IRS Standard Deductions for Tax Year 2014

The IRS has announced inflation adjusted tax brackets and standard deduction amounts for tax year 2014, effective 1 January, 2015. These are the numbers that you will have to use to prepare your 2014 tax returns in 2015.

Standard deductions for 2014

The standard deductions are now $6,200 for single taxpayers and married taxpayers who file separately. It has increased by hundred dollars from 2013. For married couples filing jointly, the standard deduction is $12,400, and $ 9,100 for the heads of households.

Itemized deductions

The limitation for all itemized deductions that are claimed on individual tax returns for the year 2014 starts with $254,200 for single taxpayers and $305,050 for married couples who file jointly. The limitations were supposed to be eliminated in 2010, but were extended till 2012. They were then brought back in 2013, indexed for inflation.

Personal exemptions

In 2014, the personal exception amount is $3,950. The personal exemptions phase off completely for individual taxpayers at $376,700 and for married couples filing jointly at $427,550.

Earned Income Tax credit

The maximum EIT amount for the year 2014 is $3,304 for married couples filing jointly and who have one child. The amount is $5,460 if you have two children; $6,143 if you have three or more children. You also get an earned income tax credit of $496 if you do not have any children.

Alternative Minimum Tax exemptions

The AMT exemption is $52,800 for individual taxpayers. For married couples filing jointly, the amount is $82,100. The AMT is permanently adjusted for inflation.

Adoption credit

The credit that is allowed for adopting a child with special needs is at $13,190. The amount of credit that is allowed for other types of adoptions include expenses up to $13,190.

Child tax credit

For the tax year 2014, $3,000 is the amount of credit that may be refundable as Child tax credit.

Kiddie tax

The amount of money that a child can take home without attracting federal income tax is $1,000.

Hope scholarship credit

For the tax year 2014, $2,500 is the maximum amount of Hope scholarship credit. You can claim 100% of qualified expenses including tuition up to $2,000 plus 25% of expenses above $2,000 but less than $4,000.

Individual retirement account contributions

IRA contributions can be deducted up to $5,500 for the tax year 2014.

Flexible spending accounts (FSA)

Employee contributions up to $2,500 to employer-sponsored healthcare FSAs are deductible.

Federal gift tax inclusion

You can deduct gifts of up to $ 14,000 for 2014.

Federal estate tax exemption

For those who die in 2014, and estate value of up to $5,340,000 is exempt.

If you want more information on deductions and tax brackets, you can find them at the revenue procedure update that the IRS has posted. Consider using the services of a qualified accountant to file your paperwork accurately and to save the maximum amount in taxes.

 

 

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Smart Exit Strategies for Businesses

An “exit strategy” is defined as a method by which a business owner intends to exit or get out of the business. It is a strategy to cash out the investment made so far.

Often, people wonder why they would want to exit a business which they started after undergoing so much trouble. But the thing is, it makes sense for entrepreneurs to chart out a clear exit strategy precisely because they love the whole idea of starting a business from scratch and growing it. Once the business reaches a stage where it runs on its own, it would no longer challenge you. That is the best time to cash out.

Also, venture capitalists and other investors will want to collect their return. Exiting the business is a way for them to cash out.

The following are the most common exit strategies that businesses use:

Initial Public Offering (IPO)

While this route is not suitable for all businesses, Initial Public Offering can be a viable exit strategy for some. By issuing an IPO, you take the company public. Before the Internet bubble, this used to be the most preferred exit strategy. But now the IPO rate has reduced and shareholders have also become increasingly demanding. Start-ups can still use IPO as an ex-it strategy, but only after due consideration.

Merger and acquisition

You can exit your business by merging it with a similar company or selling it to a bigger one. This type of exit can be a win-win situation for all concerned, especially when the firms can save resources by merging and have complementary skills. For a big company, buying out a well-established small company is the quickest and most efficient way to growing the revenue and increasing their market share. If you’re a small business who is doing exceedingly well, merger and acquisition can be a viable exit strategy.

