Many of those people are solving the job crunch by starting their own businesses, and the hard truth is that many of those businesses will fail.  Why?  Well, according Michael Gerber, author of The E-Myth series of books, it’s because most people make the mistake of thinking that just because they know how to do something, they are somehow qualified to run a business that does that very thing.  Gerber calls that fallacy the Entrepreneurial Myth.

Say, for example, you’re an excellent baker, so your friends and family convince you that you should open a bakery. At first it’s fun and exciting, but soon you find out that the business of baking pies has very little to do with baking pies and everything to do with business, something you may have little or no experience with.  There’s paperwork, and ordering, and people issues, and budgeting, and cash flow issues.  Before you know it, what was once your favorite thing to do has turned into your biggest nightmare and you never want to see another pie again!

According to Gerber, the way to prevent this from happening is to hire a team of workers to do the actual work, so that you are free to work ON your business instead of having to work IN your business.   Yes, I know what you’re thinking:  I can barely make expenses now, how in the world will I ever be able to afford staff?  The long answer to that is the topic of another blog post, but the short answer is:  you can’t afford NOT to hire help.  If you try to do everything yourself, you are destined for failure.

Here are some tips on how to build a winning team:

1.  Create an efficient work flow system, and then delegate everything.  Your job is to supervise, monitor, tweak, direct, control, improve your systems, and dream up bigger and better ideas.  You can’t do that if you’re already busy copying, scanning, producing documents, crunching numbers, running errands, baking pies, washing dishes, calling clients, preparing tax returns, processing payroll, and otherwise rushing about.  You need to be able to stand back and see the big picture.  It is your job to break your business goals down into manageable tasks, and then delegate these tasks to your staff.

2.  Hire an excellent administrative assistant.  This should be the first person you hire.  It will be their job to do the many small  things that take up the bulk of your time without making you any money.  They will be worth every penny that you pay them, because they free up your time so that you can more effectively run your business.

3.  Hire the best people you can find, and then let them do their job.  One of the biggest mistakes many business owners make is thinking that they need to have their hand in every single thing that happens in their business. Trust me, you don’t.  In fact, your business will probably run more smoothly if you just stand out of the way and let your people do what they do best.  People work best when they do work that they love, and when their work feels like play to them.   Encourage that!

4.  Don’t just hire individuals, build a team.  Your people not only need to be good at what they do, they need to be able to work together, as a team … preferably a team that likes each other.  M. Darren Root, co-author of  The E-Myth Accountant, suggests that one way to ensure this happens is to have your entire team interview potential new employees.  This actually makes a lot of sense, if you think about it.  Your staff will be the ones who have to work with this new employee every day, so you may as well all find out right from the beginning if there are going to be any personality clashes.  People are generally prepared to be on their best behavior in a one-on-one interview with a potential new boss, but tend to be more relaxed and chatty in a group discussion, which will make it easier to see what their real personality is like.  After the group interview, bring your staff back together to get their feedback before you make your final hiring decisions.

5.  Assign a current staff member to mentor and train the new employee.  It generally takes people about six months to settle into a new position.  The first 2-3 months, especially, your new employee will require lots of guidance and help.  Of course, if you are hiring your first employee this mentor will be you, but if you plan ahead appropriately, your employees should be able to train each other, leaving you free to run your business.

The job of running your business is quite a bit different from the job of working in your business.  You can’t do both at once and do either one well.  Create an efficient work flow system, hire excellent people, help them work together as a team, and then stand back and let them do their thing!  You’ll not only have happy and efficient employees, you’ll also be free to live your life again.  Remember what that was like?

*****

Valerie Saurer  plays at blogging and social media marketing for CPA Business Advisors, Inc., whose mission is guiding business owners throughout the business life cycle.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:

Taxpayers claiming itemized deductions on Schedule A.  Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.

Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.

In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.

1.  Not Setting Goals. It’s almost impossible to set spending priorities without clear goals for the coming year. It’s important to know, in detail, what you want or need to achieve in your business.

2.  Cost Underestimation. Every business has ancillary or incidental costs that often don’t get budgeted. For example, each time you buy a new piece of equipment or software, you must budget for staff training and for maintenance of the equipment, as well as the actual cost of the equipment.

3.  Lack of Flexibility. Don’t be afraid to update your forecasted expenditures either several times per year or whenever new circumstances affect your business. Compare estimates to what you actually pay out, and then adjust your budget figures.

Reed Henn CPAs, LLC can help you set up and maintain a budget. Call (321) 593-0925 to discuss your options.

Ironic isn’t it?  One of the biggest challenges to running a business is learning to manage your time well enough so that you have time left to spend on the really important things.

