Business

Don’t Understand Your Financial Reports? Here’s Why

Posted on March 1st, by Janice in Business Wealth 2 Comments

paperwork-1538658-639x426 Have you ever been handed a balance sheet and income statement from your accountant and been told that this is your reporting? When you look at these reports from your accountant, do you scratch your head and wonder what you are suppose to do with these reports? Many business owners and investors get reports that they don’t understand – and it’s not their fault. Most reports are either too technical or are missing information to give the reader the insight they want.

Do you file these reports as quickly as possible, hoping to never see them again?

While reports like your balance sheet and income statement can be helpful, particularly when it comes to tax planning and preparing tax returns, they are not the most useful reports when it comes to providing you with information that will help you grow your business and wealth.

Do the reports you get in your wealth strategy make you cringe?

Now, be honest. Did you cringe at the mere mention of reporting? I’m sure some of you saw the word reporting and immediately began trying to convince yourself you don’t really need it. I find that most people avoid reporting, even though reporting can be a huge resource in their wealth strategy – one that allows them to leverage their time and other resources.

Why would someone avoid something that helps them accelerate their wealth?

There are several reasons I hear:

It’s too difficult to understand
It takes too much time
It’s boring
I don’t know how to set it up
I don’t really know what it means

If your reporting isn’t set up correctly or at all, the above are all true.

What is Reporting?

Reporting is summarizing activity in a clear and concise format. Most importantly, the information in the report makes sense to you. When done correctly, reporting is a valuable resource that helps you make timely business and investing decisions and saves you time while doing so. Reports provide tremendous leverage.

What Reporting Should Be

Reporting should report the activity YOU want. There are no specific rules that must be followed – it is based on facts, figures or data you want to help you make decisions to grow your business and your wealth.

It’s always amazing to me the number of people who think they don’t need reporting in their wealth strategy. Some think they will be so successful that they don’t need a report to tell them that. Others think that reporting is just for their accountant to do their taxes. And others think they aren’t big enough to need reporting.

Whether you have 1 employee or 100, whether you have 1 rental property or 50, whether you invest in options, tax liens, or oil & gas, you need reporting.

Deducting Business Travel When Mixed With Personal Travel

Posted on February 15th, by Janice in Business Taxes 2 Comments

3d illustration: World Tour. The group of buildings and suitcase With the new year here, many people are making plans to travel so it is a great time to do a refresher on the rules for deducting travel so you can legally write-off your vacation and personal travel.

While the tips I share here are specific to the U.S. tax law, the key is to understand the rules in your country and use them to your benefit in your tax strategy.

1. Spend the Time
Spend more than 50% of your time each day on business activities and you can deduct 100% of your travel expenses. Plan your business and other activities so you meet this requirement.

2. Expenses for Spouses and Children
Travel expenses for your spouse and your children are 100% deductible if your spouse and children are involved in your business and spend more than 50% of each day on business activities. Planning is the key here. Plan your business and other activities so your family meets this requirement.

3. Create a Business Reason
Create a great business reason to travel to your desired location. This is my favorite tip because I find when I create a great business reason to travel, my business benefits in a way that it wouldn’t have without the travel.

4. Keep Personal Travel Personal
If your travel is for personal reasons – treat it as personal. If one of your goals for a particular trip is to take a break from business, then treat that trip as personal. Trying to claim that as business travel could draw a lot of scrutiny to your legitimate travel expenses. Or, if your spouse and children don’t participate in the business, treat their portion of the travel expenses as personal – trying to deduct their expenses could jeopardize your portion that is legitimate.

5. Know the Rules Outside the U.S.
Travel outside of the U.S. has a completely different set of rules. Be sure to discuss this with your tax advisor before you travel.

Use Your Travel in Your Tax Strategy
Travel is one of my favorite deductions because it is one of those expenses that most of us already have, and when planned properly, it gives us the opportunity to increase our business’ bottom line while decreasing our tax liability.

Did Your Business Name Get Terminated?

Posted on February 1st, by Janice in Business 2 Comments

hello-my-name-is-1244204-639x456 Did you forget to renew your business registration? When your business began it had registered with the State of Michigan, probably a while back, however, the annual registration renewal was not done. After several years of non-renewal, along came your competitor who called to see if you would like to buy your business NAME back at a considerable cost. What a surprise! This created problems for your Business, because it could no longer do business under its original name in the State of Michigan. Your competitor registered its company with your NAME and now they had a legal right to use your NAME while doing business in Michigan.

