Today, we are learning all about trademarks. 

What are trademarks? What are the common trademark misconceptions?

Is it even worth trademarking your name and if so, what are the exact steps you need to take to get a trademark?

Keep reading because in this post, we’re going to uncover everything you need to know about how to trademark your business.

Let’s get right into it. 

What is a Trademark? 

A trademark is a word, logo, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of the others. 

Trademarks and issued and managed through the US Patent and Trade Office also called the USPTO.

They are intended to minimize confusion that could happen if two or more businesses have the same name, symbol, slogan, logo, or name. 

Trademark Your Business: Why Register For One? 

You actually are not required to register a trademark to have some legal protection. 

As soon as you begin selling your product or service, you become a trademark owner and can enforce your trademark in court, if necessary.

Simply by using your trademark (your name, your logo, slogan, etc.), you establish rights called common law ownership. 

This might make you wonder why people go through the hassle to register a trademark? Why do you need to trademark your business?

Well, the downside to common law ownership and not registering your trademark is that it only protects you within your geographic region. 

Which leaves your trademark vulnerable and eligible for use outside your region. 

If you open a bakery in New York, common law does not stop someone from opening a bakery with the same name and logo in California.

If you want stronger, nationwide rights, and the ability to sue someone federally for infringement, you want to register your trademark at the Federal level with the US Patent and Trade Office.

Additionally, trademarking your brand allows you to defend your brand against counterfeit products, domain squatters, and give you the freedom to use the Registered symbol with your logo. 

In total, there are 4 legal reasons, called a filling basis, to register a trademark. You are required to specify the basis you choose on your application. 

The two most common bases are:

• Intent-to-use basis

This means your business has not started using your trademark yet. Maybe you haven’t started your business yet but would like to get the application process started.

Note that while you can apply under an intent-to-use basis, your mark will not be registered until you convert the application to one based on the second filling basis – use in commerce. 

• Use in commerce basis

This means you are currently using your trademark while selling or transporting goods and services.

Strong vs Weak Trademarks 

There are actually different types of trademarks, and depending on the type, it may be easier to get your trademark approved or you may be denied completely.  

Let’s explore the different types. 

1. Generic Mark

Generic marks actually do not qualify for a trademark, as they are marks that are words and phrases that are commonly used when conducting business in that industry.

For example, the word “water”.

Water by itself could not be trademarked as it is a common noun that should be able to be used by all businesses who sell water. 

2. Descriptive Mark

Descriptive marks describe a product or its ingredient, quality, characteristic, function, feature, purpose, or use.

An example would be High Definition for TVs.

In general, descriptive marks do not qualify as a trademark unless it becomes so popular and distinguishable that the word becomes a secondary meaning for the brand.

An example of where this has worked is the “Sharp” brand of televisions. 

3. Suggestive Mark

Suggestive marks “suggest” something about the product or service without actually describing the product or service.

Examples include Airbnb or the car company Jaguar. For this reason, suggestive marks generally do qualify for a trademark as they are not common nouns.

Going back to Jaguar as an example, a jaguar suggests speed and sleekness but most people do not think of a car company when they hear the word. 

4. Fanciful Mark

Fanciful marks, also known as coined marks, are words or phrases that did not exist before.

Because of this, Fanciful marks are the easiest types of marks to obtain and offer the widest net of protection.

Nike or Google are amazing examples of a fanciful mark.

5. Arbitrary Mark

An arbitrary mark is a word or phrase that includes a common phrase but not one that is associated with an attribute of the brand.

Think about the term Apple. Though the word is common, it has nothing to do with computers. Arbitrary marks are also easy to obtain. 

Then there is the special category and type of mark called the…

6. Service Mark

A service mark is similar to a trademark but distinguishes businesses that provide services.

Many companies such as Apple or Starbucks will have both a service mark and a trademark as they provide products and services. 

7. Other trademark types

These include:

• Certification marks that show products, services, or goods have met a standard, and
• Collective trademarks that indicate membership in a group or distinguish products and services of members from non-members.

Other Unacceptable Trademarks

Now let’s briefly talk about the things that can not be trademarked!

• Generic trademarks

As mentioned previously, generic trademarks are words or phrases that are used commonly when conducting business in that industry.

As an example, Ben and Jerry’s can’t trademark the word ice cream. 

• Existing trademarks

You are not able to trademark a word or phrase that is already a registered trademark within the same class of products or services.

For example, multiple pizza businesses are not able to register the name Domino’s, but both Domino’s pizza and Domino sugar can trademark the word Domino as they are not in the same class of products and services. 

• Similar unregistered trademarks

Even trademarks not registered are often recognized by the federal government.

Once again, the goal of trademarks is to limit confusion and if another business in your industry or state has the same name, your trademark application can be denied.

Steps On How To Trademark Your Business

Step 1: Determine Approval Eligibility 

Consider the trademark category you are applying for to determining the likelihood that you will be granted a trademark.

In general, marks that are unique and descriptive have the best chances.

The last thing you want to do is spend the time and money on the application only to be denied or not have the protection you hoped for.

Speaking of money, if you want to learn how to start a business without money or how to raise money for a new business, then you can check out these posts next.

Step 2: Perform a Search

You will first want to search through the Trademark Electronic Search System (TESS) and review current trademarks to make sure your name or logo is not already trademarked.

Or there is not another that is extremely similar to yours. If it is, your application will likely be denied. 

Step 3: Apply For A Trademark

Once you are sure a similar trademark is not already registered, it is time for you to apply for a trademark. 

If using the Use in Commerce basis, the trademark application will have 5 requirements that must be met: 

1. The following statement:  “The mark is in use in commerce and was in use in commerce as of the application filing date;”
2. The date of first use of your mark anywhere on the goods or in connection with the services;
3. The date of first use of your mark in commerce on the goods or in connection with the services; 
4. One “specimen” or proof for each class showing how you use the mark in commerce with the goods and/or services, and the following statement:  “The specimen was in use in commerce at least as early as the application filing date;” and
5. Verification, in an affidavit or a signed declaration that the statements made, are true.

If using the Intent-to-use basis, it is a requirement that the trademark application must include a statement, verified with an affidavit or signed declaration that the 

The applicant has a bona fide intention to use the mark in commerce and had a bona fide intention to use the mark in commerce as of the application filing date.

If you’d like a complete breakdown of the entire application process, you can visit this USPTO web address here: https://www.uspto.gov/trademarks/basics/teas-nuts-and-bolts-videos

Step 4: Check the Application Status

Once you apply, you are able to check the status of your application by using the Trademark Status and Document Retrieval (TSDR) system. 

It typically takes between 6 – 16 months for approval, so it is best to check on the status of your application at least every 3 months. 

Well, there you have it, how to trademark your business!

If you need more guidance with your business finances or taxes, then head over to our CFO services and small business CPA tax services now.

The post How To Trademark Your Business Name & Logo appeared first on Small Business Accounting & Finance Blog.

How to raise money for a new business?

So, what do you do when you have an amazing business idea, but no money to fund it?

Well, unless your uncle is someone like Warren Buffet then you’re going to have to figure out how to raise capital. 

And of course, raising money is one of the biggest challenges any new or established entrepreneur may face. 

But spoiler alert: while raising money may seem difficult, there are more ways than ever before to get funding for a business, and getting capital is a lot easier than you may think. 

So in this post, we’re going to give you 12 of the biggest ways to raise money for a new business. Keep reading! 

Now before we dive in, we just have to mention that this is not direct financial advice.

But if you read until the end, you may find some great ways to raise money for a new business like yours. 

12 Ways to Raise Money for a New Business

1. Small Business Grants

We love grants because it’s one of the few ways to raise money completely for free.

You don’t have to pay back a bank, a private investor, and you don’t even have to pay back your mama. 

Now let us briefly define what a small business grant is. It is simply a sum of money that is given for a particular purpose. 

The two biggest places to get grants are from government agencies or organizations.

Typically, these organizations consist of nonprofits and very large corporations. 

For example, many people may not know, but last year Facebook provided $100M in cash grants and ad credits to help small businesses across 30 countries.

They dedicated a percentage of those cash grants to minority-owned businesses that took the hardest hit by the virus. 

To be considered for the Facebook grant, all you had to do is:

1. Go to the Facebook grant website.
2. Complete a digital application.
3. Upload documents (which acts as proof for your application).

In fact, that is the same process for most grants.

One important thing to note is that local governments grants and niche organization grants are generally less competitive than state and federal grants. 

Check out this list of small business grants post next to see more places you can apply for grants.

However, you should know that many organizations and governments have a cap on how much money is given as a grant either on a total or annual basis.

So it’s important to remember that you are not guaranteed to get one.

Now before we go on to the next one on the way to raise money for a new business, we’re curious, have you ever received a grant or applied to get one? 

One of the most frustrating things about applying for grants is that it can take weeks or months before you get any correspondence.

That’s why the next option on our list is business credit cards. 

2. Business Card Credits

Now we know this one may seem obvious, but before you skip through this, just hear us out on a few points. 

