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Can I Use My Personal Bank Account for Business Transactions?

 

When many small business owners or gig workers start out, they find it easier to use their personal bank account for business transactions. Although it may be easy at first, it causes problems for you in the long run. Create a separate business account as soon as your business gets off of the ground. 

 

 Personal Bank Account

 

Mixing business and personal finance make it difficult to keep an accurate track of business expenses. Get a separate credit card for your business to further separate finances and build your business credit. 

 

Continue reading for more information on personal bank accounts vs. business bank accounts.

 

Expenses, Deductions, and Cash Flow

 

Keep all your business expense records in one place. This helps analyze your business’s progression. It also allows you to see what expenses you can deduct from your taxes that year. 

 

Easily conduct a cash flow statement to see where each of your transactions is going. By separating your accounts, you can compare cash from operating activities to your business’s net income to determine the quality of earnings. Use your statement to show investors the cash flow coming in and going out. This shows them your overall performance.

 

Bookkeeping Software

 

We advise you to digitize your bookkeeping rather than holding onto all your paper receipts. Use bookkeeping software like Quickbooks. Connect your business account to the software to keep track of your business transactions. If you mix your business and personal transactions, your record-keeping will confuse you and get off-balance.

 

Small Business Bank Account

 

Choose which bank account is best for you. Some business checking accounts are free. Other accounts need minimum balances and/or other requirements to waive the monthly fees. Business accounts offer you the protection that personal accounts do not offer. Customers and clients find it more professional to do business with someone that has an established account over a personal one. 

 

In the event of an emergency, most banks will loan your business money when you have an account with them. Responsibly using a credit card helps your business establish a positive credit history, even though you may already have one personally. 

 

Hire a Professional from PL Consulting

 

Hire a professional accountant and bookkeeper to help you maintain your business’s finances. Though this will be a financial investment, it will save you money and help smoothly manage your business. 

 

Our professionals at PL Consulting and Bookkeeping Plus will assist you in finding the best bookkeeping software to connect your business bank account to. 

 

We are your go-to resource for bookkeeping and accounting services. Our team serves the Baltimore, Maryland area and beyond. We customize our services to each client. Your ideas are unique to your business, and we understand that. We help you maintain good records and financial statements.

 

Questions about keeping track of business transactions? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.

 

Tax Tips: Home Office Deduction

 

Working from home? Your at-home office can save you money this tax season! Keep reading to see what qualifies–and what doesn’t–for home office deductions. Here’s a few tax tips. 

 

Are Tax Deductions Good?

 

Self-employed taxpayers, independent contractors, and those working in the gig economy can claim tax deductions. By writing off certain expenses, you may owe less in taxes. Your claimed expenses must be for business use. 

 

How to Keep Track of Tax Write-Offs 

 

First, know what qualifies for tax deductions. Each year, it is vital to keep track of all business transactions to claim them during tax time. 

 

It is easiest to keep an electronic folder with all receipts. A spreadsheet may also help you stay organized with spending amounts. Consider hiring a professional accountant to plan and evaluate your business transactions. This structure will minimize the legitimate amount of tax you pay.

 

To figure out your home office deduction, the IRS issued a simplified version. Check out the home office deduction calculation to add to your bookkeeping.

 

tax tips

 

Do Employees Qualify for Home Office Deduction?

 

Because of COVID-19, many employees switched to working from home. Some employers provided their employees with WFH equipment. Still, many employees had to buy new items for their home office themselves. They also had to make extra space in their home for work. 

 

Unfortunately, because of the Tax Cuts and Jobs Act, employees cannot use the home office deduction from 2018 through 2025. This includes employees who receive paychecks or W-2’s exclusively from an employer even if they are working from home. This deduction only includes self-employed taxpayers, independent contractors, and those working in the gig economy.

 

According to the IRS, 

 

“If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area. You need to figure out the percentage of your home devoted to your business activities, utilities, repairs, and depreciation.”

 

Do Home Office Deductions Trigger Audits?

 

It is not likely for the IRS to audit your home office. You should not have to worry if you work from home and use the space regularly and exclusively for business.

