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2017

The beginning of the year always brings the need for business planning and small business owners should also focus on sound tax strategies. The last thing you want to do is miss out on tax deductions that could lead to more money in your bank account. 

 

Available strategies can save time and money and because President Trump said comprehensive tax reform is a priority for the new administration, there are opportunities to plan ahead.

 

Here are the top five small business tax planning tips you need to know:Ebong Eka Headshot.png

1. Get Organized – Now!

Many small businesses owners do their own accounting instead of hiring a bookkeeper. As a result, it is easy to let organization fall through the cracks. Compile all the documents you receive throughout the year: bank statements, credit card statements, invoices, and form 1099's, as an example.

Being organized lets you track your expenses better. The IRS allows you to deduct your business expenses that are ordinary and necessary. The IRS also requires you to keep track of those expenses and document receipts. If you use an accountant, CPA, or enrolled agent, ask what he or she can do to help you start organizing. They may be able to provide you with an organizing worksheet for your expenses.

2. Give to Charity and Get a Tax Deduction

You can take a tax deduction for items and cash you donate to IRS approved charities. You can confirm if the charitable organization is IRS approved by searching the IRS website. If you donate cash, make sure you keep the receipts you receive from the charity in the event the IRS asks for them. You can also donate items like clothing, household goods, furniture, stocks and even a car. Your deduction is limited to the fair market value of the items and they must be in good condition in order to be deductible. If the non-cash items have a value greater than $500, you have to file a separate form.

Click here for more tips for tax season

3. Use Your Home Office Deduction

Many small businesses work remotely and in many cases, from home. You may be able to take the home office deduction on your tax return this year. The home office deduction is important, because it allows you to take a deduction for the space you use in your home for your small business’s office.

Before you rush to take the deduction, however, there are a few IRS requirements you need to meet to be eligible for the deduction.

     a.     Regular and Exclusive Use – According to the IRS, you must regularly use part of your home exclusively for conducting business.

     b.     Principal Place of Business – You must show that your home is your principal place of business. In other words, you must conduct business in your home.

 

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To determine the deduction, you can either use the simple formula or the regular formula. The simplified method makes it easier for small business owners to calculate and allocate expenses for the deduction. Consult your tax professional to discuss the best method to use for your business.

Related article: How Technology Can Help Small Business Owners Better Manage Cash Flow

4. Maximize Your Retirement Plans

Start planning your retirement contributions now. You can generally deduct contributions to your retirement plans from your income which reduces your taxes. There are several options for retirement plans and each plan has its own pros and cons. Here are several options:

     a.     Simple IRA

     b.     Simplified Employee Pension (SEP IRA)

     c.     Defined Benefit Plan

     d.     Solo 401(k)

     e.     Consult your financial advisors to determine the best fit for your situation.

 

5. Major Purchases? Take the Section 179 Depreciation deduction

The IRS allows you to take a tax deduction for the complete cost of certain purchases you made throughout the year instead of depreciating it over the useful life of the property. There are certain limitations and requirements that you have to meet in order to eligible for the deduction. The deduction limit can be as high as $500,000 in one year, so it’s worth investigating.

For example, you may want to purchase equipment for your T-shirt printing business that has a value of $300,000 and useful life of 10 years. Using Section 179, you can deduct the full amount of $300,000 for the year you purchased the equipment. Without Section 179, you could only deduct $30,000 every year for 10 years. That is a huge tax deduction – so plan to make large purchases this year.

One more thing: In addition to these planning tips, the Trump administration is focused on cutting income tax rates across the board, which can potentially help small businesses. With the extra money you may potentially save, you can invest more into growing and expanding your business.

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

Steve Strauss

Get Your Business Funded

Posted by Steve Strauss Jan 18, 2017

I always like when I get to see the latest Bank of America Small Business Owner Report (SBOR) because not only do I learn something new, but there are typically fascinating facts in there that I don’t find anywhere else. That was especially true when I recently got to look at the latest SBOR.

 

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The Small Business Owner Report is a semi-annual survey of 1,000 small business owners that examines the views and insights of business owners. This latest Report covered all sorts of things such as business outlook, hiring trends, economic indicators, and more. One thing that really stood out was the section that took a look at funding.

 

One particular fact that really caught my eye and made me do a double take was an incredible statistic about business funding. I’ll get to what it was in a moment, but let’s first note up front that when it comes to getting a business funded, small business owners are a resourceful, creative lot, because they need to be. Getting the dream funded is one of the most challenging things that an entrepreneur faces, both in the short-run at the startup phase, in the long-term, and during the more mature growth phase.

 

Question: How do you think most small businesses get most of their capital at the startup phase? Usually, people say “friends and family” when answering that question, and certainly that is true. For instance, it is a big part of the funding section of my book, The Small Business Bible.

 

But it turns out that ‘friends and family’ is the wrong answer.

 

According to this latest Small Business Owner Report, when first getting their business of the ground, the vast majority of entrepreneurs used personal savings (76%). The next most popular sources of funding were:

 

  • Credit cards. Used by 36% of these new entrepreneurs, followed by
  • Bank loans. Used by 25%. Only then, in 4th place, do we find
  • Friends and family at 21%.

 

Interestingly, 38% of the respondents said that they had received a financial gift or loan from family and/or friends at some point in the life cycle of their business. One of the fun and different things about the SBOR is that it doesn’t just stop there. These entrepreneurs were also asked how that financial support made them feel. Their answers were enlightening:

 

  • Grateful – 66%
  • Extra motivated - 39%
  • Anxious – 30%
  • Happy and optimistic - 27%
  • Embarrassed - 23%

 

While all of these stats are very interesting, I found the lending statistic (of all things) to be the most interesting - the one that gave me the double take.

