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Tax Considerations For Small Businesses

Photographer: Anna Jung-hwa photography

Crane Financial founder and CEO, Hollis Fullilove, whom many in his community would refer to as their "Hometown Hero" is a serial entrepreneur with technical experience in account management, consulting, small business development and strategy, and individual business tax. His team of experts stands ready to provide furnished resources for students through mentorship and tutoring programs. With the right tools to advance, the thread will always fit through the needle to create a seamless journey. Fullilove steers the conversation with the community through simplistic connections by continuing to serve the community by empowering the overall growth of his client's business needs. Crane Financial has over 30 different businesses on retainer doing valuable work. He impacts the community by keeping money in businesses to reinvest in their companies and their surrounding communities. Also while strengthening the minds of the local community goers and entrepreneurs. All while creating ROIs for businesses to provide quality services and/or products. In turn, developing positions to fill with members of the community. Fullilove started his Love Soiree foundation on 3 pillars; education, empowerment, and inspiration. Fullilove is always looking for ways to advance the community through financial literature and business development.

Starting a small business is triumphant yet challenging. So challenging in fact, that more than two thirds of the roughly 32 million small businesses in the United States fail within the first 10 years of origination. As an accountant that works with hundreds of small businesses annually, I see many of the challenges that face small businesses and their owners. It’s my duty to help guide and navigate them along a path of discipline, risk, sacrifice, and ultimately success. Through my experience I have been able to craft that leadership in what we at Crane Financial call “The Blueprint.” “The Blueprint,” applies to small businesses grossing $100 thousand dollars in revenue to $100 million. It’s comprehensive, it’s well-rounded, and most importantly simple. Our goal with implementing “The Blueprint” is to allow business owners the empowerment of transparency. Being able to have a solid game plan in accordance with the United States tax code that gives the business and the owner a greater benefit. Seven tax considerations and fundamentals that all small businesses can use to thrive.

Let’s begin!

Step 1: Identify your demographics

Simply put Step 1 is calling out who you are and what you do. All of us have different home lives and family dynamics. Just like when preparing an individual tax return, this is the first thing you must address. What’s your filing status? Are you single, married, or are you the head of a household with dependent children? All these pieces matter when building and crafting your tax strategy. They can dictate how you structure your business and what tax strategies you choose to leverage for business write-offs. Not only does the make up of your household matter, but also what do you do? Are you a truck driver? Do you sell products? Do you have state contracts or are you paid by individuals who purchase your goods and services? Again, this matters tremendously as we lead into Step 2. All the pieces matter when we are looking for the greatest benefit of you and your business. How revenue is earned and how money is spent to continue earning and building that business can look different from company to company. Defining what that looks like for you is extremely important.

Step 2: Secure Your Structure

How your business is structured ultimately determines your tax obligations and tax liability. There are five different business structures.

● Sole Proprietor/ Single Member LLC: These are single owner operator organizations. For many they think if they are an LLC that they can’t be a sole proprietor. However, in the eyes of the IRS and every state department of revenue, if you are a Single Member LLC you are treated just like a Sole Proprietor. The LLC is a legal designation in these instances.

● Partnerships: Partnerships can be multimember LLC’s (two or more individuals or businesses together under one organization.

● Small Business Corporation’s or S Corp’s: Similar to partnerships being that they have two or more individuals however they have very different tax obligations or opportunities depending on your strategy.

● Corporations: These are usually your large companies, whether private or public, that have a number of shareholders and are taxed separately than the business founders.

● Non Profits: These organizations have a board of directors who make management decisions and while the business can earn money and make a profit, the goal of the organization is to use whatever funds raised to help solve a problem or support a group in our society.

Each of these organizational structures have benefits and drawbacks depending on your individual and business goals. We have advised clients on a case-by-case basis as to how to structure their firms.

Ultimately, guiding each business towards it end goal from our perspective is how we advise the structures. What is the biggest version of your company? Well, why aren’t you structured to support that model today?