 

If you are still unsure, learn more about home office deductions from the IRS Business Use of Your Home guide. You may also contact PL Consulting, a team of professional accountants and bookkeepers. 

 

Outsource Your Tax Preparation to PL Consulting

 

PL Consulting is your go-to resource for tax preparation services. We serve the Baltimore, Maryland area and beyond. We are experienced in tax preparation, including filing individual, small business, partnership, and estate returns. We ensure you consider all your legal deductions to realize your full tax benefit. 

 

Our comprehensive interview techniques and computerized return preparation process assure that your return is complete, correct, and presented to you promptly.

 

Questions? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.

 

 

Financial Statement Basics For Small Business Owners

 

Every business owner needs to know the basics of financial statements. Know this information if you are completing them yourself or if you are outsourcing to a bookkeeper

 

Statements are difficult to analyze but are critical to the health of your business. Keep reading for the basics of what financial statements are and a breakdown of the main statements.

 

What are Financial Statements?

The purpose of financial statements is to understand how much money the business owes, how much is being made, and the difference between what is outgoing and incoming each month. 

 

Compile an annual report with information from financial statements. Explain the year’s business numbers with employees, regulators, shareholders, stakeholders, unions, and vendors. These reports help you meet and plan yearly goals

 

financial statements

What are the Four Basic Financial Statements?

There are four main statements that every business owner should know. This includes balance sheets, income statements, cash flow statements, and equity statements.

 

Balance Sheet

A balance sheet breaks down your assets, liabilities, and equity. It will show depreciation for specific items from the date the item is obtained to the present day. The basis of this statement is from the accounting equation: Shareholders’ Equity = Assets – Liabilities

 

Income Statement

You may also hear the term “profit-and-loss statement.” You need your sales revenue and a list of your expenses during a specific period to prepare an income statement. This statement shows your business expenses and any depreciation over the specific period.

 

Cash Flow Statement

The cash flow statement is for both physical and virtual money transferred in and out of your business. It is a combination of information from your income statement and balance sheet. Compare cash from operating activities to your business’s net income to determine the quality of your earnings.

 

Equity Statement

An equity statement is also referred to as a statement of owner’s equity. This statement reports the changes in company equity. Earned profits, dividends, an inflow of equity, withdrawal of equity, and net loss are shown on this statement. 

 

Financial Statement Tip

When investing or purchasing from a company, read their financial statement. While doing so, beware of false numbers! These companies can use specific numbers and omissions within their statements to make them appear more profitable than they are. While this is not the norm, it is important to note that it is a possibility. 

 

Outsource Your Financial Statements

An important part of owning a business is understanding financial statements. Make your life easier by outsourcing your financial statements. Hire a bookkeeper that you trust. 

 

PL Consulting is your go-to resource for bookkeeping and accounting services. We serve the Baltimore, Maryland area and beyond. Our bookkeeping and accounting services are customized to each client. Your ideas are unique to your business, and we understand that. We help you maintain good records and financial statements.

 

Questions? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professional bookkeepers.

 

All Independent Workers Need to Know About 1099-Misc Forms

 

Tax season is typically a stressful time for many people. It’s important not to make any tax mistakes or miss out on extra cash through deductions. 

 

Most people complete their contracted jobs from the comfort of their own home. Because of this, many independent workers started their businesses or began working as freelancers during the pandemic. If you are new to this type of work, it may be more confusing to do your taxes this year. 

 

Get prepared for tax season. Here is what you need to know about 1099-Misc forms as an independent worker. 

 

Who Gets a 1099-Misc Form?

If you are an independent worker and get contracted to do a specific job, you will receive a 1099-Misc form during tax return season. Unlike a W-2 employee, independent contractors have to determine their own payroll taxes. These are paid every quarter. 

 

There are several other differences between being an employee of a company and an independent contractor. Employees receive benefits from their employers. Independent contractors pay for their own insurance policies and retirement plans. 

 

1099-Misc Form Requirements

You must answer “yes” to these questions to receive and file a 1099-Misc form during tax season.

 

  • The payment must be more than $600. 
  • 1099-Misc forms are used to report money paid for services. It is not used for physical products.
  • The services performed must be for business purposes. If the payments were for personal services, you do not need to file a 1099-Misc form. 

