Category: For Entrepreneurs - PFwise.com

5 Strategies to Save Money Under the New Tax Law - Become a Pass-through Entity

2/16/2018

Strategy to consider under the new tax law - become a pass-through entity

What is Changed?
Under the old tax law, pass-through entities are taxed at the same way as employees of a business, based on individual income tax rates.

Under the new tax law, pass-through entities can take a deduction on 20% of their taxable income. For example, if your total annual income lands you in the 24% tax bracket, you would pay that 24% on only 80% of your income and pay no tax on the other 20%. Please note there are some restrictions on the eligibility, but most pass-through filers qualify for the full 20% deduction as long as their taxable income is less than $157,500 or $315,000 for joint filers, above that, the deduction typically phases out.

What to Do?
If you are a salaried employee, it is worth exploring whether you can pay less tax by becoming a pass-through entity and working as your own business. To do so, you will file paperwork with the state where your business is located.

What is the Best Retirement Plan for Small Business Owners?

7/7/2017

Q. What is the best retirement plan for small business owners?

A. The answer is it depends because there are multiple retirement plan options for a small business owner to choose from, below is a general guideline -

For employers with a long-term horizon to fund a plan for their employees, defined contribution plans work well.
For sole proprietors or small business owners wishing to minimize administrative costs, a SEP or SIMPLE plan may be the best choice.
For small business owners without employees wishing to maximize contributions, a Solo-401K may be the right plan.
Profit sharing is appropriate if discretionary contributions or a vesting schedule are important.
For employers with older key employees, defined-benefit plans may be more appropriate.
For employers that wish to have their employees fund a portion of the retirement cost, a SIMPLE or 401K plan may be the most suitable.

What Business Retirement Plan Options If I Have a Small Business?

3/14/2017

Q. I have a small business, what are the business retirement plans I could choose from?

A. If you have a small business, depending on how large is your business and how many people do you employ, there are three major retirement saving plans you could consider, the table below highlights some of the key points:

The Best Small Business Accounting Software?

12/30/2016

Q. I plan to start a small business in 2017, which account software is the best for a small business?

A. For small business accounting software, Quickbooks is the golden standard, however, Xero is a newcommer and probably a better one.

First, when do you need an accounting software?

If you need to invoice clients, have a large number of transactions, and have employees or work with independent contractors, you will need an accounting software.

While Quickbooks has existed many years and is the golden standard, Xero as a new product is very easy to learn to use, and a lot cheaper than Quickbooks.

Small Business Owners: Do You Realize The Power of Words?

10/3/2016

Words are powerful, choose what you say carefully and wisely.

A small change in the way you speak or write can have a huge impact on your business.

401(k) Providers For Small Businesses

8/23/2016

Q. I own a small business, which 401K provider is the best for small businesses?

A. According to an estimate by the Government Accountability Office, only 14% of businesses with less than 100 employees sponsor a retirement plan. But the reality is, there are many 401k options available for small business owners.

Below is an incomplete list of options:

a. Insurance Companies
Their advantage is its vast sales force, they could approach the busy small business owners and explain the details of 401(k) well.

b. Established Providers
Such as Employee Fiduciary LLC and Vanguard which have entered into the small business 401(k) service space.

c. Start Ups
Such as ForUsAll, Dream Forward Financial, SaveDay, Captain401. They aim to bring robo-advisor style 401k plans to the small business space.

Muhammed Ali's Wisdom

6/6/2016

"It isn't the mountains ahead to climb that wear you out; it's the pebble in your shoe."

—Muhammed Ali

A Customer or A Client?

2/15/2016

What’s the difference between a customer and a client?

A customer is someone who buys what you make.

A client is someone who asks you to make something.

Both have the power to choose, but the client has the power to define.

There is a large number of potential customers, and you make for them before you know precisely who they are.

There are just a relative handful of clients you could handle, though, and your work happens after you find them or they find you.

You can do great work for either.

But don't confuse them.

There Is No Problem If You Prepare For It

1/12/2016

For people live in the north, snow is hardly a problem.

