What if my company has no money to pay me? February 21, 2010
Posted by Julie Duriga, CPA in : Uncategorized, accounting, profit, small business management, entrepreneurship, self employment , add a commentIt is a fact of small business ownership, that there will be times that you must go without a paycheck. It is a painful fact that your employees might get a check and you may not get money to take home. It is awful, I have been there too. When you have worked sixty or eighty hours a week and your employees make money and your check is a big zippo.
There are two reasons for this, you are not charging enough for your services or products or your expenses are too high.
When I was confronted with this situation I did the following:
- Took my fax line off of my phone bill and used TrustFax
- Moved my office to a virtual office and got a virtual assistant. This means I had a lovely lady named Diane who worked for me by the mintue she was dealing with my stuff. I wasn’t paying someone to sit there and surf the Internet because I did not have enough for her to do.
- I moved my office back to my home and rented an office space by the hour.
- I started to say no sales people. Once start your own business, there are sales people who come out of the wood work to try to sell you stuff. They are very good at what they do and might convince you that you need what they are selling or your business will go down the tubes.
I think it is okay to feel angry about this. Use the anger to guide you in making better decisions. Start sticking up for yourself…understand that you deserve to get paid just like your employees.
For other candid resources on your small business, please visit my website at www.UniversityForBusiness.com.
What Is FICA? February 9, 2010
Posted by Julie Duriga, CPA in : Uncategorized, accounting, profit, Small Business, small business management, entrepreneurship, quarterly taxes, self employment , add a commentWhat is FICA? FICA stands for Federal Insurance Contributions Act.
It is a tax that is supposed to be set aside for our retirement. FICA is collected for our Social Security and held by the government on your behalf, supposedly. I am still skeptical if this money will really be there for most of us younger folks when we retire. Every projection done by just about every economist says that it will not be available to us.
Our Social Security tax is 6.2% of every dollar we earn if we work for someone other than ourselves. For those of us who are self employed, the this means that we will pay 12.4% of every dollar we earn to the US Treasury. If we run our business as a solo, we will pay 12.4% in Social Security for dollars we bring home and dollars we earn in the business that we don’t bring home. You will pay 12.4% of your profits in Social Security.
If you run a partnership you will pay, 12.40% of your owner’s draws or any money you bring home. You will pay income tax ONLY not FICA on your profits…
The same is almost true for an S Corporation, if your Corporation runs payroll, then the Corporation gets to pay and deduct 6.2% of every dollar you earn through payroll. This means that the Corporation pays 6.2% but it is also an allowable deduction for the Corporation. You as an employee are required to pay the other 6.2% of Social Security Tax.
That is it! That is FICA…
For other reasources to help you with your small business, please visit my website at www.UniversityForBusiness.com. Including, my new book, called, “How Do I Pay Myself?”
Do I Have To Pay Quarterly Estimates Every Quarter? January 30, 2010
Posted by Julie Duriga, CPA in : Uncategorized, accounting, profit, Small Business, small business management, entrepreneurship, quarterly taxes, self employment , 1 comment so farYes, you should pay estimates every quarter…Otherwise, you will be hit with penalties and interest from the IRS. The problem with this IRS policy is that the IRS doesn’t really care which quarter you earned those profits.
An example I use quite often is this:
If you are a retail store and say you made $12,000 in December ONLY! Your retail store made no other money in other months except for December. The IRS sees this as making $1,000 all through out the year, or $1,000 per month…and will penalize you for your not making your quarterlies evenly through the year.
This is incredibly unfair…unfortunately, it is a requirement to pay your quarterlies evenly though there are no profits to speak of.
Keep on top of your quarterly payments as best as you can. Even if you can only send in a small amount each quarter, it is still better than sending in no payment at all.
To file your quarterly payments with the IRS, use form 1040-ES.
For other cool resources to help your small business…please visit my web site at www.UniveristyForBusiness.com.
Why Am I Working So Hard and Not Making Any Money? January 23, 2010
Posted by Julie Duriga, CPA in : Uncategorized, accounting, Income Statement, profit, Small Business, small business management, entrepreneurship, marketing , add a comment
This is a commonly asked question among small business owners…There are several reasons why a small business owner is not making any money but working all of the time.
- Your revenue (money coming in) stream doesn’t make sense. Revenue is a good thing and most small business don’t have enough revenue. You might be chasing after revenue that doesn’t make sense. Your sources of incoming money might be too varied. This means that you are working all of the time and having to shift gears too many times because you are trying to do too many things that are too different from one another. I will use myself as an example, in my small CPA practice, it would have made the most sense for me to focus on one area of business. Dentists, lawyers or banking would have been good areas to focus on. This way I provide the maximum amount of knowledge to my clients. I would have been smarter to know everything possible there was to know about one industry rather than trying to learn everything I can about every industry, which, of course, is impossible.