 

Independent Worker Deductions

If you are an independent contractor, deduct work-related expenses from your taxes. When filing your 1099-Misc forms, deduct these items:

 

  • Internet
  • Travel/gas
  • Home office 
  • Car/office maintenance
  • Phone bill
  • Computer/laptop
  • Conferences, classes, and training
  • Office supplies

 

There are so many more deductions that you may qualify for as an independent worker. Talk to a professional tax preparer or accountant to maximize the amount that you will receive back from the government.

 

1099

 

More Notes About 1099-Misc Forms

If you are not sure if you need to file a 1099-Misc form or not, you can still file it. There is not a penalty if you do. If you do not file one that is required to, you may be subject to penalties and fees.

 

Before any payments are made with a new vendor, always get a W-9 form from them. It is vital to do this if there may be a requirement for a 1099-Misc. This saves you during tax-time from vendors that are too busy or unorganized to get you the information.

 

Maintain Your Bookkeeping Records

Are you considered a freelancer, contractor, or independent worker? You must keep track of your bookkeeping records. Make sure you are getting payments from the vendors you are working with. Record where your money is going so you can save money for taxes, retirement, and insurance.

 

PL Consulting is your go-to resource for bookkeeping and accounting services. We will help you maintain good records.

 

Questions about 1099-Misc forms, taxes, or bookkeeping? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.

 

Beginner’s Guide to Preparing a Cash Flow Statement

 

What is a Cash Flow Statement?

A cash flow statement is the total amount of money, both physical or virtual, transferred in and out of your business. It is a combination of information from your profit & loss statement and balance sheet. 

 

Having cash flow steadily into your business keeps your employees paid and the lights on. You must learn how to convert sales into cash consistently and quickly to build a safety net for your business’s future. 

 

Should I Use the Direct Method or the Indirect Method?

Before starting anything, you must decide which method you should use to prepare your statement. The direct method tallies up each instance of cash received or paid. The indirect method uses accounting line items such as net income and depreciation to arrive at cash flow. 

 

Choosing which method to use depends on each business. Small businesses use the direct method because they have fewer income sources and expenses. If you are a large corporation, your financial health is better represented with the indirect cash flow method.

 

What Does a Cash Flow Statement Show?

 

Your cash flow statement shows the following:

Compare cash from operating activities to your business’s net income to determine the quality of earnings. Your earnings are high quality if your cash from operating activities is higher than your net income.

 

Use your statement to show investors the cash flow coming in and going out. This shows them your overall performance.

 

If your business is losing money from operation expenses or financial investments, you will see that on your statement. 

 

cash flow

 

How to Increase Your Cash Flow

 

Reevaluate Pricing

Consider changing the price of your products. You might be under-selling or over-selling your merchandise. Find the perfect price-point through testing. If you are under-selling your items, consumers might not take you seriously. If your price-point is too expensive, then people will turn to your competition.

 

Sell or Lease Equipment

Computer and equipment upgrades happen often with technology advancements. The old equipment can quickly pile up in your office. Consider selling these items for a taxable gain. Keep in mind that you should sell nothing below the book value.

 

On the flip side, you may decide to lease items instead of purchasing them. Talk to your accountant or bookkeeper to weigh out your options.

 

Subscription Sales

Use a subscription service for products consumed consistently and repurchased throughout the year. A subscription service allows your clients and customers to prepay for their items. This means you receive cash upfront.

 

Cash Flow Statement Help

PL Consulting has served the Baltimore, Maryland area for many years. We customize our bookkeeping and accounting services to each client. Your ideas are unique to your business, and we understand that. 

 

Do you need help to prepare your statement? Contact PL Consulting to set up an appointment at 410.764.3731 or contact us on our website.

 

Startup Business Expenses to Consider in Your Budget

 

Starting your own business is exciting, but you must also focus on your numbers. This includes budgeting, accounting, and bookkeeping. 

 

Do you want to run a successful business? You must consider the startup business expenses below in your budget. 

 

Estimating an accurate startup cost will help you meet your business goals. Before starting your business, get the funding that you need.