Today we are discussing the topic of Michigan business registration renewal. Michigan businesses are required to renew their registration with the State of Michigan annually. Your renewal papers are mailed only once a year right around December or January. Unfortunately, after the initial mailing, there are no other reminders to renew your business registration. Filling out the paperwork isn’t a long process, but it is necessary if your business wants to continue operating under the same name in the future. Registration renewal fees are $20 and up and can be completed easily with our expertise. Michigan does offer a new online payment feature for those who like online payments.

Registration renewals are vital to your Company! If not completed for three consecutive years your business name can be taken by another business just like in the story above. This can occur with no warning from the State or from the requesting business. If a business realizes it hasn’t renewed for three or more years it can bring that renewal current, but there are penalties and fees in order to do so, assuming no other business has registered that name.

The process of renewal isn’t difficult, but it is important and a little bit of time needs to be spent to complete this important function. If you don’t feel comfortable filling out the paperwork, Vanderbilt CPA Group is happy to help you complete the process.

Janice S. Vanderbilt, Vanderbilt CPA Group

3 Ways to Use Leverage to Build Wealth

Posted on October 12th, by Janice in Business Wealth 3 Comments

Think about how much time you spend earning your money. Now, think about how much time you spend investing that earned money. This is a challenge many people face. Most people spend at least 40 hours per week – each and every week – earning their money and maybe an hour per month on investing that earned money. This allocation of time won’t get them to their goal of passive income any time soon.

A Wealth Strategy Doesn’t Have to be a Full-Time Job
A wealth strategy doesn’t have to be a full-time job if it is done properly. This is why I say you must build a business around your wealth. A business is one of the best forms of leverage. When wealth building is treated like a business, it is possible to see results in just a few hours each week.

What exactly does it mean to build a business around your wealth?
In any business, leverage comes in many forms, all of which contribute to spending less time “in” the business and more time “on” the business. This is key in a wealth strategy – it’s what enables someone to be successful in their wealth strategy in just a few hours each week.

Here are 3 forms of leverage commonly found in a business that I think every wealth strategy should have:

Leverage #1: A Clearly Written Strategy
It’s common for a business to have a clear written strategy, but it’s not common for a person to have a clear written strategy for their investing. Without a clear written strategy, a business (or wealth strategy) often changes directions many times, and with each change, time and money is lost.

A clear written strategy helps reduce the amount of time a person spends in their wealth strategy because there is a clear focus. The strategy can be shared with team members so they are more efficient and focus only on those things that support the strategy.

Leverage #2: Systems
Systems are the greatest form of leverage in a business. The systems run the business. This enables the owner to spend his or her time managing the systems instead of managing the people. Managing systems is not only more efficient than managing people, it also takes less time and effort and produces greater profit. Systems should identify the who, what, where, why and how for operating a business. Systems can (and should) touch every aspect of a wealth strategy.

For example, a wealth strategy should have systems for:

– Identifying and selecting investments.

– Funding the investments. If there is a loan process, there is a system for that.

– Managing the investments.

– Reporting for the investments.

Creating the systems can take some time, but once they are in place, it becomes very efficient to run a wealth strategy. The systems help reduce the amount of time required to manage a wealth strategy. The systems also provide better information so decisions can be made proactively and not reactively – this is also a huge time and money saver.

Leverage #3: Team of Advisors
The 3 most expensive words in the English language are “do it yourself.” Having a team brings leverage and velocity to investing which leads to better and faster results. This is what businesses do. They build a team with their employees, vendors, customers, advisors, partners and so on. This same principle applies to a wealth strategy. The right wealth team can bring the greatest value to a wealth strategy.

Using Business Leverage in Your Wealth Strategy
If you are an investor and don’t think of yourself as a business owner, think again. Those who are most successful in their wealth strategies are those who have built a business around their wealth and treat their investing activities like a business.

The above are just 3 examples of how leverage commonly found in a business can be used in a wealth strategy. Start taking the steps today to work towards building a business around your wealth.

A Simple System for Documenting Travel Expenses

Posted on March 15th, by Janice in Business Taxes 20 Comments

I love traveling for business. It’s a great (and legal) tax deduction and it takes me all over.

When it comes to business travel, documentation – particularly your receipts – is extremely important. Travel is one of those areas that is heavily scrutinized during an audit. Your best defense is a good offense. In this case, that means solid documentation.

What happens to many of us when we travel is we get home and find receipts in various places over the next several days (or even weeks). There are some in our wallets, others in our computer bags, more in our coat pockets, some in our cars and with all of these, there are still probably some missing.

This is why I developed a simple system for my documentation – there are two rules I follow.

Rule #1: Leverage the Convenience of Email
When my airfare is booked, the airline sends me an email automatically that has all the information I need for my receipt. I forward that email to my bookkeeper immediately upon receipt. That takes care of the airfare receipt.

