Do you need to meet with clients regularly, but meeting in person is not always the most convenient? I recently stumbled upon a free video conferencing application a few months ago called Zoom. Although I've recently found out about this application, I've learned that this application is becoming pretty popular among small business owners. While there are different pricing plans with Zoom, there is a Basic plan that is FREE. Some of the key features of the Basic plan include:
If you find yourself needing more than what’s offered in the Basic plan, there are 3 other plans that are affordable for the cost-conscious business owner.
SMALL BUSINESS COST SAVING TIP #3: Marketing - Websites, Logos, Social Media Pages, & Business Cards
This week I want to touch on getting your name and brand out to consumers. I know building a website, developing a logo, designing business cards, and setting up business social media pages can be intimidating. I would say take a stab at it in the beginning just so you know what is involved in developing each. At the same time, do not hesitate to reach out and have a professional handle any of it for you if you truly find yourself struggling.
There is so much I can cover on these topics, but I will try to condense as much as I know into a list of key points to get you started on a budget.
Social Media Pages
Please feel free to leave any other cost saving marketing tips in the comments for other small business owners to consider.
Small businesses owners are more likely to be audited than non-business owners because the IRS knows that accounting and tax matters typically fall by the wayside when operating a small business. One of the first things you need to do when starting your business is to open a separate checking account, and make certain you keep your personal and business transactions separate.
If you have registered your business as an LLC, or any other type of Corporation or Partnership, banks will require you to specifically open a business checking account. On the other hand, if you operate as a sole proprietor/freelancer, you may be able to get away with simply opening up a second personal checking account through your current bank.
When you begin to search for a business checking account, you will find that there aren’t many free checking accounts like you would find for a personal checking account. This is when you may have to consider a smaller bank for your business checking needs to avoid the many fees involved with business checking.
I found BBVA Compass to be the best option for me. It’s not as large as Chase or Bank of America, but it has several branches across the southern states, as well as the west coast. Here are a few reasons why I chose the BBVA Compass ClearConnect for Business account:
Because BBVA Compass may not be available in your area, your overall focus should be finding a bank with no monthly maintenance fee and no minimum account balance requirements. I would say go this route even if you can meet the minimum account balances for business checking accounts at the larger banks – why let the bank make money off your required minimum balance of $1,500 plus?
Lastly, as your business grows DO NOT FORGET to reevaluate your business checking needs. You may see an increase in monthly transactions as you grow, or the amount of cash deposited. If you find yourself exceeding the transaction/deposit limits and being charged individual transaction fees, visit your local bank to upgrade your account type. Keep in mind, the bank may not initiate the account upgrade conversation because they want those transaction fees from you – so it’s your responsibility to do so.
If you live in the Dallas-Fort Worth area, below are a list of smaller banks in the area with reasonable bank fees for small business checking. Although, I went with BBVA Compass, all of these were strong contenders when I searched for a business checking account.
NOTE: The reference to the Chase and Bank of America account requirements are for their basic small business checking accounts.
Please feel free to leave any other cost saving tips for selecting a business checking account in the comments for other small business owners to consider.
Starting a business can be overwhelming at times and even costly in the beginning. Over the next few weeks I’d like to spend some time sharing a few cost-saving tips that I’ve learned along the way on my entrepreneurial journey.
There may be some things that you believe you absolutely cannot do, but I promise you that you can. If you have the courage to start a small business, then I promise you can conquer many of these cost-saving strategies in the beginning. Plus, many of the tasks I will discuss are beneficial for you to perform your first year or two of operations so that you truly understand what it takes to successfully operate and manage your business. For example, in 2001 Oprah Winfrey was signing all checks over $1,000 that left her company; in 2011, she admitted that she now only signs checks over $100,000 (which includes her annual payment to the IRS). If a billionaire without a finance/accounting background understands the money that flows in and out of her business, then I think it’s just as important if you do the same for your business. With that being said, this leads me to my first tip.
Wave is a FREE accounting software in addition to a free invoicing service. There is also a receipt app feature in which you can take pictures of your receipts using your mobile phone, and the receipts will automatically upload to your accounting records. I personally have not tried it out, but when I do, I’ll let you know what I think.
