8 Reasons Why Small Businesses Fail

Republished from Intuit Small Business Blog

Nobody starts a business expecting to fail, but sobering statistics indicate that many do, in fact, go under. According to the Small Business Administration’s Office of Advocacy [PDF], three out of 10 new firms with employees fail to survive for more than two years, and about five out of 10 close up shop within five years. The survival rate is even lower for sole proprietors.

There are many external causes for small-business failure, including market size and customer demand, but other equally important factors  can hobble a business in its earliest stages — and prove fatal in the long run.

Here are eight reasons why small businesses fail:

Nobody starts a business expecting to fail, but sobering statistics indicate that many do, in fact, go under. According to the Small Business Administration’s Office of Advocacy [PDF], three out of 10 new firms with employees fail to survive for more than two years, and about five out of 10 close up shop within five years. The survival rate is even lower for sole proprietors.

There are many external causes for small-business failure, including market size and customer demand, but other equally important factors  can hobble a business in its earliest stages — and prove fatal in the long run.

Here are eight reasons why small businesses fail:

1. Flaws in entrepreneurial thinking. There’s no template for what makes a successful entrepreneur tick, but certain character flaws crop up again and again when a business fails. It’s vitally important to know why you want to start a business. If you think that you’ll make money quickly and easily or that, just because you work for yourself now (and not someone else), you’ll have more time to spend with your family, it’s time for a reality check. Without a passion for what you do, without the mental and physical stamina to put in long hours, and without the attitude that you can take setbacks and keep moving forward, you might as well cut your losses now.
   
   
2. Poor planning. A business can’t succeed without a business plan. This is where you work out the crucial elements that every business must have — finances, marketing, management, and both short- and long-term strategy. What is your vision for the business? How many people will you need working for you? What will the budget look like? Can you foresee likely problems and how to address them? Getting everything down on paper before you try to get the business started greatly increases the odds for success.
   
   
3. Lack of funding. Too many budding enterprises fail to secure enough operating funds to get off the ground or make it through the crucial first few months. It’s easy to underestimate the capital required for everything from equipment and inventory to staffing and utilities. As part of the planning process, thoroughly calculate potential startup and operating costs.
   
   
4. The wrong location. Any bricks-and-mortar enterprise must operate out of a viable location. This means selecting a site that’s customer-friendly (convenient to get to, ample parking, clean and comfortable, etc.). If you’re looking at a spot that’s currently vacant, find out who was there before and why they relocated or went out of business.
   
   
5. Ineffective marketing. If customers don’t know who you are or even that your business exists, what hope is there to succeed? Successful business owners know — or enlist the services of professionals who know — who their target audience is and which marketing channels will most effectively reach them. They also understand the value of advertising through online marketing, social media and other digital resources.
   
   
6. Hiring the wrong people. Your business will never prosper if you employ the wrong people — that is, employees who lack the willingness to work hard and who exhibit poor customer-service skills. Hiring good people is yet another time-consuming element of keeping a business afloat, but in the long run it takes less time, effort, and money than hiring the first people who walk through your door.
   
   
7. Miscalculating the competition. An entrepreneur foolish enough to underestimate or even ignore his competitors is setting himself up for failure. Regardless of your product or service, every business has competition. Look into obtaining a competitive analysis of your niche market. Stay updated on changes in competitive behavior or strategy. With a comprehensive understanding of who you’re up against, you’re better positioned to come up with a good idea before they do.
   
   
8. Believing you can do everything yourself. You’re strongly motivated. You’re full of energy. You think you can take on all aspects of growing a business and by sheer force of will make it work. The sad truth is, you’re wrong. Seek out the advice of mentors or others with experience and know-how. Invite suggestions and ideas from family and friends. Understand that as resourceful as you are, there will always be parts of the business you shouldn't handle yourself.

Republished from Intuit Small Business Blog

Give us a call today if you have questions or need assistance. We are your financial partners, and we are always here to help.

Security Tax Services LLC

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425.339.2400                                     253.237.0751

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3 Tips for Avoiding Tax Trouble in Business Bartering (Intuit)

Short on cash? Bartering can help you to obtain all sorts of products and services (anything from a new website to a doctor’s appointment) without paying out of pocket. But be advised: Uncle Sam requires you report the fair market value of anything you receive in exchange for goods or services you provide — and pay taxes accordingly.

Here are three tips for staying out of trouble:

• Keep thorough records of your barters. When you opt to make a trade — either directly or through a third-party bartering group — keep accurate records. Note what you’re providing and its estimated market value, as well as what you’re receiving and its estimated value. Follow the IRS Tax Center’s advice about record-keeping for barter transactions.
  
