If You’re Handling Your Own Bookkeeping & Tax Work, I’m Slow Clapping For You Right Now
WELCOME, AND I LOVE YOU!
Hello and welcome to the FIRST EVER Balanced by Stevie newsletter! I’m so excited to have you as part of my newsletter community! My goal is to provide you, on a weekly basis, with the bookkeeping and tax tips to help manage your business.
If you’re handling your own bookkeeping and tax work, first of all I’m slow clapping for your right now. And second, I want to help keep you informed of the things that a professional bookkeeper or tax professional would tell you. I also plan to keep you up-to-date on the latest news that is helpful to the small business owner.
Here’s how it works…I’ve subscribed to several reputable (non-partisan) financial news resources (think IRS, US Treasury, NPR, Wall Street Journal, etc.) I get daily and weekly updates. I go through all of them for you because, let's be real. Ain’t none of y’all got time for that. I pick out the important parts that pertain to you, and summarize them in this newsletter.
You’ll notice as you read, I write the way I talk. Therefore, you’ll notice occasional silliness. “I’m fond of the silliness"--> (quote from “Friends”.) Which brings me to my next point. I’ve watched WAY too much of Friends, The Office & Parks & Rec. You’ll see nods to these shows through-out my newsletter. Honestly, it's unintentional. Its just that these shows have been ingrained into my brain by now.
So if you’re also a fan, I hope you enjoy (and notice) when this happens. If you’re not a fan, I hope this doesn’t become annoying to you! And also…tell me what you like to watch! I'm always looking for new shows! So without further adieu, here is newsletter ONE! I sincerely hope you find it helpful.
BUSINESS ACCOUNTING TIP OF THE WEEK
When the taxable income of your business is $70k or higher, you should think about changing your tax status from “sole proprietor” to “S-Corporation”.
As fun as that sounds, I don’t know anything about what you just said.
I wouldn’t expect you to. But I’m going to explain it because understanding it might help you save some cash. And, if you’re not using a tax accountant you might not know this.
The Low Down:
The IRS (gag) allows for you to choose how you want your business to be taxed. Let’s call these “tax classifications” for your business. The two that you need to know about right now are “Sole Proprietorship” & “S-Corporation” (commonly called “S-Corp”).
What’s the difference and what is my business right now?
Breaking it down in bullet points (because, I love a good bullet point list)
Sole proprietorship
This is how most people start out.
If you’re a 1099 employee or if you’re a business owner and you are just transferring cash from your business bank account to your personal account (“owner draws”) vs. paying yourself through a payroll system that has taxes withheld, then you’re most likely a sole proprietor.
Your business income and expenses are reported on your personal income tax return (on Schedule C.)
Helpful Hint Alert - even if you formed a LLC for your business, if you’re the only member, you’re a sole proprietor. This is called a single-member LLC.
Your entire net profit of your business is subject to a 15.3% tax which is called “self-employment tax."
S-Corporation
When you elect to be taxed as an S-Corp, the business is then required to file its own tax return.
You pay yourself a “reasonable salary” from the business through an actual payroll system.
The salary is subject to payroll taxes (15.3%...notice this is the same percentage as the “self-employment” tax listed in the Sole Proprietor bullet points) but the net profit is not.
You are issued a W-2 by your business at the end of the year. You report that amount as “wages” on your personal income tax return.
The take-away - There are additional costs that you will incur as an S-Corp vs. Sole Proprietor. So the key is to make sure your tax savings exceed those additional costs (which are payroll processing fees, tax preparation fees, and initial costs to elect S-Corp status). If you think you're approaching this point, the best thing to do is reach out to a CPA for a full analysis.- Special thank you to my go-to tax expert Candice Walker with Till, Hester, Eyer & Brown which is a firm here in Birmingham. I don't dish out the tax advice without her seal of approval.
All I heard was “blah tax blah. I’m a visual person. Can I get a graphic?
I, too, love a good graphic. Here you go.
WHAT'S RELEVANT TO YOU (AS A BUSINESS OWNER) THIS WEEK?
The Paycheck Protection Program Loan is nearing its end, and if you haven’t applied you should read this today. Deadline to apply is August 8th. If you’ve already applied - You did good!
Come again?
Stay with me here…this is important. Self-employed small business owners have been intimidated by the rules around this program which has kept many from applying. The rules were tough to understand even for professional accountants! When I say we poured over the rules for HOURS, I’m not lying. I was a hot sec. away from actually pulling my hair out. Not to mention my kids were home full-time because, COVID. And, they were running around like little idiots (I love them.) Let’s just say momma needed a cocktail. And she had one(s).
Break it down for me please in a way that I can understand. Keep it simple and to the point.
What is the Paycheck Protection Program Loan? Is this the thing people keep calling the “PPP”?