 

 

business

Professional and Legal Costs

Registering your business is one of the first major steps. Obtaining an LLC is only around $100, but it depends on which state you live in. There are other ways to register your business. Some people choose to register as a corporation or limited partnership. Find out what to register your business as and add in those costs.

 

You must consider any copyrights and patents that will protect your business. This brings you to the cost of lawyers. These people are important when signing and creating contracts with clients and vendors.

 

Marketing

Get potential customers to know about your new startup business. You must invest in marketing. The first step in marketing is developing your branding and packaging. This gets people interested in your business, shows personality, and makes a memorable mark.

 

After you invest in branding, choose marketing that will reach your target market. Focus on online marketing. This includes website ads, social media ads, and social media accounts. You can also choose a non-digital form of marketing like newspapers and billboards.

 

Attend trade shows and local festivals to get your brand noticed. Offer freebies to potential customers. You need to add this cost to your budget.

 

Technology

It is non-negotiable to run a company without a website these days. Hosting a website costs money, and it depends on which host you want to use. If you aren’t tech-savvy, build your website with templates from Squarespace or Weebly. You can choose to outsource to a web designer to build your site, but this will cost you much more money. Research which option is best for your business and your budget. 

 

Other technologies like computers, printers, phones, and Wi-Fi are necessary to get your business up and running. For businesses that will have a brick and mortar location, having a register and credit card machine are important costs. 

 

Product and Material Costs

If you plan on selling tangible goods, you must consider the cost of the products or raw materials. The first few purchases from your business may even cost your business money. Add in the cost of your warehouse, shipping costs, and shipping insurance into the price of the materials. 

 

Administrative Costs

Take anything and everything into account when starting your business. This includes small items like paper, staples, and pens. You are also going to need furniture like desks and office chairs. Where is this furniture going to go? You must consider rent costs and utilities for the first year as well. 

 

Hire a Bookkeeper and Accountant

To maintain your business’s budget, hire a bookkeeper and accountant. By keeping room in your budget for these extra expenses, you will end up saving money in the long run. 

A bookkeeper creates invoices, tracks billing, runs payroll, and creates general ledgers to document all transactions. They ensure that all financial data is correct and coded to the right accounts so that the information is both accurate and easy to access.

 

An accountant also deals with the ongoing finances of a business, but the main difference is that they handle finances that are already finalized and closed out. Accountants interpret financial data that the bookkeeper documents. They compile the information into financial reports. These reports give your business an idea of your financial progress. This helps to analyze the growth of your business and gauge any changes that you may need to make. Accountants also provide tax planning and advice.

 

Accountants and bookkeepers complement one another. They are both equally important to the success of your company. Although starting a new company is overwhelming, remember that there are people here to help you. Get a mentor and outsource work to other business professionals when possible. 

Do you need help with budgeting, accounting, and bookkeeping for your startup? Contact PL Consulting to help with your startup expenses at 410.764.3731 or contact us on our website.

 

 

Fraud Alert: Avoid This Small Business Owner Unemployment Scam

 

COVID-19 has brought upon many scams involving unemployment and coronavirus relief funds. Americans have lost $36 billion in fraudulent unemployment payments from scammers. 

 

employment scam

 

Small business owners—be aware of this recent unemployment scam going on! Fraudsters have been filing for unemployment with business owner’s names. Since they know that small business owners are many times too busy to open their email, the file for unemployment usually goes through. 

 

Four of our clients have reported this happening to them. We are warning you to avoid these fraudsters. Don’t become a victim of this scam.

 

Why are Fraudsters Targeting Small Business Owners?

Small business owners are the main target for this unemployment scam because of the extra coronavirus relief benefits. The added unemployment benefits are enticing to the scammers. Business owners are especially busy, and often don’t realize that an email went through their inbox. This is how the fraudster will successfully claim their unemployment benefits.

 

How are Fraudsters Claiming My Unemployment Benefits?

These people can obtain all your information. This includes your name, birthdate, Social Security number, and more. They use all this information to apply for unemployment. 

 

Remember that the government will never call to ask for your personal information like Social Security, bank account, or credit card numbers. If you get a phone call asking for this information—hang up and block the number.

 

How Can I Avoid Unemployment Scams?

There are many steps that small business owners can take to avoid this unemployment scam. Be sure to practice the following and look out for red flags. 