  
• Report exchanges in terms of income and expenses. The IRS expects all barter participants to pay tax on their gains, so calculate the estimated value of what you've received and report it when you file your annual income taxes. If the service or product you received wasn't work-related (a haircut or a piece of artwork, for example), it should be listed in the “other income” section on line 21 of Form 1040. If you traded for a new website, a head-shot  or another business-related item, report the estimated value on your Schedule C of Form 1040. In most cases, you will also need to report the barter on Form 1099-B. You’re also able to claim business expenses related to the item or service you provided to the other party, so be sure to claim the estimated value as a tax deduction. Learn more about your tax responsibilities here.
  
  
• When in doubt, work with a barter exchange group. If the tax laws related to bartering seem too complicated to follow, veto one-on-one trades in favor of formal exchanges that have been organized through a professional bartering group. Internet-based bartering clubs are generally up to speed on how to stay on the IRS’s good side and will enforce proper tax collection on both sides of the exchange.
  

Republished from Intuit Small Business Blog

Give us a call today if you have questions or need assistance. We are your financial partners, and we are always here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

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The Most Tax Friendly Country In The World Is.. (Spoiler Alert: It's Not the U.S.) (Forbes)

Tax (Photo credit: 401(K) 2012)

Article originally published on Forbes.com by Kelly Phillips Erb - 09/25/2012

The United States pays more in taxes than other developed countries.

It’s more expensive to do business here than anywhere else.

You've heard those kinds of statements before, right? It’s been drilled into our consciousness – especially in an election year. But is it true?

Not so says KPMG. The accounting giant conducted a major study of the general tax competitiveness of fourteen countries with an emphasis on the climate in 55 major international cities. The study took into consideration the relative corporate income tax, capital tax, sales tax, property tax and miscellaneous local business tax burdens of those countries, along with the statutory labor costs. Here’s how the fourteen countries in the study measured up, from least tax burdened to most:

1. India
2. Canada
3. China
4. Mexico
5. Russia
6. United Kingdom
7. Netherlands
8. United States
9. Germany
10. Australia
11. Brazil
12. Japan
13. Italy
14. France

For purposes of the study, KMPG used a score of 100 as the benchmark; the United States was assigned that score. India’s score came in at 49.7, which means that total tax costs are about half of that in the United States. In contrast, France’s score was 179.7, meaning that tax costs are about 80% higher in that country than in the United States.

No U.S. city made the top ten least tax burdened cities list, though Canada locked up three spots. The Indian city of Chennai took the top spot and the Russian city of Saint Petersburg rounded out the list:

1. Chennai, IN
2. Vancouver, CA
3. Chengdu, CN
4. Mumbai, IN
5. Toronto, CA
6. Montreal, CA
7. Monterrey, MX
8. Mexico City, MX
9. Manchester, UK
10. Saint Petersburg, RU

The top ranked U.S. city (remember, we’re talking least tax burdened at the top) was Cincinnati – yes, Cincinnati – which came in 16th. Hot on its heels to round out the top 20 were Baltimore, Cleveland, Atlanta and Pittsburgh. My own Philadelphia ranked middle in the study (which sure surprised me) since the chatter about the tax burden in the City of Brotherly Love is pretty brutal.

Of course, there’s a lot of wiggle room in the study, as KPMG acknowledges. Tax burdens can vary by industry, the underlying cost of doing business and by how the taxes are weighted.

The study has lots of good stuff for tax geeks (yes, I could go on and on) so expect a follow-up piece in the next day or so. You can check out the study in its entirety here (downloads as a pdf).

Article originally published on Forbes.com by Kelly Phillips Erb - 09/25/2012

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

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Five More Tips For Amending Tax Returns (Forbes)

-   Following up on 5 Simple Rules to Follow When Amending Your Tax Return, here are five more tax return amendment tips:

Article originally published on Forbes.com by Robert W. Wood 

6. Amend each year separately. If you are amending more than one tax return, prepare a separate Form 1040X for each. Mail each amended return in a separate envelope to the IRS “campus”—they used to be called “IRS Service Centers”—for the area where you live. The Form 1040X instructions list the addresses for these IRS campuses.

7. Amended returns are more likely to be audited. Few tax returns are actually audited, but tax lawyers must advise clients based on the assumption every tax return will be examined. 

Understandably, taxpayers hope their returns will not be examined! However, amended returns are more likely to be examined than original returns. That should factor into your thinking.

8. Refunds can be applied to estimated taxes. If you file an amended return asking for considerable money back, the IRS may review the situation even more carefully. As an alternative, consider applying all or part of your refund to your current year’s tax. That can be lower profile.

