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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!

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!

My Company Isn’t Profitable…Do I Have To Pay Taxes? November 28, 2009

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My Company Isn’t Profitable…Do I Have To Pay Taxes?

No!  If your company isn’t profitable you do not have to pay income taxes.  If you have employees or you are an employee, you will have to pay social security/medicare taxes.

I believe the IRS doesn’t really start looking closely at your business until after three unprofitable years.  If you have been unprofitable for three years, the IRS starts to wonder why are you still in this business?  Is this a business or a hobby?  Then you start to get into the whole concept of hobby losses. 

If you are unprofitable for three years, start looking at your numbers…your gross profit, your percentage of payroll to revenue (if your payroll is 60K and your revenue is 100K, that means your payroll is 60% of your revenue…that is too high, your staff needs direction or they don’t have enough to do or something).  Maybe you need a new business or a new way to operate your business?

Your salary is deductible if you are an S Coporation or a C Corporation.  Your guaranteed payments or draws are deductible to the partnership.    Your draws inside your sole proprietorship are NOT deductible.  If you are an LLC, check out my blog on the whole LLC scene.  This means that your profits will be lower…which is good for tax purposes…to report lower profits…the lower the profits the lower your tax bill.  Lower profits is bad for bank loans though.  Do you want a bank loan or do you want to pay less in taxes…you can’t have both.

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!

What Is An LLC? August 31, 2009

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j0441315An LLC stands for Limited Liability Company.  What is an LLC?  It is the most flexible but confusing entity to most small business owners.    There is no federal tax form for an LLC.  Although the IRS recognizes the entity, there is no specific tax form for the LLC.   As a small business owner, it is critical to know how your tax return is going to be filed.

 The LLC is filed at the state level with your Secretary of State.  When you file for your EIN number with the IRS, you still get to pick if you are going to be a Sole Proprietor, a Partnership or an S Corporation.  If you are choosing to be a Sole Proprietor or a Partnership you are required to file form 8832 with the IRS.  If you are choosing an S Corporation, you are required to file form 2553 to let the IRS know that you are choosing an S Corporation status. 

To make this a bit clearer, in the CPA business, the conversation almost always goes something like this. 

CPA-“Oh, you are an LLC…what is your filing status?”

Customer-“I am an LLC.”

CPA-“What status did you choose with the IRS to let the IRS know how you will be filing your tax return?”

Customer-“I am an LLC.”

And on and on we go…

When you visit your accountant and you have filed your LLC paperwork you will save a great deal of time, money and confusion when your accountant asks, “What is your filing status?” and you know the answer.   You can proclaim loudly and say, “I am an LLC filing as….”  Remember your three choices are Sole Proprietor, Partnership or S Corporation. 

Some attorneys will help you make the choice of what your filing status you should be, other attorneys will file the LLC paperwork and then tell you that you need to go see your accountant about your filing status.

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!

What’s In A Name? How Should I Name My Business? August 28, 2009

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j0438994In my research for the book Confessions of Entrepreneurs, (I decided that I would include stories of many, many entrepreneurs, rather than just my story.  What do you think?)  Don’t  you think it will be more interesting to have many entrepreneurs telling of the mistakes that they made in their business rather than just one (me) person confessing the errors of their ways?

As a CPA, I had only one choice to name my business, Julie Duriga, CPA.  That was my choice.  We were going to call it Duriga Accountants but my state board told me that was not possible.   

I was surprised to learn that one of the first mistakes that some small business owners make is the way they name their business.  They give their businesses names that are meaningful to them or a name that is meaningful  in their family or a name they think it is really cool.  Some small business owners give their business a name that is sophisticated and sometimes give their business a Latin name.  Which sounds fun but in fact you spend useful, valuable time explaining what the name means rather than how you bring value to other people’s lives. 

I ran into a friend at the YMCA the other day and she told me that her and her husband had an organic landscaping company called Terrat Systems.  I asked her if she did Terraces after asking her to repeat this several times and she sighed heavily and explained that the name was just Latin.  Quite honestly I am not entirely sure that I am spelling Terrat correctly, I tried to Google it but nothing comes up that is relevant.  They currently live in Asheville and have a nursery, I asked her what the name of their new business was and she proudly declared that it was called, “Carolina Native Nursery.”  It says it all, doesn’t it?  We can move on to more important aspects of her business rather than asking to repeat the name and asking her what it means….

Give your business an un-sexy, easy to understand business name that people can easily identify what  value you bring to the world.   You will save a great deal of time and you will be able to move on to talking about the more interesting things about your business right away.  You only have a few minutes to make a good impression…spend those few minutes impressing your audience with your product or service!

How Do I Pay Myself? August 19, 2009

Posted by Julie Duriga, CPA in Small Business, Uncategorized.
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j0438810This is a question that I answer virtually everyday.  Of course, every entrepreneur wants to get paid as often as we can and as much as our business can afford.

How you pay yourself depends on the business entity in which your business operates.  Remember the LLC (Limited Liability Company) entity is only a state entity.  There is no LLC federal tax form.  If you have an LLC entity, you are in the eyes of the Internal Revenue Service a sole proprietor, partnership or S corporation.  We say in the CPA business, they are an LLC filing as a sole proprietor.  OR they are an LLC filing as a partnership.  OR they are an LLC filing as an S Corporation.  Make sure that you know what entity you are registered at the federal level, Sole Proprietor, Partnership or S Corporation.