 

Check Email Sources

If an email isn’t from a government source, or you think it looks a little off, do not respond. Check for grammatical errors. Send that email to your spam box and ignore it. If you reply or click a link in fraudulent emails, you might give access to your personal information. 

 

Be Cautious of Website Credibility

When paying for something online, check the website’s credibility. Websites should never ask for your Social Security number when purchasing something. This an easy way for scammers to get ahold of your personal information. 

 

Install Cybersecurity

Your phone, laptop, and desktop should all have security software installed. Keep your technology and software up-to-date to avoid any security breaches. 

 

 

What Should I Do If a Scammer Claims My Unemployment Benefits?

If you suspect a scam, contact local and federal authorities. You can report fraud over the phone and some states let you report it online. Maryland business owners affected by scams can find reporting information here

 

Maintain Your Bookkeeping Records

Is your small business growing? Do you find it hard to keep up with daily tasks like checking emails? Consider sending work to an outside contractor. This gives you time to focus on what is more important in your business. 

 

PL Consulting is your business’s go-to resource for bookkeeping and accounting services. We will help you maintain good records. If we suspect fraudulent activity on your account, we will contact you immediately.

 

The past year has brought hardship to small business owners. Start 2021 by avoiding this unemployment scam. Call us at 410.764.3731 or contact us on our website to schedule an appointment for our bookkeeping and accounting services.

 

4 Tips for a Profitable Startup

 

Do you have a business idea that you want to make happen? Remember that a business comes with many working parts. After coming up with your initial idea, find a mentor, conduct research, raise funds, and create a plan of action. Follow these tips when creating your startup company.

 

startup

 

Find a Mentor

Starting your own company is not something that is accomplished alone. If you want to succeed, then you will need to enlist the help of others. This could be a business owner who has created their own startup company, an industry professional, or a consultant.

 

Build a relationship with this person. A mentor is important because the internet does not always have all the answers to your questions. Mentors have experiences in their life that they can share with you to help you prosper. 

 

Conduct Research

One of the most important elements of starting your own company is researching your target market. This ensures that people will want to buy your product or service. Gather information from prospective customers, specifically those that are not your friends or family. You will gain insight into how to market your business and attract new customers.

 

If you are creating a survey, be sure to test it out before sending it to a large group of people. The last thing that you would want is to have an invalid survey because you did not ask the right questions. Include multiple-choice questions and extended response questions where people can give more details. 

 

Set Up a Business Plan

You need to know how your business will run and how it will achieve a profit. Business plans help secure loans and funding. A business plan is extremely detailed. They include an overall idea of your business, where it is located, hours of operation, and how it will generate profit.  

 

The most important element of a business plan is the executive summary. It is a summary of the entire business plan and details how you will stand out from your competitors. This is written last, even though it is the first part of your business plan. 

 

Raise Funds

You might need to take out a loan for a building renovation, new product, or marketing expense. Budgets and business plans are key to raising funds for your startup company. Investors and banks want to see that you are organized and make payments on time. 

 

Questions About Your Startup Company?

Starting your own company takes a lot of knowledge and effort. We encourage you to take note of these business tips to grow your company from the ground up.  

 

PL Consulting has served the Baltimore, Maryland area for many years. We customize our services to each client and their business plans. Your ideas are unique to your business, and we understand that. 

 

Do you want to learn more about budgeting or raising funds? We are here to answer all the financial questions you have for your startup company. If you would like to set up an appointment with us, call 410-764-3731.

 

Big Mistakes That Have Cost Small Businesses Money

 

Business owners learn throughout the years from failures and experiences. Here are 5 mistakes that many small business owners make. Avoid these mistakes so you can grow your business successfully. 

 

Not Having a Business Plan in Place

A business plan sets the parameters for everything related to your business. It gives you structure and premises for how you should run your business operations. It also helps you assess and measure progress. 

 

A common misconception about business plans is that they are only used to persuade investors to help finance your business. However, they help with marketing and business milestones. A business plan helps with past, present, and future storytelling.

 

Not Utilizing a Financial Accountant

You want to have a clear view of finances as they relate to your business, so separate your business account from your personal one. A professional accountant keeps track of your business finances. When hiring a professional accountant for your business, consider these 5 things. 

