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What Is The Best Way To Pay Myself In My Business? January 17, 2010

Posted by Julie Duriga, CPA in Uncategorized.
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I am grateful to have had lunch with my friend Barbara last Thursday.  I met Barbara about three years ago and I am so grateful she is my friend.   I met Barbara because I was starting my CPA practice and I was looking for a payroll solution for all of my potential clients that I was going to have.  Barbara works for PayChex.

I have since sold my practice and I am astonished everyday at how many people still want to be my friend.  I thought many friends would vanish once I was no longer working in public accounting, this has proven not to be true.  Barbara is someone who has stuck with me through thick and thin and has done an amazing job in Western North Carolina providing businesses with payroll services.

Barbara told me at lunch on Thursday that S Corporation payroll through PayChex is $39.99 per month.  I just about fell out of my chair.  This is a unbelieavable deal for payroll.

I believe running payroll through PayChex will help small businesses stay out of trouble with the IRS.  Using PayChex for your payroll will keep you disciplined inside your S Corporation to make sure you pay yourself.   Not providing compensation to active officers inside an S Corporation is a HUGE red flag for the IRS.  Even if it is a small amount every month, it keeps the zero out of a box where the IRS likes to see an amount.  Remember, to run one paycheck carries with it the same burdens as running fifty checks.  There is really no such thing as “but is just one paycheck”.

I believe PayChex by offering payroll services for $39.99 is offering America its own economic re-investment recovery act.

I am not compensated by PayChex in any way except that Barbara takes me out to lunch about once every quarter.  I am passionate about small businesses and believe that small business owners are the true heroes of our economy.  I see this as a fundamental service that will free small business owners up to do what they love to do!  Worrying about payroll is silly when it is so affordable and so well done byPaychex.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

How Do Partnerships Pay FICA? January 2, 2010

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Partnerships don’t pay FICA tax for their partners.  If a partnership employs people, then, of course, the partnership must pay FICA taxes on their employees.  Partners in the partnership must pay their own FICA taxes as well as their own income taxes.  Some partnerships do run payroll on their own officers but the IRS doesn’t really care for this.  It may come back to the haunt the officers at a later date.

When partners take a draw, distribution or a guaranteed payment, they must take out a gross amount of say 1000.00.  From this, they must set aside 200-300 (depending on your personal situation) to pay their own estimated quarterlies.  Partners in the partnership must submit their own 1040-ES to the IRS on a quarterly basis for their taxes. 

FICA and income tax is a different tax.  When you send the IRS one chunk of cash, the IRS puts this in your account and the amounts that are figured out when you file your personal 1040.  Remember the profits inside the partnership are subject to your income tax rate even if you did not bring those profits home with you. 

Guaranteed payments taken as “take home pay” is subject to both your income tax rate and to FICA taxes.  Partnerships are similar to sole proprietorship because the partners have to pay the full 15.30% of social security/medicare tax.  FICA=Social Security/Medicare Tax.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Requirements For Officer Compensation…. December 13, 2009

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This was a question that a blog reader asked me.  It is so useful when readers ask questions because it gives me material to write about.  So keep your questions coming.

I usually suggest that active officers run payroll on themselves at a minimum once a quarter.  Even if the business can only afford to pay the officers through payroll $500.00 per quarter, that is better than nothing.  This makes the business look more like a “going concern” (a real business that is sustainable) to the IRS than if there is an absence of payroll inside the corporation for its active officers.  The IRS starts to wonder why would the officers stay in this business if the business can’t afford to pay its own officers after a period of time. 

The only requirement that I know of is that officers must be compensated by giving them a reasonable salary for your industry.  If your S Corporation is a restaurant, then the business must compensate the officers who work inside the restaurant a reasonable salary for the restaurant industry.

What is an active officer?  This is an officer who works inside the corporation.  An officer who reviews the financials on a weekly basis or an officer who actively generates sales calls or an officer who does the dishes is considered active.  If the business has officers who show up every now and then for board meetings or who stops by occasionally to check on their investment is not considered active.

