6 Financial Steps To Take Before Starting A Business

The thought of starting a business is exciting. For many, it’s the American Dream. Entrepreneurs want the freedom of setting their own hours, being their own boss and leaving a legacy for their children. It’s important to note that while exciting, starting a business also can be stressful. According to the Small Business Administration, one-third of all businesses fail within two years, and two-thirds of all businesses fail within 10 years. Considering these stats, it’s important to have a plan in place to be successful. Here are six financial steps we think you should take before starting a business.

Do Your Research
Make sure you thoroughly understand the industry you are entering and the need for your products or services. Do a complete market analysis or feasibility study to determine who the major players and competitors are. The Southwest Ohio Small Business Development Centers are a great resource for help with this.

Know Your Purpose
Spend some time reflecting on why you want to start your business. There will be bumps in the road, so it’s important that you have a mission and purpose to ground you during trying times. What goals are you trying to accomplish? What does success look like? What are you willing to risk?

Identify Your Target Audience
Understand who needs the products you sell or the services you provide. You can’t earn a profit without your customers, so know them well. What is their age, geographic location, income or profession? What are their pain points?

Choose A Legal Structure
Determine which business structure is right for your business. Will you be a sole proprietor? An LLC or an S Corp? You may want to consult with an attorney or the Small Business Administration for advice. And while you’re thinking about the legal aspect of your business, make sure you know the laws that apply to your business. Will you need a permit or some type of license?

Decide How You Will Finance
You will need money to start your business because you probably won’t make a lot of money right away. Will you be self-funding? Applying for loans or grants? Seeking out angel investors or venture capitalists? Research all of your options and determine the one that’s best for you.

Create A Working Business Plan
A business plan is your business’s roadmap, and will include such things as your mission statement, description of your business, market analysis, key players, budget and more. It should be a working document, not just an exercise that is filed in a drawer. One of the first questions most consultants will ask you before working with you is if you have a business plan.The Southwest Ohio Small Business Development Centers can also help with this.

Once your business is up and running, you’ll need a partner to help handle your payroll, tax help and other concerns. Donohoo Accounting Services is here to support you. From financial issues to tax concerns, we can answer your business questions that will help to make you a success. If you would like to learn more about the services we provide, schedule a complimentary consultation with us by calling 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

6 Tips For Homeowners To Maximize Their Tax Deductions

Owning a home is one of the biggest investments most people make in their lifetime. Being aware of tax deductions and other credits available will give this big purchase every opportunity to pay you back a little come tax time. Here are six tips for homeowners to maximize your tax deduction:

Tip #1: Be Organized

Keep detailed records of your home-related expenses, financial documents and receipts. Most federal income tax deductions and credits require a paper trail, so the more organized your records are, the easier the process will be and the more likely it is that nothing will be missed or forgotten.

Tip #2: Deduct Your Mortgage Interest

If your mortgage is less than $750,000, you can deduct the interest you pay on the loan for no more than two residences. This could be your primary residence, summer home, or even a boat if it has plumbing or a bathroom. You can also include interest you may have paid when you closed on your home.

If you own more than two properties, be sure to use the deductions from the property that will give you the largest tax deduction — it may not necessarily be the property with the biggest mortgage payment.

Tip #3: Deduct Your Home Office Space

If you work from home in a dedicated space, you can deduct that space on your taxes. The current tax law allows you to deduct $5 for each square foot of office space, up to 300 square feet. This law has been taken advantage of by some, which is why it has earned a reputation of being an audit trigger. Make sure the space you deduct is exclusively used for your business or side hustle.

Tip #4: Deduct Your Property Taxes

With the Tax Cuts and Jobs Act of 2017, deducting your property taxes is still possible but not as flexible as it once was. You can now deduct up to $10,000, and that includes a combination of state and local tax deductions and state and local property tax deductions.

Tip #5: Consider Energy Efficient Upgrades

Tax incentives have changed for these types of upgrades, but some are worth looking into. Purchases for electric and water heating equipment, solar panels, rain barrels and drought tolerant landscaping may apply. Make sure to do your due diligence and triple check the specific requirements and deadlines for these green projects.

Tip #6: Age-In-Place Deductions

If you plan to live in your residence as you get older, you may be able to deduct expenditures for home improvement projects that will assist you as you age. Upgrades such as wheelchair ramps, lowering cabinets and electrical fixtures, and installing bathtub grab bars may qualify.

Donohoo Accounting Services is here to help you understand the IRS rules and determine the types of tax deductions you may be eligible for. With more than 20 years of experience in the business, we can help you reduce your tax burden by finding every deduction possible. If you would like to set up a free consultation, contact us at 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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How Your Small Business Can Qualify For COVID-19 Relief

The United States Senate legislated the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), geared toward providing financial support to the American public and American businesses in light of the economic fallout from the coronavirus (COVID-19) pandemic.

A principal component of the CARES Act is the allowance of $349 billion for small businesses through federally supported loans under an amended and broadened Small Business Administration (SBA) 7(a) loan guaranty program known as the Paycheck Protection Program.

