Today only, coffee shops and franchises have promo codes and offers on COFFEE!
iS cOFFEE a tAX DEDUCTION?
As a small business owner, you CAN deduct coffee as a business expense if:
~ Coffee is reasonable and necessary ~ You are tracking coffee expenses ~ Coffee is a fringe benefit employees ~ Purchased and provided to business employees ~ Coffee is provided to improve productivity ~ You host a business meeting in person over coffee ~ Coffee is provided to provide a better work environment ~ You’re Buying for your home office
Coffee for the office is tax deductible!
Now, if you’re a w2 wage earner, coffee is not a tax deduction. If you get coffee on the way to work, it’s not a business expense.
Bookkeeping is recording financial transactions or information that pertains to business operation. It entails creating a filing system that categorizes income to the appropriate accounts as well as differentiating types of expenses.
Businesses and individuals need bookkeeping! People do this without even realizing it’s bookkeeping. Examples are when someone creates a budget or system that tracks money going in and out of the account, so they can be better prepared during tax season.
In most cases a business has a bookkeeper to stay in compliance, manage cash flow, perform multiple clerical duties and tell how the business is performing. By tracking the money that comes in and out, it leaves little room for error and fraud. Bookkeeping tells the business owner and individuals how much they will owe or get back from taxes. Not only that, bookkeeping is the proof behind the numbers.
Bookkeeping also entails knowing some tax laws; what’s tax deductible, what are the limitations, and usually paying payroll taxes. Bookkeepers prepare invoices, financial statements, pay bills on behalf of the business, reconcile bank and loan amounts to provide up-to-date balances.
Bookkeeping is a subcategory of Accounting. Bookkeeping as apposed to Accounting doesn’t deal with auditing . There is a common misconception that bookkeepers don’t do taxes, and some do, some don’t. According to the law, anyone over the age of 18 can prepare tax returns. Taxes are complex and require extensive research, knowledge and understanding.
Two Types of Bookkeeping
One entry is made for each transaction into a journal or log.
Only one account is affected; the account balance will increase. or decrease.
It’s easy to maintain with little requirements; favorable among small businesses.
Two entries are made; a debit and a credit.
Two or more accounts are affected and the entry must balance.
These are usually called Journal Entries.
This is a great system to avoid error.
Bookkeeping is necessary in every business! It’s the recording of a business’ financial transactions from accounts having anything to do with business. Bookkeeping and Accounting work closely together to ensure your business is in compliance and ready for tax season. With software like QuickBooks, single entry bookkeeping makes managing your books easier!
If you’re looking to start or have recently started a business, you’re probably wondering…
~ How do I, if I need to register my business? ~ What are the different business types? ~ Which business structure should I choose? ~ What are the pros and cons of ________?
There are numerous business entity types; sole proprietorship, partnerships, limited liability company, corporations, non-profits, cooperative and more. Choosing correctly matters because the main factors correlate with how you plan to grow and develop your business. Before we get into differentiating there are a few more things to consider…
Difficult to set up or operate
The tax advantages and disadvantages
Potential Legal Liabilities
Difficult to Liquidation Business
Raising more money as business
Regulations to keep business active
How much bookkeeping is required
What happens to business upon death of owner
This is simplest type of business, sole pros are operated by one person and they’re so easy to set up! This is for people who don’t see the need to worry about personal liability. But, the downside here is THERE IS NO separation from business and owner. Sole Pros are most chosen!
~ It’s easy because it doesn’t require the filing of any papers ~ You’re only taxed once on the personal tax return ~ Unlimited legal liabilities ~ Harder to establish business credit and capital (lenders) ~ Banks are hesitant, you’d have to use personal funds
This is for businesses that have more than one owner and at most 20 people. Just like sole pros, they’re easy to form. Its always advisable to get partnership agreements in the case one partner dies and for distribution purposes. Partnerships are usually successful when its clear who brings what to the table. There are two different types of partnerships: General & Limited.