Making lists helps. I’m sure that you already do this:  You always make your To Do lists at the end of the day, so that when you wake up in the morning you can hit the ground running and stay on task.  The problem with lists, though, is that no matter how fast and furiously you run, you always seem to come to the end of the day without ever getting to the bottom of the list.  In fact, the list is often longer at the end of the day than it was in the morning!

Although the list method is an excellent way to remember everything that needs to get done, it isn’t really an effective time management strategy, because you are so busy focusing on all the urgent things demanding your attention that you never get around to the really important things in your life.

Putting the big rocks in first. The first time I heard this concept, often called the Pickle Jar Method, it really opened my eyes to what I had been doing wrong.  It goes like this.  You have a pickle jar, into which you have to place a pile of  big rocks, a pile of pebbles, and a pile of sand, and some water.  If you put in the water, sand and pebbles first they pack into the bottom of the bucket, so there’s not enough room left for the big rocks.  If, however, you put all the big rocks in first, when you next add the pebbles they’ll easily find their way into the spaces between the rocks.  If you save the sand for last, it will sift down into the empty spaces between the rocks and the pebbles.   You’ll even have some spaces left to add water.  What was impossible in the first instance is totally do-able when you put the big rocks in first.

When you plan your week, plan time for your biggest project first.  Leave spaces in your schedule so that when the pebbles and sand and water get added in, you can fit them in among the big rocks, already in place.  When you go home at the end of the day, there will still be things left undone … there always are … but you’ll be able to feel good about your day, knowing that you handled what was most important.

The Small Business Jobs and Credit Act of 2010, recently signed into law, provides immediate and quite significant incentives to business owners who acquire capital equipment, which includes tangible assets like office furniture, computers and peripherals, and manufacturing equipment, among others.

The benefits of this legislation include:

1. An increased Section 179 expense allowance in 2010 and 2011.  You can now deduct up to $500,000 of the cost of acquiring new capital assets, as long as your business is showing a profit, without having to depreciate those items over a period of time.
2. An accelerated “bonus” depreciation in 2010 of an additional 50% of  the cost of qualified equipment.  This means that if you cannot take the Section 179 deduction and must depreciate the asset, if you buy the asset in 2010 you can deduct half the cost in the first year.

Both of these changes can result in a huge tax break for your business.  If you are considering buying new equipment or office furniture, it makes good sense to make those purchases before the end of this year.

Along with the rise in intellectual property filings has come the rise of infringement.  The infringement is not necessarily directed to the newly filed intellectual property.  Many times, the infringement has been of well-established technologies, copyrights and trademarks.  Unfortunately, the owners of the intellectual property that is being infringed find themselves in an unenviable position of needing to take legal action to put an end to the infringement.  The owners of the intellectual property have generally worked for many years at developing their intellectual property and have gone through much expense to do so.  Turning a blind eye to infringement weakens that intellectual property.

The first step in attempting to stop an infringement of intellectual property is to simply put the infringer on notice of your rights in the intellectual property and demanding that they stop their infringing activities.  Many times, such a notice will result in stopping the infringement.  In some cases, however, you may be required to enter into some negotiations.  For example, and only in appropriate cases, you may enter into an agreement to “phase out” the infringing matter.  In other cases, you may even enter into a licensing agreement with the infringer.  In other cases, the notice may be ignored, or the infringer may respond by contending that they do not infringe.  If, after further investigation, you still believe that infringing activity continues to be an issue, one option that remains is litigation.  Although undesirable and costly, litigation may be the only way to stop infringing activity.

As you can imagine, there has been a rise in intellectual property litigation filings as more people are trying to generate revenue on the proverbial intellectual property backs of others.  There have been many recent examples of these types of behavior.  One example is cybersquatting.  In this case, the infringer attempts to extort a trademark owner by holding a domain name hostage.  Another is creating derivative works on someone’s copyrights and then attempting to profit off of their creative works.  Yet another example of this behavior is making an identical product as that of the intellectual property holder that bears an identical name.  It is sad to report that these are not hypothetical situations.  These are examples of cases that occurred in just the past six months right here in Brevard County, Florida.

If you are an intellectual property holder, do as much as you can to secure your intellectual property. This can be achieved by marking your intellectual property with notices that inform the general public of your rights.  If you believe you are a victim of infringement, try to seek the advice of an attorney whose practice is focused on intellectual property.  Attorneys that focus their practice in this specialized field are generally able to recognize the appropriate intellectual property issues, and provide you the proper advice on dealing with an infringement.  The same advice goes for those accused of infringement.  If you are actually infringing, defending the action based on bad legal advice will end up being far more costly than simply swallowing your pride and stopping the infringing activity.

According to the Internal Revenue Code, corporate officers are considered employees of the corporation.  When corporate officers perform a service for the corporation and receive or are entitled to payments, those payments are considered Wages, and are subject to payroll taxes.

