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Business Tax Credits to Lower Your Tax Bill

January 30, 2023/in Taxes /by Team

Minimizing your company’s tax burden can help maximize profits. One way of doing this is through business tax credits. Leveraging the right tax credits can save your business thousands of dollars in taxes each year.

However, there are many types of business tax credits and the IRS has strict eligibility requirements. How do you know which tax credits will save you the most money? An experienced tax professional can identify which credits you’re eligible for and even file them for you.

This guide goes over business tax credits that could save you money on taxes. You’ll also learn how to maximize their impact with the help of an experienced CPA or tax accountant.

Small Business Tax Credits vs. Deductions

Small business tax credits and deductions are valuable tools for reducing your tax bill. They are incentives the government offers to reduce the amount of taxes you owe. However, they work in different ways.

Tax Credits

Unlike deductions, tax credits directly reduce the amount of taxes you owe instead of lowering your taxable income. If you’re eligible, you can lower the amount of taxes you owe dollar-for-dollar.

For example, let’s say you owe $1,500, but you have a credit worth $500. You could deduct the credit amount ($500) from what you owe ($1,500). Then, your total amount would be $1,000.

Tax credits can range from investing in research and development to hiring new employees.

For example, the Work Opportunity Tax Credit rewards small businesses for hiring individuals that meet certain criteria. Knowing which tax credits are available to you and how to use them can significantly impact your business finances.

Tax Deductions

Deductions can move you to a lower tax bracket, so the IRS taxes you at a lower rate. Examples of tax deductions include business expenses like office supplies, equipment, and travel costs.

Deductions can also be tricky as there are different rules for claiming them, and not all expenses are tax deductible. If you’re unsure which small business tax deductions you may qualify for, consult a tax professional.

11 Small Business Tax Credits

The IRS has specific eligibility requirements for each tax credit. To maximize your tax savings, here are 11 of the top tax credits for businesses and how to use them.

1. Work Opportunity Credit (Form 5884)

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and employ individuals from certain targeted groups. The IRS bases this credit on the employee category, how much you’ve paid them during the first year of employment, and how many hours they’ve worked.

To qualify, you must hire an eligible worker in one of these categories:

Unemployed veterans
Ex-felons
Temporary Assistance for Needy Families (TANF) recipients
Supplemental Nutrition Assistance Program (SNAP) recipients
Designated community residents
Vocational rehabilitation referrals
Long-term family assistance recipients
Qualified summer youth employees
Qualified long-term unemployed individuals

You can claim the Work Opportunity Tax Credit by completing Form 5884 and submitting it along with your tax return.

You must also provide information about newly-hired employees on Form 8850 within 28 days of the hire. You’ll submit this form to your state workforce agency for certification.

In case of an IRS audit, you should maintain records for your WOTC claims for at least the last four years. Those who meet all eligibility requirements could receive up to 40% of the first $6,000 in wages ($2,400) as a tax credit.

2. R&D Credit (Form 6765)

Businesses that invest in research and development (R&D) activities might be eligible for the R&D Tax Credit. To be eligible, your business must incur expenses for developing or improving a product, process, technique, invention, or software. Qualifying expenses may include wages, supplies, and contract research fees.

Startups that have less than $5 million in annual gross receipts could apply up to $250,000 of the credit to offset payroll taxes. Since the IRS calculates the tax credit amount based on the amount a company spends on R&D, most early-stage startups don’t qualify for the full amount.

The Inflation Reduction Act increased the maximum threshold from $250,000 to $500,000, starting with the tax year 2023.

To obtain this credit, businesses must submit Form 6765 to their federal income tax return by April 18, 2023. You must also include information about your R&D activities and expenses.

3. Alternative Fuel and Electric Vehicle Credits

Taxpayers who purchase, lease, or install alternative fuel vehicles and infrastructure are eligible for a series of federal tax credits. The credit amounts vary depending on the type of vehicle or infrastructure you install.

Biodiesel and Renewable Diesel Fuels Credit (Form 8864) – Claim a credit of up to $1.00 per gallon of biodiesel, renewable diesel, and alternative fuels you purchase.
Alternative Fuel Vehicle Refueling Property Credit (Form 8911) – If you install an alternative fuel vehicle refueling station, you can receive up to $30,000 in tax credits.
Biofuel Producer Credit (Form 6478) – This credit is available to taxpayers who produce biodiesel and renewable diesel fuels. The amount varies depending on the type of fuel you produce.
Qualified Electric Vehicle Credit (Form 8834) – If you purchase or lease a new electric vehicle, you may be eligible for up to $7,500 in credits.

You’ll need to file the appropriate form with your federal income tax return to claim these credits. Your filing date should match the deadline for your tax return. Alternative fuel and electric vehicle credits may be subject to phase-out dates and other restrictions. It’s best to consult a professional for tax compliance and filing information.

4. Employer-Provided Childcare (Form 8882)

If your business provides childcare assistance to its employees, then you may be eligible for the Employer-Provided Childcare Credit (Form 8882). The government encourages businesses to offer childcare benefits to assist working parents. The credit can offset some of those costs.

To determine eligibility, you’ll need to calculate the cost of qualified expenses for each employee. The credit equals 25% of qualifying expenses up to $150,000. You can also claim 10% of childcare resources and referral expenses.

To claim the Employer-Provided Childcare Credit, submit Form 8882 by the tax return due date. You have up to three years to file claims for this credit. Also, you should keep childcare expense records for at least four years from the filing date.

5. Small Employer Health Insurance Premiums (Form 8941)

To offset health insurance coverage expenses, you can use the Small Employer Health Insurance Premiums Credit (Form 8941). You must have fewer than 25 full-time employees and pay at least half the single coverage cost for each employee.

You can calculate the amount of the credit as a percentage (up to 50%) of your health insurance premiums. For non-profits, it is up to 35%. To claim the credit, you must submit Form 8941 with your federal income tax return by April 18, 2023. You will need to provide information about your health coverage and expenses.

6. Paid Family and Medical Leave Credit (Form 8994)

Your business may be eligible for the Paid Family and Medical Leave Credit (Form 8994) if it provides paid leave to employees. The credit encourages businesses to offer paid leave by offsetting the costs.

To qualify, a business must have a written policy that provides at least four weeks of annual paid family and medical leave to full-time employees. Part-time employees should receive up to two weeks of paid leave.

You can calculate the credit as a percentage (ranging from 12.5% to 25%) of the wages you pay employees while on leave. You must provide records of wages along with Form 8994 by April 18. 2023.

7. Retirement Plan Startup Costs (Form 8881)

Businesses that have a qualified retirement plan are eligible for the federal Retirement Plan Startup Costs tax credit (Form 8881). It incentivizes businesses to offer retirement plans—401(k), SEP, SIMPLE IRA, and others—to employees.

The maximum credit is 50% of qualifying startup costs with a $500 limit. If your business qualifies you could reduce your tax bill by up to $500. To qualify, a business must have 100 or fewer employees that have received at least $5,000 in compensation from you in the previous year.

To claim the credit, submit Form 8881. The deadline to submit will vary depending on your tax filing status.

8. Disabled Access Credit (Form 8826)

If you’ve spent money to make your business locations accessible to individuals with disabilities, you may qualify for the federal Disabled Access Credit (Form 8826). Qualifying costs include modifying entrances, restrooms, and parking.

To apply for the credit, your business must have earned $1 million or less and have fewer than 30 employees. The maximum credit will be 50% of the expenses, with a maximum of $5,000 per year. To receive the credit, you’ll need to submit Form 8826.

Note, you may also be eligible for a business expense deduction of up to $15,000 too. It’s called the Architectural Barrier Removal Tax Deduction. To be eligible, you must have spent money on making your facility ADA-accessible to the elderly or disabled.

