Why You Should Issue 1099-MISC in Your Business

Why You Should Issue 1099-MISC in Your Business

These days businesses rely on additional services from contractors and freelancers for tasks that don’t require employee headcount. This means that it’s essential for them to understand IRS rules and varied prerequisites for issuing 1099-MISC forms in their businesses. Unfortunately, a lot of business owners “wing it” when it comes to following the rules and requirements because keeping up with changes can be so aggravating that many entrepreneurs simply give up. This can be a dangerous and costly move with penalties adding up quickly. Fortunately, filing the 1099-MISC isn’t complicated. Here’s what you need to know.

1099-MISC Defined

Generally speaking, you’ll need to issue a 1099-MISC to anyone you’ve paid a minimum of $600 for services related to your business. This includes materials, rent, awards, prizes and other income payments made during the year. You don’t need to submit a 1099-MISC for payments made for personal functions.

A 1099-MISC form helps independent contractors report their earnings to the IRS. It’s similar to a W-2 that an employee receives from their employer.

The IRS requires companies to report payments to the IRS and recipient through a 1099-MISC. The form displays total payments that you provided to an entity or person during the year that you’ve received services for. It contains personal information, including name, address and either employer identification or Social Security number. Beyond the basic personal information, it classifies every type of payment in individual boxes on the form based on the grounds for your payment. For example, if you paid for contract work the annual earnings should be acknowledged as non-employee compensation.

Business Legal Obligations

There are a wide range of transactions that require you to submit a 1099-MISC to the person or entity who received your payment. A few of the most common transactions include paying:

  • $600 or higher in compensation in exchange for services rendered
  • $600 or more to a law firm or attorney for legal services
  • Payments you make to rent commercial real estate, like a warehouse or office.
  • $10 or more in royalty fees
  • Awards or prizes of $600 or more
  • Direct sales of at least $5,000 of consumer products to a buyer for resale through a non-retail establishment

In addition, if you ever end up paying a lawsuit settlement, you’ll be required to report all of the payments you make apart from the ones that compensate an individual for their physical injuries or medical expenses.

In order to avoid IRS penalties, it’s important to be aware of reporting deadlines for the 1099-MISC. You’ll need to give the recipient of the payment a copy of the 1099-MISC no later than January 31st, right after the end of the tax year that you made the payments in. In addition, you’ll need to file the 1099-MISC with the IRS by February 28th. The IRS may give you more time if you file electronically.

Setting up processes and systems to issue 1099s can help you save time and money every year. If you’d like to discuss how I could help your business improve productivity and efficiency, schedule a free consultation here.

Strategies for Operating a Cash-Strapped Business

Strategies for Operating a Cash-Strapped Business

Cash flow is the lifeblood of any business and a fundamental factor when it comes to growth and longevity. Today, cash-strapped businesses are easily forced to the brink of failure with the difficult process of trying to get credit or a bank loans. It’s important that entrepreneurs understand from the get go that they can’t operate for long if their cash outflow is greater than cash inflow. All companies, especially startups, need to conscientiously monitor their cash flow to prevent disruption to the business.

Strategies for Operating a Cash-Strapped Business

A substantial percentage of cash flow challenges arise because business owners haven’t invested enough time estimating the potential revenue streams achievable and balance it against their obligation to pay out expenses. As a business owner, you should know the importance of calculating precise cash flow forecasts. If you don’t appropriately estimate your cash flow for the day, week, month and quarter, you’re going to be putting your company at risk.

From the first day you start your business, you need to track and manage your cash flow, including paying your employees, vendors and others against the time frame in which you collect payment from your clients. Make sure that you time cash inflow to arrive before payments to others are due. You should also set up cash reserves to smooth out the bumpy road.

Quality Product or Service is First!

You should always focus on the quality of your products and services before you decide to cut costs. Your business won’t survive if what you’re offering is fatally flawed. You may decide to outsource some of the work to keep employment expenses low.

Customer Service is Second!

Providing superior customer service will give any business a competitive edge. Sure, most consumers want to save as much money as possible on transactions, but they also expect a positive customer service experience.

Before you cut prices to match or beat the competition, focus on improving your customer service skills. When customers email, message or call, make sure that they receive real help instead of empty promises or excuses. If you have a designated customer service employee or department, ensure that they can quickly and efficiently respond to dissatisfied customers. If you cut employment costs by outsourcing this function make sure that you’ve picked a good agency and that you’re following employment law.