The reason why business credit cards as an option is because you can get approved very quickly.

Sometimes within the same day, as long as you have good personal credit as well. And sometimes speed is important.

When you have a great idea, you want to start working on it immediately, especially while you are motivated and have momentum on your side. 

On top of that, if you delay getting started for too long then a competitor or someone else may beat you to the idea. 

Now, here are some of the major pros of using business credit cards. So cards like Chase Ink may have special introductory benefits such as: 

• 0% interests for 12 months
• Earn cashback on the first $25,000 spent on certain items
• Earn cashback when you spend a certain amount 
• Redemption rewards
• Fraud protection

Those are the things that you get with most credit cards…

…and are really important when you are starting a new business and building new relationships with people that you may not fully know yet. 

Of course, there are some downsides of business credit cards and they can be risky, especially for new business owners because they have very high-interest rates. 

So, you’ll want to make sure that you are making very smart business investment decisions and have the means to pay off the credit when the time comes.

We’ve recently published a post on the best credit cards for bad credit, be sure to read it next.

3. Use Crowdfunding

If you have a strong conviction about your idea and it’s something that’s fresh, new and maybe even a little weird then use the power of the internet to raise the money you need. 

Crowdfunding sites like GoFundME have helped thousands of entrepreneurs raise money, get pre-sales and even market test their idea. 

Believe it or not, there are many from all over the world who are willing to donate and support your business idea.

You just need to put it out there and make them a sweet offer. 

4. Incubators and Accelerator

Incubators and accelerators give startup companies access to many resources that help them get off the ground.

Incubators typically give entrepreneurs physical space, business support, training, and mentoring. 

This, of course, is none of those resources that we just named are direct cash, but usually, these are some things that an entrepreneur may spend money on anyway.

For example, a good incubator may have an in-house attorney that can help you with your terms of service. 

However, if you are looking for cash, you want to join an accelerator.

Typically, accelerators help companies with seed funding and provide additional resources in exchange for equity.

It’s a bigger commitment for both the entrepreneur and the organization. 

5. Angel Investors

These types of investors provide capital in the form of a loan or in exchange for equity in your business. 

Many technology companies were funded by angel investors, companies such as Google and Yahoo.

The thing we have noticed about angel investors is that they are rare to come by and are usually found through networking. 

On top of that, many angel investors have an unorthodox approach to have they choose their investments.

So, getting an angel goes beyond just having a good business model.

You need some luck too. That being said, if you have a really innovative idea and you have a great business network then this can be a great route for you to take. 

6. Bank Loans

Next on our list on how to raise money for a new business are bank loans.

Now the reason why we like bank loans is because the process is really straightforward.

Unlike angel investing, grants, or crowdfunding, as long as you “fit” certain criteria you have a very high chance of securing a business loan. 

Now we have a lot of great posts that expand on how to get business loans, grants, and more.

However, if you don’t have an established track record then getting business loans may be a little bit difficult which is why we have the next one on our list.

7. HELOC

This tip is exclusive to homeowners so we will be brief. HELOC stands for a Home Equity Line Of Credit.

Essentially, you are able to take equity out of home, convert it into cash, and use it on anything you need. 

Typically, the bank is the one who will give you a HELOC which is basically a loan against your home equity.

And the great news is that HELOCs have a super low-interest rate.

Now, we know taking equity out of your home may seem risky to some people…

…but if you have enough conviction and confidence around your business then at the end of the day, your home is a liability and your business can be the asset that pays it off. 

Let’s move on to the eighth way to get funding for a business. 

8. Bootstrapping

We know some of you don’t want to hear it, but here it is.

So what is bootstrapping? It’s basically when you use your own money and the profits from your business to grow instead of seeking outside capital. 

We have personally bootstrapped two services-based companies that have gone on to make millions, so we definitely recommend it.

But it does come with some drawbacks. 

One of the major drawbacks is speed. You likely will run out of money and you likely will need to be patient until you have enough cash to grow. 

For example, if you spend $1,000 on an advertising campaign and you make $3,000 then you have a 3x ROAS or return on ad spend.

So you net $2,000 and things are looking great. You’re ready to blow this up…

…but since you’re bootstrapped, you only have $2,000 that you can spend for next month, and at max that would be a 3x return of $6,000.

Whereas, if you had a $1M ad budget, you can profit $2M on a 3x ROAS. 

Hopefully, we didn’t lose you there with all that mat. The bottom line is that when you are bootstrapping you must be patient and disciplined.

But eventually, you’ll have the capital that you need and overwhelming confidence in what you invest in because you have had a lot of small wins throughout the way.  

If you want to learn more about bootstrapping, check out our post on how to start a business without money. 

9. Friends & Family

Now if you have exhausted your resources or just have friends and family who are enthusiastic about being a part of your new company, then of course that is an option for you. 

In fact, we have a friend who raised about $50,000 to start a trampoline park and it was just what he needed to take his business to the next level.

And everyone came out happy with their investment.

10. Product Pre-sales

The first company that comes to mind when we think about this is Tesla. 

Before any of their cars hit the market, they put together a solid prototype, a marketing campaign, and started taking pre-orders.

Without a doubt, it helped Tesla to raise the capital needed for production and staff. 

Also, if you’re a gamer, you’ve probably noticed some video game companies also take pre-orders.

This in turn helps them to meet the demand of the game and access overall production needs. 

So take a page out of their book and offer your customers an option to pre-order your product to raise capital, while also gaining some market insights. 

Now when you have a more mature and established company, a great way to raise money is with the next option. 

11. Purchase Order Financing

So if you have a business and you have a large volume of product orders coming in…

…but not enough cash to cover the production of products until the payment from the customer comes through. 

This is how it works. A purchase order financing company will pay your supplier directly the cost to produce the products. 

When products are shipped to your customers, your business will receive payment from the customers.

And that money is used to pay back the purchase order financing company and they of course make interest on the costs of the products until you pay them back. 

A purchase order financing company may not be the most affordable way to raise money, but it’s a great option for those who can’t get financing elsewhere.

Now on to our last option on how to raise money for a new business.

12. Strategic Partners

A great business partner could arrive in many different forms. 

It can come from a supplier who is willing to give you a credit on your products until you are able to pay them back.

Or it can come from a distributor who really believes in your operating abilities. 

It can even come from a customer who believes so much in your mission and values that they are willing to partner with you to grow your business even faster. 

One important thing to note is a strategic partner is not necessarily a financial partner.

A strategic partner is someone who can help lift some of the financial burdens that a business may have by providing it for free or at discounted rates. 

For example, if your business needs a warehouse to operate from then a strategic partner could be someone who is willing to share a warehouse with you in exchange from some equity.

Now instead of you having to raise money and spend it on a warehouse, you have it for free with an experienced partner too. 

Strategic partners can help you get into a great place financially while in the startup phase. 

Takeaways

So there you have it! Now before you go out and use all these tips, let us just say this. 

There are millions of successful entrepreneurs, including ourselves, who never have to raise money.

And when you raise money, it’s really like a loan and you have a responsibility to pay the money back. 

And sometimes if you fail to return the money, the investors can claim your business or any other collateral that you put up. 

And when you have an investor or bank to answer to then that can suck some of the enjoyment out of building your business.

Of course, not always, especially if you have nice investors, but you could also have very mean or prudent investors as well. 

So keep that in mind when you’re considering raising money. 

Well if you need more financial advice, then check out our CFO services or investment advisory services today.

The post 12 Ways on How to Raise Money for a New Business (Grants, Loans & More) appeared first on Small Business Accounting & Finance Blog.

Look, taxes are the single greatest expense that most people will pay over the course of their lives.

Not your dream house, not your dream car, or any other tangible thing you can put your hands on. It’s taxes. 

Believe it or not, taxes are evading almost every single part of your life. You pay taxes on your income, on your purchases, the property you own, and so much more.

But what if you could write off almost anything that you purchased?

What if we told you that taxpayers are leaving millions of dollars on the table by not taking full advantage of the tax code?

Look, there are over 80,000 pages in the tax code, and on one of those pages, it allows you to deduct almost anything.

Just take a look for yourself.

Section 162 of the internal revenue code says that you can “deduct all ordinary and necessary expenses paid or incurred during the taxable year to carry on any trade or business”.

So get ready because, in today’s post, we’re going to explain how you can write off almost anything.

Today, we’re going to teach you how to write off anything – well, almost.

What we’re about to tell you isn’t a “tax loophole” that can get you in trouble. In fact, it’s quite the opposite.

Tax write-offs and deductions are available for everyone.

It’s, quite literally, written as part of the tax code to incentivize people to take action to grow the economy.

The problem is that most people are intimidated by tax deductions and write-offs so much, so that they don’t take them at all and wind up paying way more in taxes than they have to.

In fact, some experts say that the average person will spend 25 to 35 percent of their entire life working to pay taxes.

Just think about that, 25 to 35 percent of your life. Not being spent to pay off your rent or your mortgage. Not to invest in stock markets, real estate, or your business. 