9. Energy Efficient Home Credit (Form 8908)

The Inflation Reduction Act (IRA) brought the Energy Efficient Home Credit (Form 8908) back. If you’re a contractor that has made energy-efficient improvements to homes you sold or rental properties, you may qualify.

The maximum credit limit for the 2022 tax year is a $500 lifetime credit. As a lifetime credit, any amount you took in previous years would count toward the total $500 limit.

However, the IRA increased this to an annual credit of up to $1,200 for years after 2022. To qualify for this business tax credit, you must meet energy-efficient improvements. Those may include installing energy-efficient:

Insulation
Windows
Water heaters
Central air conditioning
Furnaces
Doors
Roofing

To claim this credit, you’ll need to keep records of qualified energy-efficient expenses and file Form 8908.

10. Low-Income Housing Credit (Form 8586)

To qualify for the Low-Income Housing Credit (Form 8586), your business must develop and operate low-income residential housing. Eligible businesses must meet specific criteria set by the IRS. These include:

Income restrictions
Rent limits
A commitment to maintain the property over a particular period

You base the credit amount on the qualified basis of the property, which is either 4% or 9% of the project’s gross construction costs.

11. General Business Credit (Form 3380)

The General Business Credit (Form 3800) tallies up all applicable business tax credits. You calculate the credit as the sum of all applicable business tax credits claimed in the current year. You can carry back unused amounts for one year or carry forward 20 years.

You’ll submit Form 3800 with your federal income tax return. Your tax return deadline will depend on your filing status. When filing, provide information about all the business tax credits you’ll claim during the current year.

Lower Your Tax Bill With a CPA

With knowledge of the tax code, including business tax credits, deductions, and more, your CPA can do more than prepare your taxes. An experienced CPA can provide valuable advice on the best ways to lower your tax bill and maximize the profitability of your business.

Tax credits are powerful tools. Xendoo has a team of in-house bookkeepers, CPAs, and tax experts. You don’t just get business tax services, you get personalized financial advice.

As tax professionals, we make it our mission to maximize your business tax savings. Schedule a free consultation and we’ll get to know your business and unique tax situation.

Business Tax Rates: How Much Do Small Businesses Pay in Taxes?

January 16, 2023/in Taxes /by Team

Filing taxes as a small business owner can be complex, with numerous factors to consider. From tax law revisions to the overwhelming number of forms, understanding your small business tax rate and how to file can be difficult.

Your business entity type and preferred filing status will also affect your tax rate. For example, LLCs that opt for the IRS to tax them as corporations are subject to corporate tax rates. Other businesses like sole proprietorships and limited partnerships may be subject to self-employment taxes. Understanding your entity type and requirements is the first step toward filing your taxes accurately and efficiently.

Tax laws are constantly changing, and it can be challenging to keep up with the latest revisions. A professional tax advisor or CPA can accurately file your business taxes on time. Our experienced tax specialists also know all the deductions and credits that can lower your tax bill.

We’ll cover small business tax rates, filing requirements, and various strategies that can help to reduce your taxes.

Table of contents

How Are Small Businesses Taxed?
Small Business Tax Rates
Updates to Small Business Tax Rates
What Taxes Do Businesses Pay?
How Much Do Small Businesses Pay in Taxes by State?

How Are Small Businesses Taxed?

Depending on your business structure and income, you may be subject to one or more types of taxes.

Corporate tax
Self-employment tax
Sales tax
Payroll tax

We’ll cover everything you need to know about tax rates for the most popular business entity types—corporations, partnerships, sole proprietorships, and LLCs.

Pass-Through Entities

The IRS considers most U.S. businesses (around 95%) pass-through entities, also known as flow-through entities. Pass-through entities include:

Sole proprietorships – Businesses with a single owner
Partnerships – Businesses with two or more owners
Limited liability companies (LLCs) – LLC owners can protect their personal assets from their business, but get the tax benefits of a pass-through entity. LLCs can also request the IRS tax them as corporations.
S corporations (S corps) – Corporations that have a special tax designation, so the IRS taxes them as pass-through entities.

The biggest advantage of pass-through entities is that they avoid double taxation. The term refers to when the IRS taxes the same income twice—once at the corporation level and again on an individual shareholder’s personal income tax.

Corporations

A corporation (C corporation) stands alone from its shareholders. The IRS taxes corporations as separate legal entities, which opens them up to double taxation. C corporations must report profits and earnings to the IRS. The IRS then taxes them at the corporate income tax rate. Shareholders still must file their personal income tax returns and report the corporate dividends and capital gains they get as part of their taxable income.

Let’s say a corporation earns $1,000,000 in profit and then passes on $200,000 in dividends to its shareholders. The business would have to pay corporate income taxes on the full amount of $1,000,000. Individual shareholders would also be subject to taxation on their share of the $200,000 dividend earnings.

The federal corporate income tax rate currently sits at 21%. A corporation with $100,000 in taxable income would owe $21,000 in taxes. With that said, that’s not necessarily the amount you need to pay. You can apply various small business tax deductions and credits to help reduce your tax liability.

While corporations have advantages, double taxation can be a major drawback. Most small businesses operate as pass-through entities instead.

Small Business Tax Rates

Unlike C corporations, the IRS taxes income for pass-through entities at the individual level. Owners file and pay taxes on all income—including business earnings—on their personal income tax returns. However, there are specific forms you need to include depending on your business structure. For example, partnerships will file Form 1065. S corporations will file Form 1120-S.

If you operate a pass-through entity, your small business tax rate will depend on your income tax bracket. The higher your taxable income, the higher your tax rate. Federal income tax rates range from 10% to as high as 37%.

It is important to note that pass-through entities may be subject to other taxes, outside of income. For example, you may need to pay self-employment tax.

Tax rate	Single individual income	Married (filing jointly) income
10%	$10,275 or less	$20,550 or less
22%	$41,775	$83,550
24%	$89,075	$178,150
32%	$170,050	$340,100
35%	$215,950	$431,900

Updates to Small Business Tax Rates

The IRS updates small business tax rates yearly to account for inflation or other economic changes. Therefore, you should look out for the latest rules and regulations or consult a tax professional. Legislation also impacts your tax bill.

Tax Cuts and Jobs Act (TCJA)

For example, the Tax Cuts and Jobs Act (TCJA) made major changes to the U.S. tax code, deductions, credits, and business tax rates. One of the biggest changes is that it lowered the corporate income tax rate from 35% to 21%. It also introduced a 20% deduction for qualified business income (QBI) from pass-through entities. However, some of those changes will phase out in the next few years.

A total of 23 individual and business tax TCJA provisions are set to expire on December 31, 2025. A tax professional can help you understand these changes and their impact on your business.

Inflation Reduction Act (IRA)

The Inflation Reduction Act (IRA) also influences how much you could pay in taxes. For one, it increased incentives for electric vehicles and other energy-efficient upgrades.

It also proposed a minimum tax rate of 15% for corporations that have made over $1 billion over three taxable years. This change has little to no impact on small business taxes. Unless you are a large, publicly traded corporation—think Walmart, Amazon, and Apple—it won’t have an impact on your business taxes.

What Taxes Do Businesses Pay?

Other than income tax, your small business may be subject to payroll taxes, self-employment taxes, and more. In addition to federal taxes, you may also have state and local taxes. Here is an overview of the taxes that businesses must be aware of:

Payroll or Employment Taxes

If your business has employees, then you’ll need to consider payroll tax. Payroll taxes are the taxes employers pay on employee salaries and wages. They include federal, state, and local taxes and Federal Insurance Contributions Act (FICA) taxes. You’ve likely seen FICA taxes appear as Social Security and Medicare on a paycheck.

