Your Best Accounting Purchase

Of all the things that are available to you to help with your accounting and business planning needs, the cheapest also happens to be one of the best. It usually costs between $15 and $30 a month, and will help your businesses immensely. It’s a separate business and personal bank accounts! Even if you are a sole proprietor, here’s why this is one of the best investments you can make:

It helps give you an idea of your true business expenses. When business and personal expenses are being paid out of the same account, it becomes very difficult to determine how well your business is really doing.It doesn’t matter how much money the business is bringing in if the owners isn’t able to see where it is going out to.
It costs extra in bookkeeping/accounting fees. Bookkeepers and accountants charge more to clients without separate business and personal accounts. It also takes longer, and more of your time as a business owner to receive services. It’s stressful if you need a financial statement, or a tax return in order to get a needed loan for the business!

But suppose you are are a business owner says its all business until proven otherwise, sure, you save money in the short term, but…

The tax/legal costs can really add up. Audits take longer, and cost businesses more money when business and personal funds are in the same account. Off the record, many tax auditors say that the extensive amount of work involved in these audits makes them much less lenient, and it’s the business owners that pay.

On the legal side of things, Corporations (both C and S), and LLC’s risk potentially opening up all of their owners to personal liability for business problems. The most common reason that most people decide to start a Corporation, or an LLC is the liability protection. Then they are shocked to find out that they no longer have that protection!

Shop around for a business bank account. Talk to your personal bank first. Many banks offer discounts for multiple accounts. In addition, some banks offer discounts on payroll processing through trusted partners, or other benefits such as credit card processing. It’s never too late to separate your expenses and help enhance your business.

New Startup Program!

We are proud to announce the creation of an accounting program geared specifically towards Startups! Do you need to hire employees? Register for a Sales Permit? Do you need to pick accounting software? Contact us, for a consultation to see how to avoid the difficulties many new and growing businesses face.

Common Business Tax Misconceptions

Over the years I have noticed some reoccurring misconceptions when it comes to business taxes. In this post I am addressing some of the ones I have heard most frequently. If you have any questions about business taxes, please contact me at  (323) 380-8714, or

If my business is registered in Nevada/Delaware I don’t have to pay state taxes even though my business operates in California. 

Generally if a Corporation or LLC  company does business in California, it must pay taxes to California. Doing business generally means the business has employees working in the state on behalf of the company, owns real, or personal (furniture, equipment computers, etc.) property in the state, or does a number of other activities in California. In addition, if your business operates in California, it is required to register to do business within California, regardless of where it was incorporated.

States such as Nevada and Delaware heavily promote using their states for incorporation. These states have favorable business laws that do a lot to protect a business and its shareholders in the event of a lawsuit. In addition, they have minimal business taxes, which are a great benefit to businesses operating in those states. Generally, those are the reasons why businesses choose incorporate in those states, but those advantages do not waive any requirements put forth by other states.

A Single Member LLC doesn’t have to pay taxes in California.

I addressed this in another post here, but the summary is that any LLC doing business in California, regardless of where it was formed is required to pay taxes in California. It pays to be aware of this rule, especially if you’re thinking of moving your Single Member LLC from another state to California.

The government cannot require shareholders/partners/corporate officers to pay unpaid business taxes. 

Under certain circumstances shareholders and/or corporate officers can be held personally responsible for business taxes. I always recommend that a business in trouble should pay its payroll and sales taxes before anything else for this exact reason. Typically these debts are not dischargeable in bankruptcy either. You don’t want to wind up making payments to the IRS or the State for 20 years because of a business error.

Credit/Debit card statements are just as good as actual receipts in case you’re audited.

The official stance of the IRS is that credit/debit card statements are not an acceptable substitute for actual receipts. While you may find that some IRS agents are willing to accept them to prove that a deduction is justified, most will not.

If the business pays for it, it’s automatically deductible. 

This one is sounds a little broad, but follow me. If your business pays for your car/home/non-business meals, the IRS will require that you allocate a portion of these expenses to personal use, and either deny the deduction at the business level, or require that the owner/shareholder report the portion of personal use on their personal tax return.

Don’t be Fooled by CA State LLC Rules

Choosing between starting a corporation, partnership, or LLC is very difficult. Each has its own advantages and disadvantages. Most self-help guides available only focus on Federal tax consequences. As a result, I see new clients each year that are very confused about why California is sending them a tax bill for having an LLC. This guide will explain California’s rules a bit more.

For Federal tax purposes, a Single Member LLC is treated as a part of its owner’s taxes. This means that Single Member LLC’s are (usually) reported on Schedule C or E of the Owner’s individual tax return, Form 1040. These LLC’s don’t file separate federal tax returns. Most states follow the same treatment for State tax returns. One notable exception is California.

