More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements, and attics are being transformed into the corporate headquarters of the newest entrepreneurs–home-based businesspeople.

And, with technological advances in smartphones, tablets, and iPads as well as a rising demand for “service-oriented” businesses, the opportunities seem to be endless.

Is a Home-Based Business Right for You?

Choosing a home business is like choosing a spouse or partner: Think carefully before starting the business. Instead of plunging right in, take the time to learn as much about the market for any product or service as you can. Before you invest any time, effort, or money take a few moments to answer the following questions:

• Can you describe in detail the business you plan on establishing?
• What will be your product or service?
• Is there a demand for your product or service?
• Can you identify the target market for your product or service?
• Do you have the talent and expertise needed to compete successfully?

Before you dive head first into a home-based business, it’s essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss, and involves an honest assessment of your own personality, an understanding of what’s involved, and a lot of hard work. You have to be willing to plan ahead and make improvements and adjustments along the way.

While there are no “best” or “right” reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:

• Are you a self-starter?
• Can you stick to business if you’re working at home?
• Do you have the necessary self-discipline to maintain schedules?
• Can you deal with the isolation of working from home?

Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment. If at all possible, you should set up a separate office in your home. You must consider whether your home has space for a business and whether you can successfully run the business from your home.

Compliance with Laws and Regulations

A home-based business is subject to many of the same laws and regulations affecting other businesses and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.

Zoning

Be aware of your city’s zoning regulations. If your business operates in violation of them, you could be fined or closed down.

Restrictions on Certain Goods

Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.

Registration and Accounting Requirements

You may need the following:

• Work certificate or a license from the state (your business’s name may also need to be registered with the state)
• Sales tax number
• Separate business telephone
• Separate business bank account

If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.

Planning Techniques

Money fuels all businesses. With a little planning, you’ll find that you can avoid most financial difficulties. When drawing up a financial plan, don’t worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.

Estimating Start-Up Costs

To estimate your start-up costs include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses.

In addition, business experts say you should not expect a profit for the first eight to ten months, so be sure to give yourself enough of a cushion if you need it.

Projecting Operating Expenses

Include salaries, utilities, office supplies, loan payments, taxes, legal services and insurance premiums, and don’t forget to include your normal living expenses. Your business must not only meet its own needs, but make sure it meets yours as well.

Projecting Income

It is essential that you know how to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points, and cash-flow statements. Use your marketing research to estimate initial sales volume.

Determining Cash Flow

Working capital–not profits–pays your bills. Even though your assets may look great on the balance sheet, if your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you’re broke.

Make a list of all anticipated expenses and projected income for each week and month. If you see a cash-flow crisis developing, cut back on everything but the necessities.

If a home-based business is in your future, then we can help. Don’t hesitate to contact our office if you need assistance setting up your business or making sure you have the proper documentation in place to satisfy the IRS. Check back our website tomorrow when we will post “5 Tax Tips for Starting a Business”.

When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are five IRS tax tips that can help you get your business off to a good start.

1. Business Structure.  An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file. We can help you to choose the right entity for your situation.

2. Business Taxes.  There are four gener
al types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account. We can set up all of these tax payment systems for you.

3. Employer Identification Number.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online. Getting the EIN is quick, and we can get step you through the process to do so.

4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.

5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. Health Insurance premiums vary across the board depending on the type of plan you look at. We can run the quotes for all options and step you through which plans are the best for you and your small business.

The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees.  Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

Let us help with all the tax basics of starting a business – contact our office today to get started.

Let’s say you put in five years at your current job. For most of those years, you’ve had the company take a set percentage of your pre-tax salary and put it into your 401(k) plan.

Now that you’re leaving, what should you do? The first rule of thumb is to leave it alone because you have 60 days to decide whether to roll it over or leave it in the account.

Resist the temptation to cash out. The worst thing an employee can do when leaving a job is to withdraw the money from their 401(k) plans and put it in his or her bank account. Here’s why:

If you decide to have your distribution paid to you, the plan administrator will withhold 20 percent of your total for federal income taxes, so if you had $100,000 in your account and you wanted to cash it out, you’re already down to $80,000.

Furthermore, if you’re younger than 59 1/2, you’ll face a 10 percent penalty for early withdrawal come tax time. Now you’re down another 10 percent from the original amount of $100,000 to $70,000.

Also, because distributions are taxed as ordinary income, at the end of the year, you’ll have to pay the difference between your tax bracket and the 20 percent already taken out. For example, if you’re in the 33 percent tax bracket, you’ll still owe 13 percent, or $13,000. This lowers the amount of your cash distribution to $57,000.

But that’s not all. You might also have to pay state and local taxes. Between taxes and penalties, you could end up with little over half of what you had saved up, short-changing your retirement savings significantly.

What are the Alternatives?
If your new job offers a retirement plan, then the easiest course of action is to roll your account into the new plan before the 60-day period ends. Referred to as a “rollover” it is relatively painless to do. The 401(k) plan administrator at your previous job should have all of the forms you need.