But no, literally, just to pay taxes to the government.

By the way, speaking of stock and real estate, we have another post that discusses which is the better investment – stocks vs real estate investing. Be sure to read that next.

The Tax Code is Not Your Enemy

What’s even crazier is that a lot of people think that the tax code is their enemy.

But the tax code is not your enemy. It was not written to just take your money.

It was written to grow the economy, boost jobs, provide affordable housing, and promote many initiatives that the government relies on to provide for its citizens.

Therefore, if you can make the tax code your friend, then you will be able to benefit from how it was written.

Just think about it. 

If there were no businesses, there would be no jobs. That would be a disaster, right?

So the government allows business owners to take write-offs that are not available to employees.

Or how about real estate? If there is no housing, people would not have anywhere to live. That would be chaotic, right?

So the government encourages real estate investors to invest in real estate…

…by allowing them to write off things like depreciation and so many more things that are not available to average taxpayers.

So what’s our point here?

Our point is that you can lower your tax bill, not by cheating the system, but by instead aligning yourself with the incentives that lie within it.

If you stick around until the end of this post, then you are going to know more about how taxes work and how you can take advantage of tax write-offs to lower your income.

With that said, let’s break this all the way down.

What are Tax Write Offs and Tax Deductions?

First of all, tax write-offs and tax deductions refer to the exact same thing.

So anytime you hear someone say tax write-off, just know that they are referring to tax deductions.

Ultimately, tax deductions are eligible expenses that you can deduct from your taxable income.

Now, there are two different types of taxpayers – average taxpayers, which would be wage earners.

And then there are super taxpayers, who are primarily business owners and investors.

You’ll see that the super taxpayers reap the most tax benefits, because they align themselves more closely with the interests of the government.

The “Average” Taxpayer Write Offs

The average taxpayer is someone who has a job, family, and mortgage or rent. 

The tax code was written to provide for the average taxpayer, rather than to incentivize them.

The government wants to make sure that this person has access to jobs, affordable housing, healthcare, and so forth.

Therefore, the tax code does not incentivize the average taxpayer as much. Average taxpayers, like wage-earners, are very limited in what they can deduct from their taxes.

But, they can take the standard deductions or itemized deductions.

The standard deduction is available to all taxpayers. For instance, in 2021, single taxpayers can deduct $12,500 from their taxable income, and married taxpayers can deduct about $25,000.

So for example, if you’re married and have $100,000 in income, you can immediately deduct $25,000 from your taxable income, and only pay taxes on the remaining $75,000.

Or you can itemize your deductions if you have certain expenses that exceed the standard deduction.

Itemized deductions allow you to deduct things like your home mortgage interest, property taxes, charitable contributions, and other specific items.

The idea here is that if your itemized deductions exceed your standard deduction, you should itemize to lower your tax bill.

For example, if you are single and have $15,000 in itemized deductions, then you should itemize since the standard deduction is only about $12,500.

Other than taking the standard deduction or itemized deduction, there is very little that the average taxpayer can do to lower their income taxes…

…outside of contributing to a retirement account to defer taxes until a later date.

Therefore, if you’re an average taxpayer who wants to take advantage of the tax code to write off almost anything, you have to find a way to contribute to the economy through business or real estate.

You want to become a super taxpayer.

The “Super” Taxpayer Write Offs

Super taxpayers are business owners and investors. They can deduct almost anything from their income given the right circumstance.

The tax code we showed you earlier referred specifically to business owners. 

As long as the expense is a business or investment expense, they can deduct it. 

And if that business expense provides a personal benefit, then that is a plus of being a super taxpayer.

So in general, if the purpose of the expense is to produce more income, then it can likely be deducted.

That’s why super taxpayers can deduct business meals – as long as they are eating and discussing business, they can deduct that meal from their income.

Super taxpayers can do vehicle tax deduction – as long as the vehicle is being used for business or is being used to advertise that business, they can deduct it.

Super taxpayers can deduct some of their home mortgage, utilities, and property taxes – as long as they are using a portion of their home to conduct business.

For instance, a home office or a basement that you are storing inventory in or something.

Super taxpayers can even deduct their vacations – as long as they do some type of business during that vacation period.

For instance, a real estate investor might be able to deduct a vacation if they were looking at real estate in the area they are traveling to.

As you can see, super taxpayers can deduct almost anything – food, vehicles, housing costs, travel, and more as long as it is used to help them produce more income in their business.

But many super taxpayers are afraid of taking these deductions.

Like, just last week, some of our YouTube subscribers asked us:

• Can I write off my merchant expenses from Stripe?
• Can I write off the eBay fees I pay when I sell my products?
• Can I write off company t-shirts that I use to advertise my business?

That’s all yes, as long as these are legitimate business expenses, you can write it off!

You don’t need to be afraid of tax deductions, it’s literally written in the tax law.

The problem with deductions only arises when you start claiming personal expenses as business deductions that have nothing to do with your business.

Like you can’t just buy a Porsche and write it off from your business without it serving some business purpose.

If you are wine and dining clients, using it to travel from one business to another, or even using it to advertise your business, then you may be able to deduct the expense from your income.

Business owners are able to write-off almost anything, as long as it meets a few basic requirements.

What are Eligible Expenses?

According to the tax code, the expense must be ordinary and necessary for carrying on the business.

Now, the tax law does not specifically define what ordinary and necessary means.

Therefore, it is up to you to determine what expenses qualify as “ordinary” and “necessary” for your business.

Now, the IRS does attempt to define this in a publication.

According to the publication, an ordinary expense is one that is common and accepted in your business or trade.

And a necessary expense is one that is helpful or appropriate for your trade or business.

For example, an ordinary and necessary expense for a car dealership might be buying car parts.

While for our accounting firm, it might be technology and software. Surely, we couldn’t deduct car tools for our accounting business.

Maybe if those car tools were being applied to a vehicle that was being used for business, then sure.

But the idea is that you can’t just start buying anything and writing it off. That’s when you can start getting into some big trouble with the IRS.

Steps on How to Write Off Anything (Almost)

Step 1: Start a business or become an active investor

Remember, tax deductions benefit business owners and investors the most.

A lot of people think that this means they have to be wealthy to take advantage of the tax law.

You don’t.

These tax deductions are available for all business owners and investors, regardless of how much money you make.

In fact, there are specific deductions that are made for new business owners, like the startup and organization costs deduction that allows you to deduct your startup expenses.

And we did a post on this already, but anyone can start a business. We did an entirely separate post on how to start a business without money.

In fact, we started our first business with as little as $200.

Step 2: Make sure your expenses have a business purpose

If you want to deduct almost everything, you need to make sure almost everything you buy has a business purpose.

For this, we want you to think of the worst-case scenario here. Let’s say the IRS audits you and wants to learn more about the deductions you claimed.

In that event, you want to be able to confidently explain to the IRS how the expenses you claimed as deductions were used to benefit your business.

As long as that is in accordance with the tax law, then you shouldn’t have anything to worry about.

Step 3: Make sure you document everything

The third step is to make sure that you keep up with your documentation, like your receipts or invoices.

Again, in the event of an audit, you don’t want to be all over the place.

If the IRS asks for more information on your deductions, all you need to do is show proof of the expense and what it was for.

That’s it. But if you do not keep up with the receipts and invoices, then you may have a difficult time proving that the expenses were legitimate business deductions.

So make your life easy by just keeping track of your receipts for your business expenses

Step 4: Claim the deductions correctly on your tax return

When you file your taxes, whether you’re doing it yourself or a tax preparer is doing it for you, make sure you claim your deductions correctly.

Specifically, make sure you are categorizing your expenses into the right places on your tax return.

There are specific categories for each type of business deduction, so you will want to make sure you insert the right amounts in the right categories.

You should be doing your bookkeeping throughout the year, which should make it very easy to tally up the totals and that to your tax return.

But ultimately you need to make sure you do this correctly, because any errors could trigger an audit.

So there you have it, those are the steps on how to write off anything. If you think you can save more on taxes but are just not sure how to do it, then contact us today!

We have a team of CPA tax experts ready to help in your tax planning, tax preparation, and tax resolution.

The post How to Deduct and Write-off Almost Anything from Your Taxes appeared first on Small Business Accounting & Finance Blog.

Today, we want to share some breaking news with you regarding government contracts.

According to the SBA, the federal government just handed out over $145 billion dollars in government contracts for small businesses.

For some context, this exceeds what the government spent in the prior year by over $13 billion dollars.

The federal government is clearly ramping up its spending to protect the backbone of the economy – small businesses.

And for thousands of entrepreneurs, this spending turns into revenue that they can use to build wealth and increase profits.

So if you want a piece of the pie, read until the end for the full scoop.

Because in this post, we will be talking about these billions of dollars worth of government contracts for small businesses.

But before we do that, let’s talk about government contracts first.

First of all, it’s important to note that government spending represents over ⅓ of all spending in the United States.

For example, in 2020 the government spent over $6.5 trillion dollars.