The current FICA tax rate is 7.65% for the employer and 7.65% for the employee, or 15.3% total. As the employer, you’re responsible for withholding the appropriate payroll taxes from your employee’s salary and paying them to the IRS.

You’ll also withhold income tax from employees’ wages. To know how much tax to withhold, you’ll need to collect a W-4 Form from employees before they start work. This IRS form has details like an employee’s address, social security number, and tax filing status.

In addition to withholding and FICA taxes, there are other types of payroll taxes, including FUTA and SUTA. For example, Federal Unemployment Tax Act (FUTA) is an employer-paid tax that funds state unemployment benefits. Likewise, employers pay State Unemployment Tax Act (SUTA) taxes to fund state unemployment benefits.

Quarterly Taxes (Estimated Taxes)

Most sole proprietorships, partnerships, and S corps owners pay estimated taxes to the government on a quarterly basis. Instead of paying taxes all at once, it’s broken into four payments. You must pay estimated taxes if the amount you expect to owe is greater than $1,000.

Quarterly taxes usually fall into two categories—self-employment taxes (Social Security and Medicare) and income taxes. Even though you pay quarterly taxes, you’ll still need to file an annual tax return.

There are a few ways that you can calculate your estimated taxes. First, you’ll need to estimate your gross income and how much of that is taxable. Then, factor in possible tax savings from deductions and credits. You can also estimate your yearly taxable income and look at the tax rate for your income bracket.

Another method you can use is to look at your tax return for the past year. You can use last year’s figures to estimate your tax liability for this year. However, this method only works if you don’t expect your income to change much year over year.

The due dates are usually April 15, June 15, September 15, and January 15 of each year. However, some of the dates change if they fall on a weekend or holiday.

Here are the due dates for 2022 and 2023.

2022 tax year	2023 tax year
April 18, 2022	April 18, 2023
June 15, 2022	June 15, 2023
September 15, 2022	September 15, 2023
January 17, 2023	January 16, 2024

If you underpay your estimated taxes or don’t pay them by the due dates, you may be subject to penalties.

Xendoo’s business tax services will help you figure out what you owe if you’re unsure of how to calculate your estimated taxes.

Self-Employment Taxes

You’ll factor self-employment taxes into your quarterly or estimated tax payments. As the name suggests, self-employment taxes are taxes that self-employed individuals must pay. This includes those who own an unincorporated business or another type of pass-through entity.

Self-employment taxes consist of two separate parts: Social Security and Medicare. Currently, the combined tax rate is 15.3%. This situation differs from employers who only have to pay half of their employees’ Social Security and Medicare taxes. You won’t be subject to these payroll taxes if you don’t have any employees.

When filing your taxes, you can deduct your self-employment tax payments as an adjustment to income on your tax return. This deduction ensures that you aren’t double-taxed on the same money. Other tax credits may be available to small business owners to offset some or all of the cost of paying self-employment taxes.

To avoid paying self-employment taxes, consult a tax professional to discuss incorporating your business. You can take advantage of certain IRS regulations for corporations that may reduce your overall self-employment liability.

Sales Tax

While sales tax laws differ by state, retailers generally collect sales tax when they sell tangible goods to customers within their state.

The location of the sale, not the business location, will determine how much you pay in sales tax. For example, if your business is in one state but sells to someone in another state, you’ll pay the respective state’s sales tax. Certain states have reciprocal agreements that allow businesses to only collect sales tax from customers within their own state. It’s best to check with an accountant or tax professional to comply with the applicable laws.

In most cases, you’ll need to register with the applicable state government before collecting and remitting its sales tax. This process usually requires you to list the items you plan to sell and provide account information. You must also keep accurate records of all transactions made within the state. Failure to comply with the applicable laws could result in penalties, interest payments, and other fees.

Xendoo’s bookkeepers and CPAs are familiar with tracking and remitting sales tax for all types of businesses, including ecommerce. If you’re interested in sales tax services, we can do a consultation for your business.

Capital Gains Tax

The IRS collects capital gains taxes on the profits you earn from selling an asset such as stocks, real estate, or other investments.

Capital gains fall into two categories—short-term and long-term. Short-term gains are from assets that you’ve owned for less than one year before selling. Long-term gains are from assets that you’ve owned for more than one year.

Your capital gains tax rate depends on which category it falls under. The IRS taxes short-term capital gains as income. Tax rates for long-term capital gains are different and usually lower than income tax rates.

Here are 2022 long-term capital gains tax rates.

Tax filing status	0% rate	15% rate	20% rate
Single	Under $41,675 taxable income	$41,675 – $459,750	Over $459,750
Married, filing separately	Under $41,675	$41,675 – $258,600	Over $258,600
Head of Household	Under $55,800	$55,800 – $488,500	Over $488,500
Married, filing jointly	Under $83,350	$83,350 to $517,200	Over $517,200

Keep in mind that capital gains tax rates can vary from this for particular types like collectibles. The time that you own a capital gain can also impact how much you owe in taxes.

How Much Do Small Businesses Pay in Taxes by State?

In addition to federal income taxes, you’ll likely have state and local taxes. The federal corporate income tax rate is currently 21%, but most states have individual tax rates and rules.

Currently, 44 states and Washington D.C. impose taxes on corporate income. Top rates range from 2.5% in North Carolina to 11.5% in New Jersey.

There are also states that don’t have personal income taxes. If you are in one of the below states, you don’t have to file and pay state income taxes on earnings.

Alaska
Florida
Nevada
South Dakota
Tennessee (on wages)
Texas
Washington (state)
Wyoming

Even though some states don’t have an income tax, they may have other taxes. For example, some states have a gross receipts tax that taxes sales instead of profits. Companies must pay taxes on their total amount of sales, even if they don’t make any profit. Look up your state’s requirements or verify with a tax accountant to comply with the applicable laws.

Small Business Tax Professionals

As a small business owner, filing taxes can be confusing. It can be difficult to understand that tax code and all its complexities. But, with an experienced tax specialist, you shouldn’t have to.

Xendoo is an all-in-one service. We have expert bookkeepers, accountants (CPAs), and tax specialists in-house. Our experts work together on your accounts and know all the tax code changes to file your tax returns accurately. They can also choose the best tax deductions and credits that will save you and your business money.

Our bookkeeping plans come with flat monthly fees, so you know exactly what you’re paying each month. If you want to get personalized advice from our tax CPAs, you can add on tax services for as little as $100 per month. We’ll file your taxes too. Schedule a free consultation to see how we can help your business.

Smiling young Asian business owner working on computer and drinking coffee during the holidays

Year-End Bookkeeping and Accounting Checklist for Small Business Owners

November 3, 2022/in Accounting, Bookkeeping, Small Business Tips /by Johanna Raspolich

The end of the year is a hectic time for small business owners. Between catching your breath after tax season and managing holiday sales, year-end bookkeeping and accounting tasks understandably fall to the bottom of the to-do list.

Xendoo is here to help you avoid the year-end scramble. Check out our year-end bookkeeping checklist to organize your finances and successfully wrap up the year.

1. Get Your Books Caught Up

The first step is to make sure that your books are up-to-date. You can do this by:

Accounting for all bills and invoices, even if they haven’t been paid yet.
Reviewing bank and credit card statements to confirm that they match.
Recording any expenses that you paid for with personal funds.

Accurate records ensure reliable financial statements. If your books are behind a few months, or even years, you are not alone—25% of business owners are behind on their books.

Xendoo’s online bookkeepers provide catch up bookkeeping services, so you can focus on the future.

2. Collect the Necessary Forms

Once January arrives, your accountant will request certain forms to close your books and file your small business taxes. Be sure to collect them as soon as possible to ensure a smooth start to the new year.

Here are common forms and their deadlines.

Form W-2

Business owners use form W-2 to report salary information for their employees. It also helps businesses report the taxes they withhold from paychecks. Employees need this information to file their personal tax returns.