By having a well thought out customer service strategy in place, you’ll give your clients a reason to continue doing business with you, regardless of whether your prices are somewhat more expensive than your competitors. Mistakes are going to happen, but if you have effective customer service strategies along with a great product or services in place, most consumers will be more likely to overlook the occasional mistake.

When it comes to business success, cash is always king and cash flow should always be priority #1. Let’s work together to come up with a strategy for your business. Call me today to discuss.

Why Are Net Income and Cash Flow from Operating Activities Different?

Why Are Net Income and Cash Flow from Operating Activities Different?

It’s important for businesses to understand cash flow. Cash is what keeps a business operating smoothly. You obviously need profit, but equally as critical is your cash flow. You must have a firm understanding all the financial facets of your business, from net income to cash flow from operating activities. Here are the basics.

What is Net Income?

Net income is the mathematical outcome of gains and revenues, minus the cost of products and solutions sold as well as losses and expenses. Net income appears on your income statement as a net gain. If the net amount is negative, it is referred to as a net loss.

What is Cash Flow from Operating Activities?

Cash from operating activities is net cash inflow documented in the first section of cash flow statements. Cash from operating activities is focused on the outflows and inflows from primary activities such as providing services, buying and selling merchandise, etc.

Cash from operating activities doesn’t include the amount of money spent on capital expenditures such as new facilities or equipment, cash garnered from the sale of long-term assets or cash utilized for other long-term investments. `

Here’s How They’re Different

Net income and cash flow from operating activities are different for many reasons.

  • Reason #1: Cash flows from operating activities include specific items that are addressed distinctly on the income statement. Non-cash expenses, including depreciation, share-based compensation and amortization need to be included in order to calculate net profit. These types of expenses are incorporated back into net income on the associated cash flow statement. They reduce net income but do not affect net cash flows.
  • Reason #2: Net income is a line item found in the operating activities area of the cash flow statement. Cash flow from operating activities includes the sum of net income, changes in working capital and changes for non-cash expenses. Increases of existing assets, including accounts receivables, inventories, and deferred revenue are viewed as uses of cash. Reductions in these types of assets are considered sources of cash. In the same manner, decreases in current financial obligations, including accrued expenses, accounts payable and tax liabilities are considered are considered uses of cash.
  • Reason #3: Another reason they are different has to do with timing. Differences exist between the recognition of revenue and expense and the various underlying cash flows.

Once you understand the difference between net income and cash flow from operating activities, you’ll be on your way to fully comprehending the health of your business. But, what happens when your business is cash strapped? I’ll share strategies in my next post so stay tuned.

Treat Your Business like a Marriage

The average marriage outlives the average business according to an analysis performed by Mona Chalabi where she 2015-04-16_14-42-37compared the US Department of Labor statistics to the Department of Health and Human Services. She found that 80 percent of marriages formed in 1995 survived past the five year mark, whereas 54.7 percent of businesses didn’t. That may come as a bit of a shock considering the current divorce rates, but many businesses tend to fizzle out over the span of 15 years. Perhaps business owners should take a few lessons from marriages. Here are seven considerations that might help improve the success of your business.

Happiness Quotient

In marriage, your happiness level with your spouse ebbs and flows throughout the years. You don’t expect to be happy all of the time. Why should you expect to be happy about your business all the time? In relationships that last over the long haul, couples learn to use dissatisfaction as a cue to make a change, spice things up or get marriage counselling. This can be applied to business as well.

If you are experiencing a period of stress, anxiety, or sadness in your business, spend some time understanding the root cause. Seek the advice of experts to help you see what you’re too close to see. Once you understand the root cause, you can work to correct the issue.

Be Present

Every couple knows that there are times within the relationship when you would rather be anywhere else in the world besides standing next to your partner, like at an event you hate or during a moment of crisis. Successful couples know that sometimes you have to put aside what you want for yourself in the interest of your spouse. Even in times of relationship struggle, being present proves that you are dedicated to making it work.

Business is much the same. There is a lot to be said for showing up when times are tough and looking for a workable solution. Presence and consistency is key to get through the tough times as well as to stay top of mind.

Love is a Verb

When marriages fail, it’s often due to the fact that individuals don’t feel like they are in love anymore. The truth is that these individuals haven’t realized that love is a verb…an action word…and not a feeling. If you want to show someone that you love them, you take action. You buy flowers, take them on a special date, complete a project, write a poem or whatever strikes your fancy.