The U.S. government is, quite literally, the world’s largest customer. 

We are notorious for spending trillions of dollars, printing money, and making it go BRRRRRR. 

And sometimes, we’re guilty of doing a little bit too much of that. 

But technically, this money is supposed to be spent on programs to ensure the well-being of our citizens.

And one of those programs includes government contracting to small businesses.

The government sets aside billions of dollars each year to contract small businesses, women-owned businesses, and other disadvantaged businesses.

To further explain, let’s take a look at a quote from SBA Administrator, Isabel Guzman:

“We’re committed to increasing these opportunities and lowering barriers to give our small businesses a chance to grow their revenues through contracting.

Our goal this year, and every year, is to make sure that small businesses can be like the giants they are in our economy and to create conditions to guarantee their success.”

So basically, the federal government wants to do business with small businesses. They want to support them and help them prosper in our economy. 

And the record-breaking numbers indicate that they are doing just that.

As you can see in the second column of this table, the federal government sets a goal for how much money they want to spend on government contracts for eligible small businesses.

For example, the goal for small businesses was to spend 23% of their budget on small business contracts.

And they exceeded this goal and spent over 26% of their budget on small business contracts.

And according to the White House, they want to increase the share of contracts awarded to small businesses by 50 percent over the next 5 years.

In fact, President Biden made an executive order to remove barriers and make it easier for small businesses to procure government contracting opportunities.

So, what does this mean for you?

It means that you can earn thousands, if not millions, of dollars through government contracts.

For example, we met the owner of a small business that became one of the fastest-growing companies in the U.S. through government contracts.

He provided engineering services and made millions of dollars per year by using government contracts.

So trust us, you can definitely do this for your business. But that’s just one benefit.

Another major benefit of pursuing government contracts is that your competition is limited. 

Unlike the private sector, you do not have to compete against large enterprises and Fortune 500 companies to earn business from the government.

As you just saw, the federal government must contract a specific percentage of small businesses every year.

So if you fit the criteria, you will only be bidding against other small businesses as well, which improves your chances of being rewarded with government contracts.

And contrary to what you might think, it is not very difficult to become a government contractor.

All you have to do is register and once you are approved, you can start bidding on open contract opportunities.

We even went through this process ourselves for one of our small businesses and was accepted as a government contractor.

If you are interested in learning more about how to become a government contractor, then read our post on How to Get Government Contracts.

In this post, we will walk you through, step-by-step, how to procure government contracts.

But for now, we just wanted to let you know that the government is spending more and more money on government contracting for small businesses.

And as the world’s largest customer, you may be able to grow your business by contracting with them, especially as they are trying to make this process as easy as possible for you.

If you want to learn more ways to increase your profits or save on taxes…

…then check out our CFO services or talk to one of our CPA tax experts today.

We would love to hear from you!

The post Billions of Government Contracts for Small Businesses appeared first on Small Business Accounting & Finance Blog.

In just a moment, we’re going to show you a reliable set of steps to fix bad credit fast. 

This post is for you if you have no credit, bad credit, or just want to boost your scores as high as humanly possible.

Probably similar to you, most parents never told their kids about the importance of good credit or what it takes to boost your credit score…

…and the truth is that, having bad credit is downright expensive. 

Not only are you denied the best credit cards out there, but you also get the worst terms on car loans and home loans.

Or you may not be able to qualify for a car loan, home loan, or apartment at all.

So we’re on a mission to change that, and by the end of this post, you will know the simple steps you need to take on how to fix a bad credit score fast.

The best part about it is that all the steps are free. 

Seriously, follow these steps and you are sure to boost your score in no time. Let’s get into it.

How To Find Out If You Have A Bad Credit Score

Step 1: Pull Credit Reports

Before doing anything else, you must know where you are, and what you have to work with

You can pull your credit report for all three major credit bureaus (Equifax, TransUnion, and Experian) for free by going to annualcreditreport.com.

We’ve also found that you can view your credit report for free by visiting the official sites of each credit bureau and starting a dispute online. 

Lastly, you can view your credit report by signing up for a credit monitoring service such as Credit Karma.

In short, you shouldn’t have to pay to get a credit report. 

The purpose is to find out what items in your credit report are causing your score to be so low. 

In doing so, make sure you get a credit report for all three credit bureaus.

Generally, they will contain the same information, but they tend to show and report different things on each.

For example, you may have a collection on one report that does not show up on another, and that is something you don’t want to miss.

Step 2: Check For Errors 

The next step on how to fix a bad credit score is checking for errors.

Nearly 25% of all credit reports contain errors that may be harming your credit score without you knowing. 

So, now that you have your report, here are the errors we want you to look out for: 

• Wrong personal information (name misspellings, wrong addresses, etc.)
• Missing accounts (on-time payments that are not showing – this is a huge one)
• Accounts that do not belong to you
• Incorrect dates 
• False inquires 
• Incorrect bankruptcies or foreclosures
• Duplicate accounts
• Incorrect account status, delinquencies or derogatory marks (closed when supposed to be open or late 90 days when it should only be late 60 days)

Make note of them as we learn in a second how to get rid of them. 

Step 3: Check for Negative Marks

In this step on how to fix a bad credit score, we want you to make note of the derogatory marks that actually belong to you. 

We will be showing you the best methods to resolve these negative marks in just a moment, so start  looking for these items: 

a. No credit history or very little history

We’ve all heard the phrase, “It takes credit to build credit”.

We think that actually had to do with money, but either way, it’s true for credit as well. 

To get a FICO score, you need to have at least six months of credit history and one credit bureau reporting your activity.

To get the highest credit scores, you will have to have credit for at least 7 years. 

b. Late payments

Payments are typically not reported late until 30 days after the due date and will be in your credit report for 7½ years. 

c. Collections

Collections hurt your score a lot and are basically unpaid debt that is sold to collection agencies for pennies on the dollar.

You know, the ones that call you all day and night from 20 different numbers.

Collections typically happen after 5 to 6 months of late payments and stay on your report for 7 years. 

d. Account charge-offs

After a period of time (after you fail to resolve the debt or can not pay), the lender will simply call it a wash aka charge it off.

Account charge-offs stay on your report for 7 years

e. High Utilization

When it comes to your credit score, high utilization is considered using more than 30% of your total credit limit available to you. 

f. Repossession

When you can’t pay for an item such as a car, the lender has the right to repossess the item aka come get it back from you.

Repossessions will stay on your credit report for 7 years. 

g. Student loan delinquency or default

Private student loans that are late by more than 30 days can show up on your credit report and student loans that are late more than 90 days can show as well.

Student loan delinquencies stay on your report for 7 years. 

h. Bankruptcy

Different forms of bankruptcy will stay on your credit report for different lengths:

• 7 years for Chapter 13 bankruptcy will stay on your credit report for 7 years, and
• Chapter 7 for 10 years. 

i. Foreclosures 

This occurs when the bank takes the house back after failing to make payments. Foreclosures stay on your report for 7 years. 

So we now know what to fix, let’s talk about how to fix a bad credit score. Here’s exactly what to do. 

How To Fix A Bad Credit Score: With Report Errors

If you see items on your report that are either not accurate or “not yours”, you have the right to dispute it.

You can dispute anything you see with each individual credit reporting agency via writing or online using the dispute forms on their websites. 

Credit Reporting Agencies are required to verify that information with the creditor within 30 days by law.

If the errors can not be verified, they must be deleted. 

So simple rule, not yours or not accurate –  dispute it. 

Even if it is accurate, you should try and dispute it. Many creditors won’t go through the hassle of verifying, and you may get an easy removal just by trying. 

We’re not necessarily recommending it, but there is literally no harm in trying. 

How To Fix A Bad Credit Score: No Credit History or Short Credit History

If you have a short credit history, do these 4 things to help your credit score. 

a. Take out a secured credit card. 

Secured cards require a cash deposit, which then acts as your credit line. This means if you deposit $200 your line of credit will be $200. 

The good news is that the secured credit cards report on your credit report which can improve your payment history and your length of credit. 

Once your credit is improved enough, you can ask the credit card issuer to convert the secured card into a regular credit card. 

The best part is that your account will remain during the transfer keeping your length of credit in place. 

b. Get a credit builder loan.

They were made to actually help those with little to no credit history or those with bad credit in general. 

They don’t require you to have good credit to get approved, but do require you to have the income necessary for repayment.

Speaking of loans, if you want to learn more about business loans, be sure to read this post next.

c. Become an authorized user on someone’s credit card.

This means that you are not responsible for the payments, but the account is reported on your credit report. 

So, it is best to become an authorized user with someone you know has good credit-building habits as both the positive and negative will be reported. 

Also, make sure the bank actually reports authorized user activity to the credit bureaus. Most do, but some do not.

According to Nerd Wallet, here are the banks that do report:

d. Report non-debt items on your credit report. 

Most people don’t know, but you can actually request that your on-time rent payments show up on you your Experian credit report through Experian RentBureau. 