9. Beware special statute of limitations rules. Normally the IRS has three years to audit a tax return. You might assume that filing an amended tax return would restart that three-year statute of limitations. Surprisingly, it doesn’t.

If your amended return shows an increase in tax, and you submit it within 60 days before the three-year statue runs, the IRS has only 60 days after it receives the amended return to make an assessment. See Internal Revenue Manual 25.6.1, Statute of Limitations Processes and Procedures. That means if the IRS doesn’t audit in that 60 day window, you’re home free.

Planning opportunities? Some people amend a return right before the statute expires. Plus, note that an amended return that does not report a net increase in tax does not trigger any extension of the statue of limitations.

10. Don’t forget interest and penalties. If your amended return shows you owe more tax than you originally reported and paid, you’ll owe additional interest and probably penalties. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions. The IRS will compute the interest and send you a bill if you don’t include it. If the IRS thinks you owe penalties it will send you a notice, which you can either pay or contest.

Conclusion. Amended tax returns are tricky. You should never take tax return filing obligations lightly, and your original return should be as accurate as you can make it. If you discover afterward that amendments are needed, make sure you think through the various ramifications of filing an amended return.

Article originally published on Forbes.com by Robert W. Wood 

Give us a call today if you need assistance filing an amended return. We are your financial partners, and we are always here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

5 Simple Rules to Follow When Amending Your Tax Return (Forbes)

-   You forgot to report some income on your 1040 or just got a corrected Form 1099 orK-1 in the mail. What should you do? Here are 5 tips for amending returns.

Article originally published on Forbes.com by Robert W. Wood 

1. Amended returns aren’t mandatory. You might be surprised to find you are not obligated to file an amended return, even though tax advisers may tell you it’s a good idea—that’s because the IRS will probably send you a bill based on the revised Form 1099 or K-1 once IRS computers match that form against your Form 1040. For more on IRS computer matches, click here.

Amended returns are not mandatory even if something happens after you file that makes it clear your original return contains mistakes. Ask if the return you filed was accurate to your best knowledge when you filed it. If it was, you are probably safe in not filing an amendment.

Conversely, if you knew your return was inaccurate when you filed it, you should amend it to make it accurate without delay. The IRS rarely brings up an originally filed return in civil audits or criminal prosecutions once the taxpayer attempts to correct it by filing an amended return. But to take advantage of this rule, you need to be proactive, and you need to make the correction before the IRS finds your error.

2. You can’t cherry-pick what you correct. You don’t have to file an amended return, but if you do, you must correct everything. You can’t cherry-pick and only make corrections that get you money back and not those that increase your tax liability. If you amend, you must correct all errors, not just the ones in your favor.

3. Some errors don’t merit amending. Math errors are not a reason to amend, since the IRS will correct math errors on your return. Likewise, you usually shouldn’t file an amended return if you discover you omitted a Form W-2, forgot to attach schedules, or other glitches of that sort. The IRS can process your return without them or will request them if needed.

Certain parts of your original return can’t be changed by an amended return. For example, you can change your filing status on an amended return from married filing separate to joint, or from qualifying widow(er) to head of household status. However, you cannot change from married filing joint to married filing separate after the due date for the original return (usually April 15) has passed.

4. Timing counts. You must file a Form 1040X, Amended U.S. Individual Income Tax Return, within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. This either/or test can give you extra time, but it is safer to amend within three years of your original return so there’s no dispute. See IRS Tax Topic 308, Amended Returns.

How soon is too soon to amend? You can file an amended tax return right on the heels of your original return if you like. However, if you are filing to claim an additional refund, you should wait until after you have received your original refund before filing Form 1040X. You may cash the first check while waiting for any additional refund.

5. Only paper will do. Amended returns are only filed on paper, so even if you filed your original return electronically, you’ll have to amend on paper. Amended returns are prepared on Form 1040X. You must use this form whether you previously filed Form 1040, 1040A or 1040EZ. Label the top of the 1040X very clearly with the tax year you are amending. See IRS Instruction 1040X.