I will forewarn you that Wave is SLOW! Almost too slow for my liking, but at a price of FREE, I can deal with the lag time for the first few years. Next year I will likely upgrade to a paid software because I’m finding myself having more transactions to reconcile, which becomes time consuming with the slow speed of Wave. Even with a paid service, I do not plan to spend more than $10-$25 per month (use your dollars wisely in the beginning!). Depending on the type of business you have, you may required more specialized accounting software that would calculate things such as inventory and sales taxes. There are countless accounting subscriptions for small businesses and many can easily range up to $60+ per month. Remember that most accounting software companies will let you try out the software for a trial period that can be anywhere from 7 to 30 days. Feel free to try out as many as you like until you find one that works for you – just don’t forget to cancel before the trial subscription ends!
While the Wave accounting software and invoicing services are free, Wave also offers payroll and credit card processing services. I’ve read a few of the reviews regarding the difficulty of reaching a human on the phone in the event you have issues with either of the services. As a result, I decided not to use Wave for my client invoicing (and probably won’t use them for payroll once I’m ready to hire employees). Instead, I use Square for my client invoicing and have no complaints.
Like the Wave invoicing feature, the invoicing feature for Square is free with fees for credit card processing. After countless hours of research, I decided on Square because it was the simplest to get setup, reputable, and the fees were easy to understand. Their website was easy to navigate and straight to the point. Also, their payment processing/deposit time was one of the quickest I found. Funds are deposited in your bank account within 1-2 business days. So far, most of my payments have been deposited within 2 business days, but a few have been deposited within 1 business day. While I currently only use Square for invoices, it is important to know that Square also has various types of hardware used for collecting credit card and cash payments for your business – iPad registers, register receipt paper, locking cash drawers, barcode scanners, kitchen printers (for restaurants).
You also have the option of having your funds instantly deposited into your checking account with Square, just as you would with pretty much any other credit card processor. Because these types of payments function like a bank loan until the funds are actually available, you are charged an additional interest rate on those deposits. In my opinion, it’s best to just wait that 1-2 business days for your deposit because those bank fees can add up quickly.
In the end, if you find yourself truly struggling with handling your business financial records, or find that it's taking countless hours away from you managing your business, do not hesitate to reach out to professional. Just know that there are so many cost-friendly options for professionally managing your business finances. These options will be discussed in a later blog post.
SIDENOTE: Just to clarify how the free invoicing service and credit card merchant services work, you can send as many invoices as you’d like to your customers at no cost. When the customer decides to use the link the invoice to pay the bill using a credit card, then you are charged a credit card processing fee. This is standard for any credit card processing service. The processing fees are deducted from the invoice payment, and the remaining balance is deposited into your checking account. For example, if the invoice is $50 and the credit card processing fee is 2.75%, then the bank processing fee would be $1.38. The bank will take $1.38 from the $50 payment and deposit the remaining balance of $48.62 into your checking account. For this reason, if you want to net the full $50, consider increasing your product or service prices (across the board) to account for credit card transactions.
Please feel free to leave any other cost saving accounting, invoicing, or credit card processing tips in the comments for other small business owners to consider.
UPDATE (4/14/2018): Since the initial post, I have now switched to Quickbooks Payments because of the ability to accept ACH bank transfer payments for free. The processing time for ACH payments is a bit longer, but the cost savings on transactions fees is worth it in my opinion. The credit card transaction fees are the same as Square and many other payment processing competitors.
While I still haven’t had a chance to sit down and read Trump’s proposed tax plan in its entirety, I’ve heard bits and pieces about it in the news and on social media; one area that has sparked my interest is the postcard tax return. Over the years there have been conversations in regards to the complexity of the US income tax structure and the need for simplicity. Although I’m in the professional tax preparation business and the complex structure provides job security, I feel there is some need for simplicity that US taxpayers can benefit from – hence my interest in the postcard tax return.
First, here’s an image of what the proposed postcard return will look like.
Now that you know what it looks like, let me point out some glaring issues that I see immediately:
At a quick glance, this postcard tax return doesn’t hold up to my expectations. The removal of personal exemptions and “roughly doubling” the standard deduction isn’t as beneficial as it appears on the surface. One other thing to note that comes straight from the Ways and Means Committee website, one of the highlights of the plan is that it:
Lowers the corporate tax rate to 20% – down from 35%, which today is the highest in the industrialized world – the largest reduction in the US corporate tax rate in our history.