- Examine your marketing strategies. Do you have a marketing strategy? If you don’t have a focused set of marketing goals or places you visit on a regular basis…then this will wear you out. The most successful businesses I know focus their time in a few areas. I ususally suggest that small business owners pick one or two non profits or regular chamber events to attend. Anymore than two is difficult to keep up with unless you have staff.
Review your revenue models and your marketing strategies and make sure they both make sense. By close, careful analysis of these two elements of your small business, you might be able to save yourself from exhaustion.
Visit me at my website for other cool things going on in the world of small business. www.UniversityForBusiness.com
What Is The Best Way To Pay Myself In My Business? January 17, 2010
Posted by Julie Duriga, CPA in : Uncategorized , add a comment
I am grateful to have had lunch with my friend Barbara last Thursday. I met Barbara about three years ago and I am so grateful she is my friend. I met Barbara because I was starting my CPA practice and I was looking for a payroll solution for all of my potential clients that I was going to have. Barbara works for PayChex.
I have since sold my practice and I am astonished everyday at how many people still want to be my friend. I thought many friends would vanish once I was no longer working in public accounting, this has proven not to be true. Barbara is someone who has stuck with me through thick and thin and has done an amazing job in Western North Carolina providing businesses with payroll services.
Barbara told me at lunch on Thursday that S Corporation payroll through PayChex is $39.99 per month. I just about fell out of my chair. This is a unbelieavable deal for payroll.
I believe running payroll through PayChex will help small businesses stay out of trouble with the IRS. Using PayChex for your payroll will keep you disciplined inside your S Corporation to make sure you pay yourself. Not providing compensation to active officers inside an S Corporation is a HUGE red flag for the IRS. Even if it is a small amount every month, it keeps the zero out of a box where the IRS likes to see an amount. Remember, to run one paycheck carries with it the same burdens as running fifty checks. There is really no such thing as “but is just one paycheck”.
I believe PayChex by offering payroll services for $39.99 is offering America its own economic re-investment recovery act.
I am not compensated by PayChex in any way except that Barbara takes me out to lunch about once every quarter. I am passionate about small businesses and believe that small business owners are the true heroes of our economy. I see this as a fundamental service that will free small business owners up to do what they love to do! Worrying about payroll is silly when it is so affordable and so well done by PayChex.
How Do Partnerships Pay FICA? January 2, 2010
Posted by Julie Duriga, CPA in : Uncategorized , 1 comment so far
Partnerships don’t pay FICA tax for their partners. If a partnership employs people, then, of course, the partnership must pay FICA taxes on their employees. Partners in the partnership must pay their own FICA taxes as well as their own income taxes. Some partnerships do run payroll on their own officers but the IRS doesn’t really care for this. It may come back to the haunt the officers at a later date.
When partners take a draw, distribution or a guaranteed payment, they must take out a gross amount of say 1000.00. From this, they must set aside 200-300 (depending on your personal situation) to pay their own estimated quarterlies. Partners in the partnership must submit their own 1040-ES to the IRS on a quarterly basis for their taxes.
FICA and income tax is a different tax. When you send the IRS one chunk of cash, the IRS puts this in your account and the amounts that are figured out when you file your personal 1040. Remember the profits inside the partnership are subject to your income tax rate even if you did not bring those profits home with you.
Guaranteed payments taken as “take home pay” is subject to both your income tax rate and to FICA taxes. Partnerships are similar to sole proprietorship because the partners have to pay the full 15.30% of social security/medicare tax. FICA=Social Security/Medicare Tax.
Visit my website www.UniversityForBusiness.com for other cool resources for your small business.
Can I Pay Myself Dividends In My S Corporation? December 20, 2009
Posted by Julie Duriga, CPA in : Uncategorized , add a comment
Can I pay myself dividends in my S Corporation? Yes! You can pay yourself dividends in your S Corporation. If you are actively working your S Corporation, you should pay yourself a salary. As mentioned in the previous blog post, “Requirements For Officer Compensation” the business is required to run payroll on the officers. This means that the S Corporation should treat the officers as employees and pay unemployment insurance, payroll taxes and do the withholding on the officers. This salary should be a reasonable amount for your industry.
Dividends are fun because they are taxed at your personal income tax rate. They are not subject to social security and medicare taxes. Dividends should be a smaller percentage of salaries paid to officers than the salaries are paid at. Dividends might be 20% of salaries and officer payroll would be 80% of overall distributions. If you paid your officers $100.00, you might put $20.00 throught dividends and $80.00 through payroll. This would be a safe bet…of course, check with your own CPA or accountant for further assistance in this area. You need professional, individualized help with this question, I am throwing out a ball park figure for you to get started.