This can be done by asking your landlord or using a third-party rent payment service. 

Additionally, you can sign up for Experian Boost which can add up to 24 months of positive cellphone, utility, and streaming device payments to your Experian credit report.  

How To Fix A Bad Credit Score: Late Payments

Now let’s talk about what you can do to improve your credit if you have late payments. 

a. Make payment as soon as possible. 

Payment history is the most important part of your credit score making up 35% of your total score making it the fastest way to help or hurt your score. 

And the longer a payment is late, the more it hurts your score because 180 days late is worse than being 90 days late. 

We understand that it may not be the most immediate thing you can do, but as soon as possible, at a minimum, make minimum payments. 

b. Ask for a “Goodwill Adjustment”.

You’d be surprised how far you can get by simply asking a creditor to remove late payments as a goodwill gesture. 

It works especially well after being on time for a while, as it proves good-faith. 

Just call or mail the creditor a forgiveness letter explaining your situation. Here’s a template that you can use:

The best thing that can happen is a question away. 

c. Negotiate removal by signing up for auto payments.

Does this really work? Yes, it can and it is worth it to try. But only attempt this knowing you will have the funds to cover the automatic payment. 

How To Fix A Bad Credit Score: High Utilization

If you have a high utilization rate, meaning over 30%, on a monthly basis, lowering it to under 30% can improve your score dramatically.

Here are a few ways to do it: 

a. Ask your issuer when they report

Many credit card companies report your balance and payment history every 30 days. 

But the day they report is not always the same as your bill due date.

It could be before or after, which means you could be paying your bill on time and still showing a high utilization rate. 

To help fight this, ask your credit card issuer what day they report to the credit card agencies.

Armed with the correct date, you will when and how often to pay your card so you always show the best utilization percentage. 

b. Ask for an increased credit limit

There are times when your credit card issuer will raise your credit limit without your request but it doesn’t happen often. 

Take matters into your own hands by asking for an increase either online or via phone. 

By increasing your credit limit you automatically decrease your utilization rate. 

Note that there may be qualifications to get an increase accepted as well as a hard inquiry.

So, make sure you have a good chance of qualifying before risking the hard inquiry.

Check out this post next to learn how to get business credit quickly.

c. Ask to be an authorized user on someone’s credit card. 

If someone with a consistently great payment history and utilization rate allows you to be an authorized user on their account…

…it will automatically help your utilization rate as well.

d. Open a new credit card  

When you get a new card, you increase your credit limit, and therefore, decrease your total utilization. 

The downside of applying for a new card is that it will likely result in a hard inquiry on your credit report and can affect your average length of credit. 

We don’t typically suggest this route unless you have a very long credit history and the ability to qualify for a card. 

A bonus tip for your utilization is to not close unused cards.

Closing a card can result in a lower credit limit which pushes your utilization up and can lower your average length of credit if you had the card for a while. 

How To Fix A Bad Credit Score: Charge-Offs / Collections

If you hate charge-offs and collections, you are not alone. Here are a few ways to deal with them on your credit report: 

a. Dispute it if there is an error. 

You want to check for things such as:

• wrong account number,
• outdated status,
• wrong date of delinquency, or
• a date past 7 years ago. 

If any of these things appear go ahead and file a dispute based on the incorrect information. 

As mentioned previously, in many cases, creditors and collection agencies are too lazy to fight the dispute. 

b. Ask for a goodwill deletion.

When dealing with charge-offs and collections, ask and you shall receive – sometimes. 

Go ahead and send a letter to the original creditor explaining your situation and asking them to remove the collection or charge-off.

A well-written one that points to a specific circumstance may get it removed for you. 

This usually works best after you have paid the debt.

c. Write a pay for delete letter  

Try sending the charge-off creditor or collection agency a pay for delete letter that explains that you will pay the debt if they remove it from your credit report. 

In a sense, they need you just as much as you need them. If you don’t pay, they don’t make money on their debt purchase. 

It’s not guaranteed to work, but it’s definitely a win-win scenario and something you should try. 

d. Ask for a lower payoff 

Remember that most debt is bought for pennies on the dollar.

This means the collection agency will likely attempt to recover the total debt amount even though they bought it at a discount. 

We mean, always ask for the payoff to be reduced if you decide to pay the collection or charge off.

Explain that you do not have the money to pay the amount and if they are willing to take a number lower than 50% of the debt. 

Once again, they need you to pay to make money so this tactic nearly always works. 

Just know that paying off a charge-off or collections will have a minimal impact on your credit score but can help in getting a goodwill letter accepted and qualifying for other loans and lines of credit in the future.  

Also, if you are close to the 7-year mark when the collection will be removed, it may not make financial sense to pay the debt off. Something to think consider. 

How To Fix A Bad Credit Score: Student Loan Delinquency/Repossessions/Bankruptcy/Foreclosure

For all other negative remarks, getting them removed is nearly impossible. 

a. Dispute all incorrect information

You will want to comb through these with a fine-tooth comb as information being wrong is your best bet for a miracle removal. 

If you do find something that is wrong, dispute it. 

2. Simply wait for them to be removed from your credit report. 

Remember most of them should be removed in 7 years with the exception of Chapter 7 bankruptcy which stays on your credit report for 10 years. 

3. The best thing that you can do is work to improve everything else. 

That means working overtime to improve your payment history, your utilization rate, your mix of credit, and your inquiry count. 

3 Extra Tips on How to Fix a Bad Credit Fast

Tip 1: Visit the credit repair subreddit on Reddit.com

If you never heard of Reddit, it is the world’s largest forum where people come together to discuss certain topics – in this case, credit repair. 

As of the time of this recording, the Credit Repair subreddit called CRedit, has over 73.1k members.

It has hundreds of posts with people just like you detailing exactly how they fixed their credit. 

So you need to definitely need to take a look if you haven’t already. 

Tip 2: Limit the amount new and closed accounts 

As mentioned previously, when you open a new account your risk ruining the other categories of your credit score – length of credit history and Inquiries. 

When you close an account, you also may negatively affect your utilization and length of credit history if the account has been around for a long time. 

Tip 3: Use Experian Boost

We do believe that it can be a good tool for improving your score. 

Experian Boost adds up to 24 months of positive cellphone, utility, and streaming device payments to your Experian credit report. 

If you have been making on-time payments with these accounts, it can provide a major boost to the heaviest weighted category of your credit score – payment history. 

Check it out. 

Well, there you have it – everything you need to know on how to fix a bad credit score.

If you need help with your particular financial situation, check out our CFO services today.

We have a team of financial experts who are always ready to help individuals and businesses like yours.

The post How to Fix a Bad Credit Score Fast and For Free appeared first on Small Business Accounting & Finance Blog.

The SBA recently launched a direct PPP loan forgiveness portal in an effort to streamline the loan forgiveness process.

This is really good news, in our opinion, especially if you applied for the first or second draws of the Paycheck Protection Program.

We know many of you have had issues applying for PPP loan forgiveness through your participating lender or bank. 

And those issues range from them not accepting forgiveness applications or just not providing clarity on the forms required for forgiveness.

It’s honestly just been a hassle for a lot of business owners to successfully get their PPP loan forgiven.

So if you were 1 of the millions of small business owners who received the Paycheck Protection Program loan or PPP loan, this update is specifically for you.

PPP Overview

If you recall, the Paycheck Protection Program was released to help small business owners retain their employees and remain in business.

Now it was set up to be a “forgivable” loan.

This means once the funds were received, you could apply for forgiveness and not have to pay any of the loan back, if the funds were used for payroll and other qualifying business expenses.

The Problem with Applying for Forgiveness from Banks

Prior to this update, forgiveness could only be applied through your lender or bank. 

And this has presented huge administrative problems. 

Many business owners have been unable to apply for forgiveness through the bank because:

• banks have been closing their forgiveness applications,
• delaying the loan forgiveness process, or
• even partially forgiving loans without explanation. 

The New SBA PPP Direct Forgiveness Portal

Now, due to this SBA update, forgiveness is directly available through the SBA’s new PPP loan forgiveness portal, if your PPP loan was under $150,000.

The goal of the SBA’s portal is to ease the burden on banks by allowing small businesses to directly apply for forgiveness from the SBA.

Who Can Use the PPP Loan Forgiveness Portal?

Specifically, the portal will simplify forgiveness for smaller businesses, including sole proprietors.

The vast majority of businesses who applied for the PPP loan received loans under $150,000.

In fact, the average loan size was $42,000. So for most of you, applying directly through the SBA is a viable option.

And considering the forgiveness process is already difficult as it is…

…having this portal option is awesome news and will help millions of businesses to get back to what they do best and that’s running their businesses. 

The new PPP loan forgiveness portal will begin accepting applications from PPP borrowers on August 4th of 2021. Simply go to the SBA website to apply.

In addition to this new platform, the SBA is setting up a customer service team to answer questions and directly assist borrowers with their applications.

Again, that’s more good news, considering banks have been a little unaware of what the SBA has been asking for in terms of forgiveness applications.