So how do you determine what is Reasonable Compensation?  Generally, wages paid to you as an officer of a corporation should be commensurate with your duties.  The question to ask is — what salary would be paid to a manager-employee who performs the same duties?  If you are an officer but do not have any real duties such as those you might have to hire someone to do, then you would not be considered an employee.  If, however, you are the sole shareholder, the only officer, and the only employee, odds are good that you should be paying yourself wages before you allow yourself to take a shareholder’s distribution.

Courts have found shareholder-employees are subject to employment taxes even when those same shareholders take distributions, dividends or other forms of compensation instead of wages.  This means that the IRS can reclassify excessive distributions taken in lieu of wages and subject those reclassified amounts to federal employment taxes.  They can also assess penalties and interest against the unpaid employment taxes with some penalties being as high as 100% of the tax due!

Officers who compensate themselves at a reasonable rate of pay, and who subject that salary to federal employment taxes shouldn’t have any reason for worry.  However, if you are an officer who thinks to avoid payroll taxes by categorizing your compensation as distributions, be advised that the Tax Courts aren’t likely to agree.

Say that you are a relatively new business, and for the first few years you invested quite a bit of personal money into your business while you were operating at a loss.  You performed duties for your business that normally should have earned you a paycheck, but since you operated at a loss, there was not enough money left over to pay yourself.  This is a very common occurrence, and the IRS does not force you to take a paycheck in that instance.

Now, however, your hard work is finally paying off and you actually expect to make a profit this year. Congratulations!  It is tempting to think that since your company owes you so much money you can just pay yourself back without having to worry about dealing with payroll taxes just yet.  In actuality, the IRS expects you to begin paying yourself wages as soon as you begin showing a profit.  According to the IRS, the money owed to you in wages and the money owed to you as a loan are completely unrelated.  A good rule of thumb is to pay yourself 50% as wages and then pay the other 50% as a repayment of the loan.

It is far better to pay the payroll taxes, even if it hurts, then to get caught in a payroll tax audit.  The fines and penalties could cripple your new company, and if the IRS determines that you attempted to defraud them out of payroll taxes you could find yourself in legal trouble as well.

If this is the year that you finally expect to make a profit, you owe it to yourself to have a CPA review your books before December 31, while there is still time to make any needed corrections.

• Write only business checks from your business account. If you need money, write a check to yourself or transfer funds to your personal account, and then pay your personal expenses from your personal account. When you write business checks, always fill in the “For” line, so you never again have to wonder why you wrote that check.

• Keep a record of all bank deposits. Use a duplicate deposit book, or better yet, make a photocopy of your deposit ticket and the checks that went into that deposit. If there is ever a question about a transaction, you will have a clear record of which checks were deposited, and even who signed those checks.

• Identify all bank deposits by source. For example: income, loan from Mom, refund from Office Depot, etc. You don’t want to pay income tax on money that is not income, such as gifts and loans.

• Keep ALL cash receipts in one envelope for each month. To save yourself time and money, you should itemize your cash receipts by category on the OUTSIDE of a #10 business-size envelope or in a petty cash journal.

• Keep ALL debit card receipts in one envelope for each month. As with your cash receipts, itemize all debit card receipts by category on the outside of a #10 envelope.

• Use separate credit cards for your business. The interest on these credit cards will be deductible, but ONLY if they are used 100% for business expenses. Keep your original charge receipts in a #10 business envelope. When you get your credit card bill, use your receipts to verify the charges. Note: The date you charge something is the date that the IRS considers it paid.

• Track reimbursable expenses. We all pay for things with cash out of our own pockets and by our personal credit cards or checks. Keep track of these expenses to substantiate your reimbursement. This means not only write it down somewhere, but also keep the original sales receipts for these items.

• Write down your vehicle’s odometer reading at year end, and keep a mileage log. For 2010, the mileage rate is 50 cents per mile. For many small businesses, mileage will be your largest deductible expense, so it is important to keep a written record. Find a system that works for you, and use it consistently.

• Inventory on December 31st. If you sell products, you will have to take an inventory of the products you have on hand and the amount you paid for them. This amount is subtracted from your purchases for the year, and is treated as an asset. In addition, you need to keep track of the products you use personally, because those items are not deductible.

• Store your day-timer or appointment book with your yearly records. It could be used to verify your intent to conduct a profitable business activity. For example: your attendance at meetings; seminars or classes you have attended; meals and entertainment expenses; and mileage.  If you keep an electronic calendar, set it up so that all past events are not deleted.

• Documentation wins the audit. Don’t fall into the trap of not keeping receipts just because you’ve heard that the IRS doesn’t require them for Meals and Entertainment costs of less than $75. KEEP ALL RECEIPTS, and you will be safe.