~ General: A general partnership is one in which all of the partners have the ability to actively control and manage the business. In this instance, every partner is allowed to make business and legal decisions (if there’s no partnership agreement), THERE’S EQUAL AUTHORITY. There’s no limit on personal responsibility for business debts, similar to a sole pro. For example, a partner could lose more than just their investment.
~ Limited: REQUIRES A PARTNERSHIP AGREEMENT. The business and sometimes info on the partners has to be filed with the secretary of state. The difference between the two partnerships is that limited has both general and limited partners. Limited is the one who does not have total responsibility for the debts of the partnership. The most a limited partner can lose is his investment in the business. Technically, they’re more or less an investor in the business, they don’t make management decisions or have authority to run the business.
In a limited partnership, they also must have at least one general partner. The general partner(s) is responsible for running the business. They are the ones with control over the day-to-day management of the business. They’re the ones that have the authority to make legally binding business decisions. General partners are also subject to unlimited personal liability for the debts of the business, just like sole pros!
LLC (Limited Liability Company)
This business type is the commonly chose when separating business from personal. Unlike Sole Pros, their assets are protected in the instance of legal liability. The owner of the LLC goes to the IRS and chooses how they want to be taxed (sole pro, partnership or corporation).
~ Not required to have annual meetings, board of directors or a limited number of shareholders ~ Some disadvantages: legal and accounting costs are higher than proprietorships. LLCs have to file articles of incorporation with the state ~ In most cases an LLC will no longer exist when the owner dies, unless stated otherwise in the operating agreement
Suppose your business is growing and you need to attract more lender and investors. A corporation is a legal entity that’s completely separate from the shareholders who own stock in the company. It has the authority to enter into contracts and buy and sell property. A corporation can sue other parties but can also be sued.
There are two types of corporations, s-corps and c-corps!
~ C-Corp:Double taxation refers to how income earned by a regular corporation is technically taxed twice: once when the corporation earns income, and again when it distributes dividends to its owners (who then pay taxes on those dividends. Why mention it? Because C-Corps get taxed twice! The flat tax rate is 21% for C-Corps!
Fun Fact: The closest tax rate to 21% for W2 Wage Earners is 22%
Out of the two, C-Corps are the most complex! YOU NEED A LAWYER TO GET ESTABLISHED. Owners don’t have personal liabilities for debts of their corporation. A shareholder only risks the amount of their investment in the company.
~ Has more access to financial resources ~ A corporation can sell stock to raise capital ~ Can obtain bank loans or issue bonds for long-term financing ~ Better able to attract more talented and skilled employees than proprietorships
~S-Corp: S Corporations combine the tax benefits of proprietorships and LLCs with the liability protection of C Corps. They avoid double taxation by passing income through to the owners. The structure of an s-corp protects the personal assets of the shareholders. Lenders are more willing to make loans to S corps.
~ Must file articles of incorporation with the state ~ Can’t have more than 100 shareholders ~ Can only have 1 class of stock ~ Fringe benefits provided by the company to shareholder-employees are taxable as compensation ~ Must pay Income taxes (Self-Employed: 15.3%)
Be sure to look at my business starting checklist!
When it comes to spouses who want to do business together, the IRS is like… do whatever you want to do, call it what you want just make sure if you want to be a partnership, then file a 1065 (which is…), in most cases if they don’t incorporate or form an LLC, then it’s a general partnership, treated like a sole pro. In some cases one person is seen as the sole pro while the other spouse is legally an employee. Another option is the qualified joint venture, basically a sole pro with two owners. Only for sole pros who are married filing jointly!
So, I said all that to say this, choose wisely! But if you don’t you can always change it for the next year, you just can go back to what you originally chose for 5 years. My opinion, if its just you and you’re just seeing how it goes, form a sole pro but if you want to protect yourself cause life is unpredictable, then form an LLC or a corporation.