Keeping the business in the family

Many small business owners do not want to give up what they built after a lot of struggle. They want to ensure that their legacy lives on by keeping the business in the family. This too can be a good exit strategy if the successor is adequately groomed. Bear in mind that there may be a lot of issues in a family succession plan because of the emotions involved. You could also sell the business to a friendly individual, perhaps a friend, who has the necessary interest and skills to scale the business.

Make it a cash cow

If the business consistently generates a lot of revenue, you can use that money to pay off the investors and keep it with you to continue reaping the profits. Find someone capable to run the business for you while you use the cash to fund your next idea. You will need to pump in some money into the cash cow so it remains healthy.

Liquidate and close

This is the simplest, but often overlooked exit strategy. Simply shut down the business and liquidate. In order to make money with this strategy, the business must have enough assets to sell and profit from. For many small businesses that are dependent on a single individual to perform, liquidation could possibly be the only option.

Plan for an exit strategy when you start the business itself. Don’t wait till you’re in trouble to think about how to leave.

 

 

 

 

 

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Tax Tips For Small Businesses – What To Deduct

If you are a self-employed entrepreneur running a small business, you know how frustrating the annual tax filing process can be. There are qualified tax and accounting professionals to make your job easier, but it always helps if you have some basic tax knowledge.

Here are a few tips on how small businesses can save on taxes via appropriate deductions. Keep these in mind so you can hold onto the necessary purchase receipts.

Home-office deductions

If you work out of your home, as long as you have a distinct demarcation between your workspace and the rest of the living space, you can make legitimate deductions. Make sure that your working space is not used for any other purpose. Keep a separate computer for business use, so you can include that it in the deductions. The percentage of expenses that you can deduct is calculated by measuring the area of the workspace and dividing by the actual square footage of the house. You can calculate that percentage of mortgage, rent, taxes, maintenance, and utilities of the house, to make the deduction.

Travel deductions

If you make frequent travels for business reasons, you will be happy to know that many travel related expenses are tax deductible. You can write off hotel fees, airfare, car rental, and even laundry expenses. Food expenses are deductible only up to 50%. If you take your family with you, remember that you cannot deduct the expenses that are incurred on their behalf. Client lunches can be deducted up to 50%. Conference fees can also be deducted if it is directly applicable to and useful for the business. Fan conventions, amusement parks, or tourist attraction expenses do not qualify.

Technology deductions

Under section 179, business expenses such as computers and printers are tax deductible. Even company vehicles can be included for deduction. Depending on what the item is, the deduction can be made for just the year of purchase, or spread across several years. So don’t hesitate to buy the appropriate technological gadgets to help your business because you can include the cost of the devices in your tax deductions. You can even deduct subscriptions to websites and magazines related to the business. Just make sure that these items are used only for work and not for personal use.

It is financially prudent to keep detailed receipts for all your purchases, and this is even more important when it comes to filing taxes. It may seem like a bit of a hassle to keep the purchase receipt for every little thing, but this habit can save you a lot of trouble in case you ever get audited. The last thing that you want is the IRS to be on your back. When your finances are well organised, you have no reason to worry about whether your tax filing is appropriate.

Running a business can be expensive, but you can save a lot of money by filing your taxes completely and appropriately. Invest some time into your tax planning, and you can save a good chunk of money to put back into your business.

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Tips for female entrepreneurs to secure small business loans

Securing a loan for your small business may not be as easy as you think. Many businesses apply for loans every day, but only a few actually get the money from banks and other lenders.

The business world today is still male dominated, and female entrepreneurs may find it tough to compete with male loan applicants. A study by the California Reinvestment Coalition found that business loans that are given to small enterprises owned by women in the state have dropped by 70% since 2007. But there is no need to worry, because there are a few things that you can do to improve your chances of getting a loan.