You can now bypass the middle man or ‘the bank’ and speak directly to the SBA regarding your PPP questions. 

And this is the number and times you can contact them with your questions. 

The SBA also released a user guide for the portal. And it’s designed to walk you through step by step how to register on the new platform and apply for forgiveness.

Lenders Requirement

Another detail to consider is that lenders are required to opt into this program through the SBA.

Lenders actually have a separate portal they have to register through in order to opt-in.

What this means is that, as a borrower, you have 2 options to apply for forgiveness.

• One is through the new SBA PPP loan forgiveness portal site.
• And the second is through the lender you applied from.

Either option works perfectly fine. Some borrowers have not had any issues with their bank and would prefer to apply through that route.

For many others, this is not the case, and applying through the SBA’s portal would be better.

But if you do want to apply for forgiveness directly from the SBA, your bank or lender has to opt-in.

Only borrowers with participating lenders in the SBA’s portal can use the portal to apply for forgiveness. 

According to the SBA’s most recent press release, currently, 600 banks have opted in which would allow over 2 million borrowers to apply through the portal.

This is roughly 30% of loans under $150,000 that haven’t applied for forgiveness. 

However, if you navigate to this link and download their list of participating lenders, you will see that there are almost 900 lenders listed. 

So there is a good chance that your lender is participating in the SBA’s direct loan forgiveness program.

If you don’t see your lender listed, we’d recommend calling them and asking if they plan on opting in and when they expect to do so. 

Get Ready to Apply

If you do plan on applying for forgiveness and are patiently waiting for the SBA’s portal to become available…

…there are a few things you can do to prepare and submit your application as soon as it becomes available.

For borrowers with loans under $150,000, you can fill out Form 3508-S and this represents the short-form version of the loan application.

Some documents you would need to include in your forgiveness application are:

1. Bank statements or third-party payroll service provider reports
2. Payroll tax filings
3. State quarterly business and individual employee wage reporting
4. Business rent payments
5. Business utility payments
6. Covered operating expenses
7. Covered supplier costs

The specific documents that are required will depend on the information provided on your original PPP loan application and how you used the funds. 

But you can start gathering this information now so once the portal opens, you can submit your application right away. 

That’s all we have for this post. We hope you found it helpful.

But if you have any questions or if you have had issues getting your PPP loan forgiven, then work with our tax consultants today.

Our expert team can definitely help you with your concerns about taxes and more. Contact us now!

The post New SBA PPP Loan Forgiveness Portal | Apply for Forgiveness Easier appeared first on Small Business Accounting & Finance Blog.

The PPP loan forgiveness deadline is quickly approaching for anyone who got the first round of PPP in April or May.  

In fact, the PPP loan forgiveness deadline will likely be August 2021 or September 2021, depending on when you exactly received your loan.

So, you have about 1-2 months to apply for PPP loan forgiveness if you haven’t already. 

Interestingly enough, according to the SBA, as of May 24, 2021, nearly 2 million small businesses have yet to submit their PPP loan forgiveness application.

Out of 5.2 million loans given, that’s nearly 40%! 

And we have a feeling there are going to be a lot of people who end up not getting their loan forgiven either because they simply “forgot” or they didn’t really “qualify”.

So, we want to ask you; did you get the first round of PPP?

Now in case you don’t know, the PPP loan will automatically convert into a standard loan at about a 1% interest rate if a small business does not apply for forgiveness. 

And you have to apply within 10 months of the end of the covered period under which they had to spend the money according to the forgiveness guidelines.

This means you can only use the loan on payroll, rent, utilities, and other related expenses. 

So let’s do a quick example. 

If you got a PPP loan, May 15, 2020, and you had a 24 week covered period, that would mean your cover period comes to an end on October 30, 2020.

And 10 months from October 30, 2020 is August 30, 2021.

Now of course, if you got your loan in late May then the deadline may also fall in September 2021. 

If you had an 8-week covered period, then we have to deliver some bad news.

The deadline for you is already over.

But for most small businesses, it was recommended to use a 24-week covered period anyway.

However, if for some reason you could not use the money after 8 weeks, you’re going to have to pay something back. 

Now there are some people who are intentionally delaying their forgiveness application to maximize a separate tax credit that rewards businesses for retaining employees…

…which basically gives small business owners a tax benefit for each employee retained up to a certain amount. 

But the PPP loan will likely outweigh the tax credit, so we suggest applying for forgiveness as soon as you can. 

If you still need to apply for PPP loan forgiveness then you should reach out to your bank or the lender who gave your PPP Loan.

So in summary, if you receive the first round of PPP loan and you got a deposit in April or May, you need to take action asap and apply to get your loan forgiven.

Now if you need more help figuring out what to do with your PPP loans, or taxes in general, get in touch with one of our CPA tax experts today!

Contact us now to get started.

The post PPP Loan Forgiveness Deadline is September 2021 appeared first on Small Business Accounting & Finance Blog.

In today’s post, we’re going to settle the great debate once and for all – and that is the answer to one question:

Which is the better investment – stocks vs real estate?

Read until the end of this post for the pros and cons of both, and our opinion as someone who has invested and advised people in both asset classes.

It’s no secret that real estate investing has created 90% of the world’s millionaires.

And right now, there are over $95 trillion dollars invested in the stock market, which is a whole lot of money.

Which is Better- Stocks vs. Real Estate Investing?

So which is better between stocks vs. real estate investing? We’re going to look at several areas to determine this such as:

1. Appreciation
2. Income from Dividends or Cash Flow
3. Tax Advantages
4. Liquidity
5. Tangibility
6. Ease and Simplicity
7. Control

So let’s start with appreciation.

1. Appreciation

It basically means that the asset you invest in will increase in value over time.

Both, stocks and real estate appreciate in value. But one more than the other.

According to Business Insider, the stock market has appreciated almost 3x as much as the housing market since the 08 recession.

Appreciation is a very important factor when you determine what asset you invest in because it allows you to take advantage of compound interest.

Appreciation is why billionaire investors like Warren Buffet recommend investing in stock funds like the S&P 500 as the single-best stock investment for most people.

For example, the S&P index fund, which is composed of 500 of the largest companies in the United States, had an average annualized return of 10% since its inception in 1926.

Because of compound interest, this means that your money would double in 7 years at this rate.

So if you invested $100,000 today, you would have $200,000 in 7 years, and $400,000 in 14 years.

Or let’s say you’re starting with absolutely nothing right now…

…if you started investing $1,000 per month with a 10% growth rate, you would have over $1.3 million dollars in 25 years.

That’s how powerful compound interest and appreciation is. And historically speaking, the stock market has appreciated more than the real estate market.

So that’s 1 point for the stock market.

2. income

Both, stocks vs. real estate investing can provide consistent income to you as an investor.

In the stock market, income is paid to you in the form of a dividend. There are stocks with very high dividends, and some stocks that do not pay dividends at all.

If you invest in a group of stocks, like the S&P 500 for example, then you would receive an average of all of the dividends paid out from that group.

Historically, the S&P 500 has paid a dividend yield of about 1.88% per year, which is about $1800 on a $100,000 investment.

This isn’t life-changing if we’re being honest, but to be fair, you can invest in stocks with higher dividends, but those typically appreciate less in value.

On the other hand, when you invest in real estate, income is paid to you in the form of cash flow from rent.

Typically, real estate investors will make at least 8-12% in rental income on their cash investment.

And we’ve even seen returns as high as 15-20%.

Now, of course, there’s the argument that there is a lot of work in real estate investing and it certainly can be, but it doesn’t have to be.

Especially not today.

These days, you can easily passively invest in real estate through platforms like Fundrise…

…or CrowdStreet and let someone else do all of the work for you.

Or you can buy properties and hire a really good property management company to manage your property for you.

So ultimately, when it comes to passive income, real estate investing wins by far.

So let’s give real estate 1 point on our scoreboard here.

Now we’re tied up.

3. Tax Advantages

So let’s take a look at the tax side of things – our favorite part of the equation by far.

When you invest in stocks, you only pay taxes when you sell your stocks, not when it increases in value.

When you sell your stocks, you would pay either short-term or long-term capital gains. And this is treated very differently for tax purposes.

Short-term capital gains are taxed just like your ordinary income, which is the highest type of income tax that exists. Ordinary income tax brackets can range from 0-40%.

While on the other hand, long-term capital gains are taxed at a much lower rate, which can range from 0-20%.

So how do you pay long-term capital gains tax on your stocks?

It’s simple – all you have to do is hold your stocks for more than 1 year and you can take advantage of the lower tax rate.

This means if you’re day-trading and buying and selling stocks every day, you’re going to pay short-term capital gains taxes, which is much higher than long-term capital gains.

So there are some tax advantages of investing in stocks, as long as you hold your stocks for a longer period of time.

Now, let’s take a look at the tax advantages of real estate.

The tax advantages associated with real estate alone may single-handedly make real estate the best investment of all time.

You can literally earn money tax-free, and even avoid taxes legally.