Step 3: Implement an Accounting System

How will you know the health of your business without having accurate and complete financial reporting? You can’t know your profit margin, you can’t see if you’re hitting your revenue goals, you can’t accurately forecast without financial reporting. How can you know your tax liability without having financial reporting? You can’t prepare a tax return without financial reporting. Simply put you can’t effectively run a business without financial reporting. Financial reporting can only come through having a strong and effective accounting system. There are plenty of tools available for small businesses to keep their accounting records. QuickBooks and NetSuite are extremely popular and very useful for small business owners. There are also free accounting software’s like Kashoo and Wave. However, your accounting system doesn’t only include the software

you’re leveraging but also the professionals you are empowering within it. Are you going to handle your accounting yourself or do you need to hire Crane Financial to do so? Will you keep the books internally and then work with us to only complete your tax return? All these questions need to be answered when making considerations for your company’s accounting system.

Step 4: Asset Acquisition, Valuation, and Depreciation

The acquisition of assets is paramount in taking advantage of the tax code. What a lot of business owners don’t understand is that when assets are acquired, they aren’t expensed but their value is depreciated over a number of years. This is why it’s so important to have a sound strategy in place with acquiring assets and also investing additional funds into the asset, which affects it over all value. The purchase price and money invested into any asset is its depreciable basis or the amount that we will

begin depreciation with. Depreciation provides business owners with a paper loss, so while on your tax return and financial statement you may record a loss on depreciation expense or accumulated depreciation, in reality you haven’t spent a dime. Depreciation is also well received by business financer’s and mortgage lenders who will add it back to your bottom line because again it's only a paper loss.

This step is so far along in the process because it can take time for business owners to truly understand what assets they need to acquire or to be able to afford those assets. However, it should be noted that intangible assets such as intellectual property may come at a lower expense to a creator, inventor, or artist. These concepts can become complex, which is why I recommend consulting a tax or accounting professional to assist you in handling these matters.

Step 5: Design your Tax Plan

In personal finance every guru will stress that you build a budget. For businesses this also is extremely important, but business owners should take their budget a step further and design a tax plan around it. Businesses are taxed based on profits. If in your budget results with your business being profitable, then you now must account for the taxes you have to pay. Many business owners go throughout the year only focusing on revenue and profit and forget the tax obligations that come along with it. Then once April rolls along they are faced with an overwhelming tax bill. This causes stress, anxiety, and an overall sense of failure for a lot of young business owners.

However, in my practice I stress the importance of tax planning to be able to strategize around this hurdle. If you know what sort of tax bill you can expect in January you can budget and plan for it. You can also use the tax code to your advantage to lower the liability or make it obsolete. However, if you’re not doing this then you’re left with the stress and penalties that come along with paying the IRS after the fact. The money you can save on efficient tax planning is money that can flow back into your business. TAKE ADVANTAGE OF IT!

Step 6: Implement and Adjust Your Tax Plan

I want to stress how important tax planning is because we see so many businesses that simply don’t do it. Being proactive as opposed to reactive in your tax situation is to your overall benefit. So with my clients this is a monthly conversation. We track tax liability based on business performance which is tied to financial reporting. EVERY PIECE MATTERS! Meaning that by successfully conquering each step in “The Blueprint” we can adjust and strategize effectively throughout the year. If we need to spend more in November and December or cut off billing to save on tax liability we can do that, but we can’t know if we aren’t keeping a close eye on the financials and performance.

Step 7: Take Accountability

There are plenty of entrepreneurs who simply don’t understand accounting and taxes. That’s not an excuse if we are speaking with the IRS or your states department of revenue. It’s your obligation as a business owner to take the responsibility of paying your taxes in full and on time. My goal with my clients is to be transparent with them about their tax obligations and make them take ownership of them getting handled. Many celebrities point the finger at their accountants when they face tax trouble, but few ever admit that they lacked accountability or ownership over that process.

Again starting a business can be challenging but all challenges are made to be conquered. If you take the time and align yourself with the right team you can craft your own blueprint that will lead to your businesses success. The investment is not only monetary but also time consuming, however my experience tells me the more of an investment you make upfront the greater the probability of your business being successful.


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