They have the tools to get rid of snow when it happens and the ways to deal with the trouble comes with the snow.

Most problems are like that. If you prepare for a problem and get used to it, the problem is not a problem anymore.

How to Easily Link Two Apps Together to Improve Productivity?

1/6/2016

Do you want to improve your productivity?

Nowadays you can find an app for almost anything. But now you can do it better - with Zapier, you can find a menu of thousands of apps, pick two, zap them together, and you just created a new app that integrates the two picked one seamlessly.

Every entrepreneur needs to give Zapier a try to improve productivity!

Business Buy-Sell Agreement - Part IV. Benefits of Buy-Sell Agreements

12/7/2015

In our last blog post, we discussed funding a buy-sell agreement with life insurance. Now we will discuss the benefits of the buy-sell agreements.

Orderly transfer: a buy-sell agreement provides for the orderly transfer of your business, ensuring it is not sold to outsiders who may force liquidation of the business.
Fair price: the buyers and sellers can agree to a fair price now, rather than waiting until urgent circumstances potentially reduce the asking price.
Peace of mind: business succession planning combined with the guarantee of life insurance can provide you with peace of ind.
Stepped-up basis: surviving business owners receive a stepped-up tax basis when purchasing ownership shares from the deceased owner's estate in a cross-purchase arrangement.
Variations available: variations on the standard buy-sell arrangement, including the LLC's buy-sell, trusted buy-sell, and wait-and-see-buy-sell trusted buy-sell, and wait-and-see buy-sell, are available in certain situations.

Business Buy-Sell Agreement - Part III. Fund Buy-Sell Agreements

12/5/2015

In our last blog post, we discussed how does the buy-sell agreement works with two different approaches. Now we will discuss the funding of buy-sell agreements with life insurance.

Life insurance is an ideal funding source for a buy-sell strategy that is triggered by the death of a business partner. It is often the most affordable option when compared to a bank loan, a sinking fund, or an installment sale, and the death benefit provides liquidity precisely when the need arises: the death of a business owner.

Further, a permanent life insurance policy can accumulate cash value that can help fund a buy-out strategy upon retirement.

Next, we will discuss the benefits of buy-sell agreements.

Business Buy-Sell Agreement - Part II. How Does It Work?

12/4/2015

In our last blog post, we introduced the idea of buy-sell agreement for business owners. Now we will discuss how does a buy-sell agreement work.

First, an attorney should be used to draft a buy-sell agreement, which is signed by both the business owner and the projected buyer. A buy-sell agreement is most commonly structured as either a cross-purchase or an entity-purchase arrangement.

Cross-purchase Approach
In the cross-purchase approach, individual business owners purchase life insurance policies on the lives of all other business business owners. It generally works best when there are three or fewer business owners of relatively equal age and health status, all of whom can be depended upon to make timely premium payments. A cross-purchase approach also provides the most favorable tax basis for the purchasing owners.

Entity-purchase Approach
In the entity-purchase approach, the business purchases policies insuring the lives of each business owner. This strategy is simpler for businesses with greater than three owners, and it equalizes premiums paid for individuals of varying ages and health classes. Although premiums are not tax-deductible, the death proceeds are received income tax free.

In our next blog post, we will discuss the funding of buy-sell agreements.

Business Buy-Sell Agreement - Part I. What Is A Buy-Sell Agreement

12/3/2015

Q. What is a buy-sell agreement and why it matters to me as a small business owner?

A. As a successful business owner, a funded exit strategy can help you harvest the value of your business when you leave the company.

A buy-sell agreement selects a buyer, the purchase price and a funding source for the future sale of your business. It can be triggered at retirement or in the event of your death or disability, and it helps to ensure that you and your family will be financially secure.

In next blog post, we will discuss how does a buy-sell agreement work.

3 Key Questions All Business Owners Should Ask Themselves

12/2/2015

Q. I own a small business, how should I approach the exit plan?

A. According to a LIMRA survey, 76% of small business owners understand the importance of having a business succession plan; yet only 35% actually have a plan in place.