Build and maintain business relationships

When you approach a bank or a small-business lender, what they want to know is that your business is poised for success. The extent of the reach that you have within your local business community is an indication of how serious you are about your business, and how well connected you are. Female business owners must be serious about building trusted relationships within their business communities. If you find it difficult to get started, look for small business support groups in your locality or mentorship programs in universities. Many people who work in these organizations also have close ties with lenders. These connections may come in handy during loan applications.

Organize your financial records

If your financial information is disorganized, it can hinder the loan application process. It is important for banks and other lenders to thoroughly verify all the information that you provide via appropriate documentation. If you do not have the necessary documents handy, it can delay the process. It may come across to lenders that you’re either not serious about maintaining financial records, or worse yet, incapable.

Explore multiple options

Don’t just apply to one bank and forget about it. Explore all the different options that are available before deciding on the final one. Spend enough time shopping around for a lender who will suit your specific needs. Remember that different banks have different rates, and different preferences for specific industries or businesses. Find one that will give you the best overall relationship, rather than just the lowest interest rate. Also don’t neglect small-business lenders who are more likely than banks to give you the money.

Lending programs for women

Some lenders offer loan programs that are specifically targeted at businesses run by female entrepreneurs. These kind of lending programs make it a little easier for your business to get the money. Apply for general loans and as well as women-oriented lending programs to improve your chances.

When you approach the lender, make sure that you know exactly what you’re going to use the proposed amount for. Vague requests for a certain sum of money and poor planning are likely to put lenders off and get your loan request rejected. Be prepared with specific information to suitably impress.

Prepare well, keep all documentation handy, explore multiple lending options, and put some collateral aside. With some effort, you will be able to find a loan for your business.

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How small businesses can adopt sustainable business practices

Sustainability is not only about adopting green business practices, but is also a measure of the organization’s social and economic performance. Small businesses can especially adopt sustainable business strategies to improve profitability, customer loyalty, and commitment from their own employees.

The AICPA and CIMA, two of the most prestigious accounting bodies in the world, have released the report on the key elements to sustainable business practices in SMEs. Here are a few key points from that report.

Sustainability is not just about the environment

Very often, the word sustainability brings to mind green power, renewable energy, water conservation, and other environmental issues. But think beyond green business practices, and figure out creative ways in which your organization can act as a good corporate citizen for the benefit of all your stakeholders. Have open discussions with everyone, including suppliers and customers, and share information freely to come up with innovative solutions to improve efficiency and reduce waste.

Figure out what sustainability means to you

Write down a clear definition which communicates to everyone what sustainability means your company. This statement must be something that anyone can refer to, adopt the right goals for sustainability, and measure results accurately.

Communicate widely and involve top management

The measure of success of any strategy depends on who owns and writes it. The senior management must be actively involved in driving the policy, and must appoint the right sustainability champions who have the ability to communicate it throughout the organization, to every level.

Don’t attempt to do everything at once

Take baby steps. Becoming sustainable is not going to be an overnight transformation. Make small changes consistently and evolve to a more sustainable business over the course of a few years.

Don’t let sustainability be just a marketing campaign

Many companies make the mistake of jumping into the sustainability bandwagon only as a marketing exercise. It is easy enough to see through this “greenwashing”, and it can create an unfavorable impression about your company in the minds of customers, suppliers, and investors. Start talking about sustainability measures only if you are fully committed to the philosophy behind it and you’re prepared to do what it takes rather than just talk about it.

Track progress

You must measure, monitor, and review the goals of sustainability in order to justify it to the top management and to fully understand the benefit that it brings to the organization. It is important to develop clear and measurable metrics, and review them on a regular basis. This will help understand whether you’re making any progress, and in the goals are realistic and achievable.

Share best practices

Remember that you’re not alone in the sustainability drive. Actively engage with other organizations and industry initiatives to achieve sustainability goals together. Share best practices with other organizations that face challenges that are similar to your own.

Invest in sustainability more in terms of time rather than capital expenditure. Done the right way, sustainable business practices can truly push your business to another level.