  • Sole Proprietor-You must have two separate bank accounts, one for your business and one for your personal affairs.  When the business gets paid, that cash is deposited into your business account.  When it is time for you to get paid, you can write yourself a check or transfer your funds over from the business banking account to your personal account.  It is important that you leave money in your business bank account (even better to set up a separate savings account)  to hold back your self employment taxes and any potential income tax you may have.  (See blog post called “Put My Taxes Into Buckets, Please.”)  In a sole proprietorship, when you pay yourself this is called an Owner’s Draw.  If you have profits in the business, even though you did not bring those profits home with you, you will still pay both income taxes and self employment taxes on those profits.  If you have employees, they can be run through payroll but you can’t run payroll on yourself in a sole proprietorship or inside of a partnership.  Every quarter, you are required to make estimated self employment taxes.

 

  • Partnership-Very similar to a Sole Proprietorship in that both profits and owners’ draws are subject to both income tax and self employment tax.    There needs to be two business bank accounts and you can do a transfer or write yourself a check from your business account to your personal account.

 

  • S Corporation and C Corporations-As an active officer of the corporation, you are required to write yourself a payroll check.   There is some flexibility as to what how much we can pay yourself in dividends but it is an IRS red flag if there is no payroll for officers in a corporation.  I love it when officers run payroll on themselves and receive a W-2.  This makes for much less of a surprise at the end of the year at tax time.  I personally converted myself to a Corporation entity so that I did not have worry about making those estimated payments throughout the year.  I will get a W-2 this year.  I may even get a small refund!  There is a really nice change.  I love Paychex for payroll.  They are reasonably priced and do their work excellently!  It doesn’t matter if you have just one person on  your payroll, the complexities of payroll are the same if you have one person or twenty five people.

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!

Confessions of an Entreprenuer… August 6, 2009

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Man holding stack of paperwork with hand on calculator with longAs I reflect back on the first three years of my CPA practice, I am looking back at all of the things I did right and all of the things I did wrong.  There wasn’t one big mistake but many, many little mistakes.  I am sure those mistakes are common and that many people have walked down a similar path as I have.  Of course, I have found this to be a great opportunity for a book.  I do believe that this transparency will help other fellow entrepreneurs.  My hope is that folks will say to themselves, “Julie is a CPA and she should have known better.  If she can make those mistakes, I will certainly exercise caution.”  (Or say something similar to this to themselves…)

I want everyone to have a wonderful experience owning their own small business.   I want entrepreneurs to learn from my mistakes so that  business owners will enjoy ownership in their business. 

 The book will consist of listing about ten or twelve errors and the signs that you might be on the path of making similar mistakes to mine and how to prevent or correct those common errors.

Thoughts?  Anything to share?  Write to me, I would love to hear from you…

5 Ways to Improve Cash Flow In Your Business June 17, 2009

Posted by Julie Duriga, CPA in accounting, Small Business, Uncategorized.
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There are so many ways that good accounting can save you a fortune,  this topic is virtually unlimited!  If we do a great job managing money that is owed us (money that is owed to us is a receivable) we might avoid borrowing or we could make money by charging interest on monies owed to us.  Receivables are an excellent place to start in our quest to make and to save a fortune.

  • Just Starting Your Business?  Terms for payment absolutely should be ” Due Upon Receipt.”  After all, you have just started your business and cash flow is probably a  little light.   You may want to appear as though you can afford to give terms of 15 or 30 days.  For most of us when we are starting,  this isn’t possible to give longer terms.  Use “Due Upon Receipt” or  ask for payment before they even before leaving the place of business.   It may even be necessary to say when they call for an appointment to say,  “Bring your checkbook.”

 

  • Watch Your Receivables Closely-If you see you have a customer who is not paying in the manner you have outlined, give them a call and see if they need help.  Check in and see if perhaps they need to make payment arrangements.  Don’t let your customers stray and put you at the bottom of the list because you are not making contact with them.  Unfortunately, it is your responsibility at times, to make collections calls.

 

  • Charge Interest!  If your business has been put in the position where your customers need your business to carry them for a short period of time, it is perfectly acceptable to charge interest.  Of course, if you are going to charge interest, this needs to be disclosed upfront on the first invoice what your intentions are.  For example, “10% interest is charged after invoice is 30 past due.”

 

  • Offer a 2% discount if your customers pay within ten days.  This is a great way to help your customers save money and for you to make sure that you get paid as quickly as possible.

 

  • Factoring?  There are companies that offer what is called factoring.  This means they will buy your receivables from you and your customers send the company the money instead of your business.  They buy your receivables from you at a lower price than what they believe they will collect.  This process gives you the upfront cash and the factoring company takes over from there.   This is usually only used if your business is in tough times but it is an option.

Managing your accounting is critical for long term success.  Even more importantly, it is critical if your business has receivables, to be attentive to them.  If you are attentive and proactive with your receivables, it is possible to avoid borrowing money.    It is possible for your business to make money by charging interest on invoices that go over 30 days.   Manage your receivables as if it were cash because your receivables are cash!  If you would like additional information on how good accounting can save you a fortune, visit us at our website at www.UniversityForBusiness.com.

What Would You Like To Know? June 12, 2009

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I ran into my business coach this morning and he wanted me to ask small business owners what they would like to know about.  I have been writing about what I think  you need to know about in terms of accounting and taxation in your small business.  Tell me about what areas you struggle with in the accounting area.   What do you need to know?  What would you like to learn more about?

I would love to hear from you so I can write about what you would like to know.

Thanks in advance for your time and your contribution!