Business owners are responsible for sending this form to the IRS. Employers must provide the form to their employees no later than January 31st so that employees have enough time to file their taxes.

Form W-9

If you worked with an independent contractor or vendor and paid them $600 or more, you will report those payments to the IRS using Form 1099-NEC.

The information you need to complete this form is on Form W-9, which you can collect from your contractors.

If any W-9s are missing, reach out to your independent contractors and have them complete the form before the end of the year.

Schedule K-1

CPAs provide the Schedule K-1 or Form 1065. The Schedule K-1 must be sent to shareholders and partners by March 15th.

S-Corporation shareholders and partnership members use it to report their share of the business’s profits and losses. They’ll also include the form with your personal tax return.

Form 1099-K

The 1099-K tracks the payments received through third-party payment networks, like eBay, Stripe, Shopify, PayPal, and others. You should receive one 1099-K from each of the Online Payment Networks you use by January 31st. You are required to complete each one.

Your gross receipts must be at least as high as the amount that you report on your 1009-K.

The 1099-K shows gross sales, which is the amount before fees are deducted. What appears in your bank account is the Net Amount, the amount after fees are deducted from the Gross Amount. The sales from each vendor must be reported as the Gross Amount, which is what appears on the 1099-K.

If you use freelancer platforms like Upwork or Fiverr to hire independent contractors, they may also send 1099-Ks to your freelancers instead of 1099-NECs. Since they are considered Online Payment Networks, these platforms typically send 1099-Ks to freelancers that make over $20,000 a year and have at least 200 transactions.

However, if you paid freelancers more than $600 outside of their platforms, then you will need to send out a 1099-NEC.

Click here to download our Tax Documentation Checklist.

3. Follow Up on Past-Due Invoices

Review past-due invoices to see what you are owed. If there are any outstanding payments, reach out to your customers before the end of the year to successfully close your books.

4. Account for Inventory

If your business stores inventory, perform an end-of-year inventory count to make sure your totals match your Balance Sheet and your books. This review will provide insight into waste and loss management, as well as reduce inaccuracies in inventory counts and receivings.

Consider utilizing inventory management software to streamline inventory creation and order fulfillment.

5. Review Your Financial Statements

Once you or your bookkeeper completes your bookkeeping, review your financial statements to confirm your numbers are correct.

You can also take that time to review how your business grew over the course of the year. Was there a steady increase in profits? Can you identify connections between your costs and sales? The financial statements provide visibility to confirm that you are on track to meet your goals, make projections, and prepare for the future.

Click here to learn more about the key financial statements.

6. Reach Out for Help

Everyone deserves a supportive team of people who care. If you feel overwhelmed with year-end bookkeeping, reach out to an online bookkeeping service.

Xendoo’s bookkeeping and accounting team provides monthly bookkeeping and accurate financial reports. We’ll give you financial visibility throughout the year and deliver insights to make strategic business decisions.

Ring In Success

Juggling the holidays with running a business can be hectic. Although this year-end bookkeeping and accounting checklist can help you prepare for tax time, you don’t have to do it alone. Xendoo has a range of plans with flat monthly fees. You can get certified, professional online bookkeeping, accounting, tax, or CFO services to help you manage your finances and grow your business.

Schedule a call with one of our online accountants to get started.

21 Small Business Tax Deductions You Need to Know

April 8, 2022/in Taxes /by Team

Many small business owners miss out on tax savings simply because they aren’t aware of what tax deductions are available. As professional accountants, we know all the small business tax deductions that can save you money, and we’re sharing them in this tax deductions checklist.

Before we get into the nitty-gritty of what you can count as a tax deduction, let’s define what a tax deduction is and isn’t.

What is a tax deduction?

You may also hear people refer to tax deductions as tax write-offs. Put simply, it’s an expense that you can deduct or subtract from your total taxable income.

The benefit of tax deductions is that as you lower your total taxable income, you could lower the percent you pay. There are different tax deductions for small businesses and individuals. For this, we are focused on small business tax deductions.

The actual amount that you’ll pay in taxes depends on many factors like your tax bracket (how much taxable income you have), where you operate your business, and what type of business you have (C-corp, sole proprietorship, LLC, partnership, or S-corp). The IRS Publication 535 has about 60 pages of details related to business expenses, tax deductions, tax credits, and more, so it can be confusing for new companies.

Tax Deduction vs Tax Credit

A tax deduction and tax credit can both save you money on taxes, but they are different terms.

Tax deductions can lower the amount of taxable income. For example, tax brackets–a range of annual income–are used for income tax. If your income falls within a lower range, the percent of income taxed may be lower.

Tax credits are set amounts that are subtracted from your total taxes owed. If you qualify for a business tax credit, the amount of that credit is subtracted directly from the amount of taxes you pay.

Tax credit – If your business owes $40,000 in taxes and you qualify for a $10,000 tax credit, you’d owe $30,000.

Now that we have a clear understanding of what counts as a tax deduction vs tax credit, let’s dive into the specifics, so you can start saving some money on taxes.

Top Small Business Tax Deductions Checklist

To figure out if you qualify for a small business tax deduction, first identify what business expenses you have. Most business expenses are tax-deductible, but it can be tricky to track and separate them from personal expenses.

This small business tax deductions checklist will help you do just that. You can click on each section below to go directly to that tax deduction. Some of the common small business tax deductions are:

Home office
Office supplies
Rent expenses
Business insurance
Bank fees
Interest
Car expenses
Travel expenses
Phone expenses
Employee wages
Employee benefits
Education and training
Business meal expenses
Contract labor
Advertising and marketing
Legal, accounting, and professional fees
Conventions and trade shows
Gifts
Charitable deductions
Equipment and depreciation
Repair and maintenance

Let’s take a look at each of these small business tax deductions in-depth.

1. Home office

Many people have questions regarding a home office deduction. So many people have been working from home since the Covid-19 pandemic, but only those who meet the home office guidelines can include this expense in their small business tax deductions.

If you use part of your home as an office and you run a self-employed, partnership, or other business, you may qualify. However, your home office needs to meet certain criteria. If it fits any of these descriptions, you likely qualify for a home office deduction.

Your home office is your primary place of business. If you designate a physical store or other location as your office, then you wouldn’t qualify.
It is where you conduct business, meet regularly with clients, and complete orders.
It is a separate structure (like a guest house or studio) that is not connected to your place of residence.

If you do qualify, you can deduct office expenses like utilities, mortgage payments, and even repairs. You can do this by using one of two methods–simplified or regular deductions.

Simplified Deductions

If you use the simplified option for claiming tax deductions, the IRS permits you to deduct $5 per square foot of office space. However, you’ll be capped at a maximum of 300 square feet, which often prevents you from claiming garage space as a work area.

Regular Deductions

Using the regular method, you’ll need to determine the square footage of your home office and express this area as a percentage of your home’s total square footage. You can then apply this percentage to all home expenses.

For example, if your home office represents 10% of your home’s total square footage, you can deduct 10% of expenses which include:

Rent or mortgage interest
Property taxes
Utilities
Homeowner’s insurance
Homeowner’s association (HOA) fees
Cleaning services

Can you deduct the cost of your home’s Internet? Yes. Like your other utilities, you’ll simply deduct a percentage of the cost of the Internet service for the year, including monthly fees, equipment, and installation.

Just be aware that the IRS keeps a fairly close eye on these types of deductions. It never hurts to snap a few photos to document your workspace to demonstrate it’s used for business.

2. Office supplies

There are many things to buy for an office, from purchasing all new supplies to ordering more printer paper throughout the year. These are some typical tax-deductible office supplies.