Your business works in much the same way. You can’t expect it to get from point A to Z all on its own. You have to take action. Create plans and execute to deliverables. Your business will thank you for it.

If you are falling out of love with your business, treat it like a marriage. Show it your devotion by performing the actions necessary to correct the issues as they appear. You might find that you ignite a fire in it.

How to Create a Small Business Budget

Creating a small business budget helps you stay within your means and either remain or work towards becoming cash flow positive. A budget helps you understand what you have to use towards growing your business, purchasing new equipment and hiring new employees. Creating a sound budget will prevent you from accidentally overspending and can make the difference between your business staying afloat or sinking. Here are a few things to keep in mind.

Sales

In order to successfully create your budget you’ll need to review your income statements and see how much revenue your company is earning as well as necessary expenses. This will require that you estimate your future revenue based on figures over the last year. Your estimate should be conservative in nature and be a realistic portrayal of what’s achievable. If you are just starting out and haven’t been in business long enough to use data from the previous year, do some market research or speak to others in the same industry to create an educated guess.

Expenses

This part is just as tricky as estimating future sales. Factors like inflation, increases in price, and the need for more of a particular utility, service, or material can vary over time. These costs should be divided depending on their variability into categories such as semi-variable, variable, or fixed.

  • Fixed-These expenses remain the same regardless of the amount of product or service that you produce. Rent, insurance, leased furniture or car payments are good examples of fixed expenses.
  • Variable-This type of expense directly correlates to how much product you are producing and is a reflection of the materials used, freight or inventory.
  • Semi-variable-These costs and expenses may need to fluctuate depending on how your business is doing. They include items like marketing, salaries and telecommunications.

Profits

Profits are variable but can be estimated by subtracting your projected expenses from your projected revenues. This is the amount of money you have to expand your business, purchase new equipment or software, provide employees with bonuses or raises and add staff. If you’re uncomfortable with the calculated amount, contact an accountant, banker or trade association for their input.

Drafting your Small Business Budget

Your budget should be drafted for an entire year. Conservatively estimate your revenues and expenses for each month and list them in your budget. Calculate your gross profit by estimating the cost of the goods sold (goods purchased and/or manufactured, shipping charges, beginning inventory) and subtract it from your sales revenues.

Be prepared to make adjustments to the budget as necessary for things that occur over the course of the year like hiring employees, increasing sales and increasing costs. Should the economy change over the course of the year and result in reduced or increased sales, you’ll need to make an adjustment to your budget. For example, if you estimate that you will have revenues of $120,000 per year or $10,000 per month, but you’re only earning $9,000, then you need to change the monthly figure for future months to $9,000 or get on the horn and sell more products and services.

A budget is a plan and it’s a useful tool to keep you on track. Be sure to adjust it if you see trends that are either financially positive or negative. While this may seem a bit nerve-wracking at first, as you get used to creating and adjusting your budget over time it will become second nature.

How to Read a Small Business Income Statement

The Income Statement, also called Profit and Loss Statement, is another report included within the Financial incomestatementStatement. Last month we discussed the Balance Sheet, which reports a running net worth of your business by breaking out assets, liabilities and owner’s equity or net worth. The Income Statement is different, in that it reports within specific time periods, such as monthly, quarterly or annually. This document is necessary to determine tax liability, or more importantly to reflect whether the owner’s equity is changing for better or worse. It also lets a business owner know how their financial decisions are impacting their overall success.

This financial statement has areas that appear to be quite straightforward but others are a little more daunting at first glance. Having everything accounted for accurately is one thing but what does it all mean? This post breaks it down for the small business owner so that you can easily read a small business income statement.

Revenue

Revenue contains all the income earned from sales of goods and services. This line item is listed as the top item on the Income Statement from which all charges, costs, and expenses are deducted to determine a net ordinary income. Other income items, such as gain on sale of fixed assets or transactions not involved in daily operations will be discussed later in this section.

Cost of Goods Sold

COGS are expenses that are required and used to generate income. Cost of Goods Sold (COGS) is determined by taking the beginning inventory + purchases + ending inventory, the difference is inventory used to produce goods sold. A good example is, if you were to sell a pair of jeans for $80, you would indicate that amount in revenue. Then you would list what the jeans cost you to purchase or manufacture in the COGS column. Let’s say that the jeans cost your company $20 in materials and time; $20 would be placed in this column for each pair of jeans sold to reflect their cost. If your company provides a service and not a product, this figure would reflect the total number of man-hours used to perform the service

Gross Profit, also called gross margin is the amount and percentage from revenue minus cost of goods sold. Gross Profit is important because it indicates how efficiently the business owner and management uses labor and supplies in the production process. It’s a very good indication of how profitable a company is at its most basic level. Companies with higher gross profit will have more money left over to spend on overhead expenses, operations and other business matters such as research and development.