Article originally published on Forbes.com by Robert W. Wood 

Give us a call today if you need assistance filing an amended return. We are your financial partners, and we are always here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

Five Reasons Why You Should Call Your Tax Professional Today (Forbes)

Today might not feel like a red letter day in the tax world but it’s actually pretty important. You see, today is the day that you want to call your tax professional – and here are five reasons why:

Article originally published on Forbes.com by Kelly Phillips Erb - 09/21/2012

1. Corporate extensions are over but individual returns on extension are due in a little over three weeks. Individuals who timely requested a extension – about 10 million taxpayers – have until October 15, 2012 to file their 2011 federal income tax returns. Don’t wait until the last minute: the whole point of getting that extension was so that your return wouldn’t be sloppy, right?
2. Estimated tax payments were due earlier this week. September 17, 2012, to be exact. The whole point of making estimated payments is not to owe too much at tax time (and end up paying a nasty penalty), especially for those folks who rely on income not subject to withholding (generally, independent contractors and those that are partners in an LLC, LLP or LP or members of S corporations). Now that most of the year has flown by, it’s a good chance to run those numbers to make sure that you’re withholding enough – or too much. You don’t want to err on the side of paying in too much, either. If 2011 wasn’t as banner a year as 2010, you might be paying the IRS too much. A tax pro can help you sort this out in advance so that April 2013 isn’t quite so painful.
3. The Tax Code is constantly changing. Credits expire, deductions shrink and rates can fluctuate from year to year. For planning purposes, it’s best to know what to expect ahead of time. If you’re trying to plan, knowing when tax breaks for hiring certain employees or making energy efficient improvements to your house expire is useful. A good tax professional can point you in the right direction (with the caveat that Congress is still wont to undo it all at any second).
4. End of the year planning opportunities are just around the corner.Many taxpayers start thinking about their options in January but many tax savings plans have to be completed in December in order to count for that tax year. If you want to save tax dollars for tax year 2012, in most instances (retirement plan contributions being an exception), you have to act before December 31, 2012 – including the really big ones like getting married. And this doesn’t just apply to individual income taxes: planning for estate and gift taxes, as well as most corporate and partnership taxes, is focused on the same year end: December 31. If you have moves to make by year end, get things going now – and get some help.
5. Finally, business slows down a little (just a little) at the end of the year for many tax professionals. This might be the best time to get some personal attention if there’s something you’ve been concerned about. Maybe your bookkeeping isn’t terrific and you want to change software packages… or maybe the pencil on your old green ledgers is too hard to read these days and you’re thinking about diving in and trying online accounting. Maybe you’re thinking about contributing to an IRA for your spouse or a 529 savings plan for the kiddos. Maybe you just want to find a new preparer. The very best time to do those things is January 1. But that’s the worst time to start thinking about it – just after the holidays can be hectic. Ask now. Get the facts. Organize. Fill out the papers. Resolve to start fresh.

I know what you’re thinking… you’ve still got time. It doesn’t have to be today. Don’t think that way. Be proactive – and considerate. Many tax pros will start gearing up next week to get those individual returns out. That flurry of activity will continue through October 15. And then they’ll want to breathe. And then it’s November and nobody wants to take a business call over turkey dinner. And then it’s Christmas and Hanukkah (there’s shopping to be done!) – and before you know it, the year is gone. Trust me. It happens in a flash.

To badly paraphrase Miss Carla Rae Jepsen:
And you should know that.. Call your tax pro, maybe.

Article originally published on Forbes.com by Kelly Phillips Erb - 09/21/2012

Give us a call today, we are your Tax Professionals and Financial Partners. We are here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

Eleven Tax Myths Debunked (Forbes)

And just like that, summer is nearly over and it’s back to work. This week, I’ve been sorting through the “Ask the Taxgirl” mailbag and I’m seeing a number of questions that are similar in nature. Many of them are related to the same, tired arguments that taxpayers make over and over. Just because your neighbor, co-worker – or even your mom – says it’s so, doesn’t make it so. And the “ Google defense” (you found it on the web) is about as effective as the “ Turbo Tax defense.”

Article originally published on Forbes.com by Kelly Phillips Erb - 09/05/2012

So tread carefully. To help you sort out the good from the bad, here are eleven tax myths, debunked:

1. You have to itemize to take advantage of tax deductions. Yes, many of the most popular tax deductions (think home mortgage interest and medical expenses, for example) require you to itemize, or file a Schedule A, in order to take advantage of the benefit. But not all tax deductions require you to itemize. A number of deductions can be found on the front of your federal form 1040 at the Adjusted Gross Income section (generally, lines 23-37). Those deductions are sometimes called “above the line” deductions and are available to you whether you itemize or claim the standard deduction. They include such popular items as theTuition and Fees Deduction, Alimony and Moving Expenses. The take away? Save those receipts and keep good records even if you don’t itemize.
   
   
2. You don’t have to claim payments received so long as they are under $600. This is probably one of the most repeated tax myths out there. So, let me clear it up for you quickly: income is income, no matter the amount. The threshold for required reporting from the payor is $600 which means that if payments are at least $600, a federal form 1099 must be issued. Some folks believe that if no 1099 is actually issued, you don’t have to report it. That’s not true. You have to report all of your income, from whatever source, on your tax return unless it’s otherwise excluded.
   