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Mistakes small businesses must avoid when applying for a bank loan

Getting a loan for a small business takes a lot more than simply walking into a bank and walking out with cash. Banks are very particular about whom they loan money to, and you must create the right impression if they are to consider you.

There are a few common mistakes that small business owners tend to make while applying for a loan. Here are a few tips on how to avoid them and improve your chances of securing a loan.

Not knowing where you stand on credit rating

Before you begin the process of applying for a loan, understand what your credit rating is. Banks use credit reports to ascertain how you handle your credit. If your personal credit score leaves a lot to be desired, the assumption would likely be that you would take the same lackadaisical approach to business credit as well. Sometimes, a bad credit score may be caused by extenuating circumstances, but it is a real barrier to getting a loan for a small businesses. If you have bad credit, you may have to consider non-traditional financing options.

Providing vague financial statements

A bank is more likely to consider your application favorably if you have a properly structured loan file with an accurate balance sheet, income statement, cash flow forecast, and business and personal tax returns for the last three years. If you fail to provide proper details or the information appears vague, you are less likely to be approved for the loan.

Lack of a business plan or collateral

No bank will give their money away if they think that you do not have the ability to pay it back. In your loan application, mention in detail how you are planning to make the revenue for repayment. Also include details of collaterals. Explain how the loan amount will help your business prosper and the amount of money you expect to bring in.

Approaching the bank only for a loan

Banking, especially for small businesses, is all about relationships. A banker is more likely to lend you money when you have the need for it if they already have a relationship with you. Make it a point to develop that relationship in person by keeping in touch with the bank even when you have no need for a loan.

Applying only to the local bank

There are several lenders that are available if you’d only look. However, most small business owners approach only their local bank without shopping around for other lenders. The loan programs of Small Business Administration and credit unions are worth considering.

Having zero equity in the business

If you do not have your personal equity invested in the business, the bank will be less inclined to take on the entire risk and lend you the money. Make some investment in the business to communicate your commitment to the project.

Follow the above tips to significantly improve the chances of getting approved for a business loan.

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What Can Happen When You Try to Save Money On Accounting

Here’s what might happen when you try to save money by not hiring professional accountants for your small business.

Running a small business can be tough, and cost-cutting is one of the most common and difficult challenges that a small business owner will have to sooner or later deal with. Small businesses have to work within a limited budget and do not have the luxury of huge conglomerates with deep pockets. It can be very tempting to cut costs wherever possible, and professional accounting services may seem like an unnecessary expense.

Trying to do your own accounting or hiring the cheapest accountant in the market may seem like a good idea when you want to save money, but these tactics can backfire. Here are a few things that can possibly happen when you try to skimp on accounting.

You lose the peace of mind of working with a professional

It is understandable that you want to save money wherever possible and invest everything into the actual running of the business, but when it comes to getting an accountant, remember that you basically get what you pay for. Inexperienced and unqualified accountants tend to be cheap, so you may definitely save some money, but you will not have the same peace of mind that you would get from working with a seasoned professional. An experienced accountant who charges a higher fee may be able to work faster, and in the long run may even cost less.

Your bookkeeping suffers

If one of your employees has basic knowledge in accounting, you may think that it’s smart to put them in charge of bookkeeping. But the thing is, many in-house bookkeepers are clueless about what they’re doing. They may classify items incorrectly, used in appropriate headings, and may not be up-to-date on the latest accounting practices. At the time of tax filing, your accountant will end up charging you for correcting these mistakes and you may even include greater expenses in terms of both time and money to get the books in order.

You make unnecessary mistakes by doing it all on your own

Just to eliminate the expense of hiring an accountant, some business owners try and do everything on their own. You simply cannot keep books by throwing all your receipts into a shoebox. This often leads to the same disastrous consequences as having an inexperienced in-house bookkeeper. Not only that, when you do your own accounting, you may be unable to spend enough time on your core business.