When I check out from my hotel, I request to have a copy of my bill emailed to me. I forward that email to my bookkeeper immediately upon receipt. That takes care of my hotel receipt.

With my airfare and hotel receipt, I have the receipts for the majority of my actual expenses. But, most of the receipts from my travel come from the other expenses, like meals, cab fare and tips, many of which are often paid by cash. I tackle those with Rule #2.

Rule #2: Pack an Envelope
Part of my packing for a business trip includes packing an envelope in my carry-on bag. Any time I get a receipt, I write notes on it as to what it was for and then it goes in the envelope. After my trip, I give the envelope to my assistant who scans the receipts.

My assistant scans the receipts based on how I paid for the expense. If I paid with my business credit card, my assistant scans those receipts together and emails them to my bookkeeper. My bookkeeper then has everything needed to properly account for those expenses.

If I paid with cash, my assistant scans those receipts together for me and includes them in my monthly expense reimbursement report that I submit to my company at the end of each month.

Even though it’s my own company, I still submit an expense report.

This is a really important step because when my company reimburses me, I get my cash back and the expenses get properly recorded in my company. In other words, it puts the proper documentation in place.

A Simple System
This is such a simple system, but it works. The key is using it consistently. Now you can enjoy those business trips without the dread of dealing with the receipts afterwards.

Maximizing the Benefits of Accelerated Depreciation

Posted on February 28th, by Janice in Business Taxes Wealth No Comments

Depreciation can seem like magic. When done properly, it can take rental real estate with positive cash flow and turn it into a loss for tax purposes.

It is common to break out land and building in a rental property for depreciation purposes, but there are many more components to consider. These additional components may include appliances, parking structures, landscaping, furniture, fixtures, and much more. Most importantly, these additional components can be depreciated much faster than land and building.

The result is accelerated depreciation which means more depreciation can be taken sooner.

Keep this in mind: Accelerated depreciation is a long-term strategy.

The decision to accelerate depreciation should be part of a long-term tax strategy. While the tax benefits can come immediately, there needs to be a focus on the future to truly maximize the benefits.

Accelerated depreciation often results in more gain when the property is sold.

On top of that, the depreciation taken may be recaptured when the property is sold, which means a portion of the gain (the portion attributable to the depreciation) may be taxed at ordinary tax rates.

So how is any of this good news for accelerated depreciation?

Here’s how. The worst case scenario with accelerated depreciation is that the tax is deferred to a later year. You take the bigger deductions now, enjoy the tax savings now and then pay tax on it later in the form of more gain.

If you’ve heard me speak, then you probably know deferral is my least favorite type of tax planning, so you may be wondering why I think accelerated depreciation is so important in a tax strategy.

The reason is that deferral is the worst case outcome, and as far as tax planning goes, while deferral isn’t my favorite, it can still help minimize taxes. So even the worst case scenario is still good for tax planning.

But even better, there are other possible outcomes that can reduce or eliminate the future tax impact of accelerated depreciation.

A long-term strategy is the solution to minimizing or eliminating the future tax impact of accelerated depreciation. Here are a few examples.

Strategy #1 – Depreciation Recapture
Not all depreciation recapture is taxed as ordinary income. Some depreciation recapture has a lower tax rate. This means you take the deduction at a higher rate and report the income at a lower rate – this results in permanent tax savings.

The key is making sure you are in the right tax brackets now and in the future.

Strategy #2 – Like-Kind Exchanges
Another example is using like-kind exchanges in your long term tax strategy. With like-kind exchanges, it is possible to avoid depreciation recapture entirely.

Strategy #3 – Hold Property to Pass to Heirs
If your long-term strategy is to hold the property and pass it to your heirs, then that can work to avoid depreciation recapture.

Strategy #4 – Rental Property
A plan to regularly buy rental property can provide a steady source of accelerated depreciation and compensate for lower depreciation on properties entering the older stages of their depreciable lives.

While there can be many traps with accelerated depreciation, these strategies are some ways to plan around them with a long-term strategy.

Rules for Deducting Your Personal Vehicle in Your Business

Posted on October 14th, by Janice in Business Taxes No Comments

One of the most common tax deductions I see missed is the business use of a personal vehicle.

When I meet with new clients and discuss this deduction, I hear all sorts of reasons as to why they haven’t taken this deduction:

– They didn’t know they could
– They don’t use their personal vehicle that much for business
– They were told that since it was a personal vehicle, it couldn’t be deducted
– They thought it was a red flag for an audit

The truth is, anytime your business uses your personal vehicle, there’s a tax deduction, whether the business use is 1% or 100%.

