A U.S. official said Russia asked China for military equipment to use in its invasion of Ukraine, a request that heightened tensions about the ongoing war ahead of a Monday meeting in Rome between top aides for the U.S. and Chinese governments.
The goal when filing business tax returns is to pay as little as possible. This is a worthy goal, and tax write offs help serve this purpose. However, it’s important to remember that lenders will ask for financials. If business financial statements are not available, they will look at business tax returns. If it looks like your business is not profitable, you will not be able to get funding, or you may get less funding.
To understand how tax write offs can affect your ability to get business funding, you need to understand the relationship between taxes and Fundability.
There are many factors that affect the overall Fundability of a business. Credit Suite identifies 23 core principles of Fundability. We break these down further into 125 Fundability factors, and one of these is “Business Financials.” Business tax returns, in turn, are one of the factors included in this principle.
According to the IRS, except for partnerships, all businesses have to file an income tax return. There are different forms, and the one you need to use depends on the business structure you choose. This could be a sole proprietorship, corporation, S-corp, or LLC.
Business taxes are not exactly the same as personal income tax. Here are the major differences you need to know.
Federal business income tax is pay-as-you-go. You have to pay the tax as you earn or receive income. Usually, this is done on a quarterly basis. Sole proprietors and S-corps that expect to owe tax of $1,000 or more when they file their business tax return, will generally need to make estimated payments. Corporations that expect to owe $500 or more will need to pay estimated taxes as well.
There are also differences in required documentation. For example, you have to track expenses, asset purchases, income and more. As a result, it’s best to hire a bookkeeper or bookkeeping agency. At least choose a great accounting software option. Then you can print reports at the end of each tax period and just hand them over to your tax preparer.
Don’t try to do this on your own. Splurge on a tax professional. The cost will be well worth the time and money you save, and you’ll reduce the chances of a mistake. They will have more in depth knowledge of the tax write offs you can take legally and how they will help you. They can also help if you end up in an audit.
Your tax preparer should not be the same person as your bookkeeper or accountant. With smaller businesses the same firm is ok, but it is not wise for the same person to do both. This helps deter and detect fraud. Even if you have an in-house bookkeeper or accountant, they can get ready everything the tax preparer needs. However, they should not complete the tax forms themselves.
You will need to choose your method of accounting. You can choose either cash or accrual basis accounting. Cash basis includes income as revenue when it is collected. Expenses are deducted from revenue when they are paid.
With accrual basis accounting, you record income when you earn it. Consequently, you count expenses when you incur them.
Using cash basis accounting, you don’t necessarily count revenue as soon as an item sells. You count it when you get the cash for it. Unless the buyer pays cash on the spot, you do not record revenue until the customer pays the invoice. As a result, there are no receivables carried on the books.
With accrual basis accounting, you record revenue at the time of sale. Then, a receivable for the invoice goes on the books. New businesses may have more unpaid expenses and more uncollected income at the end of the year. Taking those outstanding expenses as a deduction can reduce tax liability. This accounts for many of the most common tax write offs.
Later, when your business is profitable, your outstanding receivables will likely be higher than outstanding expenses or payables. If you are using the accrual method, you will be recording more net income, and paying more in taxes versus the cash method. Be sure you consider this when making your decision.
The decision of which method to use is for the life of the business. However, there are some exceptions that allow for changes to be made. In contrast, businesses with larger revenues or that carry inventory don’t even have a choice. They must use the accrual method of accounting.
Depreciation is one of the most common tax write offs, but there are some decisions to be made. Discuss them thoroughly with your tax preparer to ensure you are doing what is best for your business.
The first choice will be about first year depreciation. Typically, depreciation on assets is written off over the course of five to seven years. But the IRS allows a first year deduction of up to $100,000 for equipment and most furniture instead. This is an election most business owners take. If you do not make a profit, you cannot take the $100,000 deduction. Yet, you can carry it forward to a year that you do make a profit.
In the beginning, a slower depreciation method may work better. You can save the deductions for later, when there will likely be more income and you will probably be in a higher tax bracket. Again, a tax professional can help you make that decision.
Now to the real question. How does all of this affect your ability to get business financing? For a business to be Fundable, it needs to be fully recognizable as an entity separate from its owner. There is a lot of crossover between Fundability and business taxes. Entity choice is one example.
You can choose whichever entity you want for your taxes, but you do have to choose one. That choice will depend on your budget and needs for liability protection. Your tax advisor will be able to help you decide. However, it’s important to note that the decision you make affects Fundability as well.
For Fundability purposes, operating as a sole proprietorship or a partnership doesn’t work. Your business needs to operate as a completely separate entity from you as the owner. To do that, you need to choose to operate as either an S-corp, LLC, or corporation.
If you are operating as a sole proprietor, it is possible to use your SSN to file your business tax return. You should not file a business tax return using your Social Security Number for maximum Fundability. You need to use an EIN, and you can get one for free at IRS.gov.
Business lenders will not always request business tax returns, but what if they do? It’s not likely that they will if you have complete, professionally prepared financial statements. Still, if tax returns are the only financials you have for your business, that is what they will use. This poses a difficult dilemma.
This is a problem because you want to make it look like you made as little money as possible on a tax return to avoid paying any more than necessary in taxes.
Typically, even if tax returns are on a cash basis, financial statements are prepared on an accrual basis. If all the lender sees is your cash basis business tax return, and it looks like you didn’t make a profit, they are going to be less likely to approve funding. And you can imagine why they will be likely to approve less funding.
Even if they do not look at business tax returns, most if not all traditional lenders will usually look at personal financials separately. This is because almost all of them require a personal guarantee.