Paper
Pens, highlighters, and pencils
Toilet paper
Business cards
Furniture
Mailing supplies
Cleaning supplies
Staplers
Breakroom appliances
Drinks for employees

Mailing supplies may not fit into the office supplies category. If your small business sells homemade crafts and buys mailing envelopes to mail those crafts, that falls into a separate category for the cost of goods sold. Sending letters to customers or mailing a check to pay rent would be considered office supplies for small business tax deductions.

3. Rent expenses

For many small business owners, rent is a rather large expense that can be deducted from your taxable income. However, you can only subtract business rent expenses, not personal living expenses.

If you have a physical store or business that you pay rent for, it qualifies for a tax deduction. The exception to this is rent paid for a residential dwelling out of which you work. Even if you have a home office, you can’t deduct your home’s rental expenses from your taxes.

4. Business insurance

Premiums for business insurance are a sizable overhead cost, but luckily, many qualify as a tax deduction. These business insurance costs are tax-deductible:

General liability insurance
Professional liability insurance
Commercial property insurance
Workers’ compensation insurance
Data breach insurance

Typically, these policy types are regarded as common and necessary for the operation of your business, so you can deduct 100% of the full amount of your monthly premiums, as well as any additional fees required for maintaining the policy.

You may have other insurance policies that are unique to your niche. If you’re unsure, it’s a good idea to contact a tax accountant to verify whether or not they count as a tax deduction.

5. Bank fees

Small businesses should have separate bank accounts and credit cards that are solely for company use. This keeps personal and business expenses separate.

Since you’ll be relying on a business bank account, bank fees can be counted among your business expenses, though only those that relate to normal business operations. Monthly fees, for example, can be deducted, but overdraft penalties cannot.

Many small businesses use Paypal, Square, or other services to take credit or debit card payments. These services typically charge service fees. These fees from financial institutions can also be claimed as tax deductions.

6. Interest

If you have a small business loan, credit card, or investor funding, you likely pay interest on it throughout the year. Interest paid on loans and other finances are tax deductions.

You can deduct the amount of interest paid on:

Business loans
Business credit cards
Mortgage loans to buy or improve your home or business property
Home equity loans
Money borrowed for investment (if the investment has more interest than income, you can carry forward the overage to next year)

Keep in mind that this doesn’t include gifts or loans that are through family members. It is hard to verify the interest paid on loans that aren’t through qualified lenders.

7. Car expenses

Traveling for business is common for many company owners as they meet with clients and pick up supplies. When a personal vehicle is used for business purposes, this use can be deducted based on a standard mileage rate or actual expenses.

For the 2021 tax year, the standard mileage rate deduction is .56 cents per mile. If you drove your car 100 miles strictly for business-related activities, you could deduct $56 from your taxable income. For 2022, the mileage rate is .585 cents per mile. For 100 miles, you could deduct $58.5.

Mileage rate deductions allow business owners to track how many miles they have driven for business purposes and multiply that by the average mileage deduction rate for that year.

An actual expense method accounts for all costs related to car expenses. It requires receipts of gas and all vehicle costs–including repairs, insurance, fuel, and registration payments–to be supplied and multiplied by the number of miles driven. To decide which method to use, choose the one that gives you the greatest deduction. Most business owners go with the standard mileage rate.

8. Travel expenses

Outside of vehicle expenses, there are travel-related expenses that may be tax write-offs. To qualify as a travel expense, it has to be necessary business travel, not travel for entertainment. In general, businesses are no longer able to deduct entertainment expenses for taxes.

If you reimburse employees for travel, you can count that as a tax deduction. For the most part, travel deductions are expenses that you incur while you’re traveling away from your tax home (where you usually pay taxes).

For instance, If you need to travel across the country to meet with suppliers, then you can deduct those expenses.

Other travel tax deductions include:

Business meals and lodging
Travel fares for planes, trains, buses, or other transportation
Dry cleaning and laundry services
Parking fees
Cab rides

Any travel performed in the operation of your business can be deducted from your taxes. In most cases, conference tickets can also be claimed as a business expense, provided that the conference is related to your company. You can find a full list of tax-deductible travel expenses from the IRS here.

9. Phone expenses

If you have a cell phone devoted to your business, you can deduct the cost of your plan. This would include the monthly fee, the cost of the phone itself, and any other charges associated with setup and activation.

If you rely on your personal cell phone, you’ll have to deduct the cost of the portion of the bill devoted to business use. This can be tricky since your cell phone is likely used for more than just phone calls, but you can make a reasonable estimate by examining data usage and time spent using the phone.

10. Employee wages

Salaries, including commission and bonuses, are fully tax-deductible. You can subtract the full amount.

The exception to this is if your business is a sole proprietorship, LLC, or partnership, and you do not have employees other than yourself. Because you aren’t considered an employee, you wouldn’t deduct your income as an employee wage.

If you have family members that work in your small business, there are some additional tax considerations.

Family members who legally work for your business and are under 18, may be exempt from paying FICA, also referred to as federal payroll tax. If a family member is under 21, you may not need to pay FUTA or federal unemployment tax for them.

11. Employee benefits

Although employee benefits can be costly for employers, they improve the quality of the workplace and increase staff morale. Health insurance is quite expensive for employers, but it greatly benefits employees. Under certain guidelines, it may be tax-deductible.

Other employee benefits include paid time off, vacation time, retirement, and life insurance.

12. Education and training

Many businesses require employee training for OSHA safety, insurance license exams, and other certifications. Plus, many employees today see personal development and education budgets as a job benefit.

Paying for employees’ training and education is not only a good incentive for workers to continue working for the business, but it also helps decrease your taxable income.

You can write off 100% of the costs associated with training that is directly related to your business knowledge and expertise. Business education tax deductions include

Classes, seminars, webinars, and workshops
Business books
Subscriptions to trade publications
Transportation expenses to and from the education venue

13. Business meal expenses

Wining and dining clients is a common practice. As is, showing appreciation to your employees by providing food and beverages.

You can often deduct 50% of meal costs from your business taxes, but these dining experiences must follow specific guidelines. They must be necessary and not outside of typical business arrangements. You can also deduct meals with clients, but only when they happen during business meetings.

If you and a client decide to see a movie or sporting event, these entertainment costs will not count among your normal and necessary business expenses. Therefore, there is no deduction for them.

Here are some examples of business meal expense deductions.

The amount spent on food for recreational business activities like holiday gatherings or pizza parties.
Providing food delivery for remote employees for a virtual event.
Meals that are purchased while an employee is traveling for business.

As part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the IRS temporarily allowed for 100% meal-related tax deductions. This will end in 2023.

Business meal expense deductions can save you a lot of money on taxes, but it’s important to know what qualifies and what doesn’t. If you aren’t sure, a professional accountant can help you get the proper amount to write off, but you should keep track of all receipts for food expenses.

14. Contract Labor

In addition to the expenses of W-2 employees, business owners can deduct the fees associated with independent contractors and freelancers (1099 employees), as long as:

The contractor must not be an employee
They must have provided services for business purposes only

15. Advertising and marketing

Many business owners set aside a large budgeted amount each year for marketing expenses. Marketing and advertising are a huge part of getting the word out about your business–and they are a tax deduction.

All expenses associated with marketing and promoting your business are tax-deductible. This includes:

Social media campaigns
Local newspaper ads
Radio or television spots
Digital marketing

There are also some less well-known marketing tax deductions to consider like:

Design or content creation contractors

If you hire a designer or copywriter contractor–not an employee–to produce content for your business, you can deduct their wages, just as you would any other 1099 worker.

Marketing software and tools

You can also deduct marketing tools that you use to run email campaigns or manage your social media calendar. If you use subscription-based services, like Mailchimp or Hubspot, the cost of your annual subscriptions also counts toward tax deductions.