To get started, every business owner should ask the following 3 questions:

1. What's my exit strategy?

If the answer is I don't have one, it's time to develop one now.
If the answer is I already have one. move to question 2 below.

2. Is it in writing?

If the answer is No, then there is a potential problem because handshakes or gentlemen's agreements are not generally enforceable in the court.
If the answer is Yes, move to question 3 below.

3. How is it funded?

If the answer is No, then it's time to develop a funding strategy.
If the answer is Yes, then review if it's out of date.

If you are a small business owner and want to have a free review of your trusts, buy-sell agreements and other advanced planning materials, please contact us, we will find an expert to do it for you at no cost.

A Quick and Easy Way to Get Small Business Loan

10/22/2015

If you run a small business and need working capital loans, now there is a very quick and easy way to get it, without leaving your home - Kabbage.com.

Kabbage is the first financial services data and techbology platform to provide fully automated funding to small businesses, the decision time is just minutes, and have many different types of loans tailored to your industry. Worth a try if you are in a hurry for a working capital loan for your small business!

The Basics of Entrepreneurship

9/8/2015

What is the very basics of entrepreneurship?

You saw a problem in your own life and trying to fix it.

You figured it out.

Now you can consider doing it for others who have a similar problem.

They are willing to pay you for the fix.

Repeat.

That’s it.

New Small Business Lending Options

8/4/2015

Q. For a small business, if my local bank turned down the loan application, what are the other effective ways?

A. While local banks could be the first and natural choices for a small business, there are other new types of lending available now:

1. Peer-to-peer Lending
LendingClub and Prosper are two of the biggest P2P lending sites today. You will be dealing with common investors who are looking for healthy returns for their money.

2. Crowdfunding
IndieGogo, Kickstarter, and Kiva are good options to raise money for a new business. You are dealing with people who want to help entrepreneurs to get new businesses off the ground.

3. Cloud lending
OnDeck and Kabbage are two of the biggest cloud lenders. You will be dealing with banks without branches, typically for small amount (<$100,000), fast decision and funding, albeit higher interest rates than local banks' rates.

3 Ways to Deduct Car Expenses for Self-employed - Part C

7/19/2015

In our previous two posts, we discussed the complete write off method and standard mileage rate method of deducting car expenses for a business. Now we will introduce the third method - Actual Cost Method.

Method 3. Actual Costs Method
In this method, you need to keep track of all of the costs related to your car (gasoline, insurance, depreciation, etc.), if the car is used for both personal and business uses, you need to estimate how much of those costs is related to business use. There are lot of receipts to track under this method.

In Summary
There are 3 options a business owner can use to deduct car related business expenses, if you just bought a new car and don't use the car a lot, a complete write off method is the best one, otherwise, the standard mileage rate method is recommended for its simplicity.

3 Ways to Deduct Car Expenses for Self-employed - Part B

7/18/2015

In our last blog post, we described the new car write off method for someone who has a side business. It only applies if you just bought a new year this year. Now we will discuss the more popular method - standard mileage rate deduction method.

Method 2. Standard Mileage Rate Deduction
This is a very simple method - IRS sets the per mile deduction rate ($0.575/mile for 2015), you track and apply your business mileages and multiply the two, that is your car related expense deduction amount.

The IRS per mile rate is meant to cover the following expenses, therefore you cannot separately deduct them:

Gasoline

Depreciation (if you own car)
Lease payments (if you lease car)
Insurance
Maintenance and repairs (oil, tires, car washes, etc.)
Vehicle registration

When you cannot use the Standard Mileage Rate?
If you’ve used the Actual Costs Method for this car in a prior year (see our next discussion), you are not allowed to switch to the Standard Mileage Rate. There are a few other cases where you cannot use it:

If you aren’t the owner or lessee of the car
If you use five or more cars at the same time
If you have claimed a Section 179 deduction (see our previous blog post)

The Bottom Line
If you drive not a luxury car for your business and want something simple to track, this is the method to use! If, however, you have a very expensive car or have unusually high expenses when operate your car, use the next method.