A word of caution: Many employers require that you work a minimum period of time (e.g. three months) before you can participate in a 401(k). If that is the case, one solution is to keep your money in your former employer’s 401(k) plan until the new one is available. Then you can roll it over into the new plan. Most plans let former employees leave their assets in the old plan for several months.

The best way to roll funds over from an old 401(k) plan to a new one is to use a direct transfer. With the direct transfer, you never receive a check, and you avoid all of the taxes and penalties mentioned above, and your savings will continue to grow tax-deferred until you retire.

60-Day Rollover Period

If you have your former employer make the distribution check out to you, the Internal Revenue Service considers this a cash distribution. The check you get will have 20 percent taken out automatically from your vested amount for federal income tax.

But don’t panic. You have 60 days to roll over the lump sum (including the 20 percent) to your new employer’s plan or into a rollover individual retirement account (IRA). Then you won’t owe the additional taxes or the 10 percent early withdrawal penalty.

Note: If you’re not happy with the fund choices your new employer offers, you might opt for a rollover IRA instead of your company’s plan. You can then choose from hundreds of funds and have more control over your money. But again, to avoid the withholding hassle, use direct rollovers.

Note: Prior to 2015, the IRS allowed a one-per-year limit on rollovers on an IRA-by-IRA basis; however, starting in 2015, the limit will apply to aggregating all of an individual’s IRAs, effectively treating them as if they were a single IRA for the purposes of applying the limit.

Leave It Alone

If your vested account balance in your 401(k) is more than $5,000, you can usually leave it with your former employer’s retirement plan. Your lump sum will keep growing tax-deferred until you retire.

However, if you can’t leave the money in your former employer’s 401(k) and your new job doesn’t have a 401(k), your best bet is a direct rollover into an IRA. The same applies if you’ve decided to go into business for yourself.

Once you turn 59 1/2, you can begin withdrawals from your 401(k) plan or IRA without penalty and your withdrawals are taxed as ordinary income.

You don’t have to start taking withdrawals from your 401(k) unless you retire after age 70 1/2. With an IRA you must begin a schedule of taxable withdrawals based on your life expectancy when you reach 70 1/2, whether you’re working or not.

Don’t hesitate to call if you have any questions about IRA rollovers. We can assist you in the process and find an option that best suits your needs.

Summer has come to an end. Now that the hottest days, family vacations and back-to-school rush are behind us, it’s a great time to give some attention to your personal finances. Prepare for the coming months – and the holidays on the horizon – with these fall tips:

• Pay quarterly estimated taxes. If you’re self-employed or you have extra income you haven’t reported on your W-2, now’s the time to make sure you’re paying both state and federal quarterly estimated income taxes so you don’t get stuck with a big bill from Uncle Sam in April. September 17th was the deadline to pay your third quarter estimates, but don’t let that stop you from sending something in anyway.
• Prepare for the cooler months. Although you may still have summer on your mind, staying warm gets expensive when winter hits. Many utility companies offer “budget billing” plans that allow you to spread your heating costs over the year while avoiding a surprisingly large bill for a particularly cold month. Also, winterizing your home this fall conserves energy and saves money.
• Start saving for the holidays. It may sound excessive to start thinking about the holidays in October, but Christmas is a less than 90 days away. Now is a great time to create a holiday spending plan. For instance, if you plan to spend $300 on gifts, you should start saving $3-4 per day to get there. Stashing away cash in advance allows you to buy gifts for everyone on your list without taking on debt. Resolve to start a “Christmas Club” savings account in the New Year to jump-start your savings habit.
• Teach children to save. When kids return to school, they often have a renewed sense of focus and determination. Schools across the country are incorporating financial literacy into the classroom. Take this opportunity to talk to your children about money and the importance of saving. Your efforts will be rewarded as your child develops an understanding of financial principles and positive financial habits. We have a great FREE guide entitled “Money Doesn’t Grow on Trees…Teaching Kids About Money”. Please feel free to request one by clicking here.
• De-clutter and donate. As summer winds down and you start spending more time inside, take a hard look at all the stuff you’ve been stockpiling. Sorting through clothes you no longer wear along with electronics and unused household items can free-up space and even make you a little cash. Sell items at a local consignment shop or donate them (by making a tax-deductible contribution).
• Conquering the Clutter in your Financial Closet. You need only to keep credit card receipts, ATM transactions, and deposit and debit card receipts until you verify the transaction on your monthly statements and then you can shred them. Always remember that any financial transaction, receipt or account statement should be shredded. NEVER throw them in the trash.

PERMANENT items you may want to keep:

• Educational records
• Employment records
• Health records
• Retirement and Pension Plan information
• Contents of your safe deposit box

CURRENT items, which need to be reviewed every 3-6 years, before deciding whether to continue keeping or shredding them include:

• Cancelled checks
• Bank statements
• Insurance policies
• Home purchase, repair and improvement records
• Warranties
• Income tax records