Promotional products

T-shirts, pens, or promotional products that have your company name or logo on them are considered advertisements. These swag products are tax deductions as well as great tools for marketing.

For many business owners, these write-offs are an encouragement to invest in marketing. You’ll gain more exposure for your business while finding yourself in a more favorable position during tax season.

16. Legal, accounting, and professional fees

Many small businesses don’t realize that they can deduct costs to hire lawyers and accountants. Because legal and accounting are necessary expenses to operate a business, they count as tax write-offs.

This small business tax deduction covers any consultants you hire for running your business, including attorneys, accountants, tax preparers, and advertising agencies.

However, the tasks that these professionals conduct must be strictly for your company. Personal legal and accounting fees like estate planning are not tax-deductible.

17. Conventions and trade shows

For many artists and home-based small businesses, trade shows and conventions are necessary to obtain customers and sales. These shows can get expensive when you’re paying for hotels, meals, booth fees, and other related expenses.

You can deduct these expenses from business taxes so long as they are necessary. Many of the common things businesses pay for at these shows include:

Registration fees
Supplies
Travel expenses
Hotels away from home
Marketing expenses

While these expenses add up, they can be substantial small business tax deductions.

18. Gifts

If you gift employees or customers gifts, you may be able to deduct the cost. However, compared to other expenses, it is a pretty low amount. According to the IRS guidelines, there is a limit of $25 per tax year for gifts.

19. Charitable business deductions

For many businesses, charity work is a great way to give back to the community that they work hard to serve. Companies donate to charities in the form of physical goods or monetary donations. So long as these are given to qualifying charities, you can deduct these contributions.

Keep receipts for any goods purchased for the charity as well as for cash donations. If the gift is over $250, you’ll want to get a receipt or acknowledgment from the organization.

In addition to goods, you can deduct costs associated with volunteering. According to the IRS, travel and other out-of-pocket expenses not reimbursed by the charity are eligible for a deduction. Expenses include flights, gas, hotels away from home, and meals.

20. Equipment and depreciation

Equipment deductions apply to any machinery, computers, or other items necessary to perform a business. These items will often depreciate with time, so you may be able to count a depreciation deduction.

For a small business that creates custom T-shirts, equipment might include a heat press or a vinyl cutter. For a woodworking shop, equipment might consist of drills, a saw, and a nail gun.

Equipment should not be confused with supplies, including T-shirts for the first company or nails, screws, and wood glue for the second company.

21. Repair and maintenance

You will eventually need to get equipment repaired or routinely serviced. This can be a tax deduction, but it is considered separate from an equipment purchase. For instance, whenever you require something like a computer repair, this would fall under the equipment repair category.

Businesses that use large, heavy machinery that is prone to breaking down can use this deduction to deduct costs associated with repair and maintenance. Also, real estate owners may be able to deduct non-equipment repair costs for routine maintenance items like painting a building. Be careful to check before investing money into particular projects, because there are strict guidelines around what qualifies as repair or maintenance.

Preparing taxes comes with many questions for those who don’t do it daily. It can lead to an immense amount of time browsing the IRS website to answer questions that a professional can answer in minutes.

Tax season can be a stressful time for many businesses. There are so many deductions to consider. Preparing taxes comes with many questions for those who don’t do it daily. It can lead to an immense amount of time browsing the IRS website to answer questions that a professional can answer in minutes.

When questions arise concerning state and federal taxes or possible deductions, it helps to have a tax prep professional ready to answer any questions. Our staff is certified by the IRS to perform tax preparation. Finding answers to questions regarding qualifications for small business tax deductions is simple.

Business owners can ask questions without paying by the hour to an individual accountant. Instead of spending hundreds of dollars for an hourly CPA, save money with Xendoo’s tax preparation service and set monthly rate.

Filing Your Schedule C: A Simple Guide

January 31, 2022/in Taxes /by Team

Are you a small business owner? If so, you may be looking for advice on filing your Schedule C. The IRS Schedule C is used by sole proprietors and single-owner LLCs to report your small business taxes and is part of your personal tax return.

We understand that business taxes can seem confusing, if not overwhelming. That’s why we’re here to help you with filing your Schedule C so you can stay in compliance and get back to business.

Is it Worth Filing a Schedule C?

As with other details surrounding your small business taxes, it’s unfortunately not a question of whether it’s “worth” filing your Schedule C. Schedule C is required for the following business types:

Single-owner LLC
Sole proprietor

The only other business type that might need Schedule C is when two married people organize a special type of partnership known as a Qualified Joint Venture. In this instance, the couple will use two Schedule C forms when filing small business taxes.

Using a Schedule C doesn’t exempt you from paying your quarterly estimated business taxes, of course. You’ll still need to make these regular estimated payments to avoid any penalties and fees when it comes time to file your return.

Your Schedule C will help determine your actual tax debt for the year, and you can then see how it compares with your quarterly estimates.

Can I File a Schedule C By Itself?

By itself, a Schedule C will not count as an acceptable tax filing form. Instead, a Schedule C must be submitted along with your personal income taxes using Form 1040. Your Schedule C can be submitted electronically with your personal income tax or stapled to your paper form.

To understand this better, consider the way that small business taxes are typically handled. Sole proprietorships and single-owner LLCs are legally considered pass-through entities.

This designation means that your business is not considered to be a taxable entity by itself. Instead, the profits from your business go directly to you, the owner. This passthrough means that you’ll report business income when you file your personal tax returns each year.

Your Schedule C, therefore, contains detailed information about your company’s financial performance for the relevant tax year, including:

Income
Expenses
Cost of goods/supplies

This information will be used to calculate a net profit or loss, which will be recorded on Form 1040. Keep in mind that there is no minimum income requirement. All sole proprietors and single-owner LLCs will have to file Schedule C each tax year.

What Do I Need to File a Schedule C?

Filing your Schedule C isn’t complicated, though you’ll need some time to complete the details, as well as the information necessary to complete the forms properly. You can expect to need the following pieces of business data for your Schedule C:

Your business income statement for the tax year
Your company’s balance sheet for the tax year
Receipts for any and all business expenses
Inventory records (if applicable)
Mileage records

If you operate more than one business, you’ll need a separate Schedule C for each one. This setup isn’t terribly common, of course, but if you receive income from multiple side hustles, you’ll have to report for each using its own Schedule C.

How Do I Submit a Schedule C?

Ultimately, you’ll use Schedule C to calculate your net profit or loss for the year. Your net business profit will then be recorded on Form 1040 as personal income. Calculating these figures isn’t challenging, but it can be a bit intimidating if you’re not used to doing your own business tax preparation. We’ll walk you through each step.

Step One: Gather Information About Your Business

Start by gathering as much information as you can about your business. This step is all about data. You’ll want to have records about items such as:

Your business income for that tax year
Cost of goods sold
Any business expenses

Remember, you can calculate business expenses the same way you always would, including items such as office supplies, mileage, utilities, meals, and others.

You won’t have to show supporting documentation when filing your Schedule C, though anytime you’re dealing with the IRS, you’ll want to make sure to have receipts, business documents, and any other paperwork to authenticate your earnings and expenses for the relevant tax year.

Step Two: Calculate Your Gross Profit and Income

Now that you have your information gathered, you can start filling out your Schedule C. Under section I, you’ll report your sales and the cost of goods sold. Your expenses can be reported under section II.

But here, you’ll also calculate your gross profit from your business. To calculate your gross profit, you’ll first need to determine your net receipts. You can accomplish this through the following calculations:

Gross sales – returns and allowances = net receipts
Net receipts – the cost of goods sold = gross profit

Once you have your gross profit, you can simply add it to any other income you’ve received to calculate your total gross income.