Corporations are seeing some of the largest tax breaks in US history under this plan, while a married household of five sees a decrease in eligible deductions by $8,950 (and that’s only from the removal of personal exemptions and increasing the standard deduction). I will say that this quick overview does not consider the rest of the tax plan, but I can almost guarantee you that the plan isn’t breaking record numbers when it comes to savings for the average US taxpayer. Corporations are winning even more under this plan, while middle and low-income taxpayers are dangled a carrot to distract them.
SOURCE: The Tax Cuts and Jobs Act – Ways and Means https://waysandmeans.house.gov/taxreform/
I was recently credentialed as an Enrolled Agent and realized many people have never heard of an Enrolled Agent (also simply known as an ‘EA’). Most of my friends and family know that I have an accounting degree, work for a public accounting firm as a Certified Internal Auditor (CIA), and I am eligible to take the CPA exam; so naturally they ask why I chose to become an Enrolled Agent versus a CPA. Keep reading to get a better understanding of the difference between the two and why I specifically chose to become an Enrolled Agent.
What is an Enrolled Agent and How Does One Become an Enrolled Agent?
Directly from the IRS website:
“An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.”
How Does the Exam for an Enrolled Agent Differ from the CPA Exam?
The Enrolled Agent exam is a 3-part exam with 100 questions per part. 100% of the questions in the 3-part exam cover various IRS tax related questions in the following areas:
On the other hand, the CPA exam is a 4-part exam with only 1 part that has questions related to taxation (mostly business-related taxation). This represents only 25% of what CPAs are tested on. I won’t outline the full CPA exam like I did the Enrolled Agent exam considering 75% of the exam is unrelated to tax law.
SIDE NOTE: The minimum amount of tax knowledge required to pass the 4-part CPA exam (as noted above) is another reason I chose the Enrolled Agent route. Personally, I didn’t want to spend all the time and effort on an exam in which I would only use approximately 25% (or less) of the skill set that I tested for. I felt this would be a disservice to my clients considering the Honeycutt Pryor brand is specifically built around tax preparation and representing taxpayers before the IRS.
Additional Differences Between Enrolled Agents and CPAs
SIDENOTE: In essence, the mobility requirements along with the limited tax knowledge required to pass and maintain the CPA license are various reasons that many CPAs firms will hire Enrolled Agents to work specifically in their tax division. Based on my personal experience working as a CIA at a public accounting firm, many CPAs prefer and specialize in working with clients on business-related financial accounting. They leave the taxation to Enrolled Agents because of the ever-changing complexity of tax laws.
While there is no right or wrong answer as to who you should choose to prepare your taxes, or handle any tax-related issues, it is imperative that you understand the difference behind the “letters” at the end of a professional’s name when you hire them. It is key that your professional is licensed (i.e., Enrolled Agent, CPA, Tax Attorney, Registered Tax Preparer) and able to answer your questions or concerns in a manner that makes you feel confident in hiring them as your tax preparer or representative before the IRS.
SIDENOTE: Registered Tax Preparers do NOT have unlimited representation rights before the IRS like Enrolled Agents, CPAs, and Tax Attorneys
Overall, it is advantageous and more cost-effective to use Enrolled Agent when you need assistance resolving an IRS debt/dispute, tax preparation, or have out-of-state tax returns. On the other hand, a CPA is more advantageous when advice on business accounting is needed or an audit attestation of your business financial records which can be provided to the IRS. If the CPA’s specialty is tax, then there is essentially no difference between an Enrolled Agent and the CPA. Also, if you already use a CPA for your business accounting, it may be more convenient and cost-effective to allow them to prepare your tax return as well.
SOURCE: IRS Enrolled Agent Information https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information
SOURCE: AICPA CPA Candidate Blueprint http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/DownloadableDocuments/cpa-exam-blueprints-effective-20170401.pdf
Be aware of tax preparers that are guaranteeing a certain refund amount upfront without fully knowing your tax situation. Yes, they can enter any information they want in order to increase your tax refund and gain your business, but here are a few things to know:
Below are my top 10 ways for spending your tax refund. I would suggest somehow spreading your refund across 3 or more of the categories below. I know there are countless ways to spend your tax refund so if you have any additional suggestions, please feel free to chime in under the comment section – I would love to hear your feedback!
1. Establish or Increase an Emergency Fund – If you do not have an emergency fund I would suggest establishing one with at least $1,000. With each additional year’s tax refund, add an additional $1,000 or more.