Yes. PPP and “Paycheck Protection Loan” are the same thing. Simply put, ‘Rona hit and congress said “Well guys the economy might crash and burn if we do nothing. We can’t have everybody and they mama getting laid off from their jobs!” Then came the mad dash to pass a bill to help individuals and small businesses. They wanted to keep people tied to their employers. So they said “Hey small businesses, we’ll cover 2 and a half months of your payroll costs. If you use the funds to keep employees or yourself employed, you will not have to repay this loan (this is the "forgiveness" they refer to). But if you don’t use it to keep people employed, we’re going to ask you to pay it back after this year.
Well none of this helps me because I’m self-employed and I don’t have any employees, right?
Wrong. The program considers you an employee of your business. So for those of you that have formed a business and you are the only employee, this is available to you.
I have never formed a business. I do work, and I get a 1099. So I assume this isn’t for me?
Wrong. Congress realizes how many people are 1099 employees. They didn’t leave you out. This is available to you too.
I thought the program had ended. Who lied to me?
Not a lie. It did end. But then it got extended because congress had another “oh sh*t" moment and realized that there was still money left in the program because people were like “thanks but no thanks. This is too much for me to wrap my head around, and I prefer the devil I know to the devil I don’t know.”
I don’t even know where to start with this thing. No one has really tried to help me. And it’s in the name of the program that this is a “loan”. I don’t want to be stuck OWING the government, you feel me?
(Nodding my head “yes.”) I get it. But I’m here to tell you, after HOURS of reading the rules (ps Congress eventually made the rules easier to follow) that it is actually easy to have this loan completely forgiven. That means it’s Free. Money. If you’re waiting for a catch, there are really only two in my opinion:
If you’re a “sole proprietor”, and you had a net loss in 2019, you can’t apply. Open your personal income tax return for 2019. Go to schedule C and check line 31. If this amount is negative, you can’t apply.
You have to spend at least 60% of the amount you receive on payroll (or “owner’s pay” to yourself if you don’t have “payroll”). But you can’t spend the WHOLE amount on pay to yourself. I could go into it more, but I won’t do it here…there’s a simple calculation that you can easily do that will tell you how to spend the funds (and also how much to borrow).
I need a “how-to-guide”. As in I need a step-by-step guide on how to apply, how much I can apply for, and how to MAKE SURE I don’t have to repay it. You don’t happen to have that just lying around do you?
Yes. And I’m aware that it makes me a nerd. I also use 3 computer monitors. It’s okay, I’m okay.
Because the rules are slightly different depending on your business tax classification, if you’ll just respond to this email, and tell me what type of business you have (sole proprietor, partnership or S-Corp), I will send you the how-to guide that applies to you. Also, if you don’t know what type of business you have don’t be embarrassed to say that. We’ll figure it out together!
RELEVANT FINANCIAL NEWS FOR THE WEEK
The 2 trillion dollar bill that congress passed at the start of the Covid-19 outbreak called the “Cares Act” has expired. This means the $600 extra per week in unemployment is no longer in affect.
Hit me with the high points.
Covid hit, businesses shut down, and people lost jobs. Congress said “I got you” and quickly passed a bill that included the PPP loan program, the extra $600 per week in unemployment, and the individual stimulus checks.
Businesses slowly began to re-open. Things improved. Then Rona said “not so fast” and started spreading faster. Consumer spending and confidence has now again dropped right as the Cares Act has expired.
Now congress is, again scrambling, to pass another bill. But, shocker, they’re struggling to agree on what should be passed. Regarding the $600 per week in extra unemployment, Dems are saying “let’s keep it going. It helped.” And Repubs are saying “it backfired and encouraged people to stay unemployed.”
The take-away: they will pass something soon. They have to. This will likely include another round of stimulus checks, extended unemployment benefits, and another round of the PPP loan. How does this affect you as a business owner? It affects consumer spending which directly affects you. Not only that, but some of you have likely been receiving the extra $600 per week.
What should I do?
I promise to keep you up to date on all new small business aid programs that are passed. In the meantime, go to your state’s department of labor website to see if there are any grants available to small businesses. Also, look into the Economic Injury Disaster Loan Program (EIDL). I’ll be taking a deeper dive into this program in next week’s newsletter. We will all get through this together.
This Week's Recommendation:
Middleditch & Schwartz
If you subscribe to Netflix, and you like laughing I strongly recommend watching this three-part comedy improv special. It legit had me in tears. It was much needed comic relief during a time when we’re surrounded with so much sadness.
That’s it for this week! I hope you found this helpful! And, I WANT TO HEAR FROM YOU! What did you like? What did you not like? What are things you want to know? Reply to this email and give me ALL the feedback. You are important to me. Talk to me, Goose.