Step Three: Deduct Your Business Expenses

Check your form, and you’ll see that deductible business expenses are listed on lines 8 through 27. These lines account for expenses such as:

Depletion
Depreciation
Section 179 expenses
Employee benefits
Insurance
Interest
Legal and professional fees
Office expenses
Meals
Rental of vehicles or equipment
Travel expenses
Office supplies and furniture
Utilities
Wages and employment costs (e.g., benefits, unemployment insurance)

The more deductions you take, the greater your profits will be. But before you start taking deductions, be aware that there may be some stipulations associated with certain categories or expenses. If you’re ever in doubt, ask a tax professional.

Step Four: Deduct Your Home Office

Many small business owners work from home. If that applies to you, you’ll have two options for reporting the expense associated with your home office.

Option A allows you to take a deduction based on the total square footage of your home.

Using Form 8829, you’ll take the total area of your home, then determine the percentage occupied by your home office. So if your home is 1,000 square feet, and your office is 100 square feet, it occupies 10% of your home. This percentage can be included on line 30 of Schedule C.

Option B is simpler, allowing you to take a standard deduction on home business space up to 300 square feet.

The IRS allows you to take a $5 deduction per square foot on this space, to a maximum of $1500. This amount will also be reported on line 30 of Schedule C, and there is no separate form to fill out.

Just remember that to take this deduction, your home office space must be devoted to the regular and exclusive use of your business; otherwise, you cannot legally qualify for this deduction.

Step Five: Provide Other Details About Your Deductions

After this, you’ll complete parts IV and V of Schedule C. These are primarily information sections. Part IV asks for information about your vehicle relating to driving frequency, mileage, etc.

Part V will allow you to provide any additional details about other expenses you may be deducting. The total will be recorded on line 27 of Schedule C.

Step Six: Calculate Your Net Profit

You’re now ready to calculate your net income. To do this, simply follow the following steps:

Enter your total expenses on Line 28
Subtract Line 28 from Line 7. This total will give you your tentative profit on Line 29
Subtract business expenses from your home (Line 30) to get net profit (Line 31)

Profit will be reported as personal income, but a business loss must be accounted for on lines 32a and 32b to determine your risk.

Step Seven: Add Schedule C to Form 1040

The net profit/loss from line 31 of Schedule C can now be recorded on Schedule 1, line 12 of Form 1040. You’ll then file Schedule C along with Form 1040 (and any other tax paperwork) when you file your personal income taxes.

Is a Schedule C the Same as a 1099?

A Schedule C is a very different form from a 1099. Form 1099 is used to indicate that a company has paid an employee as a contractor or independent employee. So if you employed these individuals during your tax year, you’ll be responsible for filling out Form 1099s and distributing them to these contractors.

However, Form 1099 may be necessary to fill out Schedule C. Any money you spent on employees would be classified as a business expense, and therefore should be included when filing your Schedule C.

Specifically, part II of your Schedule C will provide space for you to record business expenses, which would include any money you paid to contract employees in the past tax year.

Skip the Headache: Let the Experts Handle Your Schedule C

Filing your Schedule C isn’t difficult, but the easiest thing of all is to turn to professional tax services for all of your tax planning and preparation. Xendoo offers tax preparation for small business so that you can stay focused on your company and not on your tax obligations.

To learn more, simply click here to get started. Our free trial can show you how Xendoo’s innovative features can take the stress out of your tax preparation.

A phone with Venmo, Cash App, and Zelle.

Tax-Reporting Change for Venmo, Cash App, and Others

January 31, 2022/in Accounting, Bookkeeping, Taxes /by Johanna Raspolich

New Year, New Tax Requirements

Do you use apps like Zelle, Venmo, and Cash App to accept payments from customers? How are you reporting those earnings? In the past, although all business owners were required to report their earnings on their Federal Tax Returns, only those who received payments of $20,000 or more through payment apps also reported their earnings using Form 1099-K. Recently, that rule was changed and will affect a larger pool of business owners going forward.

Will this new rule apply to your business? Keep reading to find out! In this post, we will discuss the new requirement, and how Xendoo can help you stay on top of your tax compliance in this evolving landscape.

Tax Reporting for Payments of $600 or More

Previously, the reporting threshold was much higher – $20,000 in gross payments, with at least 200 transactions in the current year. The update set a new minimum requirement for filing a Form 1099-K by third party payment apps: business owners who collect payments of $600 or more will now receive Form 1099-K from the payment apps they use, in order to disclose their mobile app earnings to the IRS.

The new requirement went into effect on January 1, 2022, and will apply to 2022 taxes, which will be filed in 2023.

Note: This requirement only applies to business-related transactions, not personal transactions. For example, reimbursements from roommates for their share of the rent and monetary gifts from loved ones would not qualify. The selling of personal items at a loss is also excluded, such as a bed purchased for $300 and sold for $100.

The best accounting practice is to keep personal and business finances under separate accounts, in order to save time and avoid confusion while filing taxes. Consider creating distinct profiles for your business under the payment apps you use.

Do Payment App Users Have to Pay More Taxes?

Now that the reporting amount requirement has been lowered to $600, it is likely that you (and many other business owners) will receive Form 1099-K from the payment apps you use, to file with your Federal Tax Return in the 2023 tax season.

The good news is that this does not mean that business owners now owe additional taxes. The use of Form 1099-K is only a reporting method and an update to the threshold in existing tax laws.

Adding yet another item to the tax season to-do list may feel overwhelming, but you do not have to handle it all on your own. Below, we will discuss how online bookkeeping and accounting services can help your business remain tax compliant!

Tax Compliance Done for You

Business owners deserve expert support as tax compliance rules change. In order to remain tax-ready throughout the year and maximize your return, consider partnering with an online accountant at Xendoo! They will provide:

Online Bookkeeping: Tax savings begin with consistent bookkeeping, which provides the financial visibility needed to make informed, data-driven decisions, now and during tax season.
Small Business Tax Services: Your online CPA will keep track of the changing small business tax regulations on your behalf, so you can focus on what you love – growing your business! They are available when you need them, all year long.
Catch Up Bookkeeping: Are you behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Whether you are behind a few months or years, Xendoo can bring your bookkeeping up-to-date, complete with a year-end financial package to prepare your business for tax season.

Our services are designed to save small business owners time, stress, and money, so they can enjoy financial peace of mind, even when tax requirements change. Are we a fit for your business? Let’s chat! Click here to schedule your free consultation.

An illustrated rocket in a blue background

22 Startups to Watch in 2022 by South Florida Business Journal

January 21, 2022/in In the News, Media, Press Releases, Professional Articles /by Alejandra Gomez

This Startups to Watch featured by the South Florida Business Journal includes businesses from a variety of industries, with everything from virtual reality to psychedelic mental health care represented. The companies are tackling the future of work, crypto investing, real estate development, banking, and more. They’re also attracting substantial funding from investors with an eye out for early-stage startups poised for growth in the years to come. Xendoo is honored to be mentioned among an amazing group of companies.

Best FinTech Companies For Tax Management

January 21, 2022/in In the News, Professional Articles, Taxes /by Alejandra Gomez

We frequently discuss the impact of fintech companies on financial services, but taxation is frequently overlooked. Tax filing is an unavoidable requirement, and most people hire professionals to do their taxes for them to avoid any misunderstandings with the government. Taxes can cause stress not only for consumers but also for small businesses. There are numerous fintech companies available to assist both individuals and businesses in not only understanding but also paying their taxes. In this article, we will explore the best fintech companies for tax management.

Young cafe owners sitting at table, working on their catch up bookkeeping

The Top 5 Benefits of Catch Up Bookkeeping

December 15, 2021/in Accounting, Bookkeeping, Small Business Tips /by Johanna Raspolich

Whether they coach chess players or sell organic puppy food online, every small business owner shares a common driving force: a passion for growing their business. Increasing sales and gaining new customers is one part of the equation. Consistent bookkeeping provides the financial insight needed to strategize for long-term success. With so many obligations resting on the business owner’s shoulders, it can feel like there are not enough hours in the day to accomplish every task, and eventually the books may fall behind.