You can establish a savings account with your current bank, but you should also consider an online savings account if you have not. You will find that most online savings accounts offer interest rates at a much higher rate than brick and mortar banks. Ally Bank has an online savings account that I use and am pleased with.
On the other hand, there are online money market accounts that come with a checkbook and/or debit card. The interest rate with these accounts are slightly lower than the online savings accounts, but still much higher than interest rates at a brick and mortar bank. You ultimately get the best of both worlds with the high interest rate, along with quick and easy access to your money. I have personally used Ally’s online money market account which provides you with a free set of checks and debit card. Discover also offers an online money market account that provides free checks (no debit card). Just a word of caution, the Federal government limits the number of free withdrawals on money market accounts to 6 withdrawals per statement period. You are charged a fee per withdrawal after 6 withdrawals within a statement period.
2. Purchase Life Insurance – I know this may not seem like a “fun” way to spend your tax refund, but think about the future and the financial security you could provide for your family. Leaving a loved one with the burden of burial and any other of your financial expenses is not the way to go. Instead, use your tax refund to purchase a life insurance policy. I’m not suggesting that you purchase a million-dollar policy. Simply purchase a policy around $50,000 – $75,000, considering today the average cost of a burial is $7,000 - $10,000. Increasing the policy amount will allow for inflation, as well as well as any additional unexpected expenses your family may incur.
For the sake of this blog post, I entered some information online to get a quote to give you an idea of how inexpensive life insurance can be. For a female with average health, age 30, and a non-smoker an insurance policy of $660,000 costs $500/year. Spending $500 annually is minimal considering the average tax refund is $3,000, or more. Furthermore, your policy will probably be much cheaper if you opt of a policy lower than $660,000.
3. Pay Off/Down Debt (credit card, mortgage, student loans, car) – Pay down any debt that you may have. There are many options for choosing which debt to pay off first, but I would simply suggest paying off the one you are most comfortable with. For example, I have used the snowball method as suggested by many financial professionals. Under this method you will start with the lowest debt and pay that off first; you will then move on to the next lowest debt, and so on until you are debt free. Others may suggest starting with the highest interest rate and paying that debt off first. Again, it does not matter which method you choose, just simply pay off/down the debt.
4. Invest in a College Savings (529 Plan) for Your Child(ren) – There are two types of 529 Plans that you can invest in for your child’s future: (1) a prepaid tuition plan, or (2) a college savings plan.
The prepaid tuition plan allows you to lock in current tuition rates. This is beneficial considering the steady increase in tuition costs. Some prepaid tuition plans will also cover room & board and other qualified expenses.
The college savings plan does not lock in current tuition rates, but in turn covers all qualified costs including tuition, room & board, mandatory fees, books, and computers.
To read more about 529 Plans, you can visit the following link on the US Securities and Exchange Commission (SEC) website: https://www.sec.gov/investor/pubs/intro529.htm
5. Save for a Down Payment on a Home – Considering the average tax refund is $3,000, this is a great starting point to save for a down payment on a home. I personally know people that get back anywhere between $5,000 and $7,000 (this is an even better starting point).
What-if Scenario. With the average tax refund being $3,000, within 3 years a person could have a savings of $9,000 plus any earned interest. Federal Housing Administration (FHA) Loans are popular today because of the lower down payment option of 3.5%. If a person went the route of an FHA loan on a $100,000 mortgage, the minimum down payment would be $3,500 and would leave the person with approximately $5,500 for closing cost (if not paid by the seller), updates to the home, or new furniture and decor.
I’d like to note there are a few other things to consider before jumping into the home buying process, and the scenario noted above is for one that has the appropriate credit score to get approved and a clear understanding of the cost of homeownership. For example, you will now be responsible for homeowner’s insurance, property taxes, indoor/outdoor maintenance, and run the risk of being liable for anyone getting injured on your property (that isn’t already covered by your homeowner’s insurance).
6. Renovate Your Home – Start making those updates to your home that you’ve been wanting. If you make updates that are not overly personalized, you should be able to add value to your home at the same time. Here is a list of budget friendly updates that can add value at the same time:
7. Save for the Business You Have Been Dreaming Of – Here’s another great reason to save. Become your own boss! The logic is like saving for a home; instead, save for 5 years. After 5 years of saving $3,000 each year, you will have accumulated $15,000 ($30,000 if your average refund is around $6,000) to start up that business you have always wanted.