In my state of North Carolina, the power of the payroll law rests with the employer.  The employer can really do whatever they want to do with their employees as far as paying frequency.   I don’t know of any employer that pays its employees less than once a month.   Check with your state department of revenue for your state’s payroll laws.

Officers can be compensated on a different schedule than its employees.  Sometimes when there is no money, the employees get paid first and the officers just have to wait.  Of course, it is easier to run payroll all at the same time, but sometimes this is not possible.

 In conclusion, the officers can be compensated whenever the Corporation deems appropriate.  At at minimum, the compensation should occur at least once a quarter.  The IRS requires that active officers be compensated a fair and reasonable salary.  Employees and officers can be compensated on the same schedule if the funds permit this.  Be careful of paying your officers with fringe benefits.  Fringe benefits to S Corporation officers are usually considered compensation by the IRS and have to be added to the W-2 as taxable wages.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Do I Pay My Income Tax Bill From My Business? December 6, 2009

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Of course, income taxes are different than unemployment taxes and from the employer’s portion of the social security tax.  Those taxes are deductible.

Income taxes are held from your own income and need to be paid from your salary bucket inside your business.  If your paycheck says that you took home 700.00, then 300.00 is really taxes.  In t heory your paycheck should be 1,000.00 to cover taxes which is normally around 300.00 to be safe.  To be safe means you are not stuck with an enormous tax bill at the end of the year.

If you are a sole proprietor or a partnership then your taxes are paid from the guaranteed payments or from your owner’s draw.  This draw can take place through a physical check written from your business or through a bank transfer from your business account to your personal account.  It is then your responsibility to remit quarterly your income taxes and your social security taxes to the IRS and to the state agencies.  Those taxes are paid from the money that was transferred to your business account.  Some business gross up their partner’s draws and guaranteed payments to cove the cost of the taxes.  Instead of bringing home $1,000.00, they might bring home $1,300.00 to cover the taxes.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Small Business Help… November 24, 2009

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I had lunch with Sharon Oxendine last week.  Sharon is an amazing friend and is passionate about small business and every client she serves.  Sharon is the director of the Women’s Business Center in Asheville as well a regional director of Mountain BizWorks. 

What is Mountain BizWorks?  I am always surprised at the number of small business owners who are not aware at the level of assistance that is available to them in their own community.  Mountain BizWorks is a small business incubator.  The cornerstone of Mountain BizWorks is the Foundations class.  What is the Foundations class?  We break down the business plan into seven weeks and help small business owners understand and write their business plan.  The business plan should start at thirty pages which is daunting and difficult if it is something that you have never done before. 

Of course, I believe that Mountain BizWorks is the best in the world at helping small business owners.  Our Asheville small business incubator offers many other services such as business coaching and professional assistance from lawyers, accountants, marketing experts and a wealth of other knowledge is always prepared to assist.

Look around your community for resources to assist you in your small business.   Your community may have a SCORE office or you might be lucky enough to live in Western North Carolina and be able to work with Mountain BizWorks.  There might be a similar small business incubator that is waiting to help you!  If you ask for help, you will be amazed at all of the people who want to see you succeed.  Just Ask!

Look around your community for similar resources to assist you in your small business.  Sometimes, just another set of eyes is all it takes to shift your direction and pave the way for prosperity. 

Visit www.MountainBizWorks.org for more information and for all of the small business help you could possibly ask for!

Do I Pay Taxes In My LLC If I Wasn’t Paid? November 16, 2009

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j0439255A better way to ask this question is “Was I profitable?”  rather than “did I get paid in my small business?”  The short answer to this question is if you were profitable, then yes you will be taxed on those profits!  The government doesn’t really care if you brought those profits home via payroll or owners’ draw or if you left them in your business, it is still considered taxable income to you, if you are profitable. 

Depending on your filing status of your LLC, this determines the degree to which your profits will be taxed.  If you are partnership or sole proprietor, then your 100% of your profits will be taxed for social security and medicare.  If you are an S Corporation underneath your LLC, then your business profits will be taxed at your regular income tax rate.