You can take advantage of the depreciation, which works like magic, because it allows you to claim an expense for something that does not cost you any money.

It’s the only tax deduction that can lower your income without actually costing you a dollar.

So hypothetically, you can earn rental income from real estate and report a loss to the IRS after claiming depreciation.

And this isn’t a tax loophole, it’s literally a part of the tax law.

The government wants to provide affordable housing and wants to encourage people to invest in real estate.

They even allow you to accelerate the rate of depreciation expense you take on your real estate investments.

Check out this post next to learn more about real estate depreciation.

But what happens when you sell the property?

Technically, you would pay capital gains tax on your property when you sell it, just like a stock.

But fortunately, there’s this tax code called the 1031 exchange.

The 1031 exchange allows you to sell one property without paying capital gains taxes, as long as you buy a similar property.

It’s kind of like you’re “swapping” one investment for another. But the beauty is in the fact that you can keep “swapping” into higher-value properties.

For example, let’s say you bought a $100,000 home. And 5 years later, the home is worth $150,000, so you decide to sell it.

Well now, when you sell it, you have $50,000 more than what you paid for it. Now you can buy a $150,000 property and not pay any taxes on that gain.

You’re effectively growing your wealth, but you aren’t paying any taxes to grow your wealth.

This is why we love real estate investing. Here’s our post on 1031 exchange explained that you can read after.

If you sell a stock in the stock market, you’re going to be taxed on it even if you buy another stock.

The tax code highly favors real estate investing, and a lot of millionaires use it to pay little to no taxes at all.

And by the way, taxes are the single greatest expense that most people will pay over the course of their lifetime.

So by mitigating this, you can grow your wealth exponentially.

Let’s go ahead and give real estate a point here.

Now for this stock vs. real estate investing debate, let’s bring everything together here and address some of the elephants in the room.

In general, real estate has a higher return than stocks when you consider all things – tax savings, cash flow, and appreciation.

This is why 90% of millionaires invest in real estate.

However, there are some non-financial reasons why people decide not to invest in real estate or stocks that are worth mentioning as well here.

So let’s address it.

4. Liquidity

Real estate is an illiquid asset. Once you invest in real estate, you cannot get your money out of it easily.

So if you invest in real estate, the only cash you can rely on is the cash flow coming in from rental income.

And if that’s not enough, then you might find yourself in a very uncomfortable situation.

Stocks, on the other hand, are very liquid. If you need your money now, you can get it immediately.

This is very beneficial in the case of an emergency or you find out that you need to make a big purchase.

So let’s give stocks a point for liquidity.

Now, we should also mention that liquidity can be a double-edged sword.

You generally do not want to interrupt the compounding nature of your investments.

Or make emotional decisions that cause you to panic sell or panic buy something.

Whenever you invest, it should be for the long-term.

Both, stocks vs. real estate investing, operate in markets and these markets go up and down over time.

And you don’t want to find yourself selling assets in a downturn.

So regardless of what you invest in, we’d suggest making sure a small % of your portfolio is liquid in cash or another asset that you can rely on when needed.

5. Tangibility

Stocks are intangible assets.

You can’t touch or feel it. Its value is driven up when people buy the stock and it can crash down if everyone sells the stock.

This is a major risk of investing in stocks.

If the companies you invest in fail, then you could lose all of your money with nothing to show for it.

Now, of course, you can mitigate this risk by investing in a diversified portfolio that includes a lot of quality companies.

However, the fact of the matter is that it is still an intangible asset and the entire market can crash & leave you with nothing left to show for your investment.

Whereas with real estate, on the other hand, you are investing in a real, tangible asset.

Even if your rental business fails, you still have a tangible asset that is going to be worth something at the end of the day.

With that said, let’s give real estate a point.

6. Ease and Simplicity

Real estate investing can be overwhelming, especially if you’re going at it alone.

You have to save up cash for a down payment, take out debt to buy the home, and take care of the home, which can require a lot of work.

Now, you can simplify this by passively investing in REITS or private equity.

However, you still need to understand the nuances and risks associated with those types of offerings.

Whereas with stocks, it’s pretty straightforward.

You can make a deposit and buy a good index fund in an instant. And then your money is working for you on auto-pilot.

You don’t even have to think about anything as long as you construct your portfolio correctly.

You can even set up automatic transfers to buy stocks every time you get paid from work or your business.

So let’s give stocks a point for ease of use.

7. Control

With stocks, you are not in control of what happens to your investment.

The stock market is like a roller coaster and you have to know how to ride it.

If you invest in individual stocks, the company could make one wrong decision that leads to a massive sell-off that crashes your investment.

And even if you invest in highly diversified mutual funds, the entire stock market could still crash due to a few headlines that have nothing to do with the businesses you’re invested in.

All it takes is a few downturns for you to realize how volatile the market is.

Like history says the stock market has gone up over time, but does that really mean that it’s going to go up forever?

For instance, what would happen if everyone just pulled all of their money out of the stock market right now?

That would be a disaster, right?

It’s the complete opposite with real estate.

Once you close on that property, it’s yours. You can do whatever you want with it.

You control the prices you charge, the tenants you accept, and the strategies you deploy to build wealth.

Real estate is just more stable and controllable at the end of the day.

So let’s give real estate a point for control.

Stocks vs. Real Estate Investing: The Winner

So the final scoreboard here is 4-3 in favor of real estate.

This means real estate would be the better investment vehicle in our opinion.

The overall returns are undeniably better once you factor in tax savings, and we personally like the stability of the market in comparison to the stock market overall.

Diversify your Portfolio

But whatever you invest in, always keep in mind that diversification is very important.

You shouldn’t just diversify across different sectors in the assets you buy, but you should also diversify across different types of assets out there.

We love real estate investing, so our portfolio leans that way.

But we also invest in stocks, and even throw a few coins at crypto sometimes.

Diversification is never a bad strategy when it comes to investing.

But hopefully, this post helps you understand some of the pros and cons between stocks vs. real estate investing.

If you want more tips to lower your taxes and increase your wealth, get our wealth management services today!

The post Stocks vs. Real Estate Investing – Which is Better in 2021? appeared first on Small Business Accounting & Finance Blog.

If you have kids under age 18 and a business, then you have a huge opportunity to save on taxes.

And that is by hiring them in your business and placing them on the payroll.

That’s right, hiring little billy and sally as employees in your business will not only save you on taxes…

…but the money you pay them can go directly to child expenses like clothes, school supplies, college savings, and much much more.

And we mean why not involve your kids in your business, show them the ropes, and teach entrepreneurship?

All while saving thousands of dollars on taxes.

We actually recommend this a lot to our clients as a strategy when they work with our tax planning services.

But there are rules and a proper way to do it.

And we’re going to break down everything you need to know in order to accomplish this.

Today, we’re excited to show you how to hire your kids and put them on the payroll.

By the end of this post, you will understand why hiring your children will save you thousands of dollars in taxes.

As well as how your kids can avoid paying tax on their income and the rules you need to abide by to hire your kids.

Benefits You’ll Get When You Hire Your Kids

So why is hiring your children a beneficial tax strategy for you and your kids?

It’s simple.

You get a tax write-off for the pay you give them and in turn, your kids (or you) can use that income tax-free to help provide for what they need.

However, it is only tax-free if you pay them under the standard deduction.

So for 2020, that is $12,400.

And what makes this a very important number is that when you hire your kids, if you pay them $12,400 or less, they are not required to file or pay taxes on their income!

Do you understand now why this is such a valuable tax strategy?

Because we all know kids cost money.

Stop paying taxes then pay your kids. It makes very little sense to do this.

Instead, pay your kids and stop paying the tax on it. Got it?

S and C-corp Strategy to Hiring Kids

So let’s say you’re sole proprietor or LLC, your business is also not required to pay payroll taxes on the income you pay to your child!

In case you didn’t know, almost everything employer must pay social security and medicare taxes or “FICA” for each employee they have on payroll.

But since you are paying your child as an employee, this is actually not required.

According to the IRS:

“Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.”

So it doesn’t cost you any additional money to hire your kids. Only the pay you give them which you were going to spend on them anyway.

And speaking of sole proprietors, if you want to learn how to pay yourself as a sole proprietor, then check out this post next.

Family Management Company Strategy

Now, the rules are a little different if you are an S-Corp or C-corp. Because if you pay your kids from an S or Corp, you would be obligated to pay social security and medicare.

But there is a workaround.

And that is by establishing a Family Management Company or FMC. This will act as the middle man between your S or C-corp and your child.

A family management company is simply a separate business that is either a sole proprietorship, LLC, or partnership that is owned by the parent or parents.

And what you would do is have the S or C Corp pay the family management company a ‘management fee’ for services.

Then the family management company would pay your child to perform those services.

So your kids would need to be on the family management company’s payroll and get paid from the FMC so you can avoid the employer payroll tax expense. Does that make sense?

If you want to know the tax differences between sole proprietor vs. LLC vs. S-Corp, then we also have a post for that.