Depending on the type of business you want to start, you may be able to start up the business using only one-years’ worth of tax refund money. The service industry typically has low start-up costs and examples include blogging/vlogging, lawn care, bookkeeping, home and office cleaning services, personal shopper/stylist, financial counselor, specialized tutor, computer technician, and window installer. The costliest expenses in the service industry are your time and expertise; all other expenses are typically administrative and minimal.
8. Establish a Christmas Fund – This an annual expense for some people, especially those with young children. Also, many people are recuperating from the holiday shopping around the time you receive an income tax refund. It is wise to go ahead and plan for the next holiday season by setting aside $500 – $2000 for shopping depending on the average dollar amount you typically spend each Christmas.
Many credit unions still offer a ‘Christmas Club’ savings account. If you aren’t a member of a local credit union, you can always open an online savings account (as mentioned above for the Emergency Fund) and hold those funds in the account until Christmas.
9. Charitable Donation (give back to the community) – Find a local non-profit group that interests you and make a monetary donation or purchase an item that the organization or your community needs. Although you will not receive an immediate financial benefit, you can write the donation off on your income tax return for the next year.
My key reason for adding this to list is because of the societal benefit and the internal pleasure and meaning that it brings to your life. I have a charity that I donate to regularly in Northeast Louisiana because the work that they do holds a special place in my heart. If you do not have a charity in mind that you would like to donate to, please feel free to email or message me on social media and I will give you the information to the charity that I donate to.
10. Have Fun! Prepay a Vacation! – ONLY DO SO IF YOU HAVE ALREADY ESTABLISHED AN EMERGENCY FUND AND PURCHASED LIFE INSURANCE! I repeat, ONLY DO SO IF YOU HAVE ALREADY ESTABLISHED AN EMERGENCY FUND AND PURCHASED LIFE INSURANCE! (I can’t stress this enough). I would also suggest only spending no more than 20% of your tax refund on a vacation. One cheap cost-friendly vacation that I enjoy is going on a cruise. You can typically find 3-5 day cruises for $300 - $700 per person depending on the port location. Food and some entertainment & beverages are included in the cruise price. When visiting the port cities there are many beaches that you can visit for free and other areas around the port that you can sightsee for free.
PLAIN & SIMPLE: If you are due a tax refund and your tax return includes the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC), then you will not receive your refund until on, or after, February 15, 2017.
According to the IRS, this action is driven by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that was enacted Dec. 18, 2015, and made several changes to the tax law to benefit taxpayers and their families. Section 201 of this new law mandates that no credit or refund for an overpayment for a taxable year shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return.
Key points to take away from the IRS’s announcement are:
This is my introduction blog post. Over the years I have developed this strange obsession passion for personal and small business finance. Daily, I find myself reading or watching something related to finance. I think my passion for finance started at an early age when my parents opened up savings accounts for my brother and me. There wasn’t much in those accounts, but hey, they made us aware of finances early on. I even vaguely remember conversations with them about interest rates on savings accounts. I don’t recall if they actually used the words “interest rates”, but they explained to me that if I put a certain amount in a savings account and didn’t touch it, then the bank would give me a certain amount for letting the money sit there. That was all my 5-year-old mind needed to hear!
Ultimately, I hope to accomplish two things with this blog and would like to accomplish them with blog posts that are concise and simple to understand for all readers. Those two goals are to:
Although openly speaking about financial situations seems to be taboo, I hope my blog will allow people to talk more openly about their situations and make some changes. I’ve made some financial mistakes along the way (I still beat myself up about some of them) and simply wish someone had advised me sooner – I guess my overall purpose for this blog is to be that “someone” I wish I had.
I would like to end this introduction by saying that I do not consider myself to have all the answers when it comes to personal and small business finance. I am still learning in my 30s (very much open to learning as much as I can) and still making financial mistakes, but the mistakes seem to be less drastic than the ones I made in my 20s. With that being said, if you have any questions or feedback for any of my posts that can help me and others going forward, please do not hesitate to comment and let me know.
None of us is as smart as all of us – Japanese Proverb
I am a personal and small business finance enthusiast with a deep interest in making people's lives a little easier with financial tips and advice.