Dividends are not a deduction on the business profit and loss statement. Dividends are effectively a reduction of cash and not a reduction of profits. Dividends come out of your profits. If your business has $10.00 in profits, and you have $10.00 in the bank, you can pay yourself a $10.00 dividend. You are still reporting $10.00 in profits to the IRS. The only way to have this $10.00 be deductible is to run this amount through your payroll system.
Visit www.UniversityForBusiness.com for more helpful resources on running your small business.
Requirements For Officer Compensation…. December 13, 2009
Posted by Julie Duriga, CPA in : Uncategorized , add a comment
This was a question that a blog reader asked me. It is so useful when readers ask questions because it gives me material to write about. So keep your questions coming.
I usually suggest that active officers run payroll on themselves at a minimum once a quarter. Even if the business can only afford to pay the officers through payroll $500.00 per quarter, that is better than nothing. This makes the business look more like a “going concern” (a real business that is sustainable) to the IRS than if there is an absence of payroll inside the corporation for its active officers. The IRS starts to wonder why would the officers stay in this business if the business can’t afford to pay its own officers after a period of time.
The only requirement that I know of is that officers must be compensated by giving them a reasonable salary for your industry. If your S Corporation is a restaurant, then the business must compensate the officers who work inside the restaurant a reasonable salary for the restaurant industry.
What is an active officer? This is an officer who works inside the corporation. An officer who reviews the financials on a weekly basis or an officer who actively generates sales calls or an officer who does the dishes is considered active. If the business has officers who show up every now and then for board meetings or who stops by occasionally to check on their investment is not considered active.
In my state of North Carolina, the power of the payroll law rests with the employer. The employer can really do whatever they want to do with their employees as far as paying frequency. I don’t know of any employer that pays its employees less than once a month. Check with your state department of revenue for your state’s payroll laws.
Officers can be compensated on a different schedule than its employees. Sometimes when there is no money, the employees get paid first and the officers just have to wait. Of course, it is easier to run payroll all at the same time, but sometimes this is not possible.
In conclusion, the officers can be compensated whenever the Corporation deems appropriate. At at minimum, the compensation should occur at least once a quarter. The IRS requires that active officers be compensated a fair and reasonable salary. Employees and officers can be compensated on the same schedule if the funds permit this. Be careful of paying your officers with fringe benefits. Fringe benefits to S Corporation officers are usually considered compensation by the IRS and have to be added to the W-2 as taxable wages.
Do I Pay My Income Tax Bill From My Business? December 6, 2009
Posted by Julie Duriga, CPA in : Uncategorized , add a comment
Of course, income taxes are different than unemployment taxes and from the employer’s portion of the social security tax. Those taxes are deductible.
Income taxes are held from your own income and need to be paid from your salary bucket inside your business. If your paycheck says that you took home 700.00, then 300.00 is really taxes. In t heory your paycheck should be 1,000.00 to cover taxes which is normally around 300.00 to be safe. To be safe means you are not stuck with an enormous tax bill at the end of the year.
If you are a sole proprietor or a partnership then your taxes are paid from the guaranteed payments or from your owner’s draw. This draw can take place through a physical check written from your business or through a bank transfer from your business account to your personal account. It is then your responsibility to remit quarterly your income taxes and your social security taxes to the IRS and to the state agencies. Those taxes are paid from the money that was transferred to your business account. Some business gross up their partner’s draws and guaranteed payments to cove the cost of the taxes. Instead of bringing home $1,000.00, they might bring home $1,300.00 to cover the taxes.
Please visit www.universityforbusiness.com for more information on how to help your small business grow.
My Company Isn't Profitable…Do I Have To Pay Taxes? November 28, 2009
Posted by Julie Duriga, CPA in : Uncategorized , add a comment
My Company Isn’t Profitable…Do I Have To Pay Taxes?
No! If your company isn’t profitable you do not have to pay income taxes. If you have employees or you are an employee, you will have to pay social security/medicare taxes.
I believe the IRS doesn’t really start looking closely at your business until after three unprofitable years. If you have been unprofitable for three years, the IRS starts to wonder why are you still in this business? Is this a business or a hobby? Then you start to get into the whole concept of hobby losses.
If you are unprofitable for three years, start looking at your numbers…your gross profit, your percentage of payroll to revenue (if your payroll is 60K and your revenue is 100K, that means your payroll is 60% of your revenue…that is too high, your staff needs direction or they don’t have enough to do or something). Maybe you need a new business or a new way to operate your business?
Your salary is deductible if you are an S Coporation or a C Corporation. Your guaranteed payments or draws are deductible to the partnership. Your draws inside your sole proprietorship are NOT deductible. If you are an LLC, check out my blog on the whole LLC scene. This means that your profits will be lower…which is good for tax purposes…to report lower profits…the lower the profits the lower your tax bill. Lower profits is bad for bank loans though. Do you want a bank loan or do you want to pay less in taxes…you can’t have both.
Check out my website for other resources on small business. www.UniversityForBusiness.com