You tend to leave it to the last minute

When you don’t have a professional accountant working for you, you may start going through and organizing your paperwork only at the last possible minute. When you let your paperwork get piled up like this, things can easily get lost, and you will also get so overwhelmed that you may simply give up.

By allocating a small budget for professional accounting, you will be able to keep your finances in order and also find enough time to take care of what really matters - running your business.

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How Small Businesses Can Compete With the Big Companies

Today, it is easier than before to compete with big businesses. Here are some tips to help you win the battle against Goliath.

Granted, big companies have deep pockets and elaborate supply chains that give them quite an edge over smaller players. But as a small business owner, you need not throw your hands up in despair and give up. Whether you are a service provider or a manufacturing company, here are a few ways for small businesses to effectively compete with the big boys on their own turf.

DILIGENTLY GATHER INTELLIGENCE ABOUT YOUR COMPETITION

The websites of many big companies have a lot of revealing information about the business which can be of significant benefit to small businesses who aspire to learn from them. Shortlist a few websites that you want to keep an eye on, and check them every so often to find out if there are any changes. Encourage your employees to listen to the real-world chatter about your product as they interact with other people outside the company. This may help you discover a problem that no one else in the industry is addressing, or help you come by critical competitive intelligence that will give you an edge.

DO SOMETHING NO ONE ELSE IS DOING

With the help of the product and market intelligence that you collect, see if you can do something that no one else in the industry has done so far. This is what JayBird, an earbuds manufacturing start-up, did to attract a large chunk of customers. They offered earbuds that repel sweat and a lifetime guarantee against sweat damage. This was a huge hit among their target demographic of sporty customers.

PUT YOUR CUSTOMER FIRST

For a large company, a customer is just one among tens and thousands of others. As a small business, it is easier for you to really reach out and care for your customer. Focus on building personal relationship with your customers and effectively meeting their specific needs and desires.

CUSTOMIZED SOLUTIONS

A small business is in a unique position to offer tailor-made solutions to their customers. Be flexible in your approach and move away from a one size fits all solution.

Speed of communication In a small business, the decision-making process and hierarchy are likely to be much simpler than they are in a large firm. Since there are much less administrative hassles, it is easier to provide a faster response to customer queries or issue. Build a reputation for fast and personalized customer care, and you will soon build a loyal base of customers.

CHARGE LESS

Small businesses typically have low overheads than the larger ones. This should ideally allow you to offer quality services at a lesser price than what a large company would be able to. You don’t have to sell yourself short; just bring your prices to a level where it attracts new customers and allows you to function without running into losses.

USE THE INTERNET

The Internet has come as a boon for small businesses who do not have the money to spend on color page advertisements or television ads. You can use digital marketing to your advantage. Reach out to your customers through your websites and social networks. The connections that you build online and the information that you gather can give you a distinct advantage over your competition.

Small businesses, precisely because they are small, have the ability to be nimble and quick because they are not bogged down by several layers of administration and protocol. This, combined with deep knowledge about your competition, can help you compete effectively with larger firms.

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Book Keeping Basics for a Small Business

Many small businesses and start-ups are second to none when it comes to producing great products and building a strong presence in the market. However, the same thing cannot often be said about their bookkeeping practices.

Why you need to keep your books?

Bookkeeping is just a way to keep track of your income and expenses, which consequently
improves your chances of making a profit. It also helps you collect and organize all the
financial information that is necessary to file various tax returns appropriately and on time. Obviously, it also enables the IRS to evaluate your operations.

You don’t have to be a qualified accountant to do basic keeping. Here are a few
bookkeeping basics to help you maintain proper financial paperwork for your small
business.

As long as you have adequate records that reflect the income and expenses of your
business, you can keep them in any way that you like. Depending on how big your business is, you can either maintain your books on your own ledgers or use an accounting software.
There are three basic steps to keeping your books

  • Keeping receipts of every payment and expenditure
  • Daily, weekly, or monthly summary of your income and expenditure records
  • Creating basic financial reports that provide key pieces of information about the business

Keeping your receipts

Every purchase and expenditure of your business must be backed by a record of receipt
which lists out the amount, date, and other relevant information. You can either keep all
your receipts in a shoe box, or record it in a software system. Choose a method that suits
your needs. If your business is very small, you may just need to collect all your receipts in a box file and not splurge on other complex filing systems.