The answer to your question is: you pay taxes if you were profitable.  Your income statement or profit and loss statement will let you know if you were profitable.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Accounting Is Sexy! October 30, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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Japanese Tearoom 2Yes!  It is true accounting is sexy.  Sometimes the numbers need to be lured out from their secret hiding places as they wait to be invited into your life.  Sometimes the numbers need to be played and manipulated in order to get what you want from them.  Sometimes the numbers are aggressive and loud as they beg you to pay attention to them.  Your numbers sometimes wait for you to massage them and run them through your fingers.  Sometimes when you interact with your numbers the results can be heartbreaking and other times the numbers will bring a feeling of elation. 

Your numbers can bring you direction, focus and clarity if they are appreciated and respected.

In addition to being sexy, your numbers can bring you the feeling of control and power.

Pay attention to your numbers and they will guide you through confusion, uncertainty and bring the satisfaction of helping you make decisions with a solid sense of fact.

 Visit www.UniversityForBusiness.com for other tools to help you love your numbers.

Increase Vendors or Increase Products? October 25, 2009

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j0438994I had my first proposal for a question and would love to start some discussion and gather opinions…

My sales are good but stagnant.  Should I increase the product line or number of vendors?

I do believe that if your sales are stagnant and you are not seeing the increases that you would like that it is time to look at the data and see what your customers are interested in.  I would spend some time doing some reasearch to see what your competitors are doing.   What is selling well in the market place?  Of course, if there is a super star vendor out there that your customers will love, then by all means…but move carefully before selecting new vendors.

Increasing the number of vendors can and usually does complicate your life, the number of bills you have and the number of possible transaction increases.  I would try to leverage and maximize the current relationships that I already have before I started looking for new vendors.

Questions?  Comments?  Please write and let us know what you think…

How Much Should I Pay Myself? September 26, 2009

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j0438379Since there is so much interest in my previous blog post, “How Do I Pay Myself?” I thought it would be fun to write to entrepreneurs to answer the question to “How Much Should I Pay Myself?”

Unfortunately, the answer is almost always this:  “The owner gets whatever is left over…”  Your employees have to be paid first, your rent must be paid first, your telephone bill…these are all things that you need to stay in business.  Unfortunately, for various reasons, most small business owners don’t make enough money their first few years to make a formal salary for themselves.

We will say that this is an excellent reason to do reasonable, conservative cash flow projections.  Your cash flow projections for your small business will tell you how much you should pay yourself and will tell you what is left over after meeting all of your expenses.  Projections are a critical part of the business plan because they tell us if we are marking our stuff up enough, if our overhead is too high, what are the quantities that we have to sell in order that we may break even and end up with enough profits to have a salary.

The second part of the cash flow business projections is to really know how much does it cost you to live.  Sometimes, when small business owners are running their cash flows for their business, they forget that they have to make paying themselves a priority.  Ideally, you want to have profits and a salary! 

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

How Can Depreciation Help Me? September 19, 2009

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j0432694Depreciation is one of the most complex areas of accounting and this area is where accountants have the most flexibility as far as reducing tax liability or showing strong net income when it is most needed.  Depreciation affects the income statement and can drastically lower your tax bill. When we depreciate an asset, we are not expensing it all at one time but over a period of 5, 10, or 15 years.  Some assets like buildings are expensed over a period of 27.5 years.

EXAMPLE:  Let’s say you buy a 5,000.00 laptop for your business.  For purposes of depreciation we would say, that this laptop looses its value over 5 years at 1,000.00 per year.  Quite simply, all we do is divide 5,000.00 by 5 years.  Rather than showing a 5,000.00 expense on the income statement right away, we only have 1,000.00 expense per year.

This is beneficial if we are trying to get loans from the bank, this way we have a higher net income.  If we took the entire 5,000.00 and expensed it this year, it would lower our net income but this would also lower our tax bill.  The lower our net income, the lower our tax bill.

Depreciation is an important topic to discuss with your accountant.  Sometimes it is better to put your equipment on a longer time frame, such as the laptop over 10 years…this might help you in later years when you are more profitable to lower your tax bill in the years when you need it the most.

 Visit my website for more tools to help you run your business better.  www.UniversityForBusiness.com