Operating Expenses also referred to as Overhead Expenses incur during the routine carrying out of day-to-day business. These expenses, to mention just a few include business insurance, rent, office supplies, office payroll, workers compensation, annual licenses and permits, travel and other general expenses.

Net Ordinary Profit

EBIT (Earnings before Interest and Taxes) is the sum or Gross Profit less Operating Expenses. Net Ordinary Profit is the results of a company’s primary business operations. Not to get too deep into tax matters, but ordinary profit is taxed differently than other types of income.

Other Income/Expenses

Other Income/Expenses is the last section of an income statement and reflects extraordinary income and expenses. For example, Gain or Loss on Sale of Fixed Asset, interest or dividends earned. Rental income is another example, if you have a spare office you decide to lease and it’s not your primary source of income. In summary, any activity that is not part of your primary business and is taxed differently than ordinary income, such as capital gains taxes.

Net Profit

Net Profit (Loss) is your bottom line! Since our focus is small business owners, the subject of income taxes is not included in an income statement. If you are a sole-proprietor, LLC, Partnership or S-Corporation, your business will not pay taxes. Rather, the taxable income will flow over to your personal tax return. For this reason, tax refunds and estimated tax payments have not been discussed.

Read Your Small Business Income Statement

Income statements are the key to understanding the health of your company. If you’re looking for someone to help you get your financial systems and processes in order to further improve the health of your business, give me a call today.

Balance Sheet Basics: Long-term Assets and Liabilities

I shared the basics of short-term assets and liabilities and how you can use that information to make sound business decisions in my previous posts. long term assetsLong-term assets and liabilities are just as important and extend past the current year.

Sometimes it’s helpful to assess long-term assets against long-term liabilities to gain a picture of the money coming in to your business and leaving it in the future. To do this, you’ll need to understand what long-term assets you have and compare them to long-term liabilities.

Long-term assets

This asset type is used for things not quickly converted into cash, which cannot be sold or consumed within a year or less. They include:

  • Investments—Investments that are not expected to be sold within the year such as bonds, common stock, investments in assets not used in operation, long-term notes, pension funds or plan-extension funds. These assets are reported on the balance sheet at historical or market value.
  • Fixed assets—Items that have a lifespan longer than one year and are used in operations such as machinery and equipment and buildings. They are depreciated over time.
  • Intangible assets—Intangible assets are things like patents, copyrights, trademarks, franchises and organization costs. These assets may have infinite life and are not amortized.

Long-term Liabilities

Long-term liabilities incorporate items that you anticipate liquidating outside of the current year or cycle of operation. They are reported as the value of all remaining payments and include:

  • Notes payables—This amount usually carries interest and is the amount your company owes to a creditor.
  • Long-term debt—Current portion of a net debt that is payable over a long-term.
  • Deferred income tax liability—Taxes due in the future for income already received and reported in your financials. A future tax liability is created when a company’s tax payable is less than its tax expense.
  • Pension fund liability—Post retirement benefits of current or retired employees as contributions that are necessary for future payments.
  • Long-term capital-lease obligation—This is a written agreement under which a property owner allows a tenant to use and rent the property for a specified period of time.

Understanding your liabilities is important. They are a claim against your business assets. Investors will want to know why you’re issuing new debt so be sure to note the reason why. Debt isn’t bad, especially if you have it because you’re investing in optimizing your processes and becoming more efficient.

The combination of your long-term assets and liabilities gives creditors and other interested parties the ability to see how your business is doing beyond the current year. It can help them decide whether or not they will extend credit to your business.

Analyzing Short-term Receivables and Payables to Make Sound Business Decisions

When you’re trying to determine what money is coming in compared to money you need to pay out, you’ll need to review short-term assets against short-term liabilities.payables and receivables This helps you understand where you need to make changes in your policies and procedures to ensure your business stays cash flow positive.

Accounts Receivable s vs. Accounts Payable

Accounts receivable is money owed to your business for purchases made by customers, suppliers, and other vendors. It’s an asset. Accounts payable includes all short-term obligations owed by your business to creditors, suppliers and other vendors.