Have Your Business Reimburse You – Tax Free!
Your business should reimburse you for allowing it to use your car – even if you are the one using it in the business.

When your business reimburses you, your business claims the reimbursement as a deduction, reducing the amount of business income that is taxable, which in turn reduces your overall taxes.

The tax savings get even better – the reimbursement you receive from your business is not taxable to you – it is tax free income.

Here’s What You Need to Do
To make this tax reduction strategy work, you’ll want to track how many business miles versus total miles you put on your car in a year. Your business miles divided by your total miles is your percentage of business use. This is a very important percentage because it is the percentage of your vehicle expenses for which you can be reimbursed by your business.

Vehicle expenses include:

– Maintenance
– Tune-ups
– Replacement parts
– New tires
– Gas
– Oil
– Washes
– Car loan interest
– Depreciation
– Lease payments

These expenses add up, which can mean big tax savings.

Multiply your total expenses by your percentage of business use and that is the amount of reimbursement to collect from your business.

Alternatively, you can have your business reimburse you based on the standard mileage rate. The standard business mileage rate is currently 56 cents per mile. This rate changes on a regular basis and can be found on the IRS website. Multiply the number of business miles by the standard business mileage rate and that is the amount of reimbursement due to you from your business.

The standard mileage rate is used in lieu of other expenses. This means if you use the standard mileage rate, it is in lieu of your actual vehicle expenses for that year which include the expenses listed above.

Using the standard mileage rate method usually works best when your business mileage is high. If your business mileage is low, then using the actual costs will likely result in a greater deduction.

Regardless of which method you use, submit an expense reimbursement report to your business and have your business cut you a check. This is something you can do monthly or quarterly.

The Result is Permanent Tax Savings
The vehicle deduction is one of my favorite tax deductions because it has the ability to turn expenses you already have into legal tax deductions. This creates permanent tax savings.

Business Valuation and Strategy

Posted on October 7th, by Janice in Business No Comments

In business and investing, strategy is key. Any action taken in your business and investing must be part of your overall strategy.

As a business owner and investor, I know first hand the hundreds of distractions that come up daily. This is why it is so important to have a strategy that clearly identifies where your focus should be.

Let’s say your goal is to sell your business in 10 years for $10 million. Everything you do between now and then should be tied to achieving that goal.

To reach your goal you must develop a strategy that will get your business or investing to the targeted value.
Here are the first 2 steps to develop that strategy:

Step 1 – Develop Your Strategy
The first step to developing your strategy is to understand how your business is valued.

I can’t count the number of times I’ve met with business owners who wanted to sell their business but had no idea what the value of their business was – other than a number they had in their head (and the actual value was usually 50% less than that number).

Every industry has its own valuation techniques. Of course, it matters whether you are planning to sell to employees, another business, a public company or whether you plan an IPO (“initial public offering”). But, there are fundamental rules in every industry.

Take the time now to find out what the rules for valuation are in your industry. General rules of thumb can be found through industry associations, business brokers or on the internet. For more precise information, you can hire a qualified business appraiser to do a business valuation of your business.

Once you know how your business is valued, you can focus on the specific factors that positively impact the value of your business. Reporting can help you do this on a regular basis – without having to spend a lot of time on it. Simply design a set of reports that tell you how each factor is progressing and the impact on the value of your business.

Step 2 – Develop Your Business to Run Without You
What you will find out in Step 1 is that the most valuable businesses are those that can run without the owner being there.

If you have to be there every day, how will a new owner take over? Many business owners are their business. They are the face, the name, the production, sales and marketing of their business. Businesses like this struggle to produce much income because there is very little leverage.

Leverage in a business comes from many sources. The most important source is the business systems. When a business has proper systems to run the business, the owner can spend his or her time managing the systems instead of managing the people. Managing systems is not only more efficient then managing people, it also takes less time and effort and produces greater profit.

Are you taking the right action in your business and investing?
Think about the actions you will take in your business and investing today. Do these actions get you closer to your goal? Or are they really distractions that are stealing your focus?

Your Tax Strategy: Where to Start?

Posted on September 15th, by Janice in Business Taxes No Comments

There are two big obstacles most people run into when forming a tax strategy.

Obstacle #1: What is a tax strategy?
Obstacle #2: Where do you start?

What is a Tax Strategy?
Let’s break this term down and start with strategy.

A strategy is a systematic plan of action intended to accomplish a specific goal or purpose. The specific goal or purpose is to permanently reduce your taxes.So, a tax strategy is a plan of action to permanently reduce your taxes.