Below, the tax experts at Donohoo Accounting Services address some of the fundamental elements of the CARES Act.

Critical Aspects of the CARES Act

Eligible businesses comprise:

  • Businesses with as many as 500 employees or which meet the appropriate size standard for the industry as stipulated by SBA’s current requirements.
  • Businesses in the food services and accommodation industries that exceed one physical location but contain less than 500 employees at each location.
  • Nonprofit organizations
  • Approved sole proprietors and independent contractors.
  • Loans will be accessible across SBA and Treasury accepted banks, credit unions, and select nonbank lenders.
  • Borrowers can withdraw loans 2.5 times their monthly payroll expenses, not to exceed $10 million.

Which businesses are eligible for the Paycheck Protection Program?

Based on the wording of the bill, typically, any business active on February 15, 2020, with less than or equal to 500 employees (or that meets the appropriate size benchmark for the industry as required by SBA’s existing regulations) qualifies.

What is the maximum loan value that a business can accept through the Paycheck Protection Program?

Each business can accept the lesser of $10 million or a total of 2.5 times the average total monthly payroll expenses for the previous year.

What can a business use loans for?

Businesses can leverage funds from the Program loans to meet costs involving:

  • Payroll costs, including remuneration to employees; disbursements for vacation, family, parental sick or medical leave; payments due to termination; payments necessary for group health care benefits, retirement benefits, and local and state employment taxes
  • Interest payments concerning any mortgage obligations or additional debt obligations sustained prior to February 15, 2020 (excluding any payments or prepayments of principal)
  • Rent
  • Utilities

How does a business apply for a loan under the Paycheck Protection Program

Businesses can visit an authorized SBA 7(a) credit union, bank or lender, apply for a loan and be approved that very day. While there is no cost to apply for the loan, businesses will be charged a fixed interest rate.

What are the terms and conditions of Program loans?

The terms and conditions for a covered loan are identical to the relevant terms and conditions for conventional SBA 7(a) loans.

What documents must a lender require to provide a borrower loan forgiveness?

Documentation that confirms the number of full-time employees on payroll and pay rates for the periods designated under the reduction for loan forgiveness above. For example:

  • Payroll tax filings to the IRS, state payroll and SUTA filing
  • Financial statements corroborating payment on debt obligations sustained prior to the covered period
  • And, any additional documents the SBA may request

Ready to discover what tax credits you or your business qualify for? Call Donohoo Accounting Services today at 513-528-3982 for a FREE consultation! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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5 Tips for Claiming the Qualified Business Income Deduction

Some forms of taxable business income now have a lower rate, thanks to a new deduction for qualified business income (QBI). If you like the thought of paying tax on 20 percent less of certain kinds of business income, be sure to follow these five tips:

Qualifying Income

Only individuals and business owners with certain kinds of income are able to claim this new QBI deduction (also known as the Section 199A deduction). The QBI deduction may allow you to reduce your taxable business income by 20 percent if it’s earned by a domestic business that is operating as:

  • an individual,
  • sole proprietorship,
  • partnership,
  • S corporation,
  • real estate investment trust (REIT),
  • publicly traded partnership (PTP), or
  • some types of trusts and estates.

Income paid to you as an employee and income from C corporations is not eligible income for the QBI deduction. 

Income That Does Not Qualify

Qualified forms of income, minus deductions and losses, total your QBI. Wage income, as well as a dozen other varieties of income, do not figure into your QBI. A tax professional can walk you through the list of income types that do not count toward QBI.

 The Deduction’s Limitations

The 20 percent QBI deduction is only available to certain types of trades and businesses and allowable only under defined income levels. For example, domestic trades or businesses operating as sole proprietorships, partnerships, S corporations, trusts or estates with taxable income at or below $157,500 for those filing as individuals ($315,000 for a married couple filing a joint return), including the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Other limits may also apply. Your tax professional can help you decide which ones apply to your situation. Itemizing your deductions by using Schedule A, or taking the standard deduction, does not affect your ability to claim the QBI deduction.

Trades or Businesses That Qualify

Any trade or business listed under Internal Revenue Code Section 162 qualifies except for three kinds:

  • Those conducted by a C corporation,
  • Performing services as an employee, or
  • A specified services trade or business (SSTB), one that relies upon an individual’s endorsement, likeness, voice, or identity (within certain industries) where the principal asset is the reputation or skill of at least one of its employees or owners. There are exceptions, however. IRS Publication 535 provides additional details about qualifying businesses.

Computing the QBI Deduction

Publication 535 also contains worksheets to help you compute the QBI deduction. In some cases, the Form 1040 instructions will be appropriate to guide you through the computation. Have a tax professional help you decide which method is right for your business. Donohoo Accounting is prepared to answer your questions and find the most deductions that apply to your particular business. Talk with one of our specialists or schedule an appointment today by calling 513-528-3982 or email us. Check us out on Facebook, Twitter or LinkedIn for our latest tips and updates!

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