Single Member LLC’s doing business in California must pay the $800 Franchise Tax Fee, and potentially a $900 or greater LLC fee, depending on the Gross Revenues (the amount of cash the LLC received for sales before expenses). In addition, Single Member LLC’s must also file an information return with the Franchise Tax Board.

Many people assume that their LLC is exempt from these taxes if it was formed in another state such as Nevada or Delaware. There is an exemption for LLC’s under very specific circumstances. If your LLC meets any of the following criteria, it is not exempt from California taxes:

  • The LLC is registered with the CA Secretary of State
  • The LLC owns or rents Real property (land, or buildings) in CA
  • The LLC has an office in CA
  • The LLC pays employees or the owner does work in CA for the Business

These are the most common reasons why a business will be required to pay taxes to California, but there are others. Please contact us at (323) 380-8714 or if you have any questions about LLC taxes, or any tax notice you receive.

Bitcoin, Alt Currencies, and Taxes

Confused about possible taxes on the money you have made from Bitcoin or other alt currencies? We are here to help! We prepare tax returns for individuals or businesses investing in alt currencies as a primary business, or as a second source of income. Contact us today for a free consultation, and quote for services!

The Cloud and Your Business

At least once a month someone asks me about the cloud, and what it can do for his/her business. My answer is everything…maybe.

What is the Cloud:

The cloud encompasses a few concepts. I’m focusing on the most common business related uses for this post; being able to read/edit/create documents.

in its simplest form, the cloud can work as storage for your files. In this scenario your files are sent to a server on the internet for storage. This means that you can download your files from any computer with an internet connection. This is very useful for people that don’t want to carry a USB thumbdrive, or similar. It’s also useful for groups if people are in different locations since each person can update the files as needed, and everyone in the group can see those changes. In this version of the cloud, you must bring your own software. That is, you have to install Office, or Adobe Acrobat, or Photoshop on your device to open/edit your Office Documents, PDF’s, or pictures for example.

In a more complicated version, the cloud is not only storage, it’s where you you can open, edit, and create your files. This means that in general, you don’t need to have software pre-installed on computers you want to use, and you can much more easily use a smartphone, or tablet to work on your files.

What can cloud software do for my business?

Cloud software is still a maturing market. In general, most business needs can be met with the software that is available, but if you’re moving from desktop software, you should be careful that the cloud version supports all of the features you use, even if you are moving from the desktop version of software to an online version. Quickbooks 2014 for the desktop has more features than Quickbooks online edition, for example. Further, If you use custom plugins for your desktop software, you will have to confirm that there is a cloud version of the plugin available. In the long term, cloud software will eventually have all of the same features as the desktop equivalent, but as of now, you should be aware of the differences.

Is the cloud right for my business?

…maybe. Businesses that move to the cloud will generally find that they can do business in ways they never imagined. Some business owners really enjoy being able to work from home, or being able to get sensitive data away from the office as they need it. Others enjoy the flexibility it allows for employees, leading to more productive employees. In general, the benefits of the cloud are clear. You will have greater flexibility in how you work so the answer tends to depend more on the features you are using. Overall, it’s definitely worth keeping up with the latest trends in cloud computing for your small business.

Are You Getting the Most from QuickBooks?

When I talk to most small business owners, I find that there is at least one part of their accounting that they do either by hand, or on a spreadsheet, even if they are using QuickBooks, or similar software.  I usually ask them why they do this, and I have found that there are two answers: they are concerned about people in the company seeing this info, or they have had difficulty using QuickBooks/other software to handle the info.

I provide training services and QuickBooks setup to eliminate the first problem. It’s easy to limit what your employees can see in most accounting software. The second problem is a bit more difficult.

I provide a free hour of time to prospective clients to discuss their needs and how I can help them. One day, a client came to me because he was looking for a business loan and he needed his books in order to give to the bank. He said that he was creating invoices in QuickBooks, but he could never get QuickBooks to show the right total owed to him by each customer. He was tracking his accounts receivable in an excel spreadsheet and the file was very large and difficult to work with. As a result, he requested payment from a client that had already paid in full. He felt very embarrassed!

I investigated his QuickBooks file, I saw that his methods were creating additional issues. His books showed more income than he actually earned, and he was paying taxes on the extra income!

I came up with a plan of action to address his issues. First, we fixed his books so that he could send the info to the bank. Next, we coordinated with his tax preparer to amend his tax returns. Finally, we gave him training to use the Accounts Receivable in Quickbooks

I followed up with him some time later to see if he was satisfied with our service, and to see if he got the loan he was looking for. Much to my surprise, he said that he turned down the loan. He was able to collect money faster with the QuickBooks Accounts Receivable function because he spent less time working on the spreadsheet, and more time making calls for payment.