 

  • Desired services
  • Reviews
  • References
  • Pricing
  • Involvement.

 

Setting Goals Too High

Goals are how your business measures success. Set daily, weekly, monthly, or yearly goals. If you own a startup company, do some research on numbers you want to reach. Avoid being overly optimistic, even though you may be eager to grow your business.

 

Check if you met your goals, and use that as a benchmark for the next goal that you set. If your goals were not met, determine what went wrong. Was it an external factor that your business could not control? Did you or your employees not put in enough effort? If your goals were exceeded, find out what worked well. Are you selling a popular new product? Do you have a lot of engagement on your social media? 

 

Not Maintaining a Budget

A budget maps out each of your business costs. From there, your business can set reasonable prices for products and services to make a profit. The budget prevents you from overspending. If you need loan assistance, your budget shows lenders that you make payments on time and have valuable assets. 

 

Your budget also helps you analyze all the risks that your business has. It is difficult to budget for things that have not happened yet, but putting extra money aside can save your business in an emergency. 

 

mistakes

Having an Unorganized Work Environment

Set yourself up for success by organizing your paperwork and online files. If you feel you have too much going on and are missing deadlines, delegate tasks to someone else. This reduces the amount of clutter in your work environment. Streamline your processes so that you and your employees can easily access files and understand what needs to be done. 

 

Avoid These Common Mistakes in Your Small Business

Do you want to learn more about budgeting, financial accounting, or goal setting? We are here for questions you have as a small business owner. If you would like to set up an appointment, call us at 410-764-3731.

 

Year-End Payroll Processing Tips

 

January is almost here, which means it is time to focus on your business’s year-end payroll processing. Processing payroll is complex and detail-oriented. It requires tax calculations and compensation totals for each one of your employees. 

 

This can be a dreadful time for many business owners, so we are sharing some of our expert tips to make year-end payroll processing run smoothly for you.

 

Update Employee Information

The IRS may penalize you for missing or incorrect employee information on their W2 forms. To avoid these penalties, audit employee information like social security numbers, addresses, and names. If you outsource your payroll or use a payroll service that employees can view online, encourage them to review and edit their information throughout the year.

 

Verify Employee Wages, Benefits, and Deductions

Double-check that each employee has the correct pay-rate on file. Review their benefits and deductions to make sure that everything is listed correctly. Many businesses give bonuses at the end of the year. If these bonuses withhold retirement deductions, do not exceed the annual limit.

 

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Process All Checks

Sometimes you make payments outside of your regular payroll processing system. Be sure to keep track of those checks. Pay the tax liabilities for these checks on time. Report all voided checks as well. 

 

Do not mark uncashed checks as voided checks. Report those checks to the unclaimed property office in your state. For Maryland, you can visit their unclaimed property website for more information.

 

Payroll Processing Software

A streamlined payroll process sets a good foundation for your business. Payroll software organizes all important documents and manages employee pay periods. Select which program best suits your business model by weighing out the pros and cons. This is one of the most important payroll management decisions that you will make. 

 

The software will help you out immensely at the end of the year because of its structure and paperless system. If you don’t already use this software, consider acquiring it next year for a trouble-free process.

 

Stay Up-to-Date

Even though you may have done your business’s year-end payroll last year, rules and regulations always change. Stay up-to-date with how your payroll system works. Continue learning about payroll best-practices and make note of important deadlines that you must meet.

 

Payroll Processing Help

If your business is growing and you find it hard to keep up with payroll processing on your own, consider sending it to an outside contractor. This gives you time to focus on what is more important in your business.

 

PL Consulting is here as your business’s go-to resource for bookkeeping and payroll processing. We focus on small and mid-size companies who desire substantial growth. Our payroll services include:

 

  • Payment of State and Federal taxes
  • Track vacation, leave, and sick time
  • Issue paychecks on paper or via direct deposit
  • The ability for employees to view up-to-date pay info online
  • Generate W-2, W-3, 1099 & 1096 forms

 

We customize our services to each of our clients and their business plans. Call us at 410.764.3731 or contact us on our website.