Summary of revenues and expenditure

You must maintain a periodic summary of income, expenditure, and other financial
information that you are keeping track of. These summaries are later used to create specific financial information about your business.

Make it a habit to post to the ledger on a regular basis, say daily, every Friday, or at least
once a month. Post the receipts by entering the amount indicated in the physical record into the ledger. This is called ‘posting to the ledger’. Your posting schedule depends on the number and frequency of your sales and expenditures, and how detailed you want to keep your books. A busy business may want to use a cash register and post daily sales, while a smaller business can get by with a weekly or even monthly posting. There are accounting software programs which will generate its own ledgers when you enter relevant information.

Creating basic financial reports

Financial reports are key because they reveal key aspects of the financial health of your
business. You may have an income ledger which tells you that your business brought in a lot of money, but unless you measure it against your actual expenses you wouldn’t know
whether you made a profit or loss. This is why you need financial reports which combine
crucial data from multiple ledgers to give you an overall view of what is happening in your business. The basic reports that you need to create on a regular basis or cash flow analysis, profit and loss statement, and balance sheet. Using a software makes it easy to generate these reports.

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What Does it Take to be a Certified Tax Accountant (CPA)?

8169560070_290a4e1fc4_bTax accounting is a specialty in the field of accounting, one of the fastest growing occupations in the United States. According to the Bureau of Labor Statistics, job opportunities for accountants are projected to grow at 13% from 2012 to 2020. Certified tax accountants advise clients on their tax liabilities. Accountants choosing this specialty can expect to earn a yearly salary of $50,000, even in the first year of their job. Becoming a certified CPA is a smart move to bring home a good pay package, and to enjoy job security. Here is what you need to do to become a certified tax accountant.

Educational Requirements
A tax accountant must have the basic qualification of a bachelor’s degree in accounting or business. To improve your chances of employment, go on to complete your Master’s degree in business administration or accounting. You will need a four year accounting degree, and also take the certification exam. Most tax accountants who do well are Certified Public Accountants who have a Master’s degree.

You must pass the CPA exam to become a licensed professional. You may practice tax accounting without being a CPA, but most tax accountants go through this licensing process. The exam is tough and requires serious preparation. The test is conducted by the American Institute of Certified Public Accountants. Check out the AICPA website for more information on the exam and how to prepare for licensure.

Skills Needed to Become a Proficient Accountant
Accountancy is all about number crunching, so it goes without saying that you should have a natural aptitude and affinity towards numbers. With a general understanding of how numbers work, and excellent skills for communicating to your clients what the figures mean, you will be able to make your mark in the field. Tax accountants must also be very detail oriented and pay attention to minutiae. Dropping even a single number or a decimal place can have serious consequences during tax preparations.

Accountants will be required to work on sophisticated accounting software, so it is essential that you be comfortable with computers. More than all the technical capabilities, a good tax accountant must also have the ability and willingness to communicate effectively with clients who are seeking help. You must also ethically uphold all the tax regulations applicable.

What do Tax Accountants Do?
Tax accountants offer specialized tax advice to both individuals and businesses. As a tax accountant, you will be involved with calculating tax liabilities of your clients and figuring out ways for them to reduce their taxable amount. You would also complete tax forms to ensure filing on-time. Business tax accountants would be involved with higher-level strategic and financial decisions of the organization, such as what type of investments should a company make, where they should build new facilities etc.

Tax accountancy is a field with a lot of growth opportunities. It is easy for tax accountants to find a job in law firms, government agencies, and accounting firms. You may also choose to work as an independent contractor if you want to have some flexibility in the workplace. Tax accountants typically make more than other accountants, so it is an excellent specialization option to consider.

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