As you review your balance sheet, you may decide to change your terms or policies if your business isn’t thriving with your existing procedures. You can get an in-depth look into your accounts receivables with the Accounts Receivable Aging Report. Be sure to look closely at your terms and existing customer base and review the following:

  • Terms—What types of terms have you given customers? Do you give them a 30-day window to pay or is payment due immediately.
  • Customer behavior—Do some customers pay on time while others seem to take forever?

Just as you review your customer’s terms and behaviors, you should also take the time to review your supplier’s terms and behavior drilling down to the Accounts Payable Aging Report.

Notes Receivables vs. Payable

Many small business transactions are finalized with credit. Often times smaller business lend or receive money with promissory notes where one person promises to pay the other one back at a certain time under certain interest terms.

Notes receivables that are due within one year are current assets. These are promises to pay you for money you’ve loaned to others. Notes that cannot be collected on within one year should be considered long-term assets. Notes payables represents money owed on a short-term collection cycle of one year or less. It may include bank notes, mortgage obligations or vehicle payments.

As a small or mid-size business, notes receivables are likely to be promissory notes or employee advances. Perhaps you’ve given a customer a loan because they couldn’t make the payments on the product or service they bought from you. To avoid legal fees or the embarrassment of a collection agency calling on them, they agreed to transfer their delinquent accounts receivable balance to a promissory note. (Note: I don’t advise that you do this without the counsel of your attorney)

Notes payable could be a line of credit, accrued payroll and withholding taxes and the current 12 months of a vehicle loan that’s setup as a contra account to separate the current balance of a long-term note. The remaining balance of the loan will be found under long-term payables.

If you discover that you have a large number of outstanding notes receivable, you should consider taking measures to reduce the amount of write-offs you may see as the debt becomes uncollectable. You may even want to put a policy in place to ensure that you don’t lend out more than your business can afford to lose.

You may also want to create an account called Allowance for Doubtful Accounts. This account can accrue a bad debt balance that can be used to write off any notes payable that later become uncollectible.

Timing is important with receivables and payables. You could run into serious cash flow issues if you have a ton of money coming into your business in the next 60 days, but owe your suppliers money in the next 30 days. Timing is critical in everything, but especially in accounts and notes receivables and payables.

Balance Sheet Basics: Short-term Assets and Liabilities

The balance sheet provides an indication of the financial strength and capabilities of the business at a single point in time.balance sheet It’s helpful to review the balance sheet at the end of an accounting period to determine if you can make your bills with your projected income or if you need to take immediate steps to bolster cash reserves. You can also identify and analyze trends to determine if it’s taking longer to collect payments, whether or not you’ll want to be more aggressive on collections or determine that a debt is uncollectable.

Balance Sheet Basics

A balance sheet consists of assets, liabilities and owners’ or stockholders’ equity. Assets and liabilities are divided into short-term and long-term obligations. An asset is anything the business owns that has monetary value. Liabilities are what your business owes other people. At any given time, assets must equal liabilities plus owners’ equity.

Sometimes it’s helpful to assess short-term assets against short-term liabilities to gain a picture of the money coming in to your business and leaving it within the next year. To do this, you’ll need to understand what current assets you have, which are assets that are sold or consumed within a year or converted into cash. You’ll compare this against liabilities, which are debts payable in one year or within the operating cycle; whichever is longer.

Current Assets

The following are current assets as long as they are easily converted into cash within one calendar year:

  • Cash—Cash is considered the most liquid of all assets. Although cash is the most liquid asset on your balance sheet, you may want to ask yourself what portion of the cash is reserved to pay debts such as payroll taxes, estimated income tax and insurance. If the cash is reserved, you should consider keeping it in a separate bank account to reduce the likelihood of spending it on other business expenses.
  • Marketable securities—Short-term investments can be both equity and debt securities in a pre-existing market. As these are short-term investments, they are expected to sell within one year and are reported at their market value at the time of financial statement preparation.
  • Accounts receivable—This is the money owed to your company for credit extended to its customers for goods or services. Allowances can be made for credit extended, which may not be received due customers who are unable to meet their financial obligations. You’ll need to estimate this amount and create an account called Allowance for Doubtful Accounts. This will impact the reported sales on the income statement if there are variations in the amount recorded.
  • Notes receivable—Similar to accounts receivable, this is a more formal agreement for things such as promissory notes or short-term loans that carry interest. These notes are receivable in less than a year.
  • Inventory—This is the product that you sell or raw materials that are used to create items to be sold. Inventory is valued at the cost that it took to acquire and get the items ready to sell.
  • Prepaid expenses—These expenses include rent, insurance, taxes or other expenses that you pay in advance, but expect to receive service for in the near future. These expenses must include the original cost at the time of payment.