Even if the books are only behind a few weeks, up-to-date records are crucial for the financial well-being of every business. Catch up bookkeeping accelerates business growth by increasing financial visibility, which enables business owners to make decisions based on accurate information and remain tax-compliant throughout the year! In this blog post, we are exploring the top 5 benefits of catch up bookkeeping!

Reliability in Your Opening Balance

The Opening Balance is the amount of money in your bank account at the beginning of a new financial period, such as the start of the month. Be aware that your bank account does not necessarily reflect the exact amount of cash that is available to spend. For example, if your Opening Balance states that you have $50,000, but $20,000 worth of checks have not cleared yet, the actual balance is $30,000. The best practice is to consult your updated accounting software or financial statements, which provide insight into your true financial position.

The financial statements report revenue, expenses, and profitability, all of which contribute to the Opening Balance. They also guide decision-making and reveal opportunities for business growth. The more up-to-date your books are, the more reliable your financial statements (and Opening Balance) will be!

If your bookkeeping is behind, there will be little to no financial data for that time period, which means you will not know your true Opening Balance for today. For example, if your account was reconciled in January, but February was skipped, the Opening Balance would be incorrect for March. This could skew your numbers going forward, and costly choices could be made based on inaccurate data. This could also affect future bank account reconciliation, as well as the balances in your revenue, costs, and expenses. It is a vicious cycle.

Catch up bookkeeping corrects these issues and provides clarity and accuracy in your financials. Once your books are caught up, keeping them up-to-date becomes second nature.

Financial Accuracy Through Bank Account Reconciliation

A bank account reconciliation is performed to confirm that your accounting records match the information in your bank account. It is an opportunity to identify and correct any bookkeeping errors before the financial statements are finalized, as well as detect and prevent fraudulent activity in your bank account. Bank account reconciliation also ensures that you are accurately reporting your income to the IRS. The best practice is to reconcile your bank account once a month.

Proper bank account reconciliation can only be accomplished when the books are up-to-date. By getting your books caught up, you can ensure the reliability and accuracy of your financials each month.

Cash Flow Management

Catch up bookkeeping can have a significant impact on cash flow. When your books are caught up, you can pinpoint how and when cash enters and leaves your business each month. This delivers a deeper understanding of your cash needs, so you can create a plan for cash flow management.

For example, as your books are caught up, you may uncover past due invoices, or find that you are sending out vendor payments before you receive the cash needed to cover them.

With this insight, you can monitor your Accounts Receivable to ensure you are paid in a timely manner going forward, and find solutions for the timing of your own payments. You can also forecast future cash needs to be confident you have what you need for continued operations.

Click here to learn more about cash flow.

Insight into Net Income

Keeping your books up-to-date plays a vital role in calculating your bottom line, or Net Income, which is the profit that remains after all costs and expenses are subtracted from revenue. In order to know your true Net Income, all business expenses must be accounted for through accurate and timely bookkeeping. This understanding of your Net Income provides the opportunity to increase your bottom line.

Getting your books caught up is also essential when applying for loans. Creditors and investors examine Net Income when deciding to invest in a business, as it highlights the business’s ability to pay back loans efficiently. Catch up bookkeeping determines your bottom line, so you can understand and increase the profitability of your business, meet loan requirements, and secure funding for your next venture!

Click here to learn more about Net Income.

Tax Compliance

As tax season draws closer, a concern that many business owners have is under or over reporting their earnings, and missing out on deductions. They may also experience a back and forth with their Tax CPA over missing documents and gaps in their financials. Breathe a sigh of relief – catch up bookkeeping takes the headache out of tax season!

By getting (and keeping) your books caught up, you can identify the deductions you qualify for, maximize your tax return, and stay compliant all year long!

Get Your Books Caught Up with Xendoo

Behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Get a fresh start with catch up bookkeeping services from Xendoo, so you can take your time back and focus on the future of your business.

Let’s chat! We would love to get to know you and your business. Click here to schedule a free consultation.

A young black woman works on a laptop to prepare her small business for the new year

How to Prepare Your Small Business for the New Year

December 6, 2021/in Accounting, Bookkeeping, Small Business Tips /by Johanna Raspolich

Business Resolutions Start Now

The end of the year is a bustling time for small business owners. Between skyrocketing holiday sales, extended hours, and juggling multiple duties, it can be difficult to find a moment to stop and think about preparing for 2022.

Where do you start? What metrics can be used to predict and measure success? What steps can be taken to effectively prepare your business for the new year?

Planning for the new year may seem overwhelming. Xendoo can give you your time back. In this blog post, we will help you strategically chart your path for success, so you can be ready for a new year of growth!

Review Financial Performance

To prepare for the future, take a look at the past year. Analyze your business’s performance from the previous year by reviewing your key financial statements.

The Balance Sheet summarizes a business’s assets, liabilities, and equity at a specific point in time. This statement provides insight into cash, inventory levels, Accounts Payable (money owed to others) and Receivable (money owed to the business owner), credit card and bank balances, and the equity in the company.
The Profit & Loss Statement outlines the revenue and expenses a business incurred during a specific period, which provides insight into the business’s profitability. It can be used to track and strategically plan for financial trends, such as seasons of high and low demand.
The Cash Flow Statement provides visibility into when cash flows into and out of a business, and how cash balances have changed over a specific time period. It can also be used to project and prepare for the cash needs of the business.

These financial statements illustrate how your business performed throughout the year and reveal hidden opportunities for growth. The best practice is reviewing the financial reports on a monthly basis, as they gauge your business’s financial health and provide insights to timely decision making.

Click here for more details on the financial statements.

Forecast Cash Flow and Create a Budget

Cash flow represents the money that flows into and out of your business over time, and is crucial for ongoing business success. For more information on cash flow, click here.

Like the financial statements, look at the past to plan for the future. Your cash flow history can be used to create a cash flow forecast, understand and predict upcoming cash needs, and create a budget for the new year.

Healthy cash flow ensures that you will have the cash you need, when needed.

Understanding your cash needs and budgeting accordingly enables you to meet your financial goals and obligations, and continue to grow your business.

Prepare for Tax Season Now

The earlier tax preparation starts, the greater the savings will be when tax season arrives. Start by taking a look at your financial statements and tax bills from previous years, which will provide an idea of what will be owed this year. From there, you can start setting aside money to reduce tax season surprises.

Up-to-date bookkeeping allows for tax-readiness throughout the year. Having income and expenses organized will save time and prevent confusion and stress when tax season arrives.

Lastly, consider partnering with an online accounting service. Get access to an expert team that provides all-in-one bookkeeping, tax preparation, filing, and consulting, so you can make informed business decisions and maximize your savings all year long!

Outsource Your Bookkeeping

Small business owners cover multiple responsibilities, one of the most stressful and time-consuming of which is bookkeeping. If you would like to take back 4 to 6 hours a month to focus on growing your business, now is the time to outsource your bookkeeping!

An online bookkeeper takes bookkeeping off your plate, so you can spend your time actively working on your business. They also provide monthly financial statements, delivering financial visibility and the actionable insight needed for long-term business growth.

Online bookkeepers also provide catch up bookkeeping services to get previous years’ books in order. Whether you are behind a few months or years, Xendoo will bring your financials up to date so you can strategically plan for the future.

Spend the New Year with Xendoo

It is time to crush your business resolutions! Xendoo has your back with online bookkeeping, accounting, and tax services. Allow us handle the hassles while you focus on what you love to do: growing your business, all year round!

We would love to get to know you and your business. Schedule a call with one of our online accountants to get started.