 

Click here to read more from small business expert Steve Strauss.

 

Bank lending is really important because it is where most entrepreneurs turn to for funding as their business becomes more established. After a few years, most small businesses outgrow the friends and family / credit card / personal savings level and need more money to grow bigger and handle increased capacity.

 

So let me ask you the question: What percentage of small business bank loans do you think were approved in 2016?

 

  1. 25%?
  2. 60%?
  3. More than 80%?

 

The correct answer is C.

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Yes, that’s right. According to the spring 2016 Bank of America Small Business Owner Report, approval rates for small business loan applications were an astonishing 89%, falling only slightly this fall to 84%. And get this, “While stable, these numbers are the lowest since the question was first posed in fall 2012.”

 

Roughly 85% of all small business loans were approved. Wow. That flies in the face of urban legends that state that getting a bank loan for a business is very difficult.

 

But, if you think about it, such approval rates actually make a lot of sense. By the time a business has been around for, say, five years or more, the small business owners know what they are doing. By then, they clearly have come up with a business that serves the market, makes a profit, and has a good foundation. Additionally, by that time, they also usually have established a solid relationship with a bank and/or banker. Combined, this adds up to all sorts of reasons to not only get a loan, but have that loan approved.

 

And it comes with the added bonus of not having Uncle Chuck ask about his loan at Thanksgiving dinner.

 

(You can read more of the Small Business Owner Report here.)

 

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation

A tale of two cities:

 

My pal Jeff in New York wanted to make a documentary film but didn’t have enough money to fund the project. He had heard about crowdfunding and decided to give it a shot. He made a quick video about his movie and put it up on Kickstarter. Jeff said to me, “I figure people will definitely donate the money I need if I give them an Associate Producer credit”.

 

A colleague of mine, Jonah, wanted to launch a food truck in Portland, Oregon. He also opted to crowdfund his idea with Kickstarter, but was much more methodical about it. Yes, he created a solid video, but he also cultivated a great list of people to pitch to once he launched his campaign. He also thought very strategically about the rewards people would get, and created tiers that made sense. He put three months into his campaign before he even posted it on Kickstarter, and even then, as he told me later, “I worked it. I treated it like a marketing campaign.”

Guess which entrepreneur met his funding goal? You guessed it – Jonah.

 

So yes, there is a right way and a wrong way to go about crowdfunding the dream. Here are the dos and don’ts:

 

THE DO’S:

 

Do have a concrete, focused product/solution to a problem: It should be no surprise that people will be much more likely to invest their time and money into something that they see solves a problem, especially if it is a problem that they personally have. Potential backers will stay away if your vision is too muddled or abstract.

 

As such, you need to be sure that your product or service is simple, clear, focused and logical. You are also more likely to be successful if the problem you are attempting to solve is fairly ubiquitous.

 

And for the record, physical objects, and games, have the highest rate of success on Kickstarter, whereas documentaries, shorts, and music are by far most likely to fail.

 

Do know who your product is for, and market to them before launching: Jonah intuitively had the right idea. Thoroughness and forethought are needed throughout every phase of your campaign, but especially before launching. Prior to the launch, you should be

doing plenty of marketing to your tribe and target audience via email and social media – regularly sharing ideas, prototypes, sketches, your mission, etc. Remind your audience over and over again about your great solution to this problem so that they become familiar with it.

Getting your audience excited ahead of time and wanting to be a part of your solution is what works.

 

Have other sources of income: Kickstarter pledges should not be your only source of funding. There are several reasons for this:

  • Backers will want to see that you have skin in the game
  • Also, you need capital to run a campaign – to make prototypes, videos, for marketing, and to handle unexpected road blocks or changes of plan Steve-Strauss--in-article-Medium.png

 

Your Kickstarter funds should be going toward manufacturing and distribution, while your own money should be for things like paying office rent, etc.

 

Click here to read more articles from small business expert Steve Strauss

 

THE DON’T’S:

 

Don’t set your funding goal too high: A lot of Kickstarter campaigns make the #1 mistake of setting their funding goal much too high, thinking that it reflects their drive and passion. Yes, you should be proud of that drive, but your funding goal needs to be more strategic and realistic.

 

Your Kickstarter goal should reflect your actual funding needs, and should be an amount that you feel you can reach. People feel much more confident investing in something that looks like it’s already winning, so if your page reads “200% of goal,” you are sure to attract more potential backers.

 

For reference, the median funding goal for the top one thousand most successful Kickstarter campaigns is $1,000.00, whereas most campaigns set a goal of $5,000.00 or more

 

Don’t make your campaign a second or third priority: This project should be your first priority, and you and each team member should be spending enough time ensuring its success. People are not just going to give you money because you posted a cool video on Kickstarter; that’s not how it works.

 

Perhaps the most crucial element of this is prioritizing your backers and potential backers. If you do your campaign right, your inbox will be overflowing with questions and introductions. You need to promptly respond to those queries in a personal, informative, and transparent manner. Give folks regular updates. Get your rewards out the door on time. Respond to requests for additional info.

 

The key here is to act in such a way that backers will want to take a chance on your vision. Do that, and they will help you, well, kick start the dream.

 

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC.  ©2017 Bank of America Corporation

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