3 Ways to Deduct Car Expenses for Self-employed - Part A

7/17/2015

Q. I am starting a freelancing business, can I deduct some of my car expenses to offset the income?

A. You can use one of 3 ways to deduct your car expenses that are related to your business. We will discuss them in details in this blog series.

Method 1. Write Off the Full Cost of a New Car
If you bought a new car for your business, Section 179 deduction allows you to write off the full cost of the new car (certain limits apply).

However, there are many restrictions if you use this method, including one that is called "section 179 recapture" which means if you don't use the car for the next 5 years for business, the expense you previously wrote off will be treated as income in the year you stop using the car for business.

The Bottom Line
If you intend to keep this business for more than 5 years, and if your business does not require you driving a lot, and you happened to bought a new car, it's best to use this method because you could deduct more expenses than the other two methods (see discussions later).

In our next blog post, we will discuss method 2 - The Standard Mileage Rate method.

2 Financial Burdens for Self-employed People

7/7/2015

Q. I plan to quit my job and start my own business. What are the major financial issues I need to prepare for?

A. Working for yourself is many people's dream, but few people realize how expensive it could be. We will discuss 2 financial issues every newly self-employed person should be prepared for:

1. Taxes
Assume you are single, claim the standard deduction, and you made $100,000 in your first year, that's great! But for that $100,000 income, you have to send $30,582 to IRS for Federal income taxes, social security and medicare payroll taxes!

If you made $100,000 while working for someone else, you only have to pay $25,869 in those taxes, that's because your employer pays part of the payroll tax so your portion would be just $7,650 rather than $14,130 in the $30,582.

2. Insurance
This goes without saying, if you buy health insurance on your own, it could be very expensive - $3,400 a year for an individual policy or $8,500 for a family coverage policy.

For disability insurance, it could be more expensive, if you could get one at all - it's better to get one before you quit your job.

Crowdfunding Guide Infographic

6/7/2015

If you have a project and are thinking about crowdfunding, this infographic from Wrike gives you a step by step guide to crowdfunding:

4 Client Relationships and Only 1 is Good for Both of You

4/4/2015

1. Not good for you, not good for your client
These relationships are not good for you or your clients. If there’s no way to create a healthy, value-creating relationship with your prospect, then any deal will cost both of you time and energy. But that’s not where most of these relationships come from. Most start out at some higher level and over time decline into this category, often when both parties become complacent. What are you doing to prevent your relationships from slipping to this level?

2. Not good for you, but good for your client
This is where most weak salespeople live. They take deals in which they can’t command the price they need and so always deal with customers who are getting the better end of the deal. These are not peer relationships, these are subservient relationships. These relationships make you resentful, and in the end, you probably under-serve your clients, making them resentful in turn. How do you move these relationships to a better level?

3. Good for you, but not good for your client
These are not the relationships in which you do your best work. In these relationships, you do well and your clients don’t do well. That’s never good. When you create value, you’re entitled to capture some part of the value you create. When you create massive value, you can capture massive value. In these deals, you capture the majority of the value. Ultimately, this will destroy your relationships, your reputation and your revenue. What do you need to do to create the value that would entitle you to receive what you are now capturing?

4. Good for you, good for your client
This is the sweet spot you should be aiming for. These are the relationships you need in order to grow and sustain your business. This is how you win over clients for life — you create massive value and capture massive value. You bring growth initiatives to your clients, and they challenge you to grow with them. To create these relationships, call on prospects for whom you can create massive value and who seek this category of relationship. You have to develop the initiatives that deliver, and you have to accept the challenge to grow yourself.

Which category do most of your client relationships fall into? What can you do to move these relationships to a healthier place? How can you find more prospects with whom you can have a win-win relationship?

The Art of Selling

4/3/2015

Is selling just the transfer of goods or services in exchange for money?

Of course not, it’s much more than that.

Selling is an exchange of trust and value — a set of promises we intend to keep.

What we’re really trading in is promises — assurances upon which expectations are based, which means that our intention is a big part of what we sell.