStreetAddresses, not the address listed for postal mail. Be sure to get written proof of the mail date from your delivery service.

This brief overview does not cover all the complexities of filing Form 1040. For expert advice, please consult your xendoo tax advisor.