Rules and Steps to Hire Your Kids

So you now understand the benefits of hiring your kids, let’s talk some details on how all of this works.

1. The first thing to remember when hiring your kids is making sure you have actual work for them to do.

Now this “work” doesn’t have to be technical or complex work.

It can be as simple as addressing envelopes, janitorial tasks, answering the phones, or helping with your website.

Whatever it is, their work should be ordinary and necessary for your business.

It can’t be personal services like making the bed or washing the dishes, alright?

2. You also want to make sure that the work is age-appropriate.

It is highly unlikely that a 6-year-old can find real estate deals for your investment company or braid hair in your hair salon.

It is also unlikely that a 3-year-old can do anything at all.

So with this in mind, your kids will have to be old enough to actually do some business-related tasks in your company.

Again, it doesn’t have to be complicated but it does have to be within your child’s capabilities.

3. So once you know what they will do, it’s important to keep track of the work and hours they perform.

The IRS always wants you to document everything and this is no different.

Make sure to use something like a timesheet to keep track of the days, duties they performed, and the hours they worked.

You may even want them to sign an employment contract the outlines their job role and pay.

This is not legally required, but will help you to justify their employment in your business.

4. The next thing to keep in mind is their pay.

Your kids’ pay should be for services they actually performed and should be reasonable.

Now when doing this strategy, it is most advantageous to pay your kids as much as possible.

This is so you can take bigger business tax deductions and shift some of your income to your kids who are probably in a much lower tax bracket.

However, you can’t just pay them any amount. It has to be comparable to what others make doing the same job.

For example, you can’t pay your kids $100 per hour to clean the office when other office cleaners in your area are making $15 per hour.

So first, find out what workers doing the same duties are being paid.

You shouldn’t have a problem as long as you’re paying your kids no more than what you would pay a stranger to do the same thing.

Got it?

With that, make sure you pay them using a method that has a paper trail. So don’t pay them with cash since that is harder to keep track of.

Instead, pay them by check or direct deposit. Their pay should be made out to their name and deposited in an account with their name on it.

But get this, the account can be a 529 college savings account, Roth IRA, or a custodial account that you can control until your child turns 21.

So you can literally help them save for college or invest or even cover their routine costs all tax-free.

Because as long as their pay is not over the standard deduction, they will not have to pay taxes on the income you pay them.

5. As an employer, you still have to comply with some legal requirements as you would if you hired a complete stranger.

So you still need to fill out a W-4 and I9 for your child. Your child should have a social security number but if they don’t, they would need to apply for one.

Also, if your business does not have an EIN or employer identification number, you would need to apply for a free one on IRS.gov.

Now to help you save more on your business taxes, go ahead and talk to one of our CPA tax experts.

The post A Guide on How to Hire Your Kids and Pay Less in Taxes appeared first on Small Business Accounting & Finance Blog.

Today, we’re going over the best credit cards for bad credit and building credit.

Because having little to no credit can make it tough to find credit cards with great approval odds, and being denied a credit card can make your credit worse.

But here’s the truth!

If you currently have bad credit or little to no credit, there are options available for you with very high chances of approval.

That’s even if you have a credit score between 300 and 629.

And when you combine the right card with superb habits, you have the best formula for building great credit.

By the way, if you want to learn how to get business credit quickly, be sure to read this post next.

Now let’s dive into the best credit cards for bad credit and building credit.

Credit Card Characteristics

For reference, our choices for the top picks came down to three things:

1. Features
2. No or low annual fees
3. Approval odds

So let’s go ahead and list them down!

Top 3 Credit Cards For Bad Credits

1. Discover it® Secured Credit Card

For many reasons, the Discover it® Secured Credit Card is one of the best (if not the best) credit-building companions for those with little to no credit.

• Pros

First, there is no annual fee, which leaves money in your pocket.

It reports to all three credit bureaus, giving you the opportunity to build and fix credit across all Bureaus.

Unlike most secured cards, it actually provides cashback rewards of:

• 2% at gas stations,
• restaurants up to $1,000 per quarter, and
• unlimited 1% cashback on all other purchases.

By the way, they currently have a welcome bonus called Discover’s Cash Back Match that will double all cashback rewards earned at the end of the first year.

And… ready for the finishing move?

After 8 months, Discover automatically reviews your account for transition to an unsecured card and return of your deposit.

Yes, automatic review. This means with responsible use, you have the chance to move to an unsecured card in less than a year.

Note that, secured cards do require you to submit a deposit that acts as your credit limit, and the minimum deposit for this card is $200 – which is pretty standard.

• Cons

There are two cons of this credit card.

The first one is that the card is not widely accepted outside the United States, which could be an issue for those who travel internationally often.

The second is that the initial deposit for your credit limit must come from a bank account so those without one won’t be able to make use of this card.

Overall, the Discover it® Secured Credit Card is hands down, one of the best credit cards for bad credit and building credit that was ever created.

2. Secured Mastercard® from Capital One

• Pros

This is another no annual fee secured card with clever features that is a no-brainer for those who would like to build and repair their credit.

Here’s why.

As mentioned previously, secured credit cards require a security deposit that becomes your credit limit.

And while the Secured Mastercard® from Capital One does require a deposit like all the rest, Capital One does it differently. Capital One does it better.

You see, while other secured card credit limits match your deposit, if you qualify, this card allows you to have a higher credit limit than what you deposit.

Which is unheard of for secured cards.

For example, you can make a deposit of $49, $99, or $200 to receive a credit line of $200.

It can increase your limit up to $1,000 when you make more than the minimum deposit before you activate your account.

But wait, there’s more.

You don’t have to pay the deposit upfront.

Capital One allows you to pay your deposit in installments of $20 or more, as long as it is paid in full by the 35th day after you are approved.

If you are tight on a budget but still want to build your credit, this is a major plus for this card.

With this card, when you make consistent monthly payments on time, you have the opportunity to have your credit limit increased automatically.

That is without needing to deposit more money. Thus, giving you access to more cash than you used as collateral.

Another big plus is that Capital One is widely accepted outside the United States, which makes this card a good option for international travelers.

Sounds good, right?

• Cons

But let’s now discuss two cons of this card that we want you to be aware of.

The first con is that there are no rewards, unlike the Discover it® Secured Credit Card.

The second con is that the APR on this card is pretty high, at an ongoing Variable APR of 26.99%. Which only affects you if you do not pay your card in full on a monthly basis.

The third con is that a bank account is required to qualify, which renders this card useless for those without one.

Overall, the Secured Mastercard® from Capital One is an outstanding option for those who prioritize lower deposits and higher credit limits over rewards like cashback.

3. OpenSky Secured Visa Card

This secured credit card has two major features that set it apart from the Discover it® Secured Credit Card and Secured Mastercard® from Capital One.

• Pros

The first major feature is that the OpenSky Secured Visa Card is a rare card that allows you to qualify for the secured credit card without a credit check.

Yup, you read that right.

So if you are struggling to get approved for a secured credit card, this is an outstanding option for you.

The second major feature of the OpenSky Secured Visa Card is that it does not require you to have a bank account to qualify like most other secured credit cards do.

Therefore, giving those without bank accounts an uncommon opportunity to get a secured card.

In addition, this card reports to all three credit bureaus TransUnion, Equifax, and Experian.

• Cons

There are three cons to keep in mind with the OpenSky Secured Visa card.

The first con is that there is a 35% annual fee which makes it the only card on our list with an annual fee.

But when put into perspective, the $35 annual fee is on the cheaper side when compared to other annual fees for secured credit cards.

The second con, and likely the most impactful, is that you do not have the ability to upgrade to an unsecured card.

This leaves you two options once you do improve your credit:

• You will have to close it which may affect your credit utilization and length of credit history.
• You will have to keep it open and pay the annual fee.

For this reason, if you can qualify for one of the other cards mentioned, they are 100% a better option.

If you are not able to qualify either because of your credit or lack of bank account, the OpenSky Secured Visa card is a stellar option.

4 Credit Card Tips

So before we let you go, we want to share 4 credit card tips to help you maximize your efforts to repair and build your credit.

Tip #1: If you choose an unsecured credit card, be sure to choose an issuer that reports to all three credit bureaus.

Tip #2: If you can qualify for a bank account, it’s worth applying for a low-fee checking account or a second chance checking account that will help you qualify for the secured credit cards that require a bank account.

Tip #3: If you incur a late payment fee, try calling and asking for it to be removed as a courtesy. You may be surprised by how willing your credit card issuer is to work with you on fees.

Tip #4: Keep your credit card usage below 30% utilization for the best credit scores. This means if you have a credit limit of $200, you want to keep your balance, below $60 which is 30% of $200.

Conclusion

Well, there you have it, the 3 best credit cards for bad credit and building credit.

Now if you don’t have bad credit (or need to build one), here’s our post on the best business credit cards for everyone.

Or if you want to see the best business checking accounts, be sure to read it after.

If you need more help with your current financial situation, work with our CFO services today! Our team of experts is always ready to help.

Give us a call now!

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