Current liabilities

Current liabilities are debts payable in one year or within the operating cycle; whichever is longer. They should be listed in the order of when they are due and include the following:

  • Bank indebtedness—The amount you owe the bank in the form of a bank line-of-credit or for a short-term loan, which will not take a full year to pay.
  • Accounts payable—The amount you owe for services and products that have been delivered to your company, but you haven’t yet paid for them.
  • Accrued liabilities—Include dividends payable, wages payable, customer prepayments and other things that occur before the payment is due.
  • Notes payable—Short-term loans that usually carry interest and is money owed to a creditor.
  • Unearned revenues—This is money you have from a customer because they pre-paid for a service or product, which has not yet been delivered or is not in transit.
  • Dividends payable—This occurs when you declare a dividend but haven’t yet paid it out.
  • Current portion of long-term debt—The portion of a long-term debt, which is currently maturing and any discount or premium attached to it.
  • Current portion of capital-lease obligation—The part of a capital lease, which is due within the next year and is long-term.

Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors and vendors.

Understanding this section of your balance sheet will give you the ability to adjust your business practices as needed. It will also provide you with the documentation required when you need it the most. In my next post, I’ll walk you through comparing assets against liabilities in order to make sound cash flow decisions.

Prepare for 2015 by Reducing Your Small Business Tax Today

With the end of year quickly approaching it’s time to consider whether you are taking advantage of the many ways you can reduce your small business tax bill. small business taxHere are seven ways you can take advantage of tax breaks before the year is through. Be sure that you follow up with your CPA or tax adviser before implementing this advice.

7 Tax Saving Strategies

  1. Pay your January bills in December- Invoices that are normally due in January can be paid in December. These could be expenses like rent and utilities or even payments to freelancers and subcontractors. This helps you raise your expenses for the year, which lowers your taxable earnings for 2014.
  2. Implement systems or purchase software– If you’re already planning on changing company software, upgrading existing systems, or implementing additional software in early 2015, just pull in the purchase to December. Purchasing, upgrading, and implementing new software before December 31 will count towards your business expenses and lower your small business taxable income. Not only do you get to take advantage of new software functionality sooner, you’ll be able to claim it as a section 179 deduction if it’s off the shelf.
  3. Purchase training programs in advance – Do you already know you will be implementing new software, procedures, or processes in the New Year? Sign contracts and pre-pay for training program in December. According to IRS publication 970, if you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both income tax and self-employment tax.
  4. Throw a holiday party- Throwing a holiday party for staff, clients, potential clients and business associates can go a long way to reducing your taxable income as long as it isn’t lavish or extraordinary. Not only will your staff, clients, and business associates be impressed with the generosity of your holiday event, you’ll be able to deduct 50% (if there is a direct relation to getting more business) or even 100% (if it’s for your employees) of the meal and entertainment expenses according to IRS publication 463.
  5. Buy your clients holiday gifts- Yet another great and fun way to save yourself money, the purchase of holiday gifts for your clients can be partially written off as a business expense. If you’re providing the gift to an individual the maximum amount of the deduction is $25 according to IRS publication 463. However, if you’re providing the gift to the entire company you can write off more. This double whammy allows you to not only lower your taxable income; it builds client relationships that will help increase your profit margins in the future.
  6. Donate to charity- Donations to registered charities are a great tax deductible way to contribute to the community you do business in. Giving back to the community that supports you sees not only the money you save in tax breaks, it recognizes you as a business who cares and can foster future client relationships which affect your bottom line.
  7. Take advantage of NOLs- Your 2014 net operating losses (NOL) can be carried back for up to two years in order to help you in recovering taxes paid in previous years. They may also be carried ahead for up to 20 years if you think your future tax rates will increase. NOLs occur when your business expenses exceed your taxable income for any given year, except for the Section 179 depreciation deductible, and can create situations where you recover taxes from previous years or create a NOL for the existing tax year.

Be sure to take advantage of these, and the many other great deductions which can help save your business money. As with all business expenses, be sure to keep all receipts related to any of the items indicated above as they will have to be submitted or kept on record as indicated by the laws governing your state. Happy savings!