When they do, they will note how you get money from the business. Do you pay yourself a salary? Do you just take funds as needed? This may, again, lead to questions that require them to look at your business tax returns.
Tax write offs are a great way to save on taxes. They are totally legal and it would be ridiculous not to take advantage of them. However, be certain you have someone preparing professional financial statements at the same time. These documents serve two different purposes. Tax returns are to show the IRS how much taxable income you have. Financial statements are meant to show profit, and that is what lenders want to see.
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In 2017 New York Times columnist Frank Bruni lost sight in one eye — and was at risk of losing it in the other. In his new memoir, “The Beauty of Dusk,” he tells the story of confronting his own vulnerability and what it taught him about the limitations we all eventually encounter.
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Email: Please see my resume.
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I have almost 2 years of professional work experience – I’ve worked at a few startups and across the stack, and most recently in infrastructure.
I’m looking to join an early-stage startup (Seed or Series A) and help build out your product.
No recruiters please.
Location: Latvia Remote: Yes Willing to relocate: Yes (life goal) to Sweden, Norway, Ireland, can consider other locations Technologies: VueJS, HTML, CSS, Android SDK, React (learning at the moment) Résumé/CV: https://docs.google.com/document/d/1iQB4zNhkbKOgqYDM7plpK466FTzO1irmfAgMcRE-Ft4 Email: azorien@gmail.com Hello. I am front-end/UI focused developer that also has some graphic design experience. Currently I am learning web front-end technologies and trying … Continue reading New comment by AzorienX in "Ask HN: Who wants to be hired? (March 2022)"
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Florida Lt. Gov. Jeanette Núñez spoke with “The Ingraham Angle” about her state’s bill that is facing criticism from Democrats.
The “Real Time” host suggested there’s a “kernel of truth” behind the education reform effort in the Sunshine State.
There are 125 factors that affect the fundability of your business. Personal credit is one of them. Since it impacts the fundability of your business, personal credit impacts business operations.
Fundability is the obvious one. This is the ability of your business to get funding. If you don’t have funding for your business, it can’t operate.
However, there are more subtle effects as well. For example, if you are worried about your personal finances, business decisions can suffer. You may be more tempted to make decisions based on trying to control personal issues, rather than what is best for the business. Personal financial issues can distract you from running your business well.
Bad credit doesn’t have to be the downfall of your business. Some factors are out of your control. Others are not. The key is to know what is causing the problem, fix what you can, and mitigate the rest.
One way to mitigate personal bad credit and its negative impact on business operations is to build strong business credit. It can also help to know which types of funding rely most heavily on the credit score from your personal report.
Until you improve your credit, you may not qualify for a traditional business loan. However, there are other options.
While you are working on improving your credit score, you don’t have to be stuck without funding. You just have to find those types of funding that you can qualify to get with a less than ideal credit score.
If you have open invoices and offer credit to customers in some form, then you can get paid faster with invoice factoring. Usually, this involves invoices with net terms, such as net 30, 60, or 90. You turn those invoices over to a factoring company, and they give you an agreed upon percentage of the total of the invoices. You get this amount of money immediately, and when your customer pays, the factoring company keeps their agreed upon fee while sending the balance to you.
A merchant cash advance (MCA) technically isn’t a loan. Rather, it is a cash advance based upon the credit card sales of a business. A small business can apply for an MCA, and have an advance deposited into its account fairly quickly. This is ideal for business owners who accept credit cards and are looking for fast and easy business financing.
A lender will review 3 months of bank and merchant account statements, looking for consistent deposits. They’ll also verify revenue of $50,000 or higher per year and a time in business of 6 months or longer. A lot of Non-Sufficient-Funds (NSFs) showing on your bank statements will likely be a deal breaker, as will excessive chargebacks on merchant statements.
Basically, they want to see that you manage your bank and merchant accounts responsibly. Of course, a decent number of consistent credit card transaction deposits each month is important for this type of financing as well.
Fundbox offers a revolving line of credit for up to $100,000 and will auto debit your weekly payment from your bank account. They connect directly to your online accounting software. You pay in equal installments over the course of a 12 or 24 week plan.
You do need to have a 600+ personal FICO score and $100,000+ in annual revenue, and you must have a business checking account. Ideally, you will also have 6 months in business or more.
If you have bad credit, it needs to be fixed. How do you do that? The short answer is, pay your bills. Still, if you already have bad credit, it will take some time for that to make a difference.
Also, make sure your credit report is current and free of mistakes. YIn fact, you can get a free copy of your credit report annually.
The three main reporting agencies when it comes to personal credit are:
You can get a free report from all three each year. How?
Per FTC.Gov:
“You’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.”
Once you get your report, read it carefully and make certain all of your information is correct. Contact the appropriate credit agency in their preferred manner if you find a mistake. Each agency has its own procedures for corrections. Generally, you can find them on their website. Online options for disputes are more common now due to the pandemic.
These steps will help you get a jump on improving your credit score.
In addition to a free copy of your credit report each year, there are free monitoring services that will give you an updated credit score each month. New information that has been posted to your credit report is available with some of these services. As a bonus, some will offer suggestions as to which factors are dragging down your score. Some of these services even provide real-time credit updates for a fee.
Of course, a good FICO score will impact business operations as well. Business lenders will generally look at personal credit when you apply. Consequently, good credit will not only help you get approvals, but better rates and terms also.
Maintaining good credit is important for a number of reasons. Keeping your business running is one of them.
The post What You Need to Know About How Personal Credit Impacts Business Operations appeared first on Credit Suite.