3. Head of Household status applies to anyone with kids. At some point, I realize that almost all parents assert to their kids in a very loud voicethat they are the head of the house. But that definition and the one allowable by IRS are not the same: you can only file as Head of Household (HOH) if you are unmarried (!) and provide a home for a dependent. That means you must be single, divorced, or otherwise unmarried at the end of the tax year and (1) you paid more than 50% to keep a home for the entire tax year for a parent who was a dependent OR (2) you paid more than 50% to keep a home for the entire tax year with your dependent (there are some exceptions to this rule). You are considered unmarried for purposes of HOH even if you were not divorced or legally separated at the end of the tax year if all of the following apply:
   • You lived apart from your spouse for the last 6 months of the tax year (don’t count temporary absences for business, medical care, school, or military service) AND
   • You file a separate tax return from your spouse AND
   • You paid over half the cost of keeping up your home for the tax year AND
   • Your home was the main home of your child, stepchild, or foster child for more than half of the tax year AND
   • You can or could claim (under the rules for children of divorced or separated parents) this child as your dependent.
4. You’re out of the woods with IRS if you make it 3 (or 5 or 7) years without filing a return. For most taxpayers, the statute of limitations – meaning the time the IRS has to examine your tax return – is three years following the date of filing or the due date of your tax return, which ever is later. But. There’s a bit exception to this rule: if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, for forever (really, it’s much less work to simply file).
   
5. You are not responsible for mistakes on your return made by your tax professional. Tax professionals are human and they make mistakes just like anybody else (hopefully, fewer than anybody else when it comes to tax returns). It happens. However, that doesn’t excuse you as a taxpayer. You still have a responsibility to read and understand your returns before you sign them. And if there’s a problem, it has to be fixed and that becomes your responsibility. The extent of the tax professional’s responsibility might figure into any mitigation for penalties (or any civil or contract claims you might have against the tax professional) but the IRS buck stops with you.
   
6. Fixing a mistake on a tax return will result in an audit. Taxpayers are often afraid to amend their tax returns because they feel that it might increase the chance of an audit. But that’s wrong, wrong, wrong. Amending your return when you find that you’ve made a mistake is a good thing. Amended returns don’t increase your risk of audit but mistake-laden ones do.
   
7. After the age of 55, you can sell your house tax-free. Well, true… in 1996. The rule used to be age dependent but changed under President Clinton (which may or may not have contributed to the bubble). Now, the rule is that a taxpayer can exclude from gross income up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of a personal residence so long as you’ve lived in it for two of the last five years. This rule doesn’t apply to second homes or vacation homes – and it’s not a one-time deal. You can sell and sell and sell and exclude away so long as you meet the rest of the criteria.
   
8. Minors don’t have to file and pay taxes. This can be true but isn’t always. Whether or not a child must file a federal income tax return — and the rate at which the child pays tax — depends on whether it is earned income (income from wages, salary or self-employment) or unearned income (generally passive income like money earned from dividends and interest). Even if a child’s income is to be taxed at the child’s parents’ tax rate, that does not necessarily mean that the income has to be included on the parents’ tax return; the child can opt to file a separate return (and in fact, that can sometimes be preferable for all kinds of reasons, including the dreaded AMT).
   
9. Getting the biggest tax refund possible is the best possible result at tax time. Ugh. This is the myth that drives me the most crazy. Yes, getting a refund is much more fun that owing at the end of the year. But moderation, folks. The average refund last year was nearly $3,000. That’s a lot of money. Your money. And you’re not getting paid any interest while the government hangs onto your cash. Plan wisely.
   
10. Employer-provided health insurance is taxable. There have been a lot of rumors flying fast and furious about what’s happening to employer-provided health insurance for 2012. The amount of benefits paid on your behalf will appear on your form W-2 as a reported item in Box 12, using code DD. Under the new health care plan, there may be a penalty for a taxpayer who is not covered by health insurance. The reporting requirement will eventually assist the IRS in verifying that taxpayers have coverage. Additionally, the new reporting requirements will help identify those taxpayers who will be subjected to the so-called Cadillac tax on high-dollar insurance plans (effective in 2018).
    
11. Receipt of a refund means the IRS agreed with my tax return. No. Receipt of a refund means that the IRS mailed (or direct deposited) money that you said you were entitled to. It does not mean that the IRS agrees with what you reported; it merely means that the initial information you included didn’t raise any flags, your math didn’t stink and the Treasury didn’t offset your refund with any federal obligations.

Article originally published on Forbes.com by Kelly Phillips Erb - 09/05/2012

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com