1. Do you give your workers instructions about when, where and how to work?   The more specific theinstructions and the more control exercised, the more likely the worker will be considered an employee?
2. What training do you give your worker? Independent contractors generally do not receive training froman employer.
3. To what extent do you reimburse your worker for business expenses? Independent contractors aremore likely to have unreimbursed expenses.
4. To what extent do your workers invest in their own business? Independent contractors typically investtheir own money in equipment or facilities.
5. To what extent do your workers make their services available to other employers? Independentcontractors are more likely to make their services available to other employers.
6. How do you pay your workers? Employees are generally paid by the hour, week or month. Anindependent contractor is usually paid by the job.
7. Can your worker incur a loss working for you? An independent contractor can make a profit or loss,but an employee does not.
8. Do you have written contracts describing the relationship the parties intended to create? Independentcontractors generally sign written contracts stating that they are independent contractors and settingforth the terms of their employment.
9. Do you provide your worker with benefits, such as insurance, a pension plan, vacation pay or sickpay? Independent contractors generally do not get benefits.
10. Are your worker’s services a key aspect of your company’s regular business? If the services arenecessary for regular business activity, it is more likely that you have the right to direct and control theworker’s activities. The more control you exert over a worker, the more likely it is that the worker will beconsidered an employee.

In most cases, the answers to these questions will make it very clear which classification applies.  If, however, you still have questions, we invite you to email Rhonda@CPABusinessSolutions.com

Suddenly, you realize that your paperwork level has just increased, possibly bringing your stress level up along with it!  You know that they have to fill out a W-4 form so that you can determine how much taxes to take out of their paycheck, but aren’t there other forms that are required by law?  How do you know which ones you need, so that you don’t get into trouble before you ever even get started?

To answer that question, here is a list of new-hire forms and the reason why they are necessary.

W-4 Form – Employee’s Withholding Allowance Certificate.    You know this form.  You’ve filled one out every time you got a new job.  Your employee will complete the worksheet on the top of the form to determine how many allowances he can take.  The answer to this questions will directly affect how much of his paycheck he gets to keep.

I-9 Form – Employment Eligibility Verification. This Department of Homeland Security Form guarantees that your new employee is authorized to work in the United States.  You need to keep one of these forms on file for each of your employees, even if you know them personally.   You will want to keep a photocopy of their supporting documentation with the form. Generally you can accept either a U.S. Passport, or a drivers license and social security card.  See the form instructions for other authenticating documents that might be acceptable.

W-11 HIRE Act Affidavit.  This is a relatively new form.  The federal government is currently offering tax credits to companies who hire an employee who has been unemployed for at least 60 days before starting with your company.  You won’t want to miss out on this credit if it applies.

Circular E – Employer’s Tax Guide, also known as IRS Pub 15. This instruction booklet contains most of the IRS rules on withholding taxes from your employee’s paycheck.  If you’re doing payroll manually, you’ll want to keep this booklet on hand, because it contains a tax table telling you exactly how much to take out of each paycheck.

These are the basic forms, and will be all that you need in most circumstances.  These forms are all conveniently located on the Business Payroll Solutions website.  You can download them from here.

Remember, once you hire an employee you are now responsible for filing quarterly payroll tax returns with the federal government, and for paying both State and Federal Unemployment taxes.

In addition to federal requirements, there are also tax and reporting requirements at the State level.  For instance:

New Hire Reporting at the State level.  Federal and State law requires employers to report newly hired and re-hired employees to the appropriate State Agency.  If a new employee is required to make child support or alimony payments, or if there is a court order to garnish wages for whatever reason, these payments are generally monitored at the State level.  In Florida, you can report new hires online by registering at the Florida New Hire Reporting Center.

State Unemployment Taxes. If you are not already registered with your State to pay unemployment taxes, you will want to register immediately.  Generally the fines and penalties for not paying state unemployment taxes are much stiffer than those at the federal level. You will  want to make sure that you are not even one day late in filing these returns.

Workers’ Compensation Insurance. Certain high-risk industries, like construction, require you to insure all of your workers.  Other industries can operate without workers’ comp as long as their workforce is relatively small.  The rules vary by State and by industry.  You’ll want to find out which rules apply in your particular instance, because penalties for noncompliance can be very stiff.

Does all this seem like a lot to keep track of?  The whole idea of hiring an employee was to give you more time to spend growing your business … not tie up your time doing even MORE paperwork!

Although you can learn to do all of this yourself, it might be a wise business decision to hire a payroll company to handle these matters for you.  The cost is minimal compared to the time it will save you, and you are assured that your payroll meets all the legal filing requirements.   We recommend you check out Business Payroll Solutions.  They have virtual payroll solutions that can fit any budget.

Congratulations!  Your business is growing, and your new employee is giving you more time to get out there and do the real work you’re in business to do!