Of course, most people are all for permanently reducing their taxes. What is typically missing in their quest to do that is the strategy piece. And it’s the strategy piece that produces the maximum results.The strategy piece helps focus our actions and thoughts every single day on permanently reducing taxes.It doesn’t have to take hours every day to get maximum results from your tax strategy. Instead, your strategy becomes a part of your daily routine.

Every transaction you do can have an impact on your taxes. Your tax strategy helps you think about your daily transactions in a way that gets you to your goal of permanently reducing your taxes.

Where Do You Start?
Think about planning a vacation. Let’s say you are going to Hawaii. When you go to book your ticket, you need to know where you are departing from, right? This is your starting point. It is impossible for you to get to Hawaii unless you know where you are starting.

The same applies to a tax strategy. You must know where you are starting. In your tax strategy, this means you must know your current financial position.

Your current financial position includes your current balance sheet.
Your current balance sheet tells you your current net worth. It’s calculated as follows:

Your Assets (what you own) – Your Liabilities (what you owe) = Your Net Worth
When you know your current net worth, you know the exact resources available to you to use in your tax strategy. Your specific assets and liabilities help create the best path for you in your tax strategy.

Your Current Statement of Cash Flows
Your current statement of cash flows tells you your net cash flow. It’s calculated as follows:

Your Income – Your Expenses = Your Net Cash Flow
Identifying your sources of income is the starting point of identifying how to reduce the tax on that income.
Identifying your expenses is the starting point of maximizing your deductions.

Get Started
The starting point to reducing your taxes and forming a tax strategy is understanding your current financial position.If you haven’t created your tax strategy yet, start by updating your balance sheet and statement of cash flows.If you already have your tax strategy in place, review your current financial position regularly to identify new opportunities for your tax strategy.

Your Tax Strategy and Your Wealth Strategy
If you are like most, the single biggest expense draining your cash flow is your taxes.When you reduce your taxes, you immediately increase your cash flow. Increased cash flow can be used to create wealth. Your taxes are a powerful way to feed your wealth strategy!

Maximize Tax Savings with Good Bookkeeping

Posted on August 30th, by Janice in Business Taxes No Comments

Bookkeeping is one of the most powerful tools when it comes to maximizing tax savings. It’s where the activity gets captured and when done properly, it can capture additional tax savings.While bookkeeping is often viewed as a necessary evil, it has the ability to give your tax strategy a boost in many different ways. Here are just a couple of those ways:

#1: Bookkeeping Captures What is Often Missed
When I look at a new client’s tax return, I often find that deductions are missed or understated. The most common are:

• Home office
• Travel
• Vehicle
• Meals & entertainment

These deductions are missed or understated because there is no system in place to capture the information. Bookkeeping is this system.

Let’s use the home office as an example. Some of the expenses related to a home office include:

• Mortgage interest
• Property taxes
• Utilities, including water, gas, electric, sewer
• Pest control
• Security
• Association dues

While many people capture some of these expenses, it’s rare to see all of these expenses captured. Most people capture the big items – mortgage interest and property taxes – but usually miss the smaller items. These smaller ones can really impact the tax savings because these expenses create permanent tax savings.

The expenses listed above are all paid personally. Keeping a set of books for your personal finances can really pay off in the form of additional tax savings. Any time you pay a bill that relates to the occupancy of your home office, code it accordingly in your personal bookkeeping.

Doing bookkeeping for your personal finances can also help identify expenses you may not have thought to include as part of your home office or other tax deductions.

#2: Bookkeeping Captures the Timeline
A very powerful form of permanent tax savings comes from how you pay yourself from your business. Many times there is a delicate balance between distributions and salary and using the right amount of each is what creates permanent tax savings.

This makes distinguishing the two very important – especially given that these amounts will be scrutinized if audited.

Your bookkeeping documents two key factors related to distributions and salary:

• The amount
• The timing

Your bookkeeping is a fantastic tool to track how much you have paid yourself in distributions and how much you have paid yourself in salary. Even more important, is the timing of your distributions and salary.Think about when you pay your employees. Is it a set period or is it whenever you feel like it? Of course, it is a set period. The salary you pay yourself should also follow this pattern. Your bookkeeping captures this pay period pattern, helping to support your salary as part of the company’s normal payroll.

Now, think about how large corporations pay their shareholders. Typically, dividend distributions are quarterly or annually. Your distributions should follow a similar pattern. Your bookkeeping provides documentation of the actual timing of your distributions which is very important in your tax planning.

Good bookkeeping is a necessity if you want to maximize your tax savings. This includes bookkeeping for your business, as well as, bookkeeping for your personal finances.