Successful Entrepreneurs Share Secrets for Running a Lean & Mean Businesses

Let these entrepreneurial whiz kids make your life a little easier.

Running your own business is an unpredictable adventure with highs, lows, twists and turns. And while you’ll weather much of what comes along, you will also make mistakes. Why not minimize missteps by listening to the advice of those who have come before you? Here are 15 tips from successful entrepreneurs on being efficient, keeping overhead low and more.

Your Team

“Always be ready to adapt your needs to match your employees to their strengths, so that they will shine, instead of fitting them to the job description. In other words, the ’round peg versus square hole’ concept at its best.”

Christi Lopez, President, Bergerons Flowers, a floral design studio in Springfield, Virginia

“Invest wisely by hiring skilled experts — rather than less expensive novices — who can focus on their areas of expertise (for example, sales, marketing, public relations, graphic design) and can dive into the details so you are able to focus on the big picture and set the overall direction for the company.”

 Kelly Carroll Burgin, Owner/Founder of K. Carroll Accessories , a luxury vegan handbag line

“Outsource repetitive and time consuming tasks to a virtual assistant, like Peach Tree Virtual Assistants. If you are organized and have systems in place, they can often accomplish more in 10 hours a month than you could with the same amount of time.”

Kaysha van der Heyden, a modern wedding and lifestyle photographer based in Orange County, California

Virtual assistants are a great way to get help without a huge cost.  They can relieve you of low value tasks and because they’re virtual, you don’t have any additional costs. I’ve found my people through Elance (now Upwork).”

– Jamie Chang, Founder, Passport to Joy, an online program that guides couples through planning their own wedding

[Editor’s note: If you’re starting your own business or thinking about it, your good credit can make it easier. Here are some tips for not letting your business ruin your credit. You can check two of your credit scores for free on Credit.com.]

Coaching

“Business/marketing coaching is everything because I’m not amazing at that stuff, and my business grows so much faster when I invest in a coach.”

Meg Hodge, Owner, Centered: Richmond Acupuncture & Wellness, a well-being facility in Richmond, Virginia

“Amplifying the RestoPresto brand is essential so with a tight PR and marketing budget, I deeply value the affordable (and free) strategies, tips and guidance by PR coach Sabina Hitchen of Sabina Knows. Combining that ‘how to’ knowledge with free HARO (Help a Reporter Out) media leads has gained amazing press for the RestoPresto wearable blanket including a feature on the TODAY Show!”

Candi Obrentz, creator of RestoPresto, the lightweight compact pouch that unfolds to a soft, water-repellent, thin layer to sit on or wear

Efficiencies

“I use a few filters to determine how to prioritize my time and my business spending. First, I look for things that will help me increase sales, because without sales, your business will fail. Second, I look for things that I spend too much time on that I can automate or outsource. This frees up my time to spend on higher value activities that directly impact revenue and client satisfaction. If more business owners focused on these things first instead of the superficial things that don’t immediately drive revenue, we would have fewer business failures. Sales fund everything in your business. Not the other way around.”

Maria Bayer, a consultant who helps experts in creative fields book clients they love and get paid what they’re worth

“Schedule, schedule, schedule. Make sure you schedule out your days and times for efficiency while leaving time for emergencies or tasks running over.”

Kim Sayatovic, Belladeux Event Design, an event design and planning firm in New Orleans

“Use technology to your advantage. Take some time and research some apps that will help streamline your day. A few we like are Evernote, Todoist and Acuity. Also, manage your time wisely. Block off time throughout your day to work on projects, but don’t forget to schedule some time for yourself!”

Kevin Dennis, editor of WeddingIQ and owner of Fantasy Sound Event Services, a full-service event company based in Livermore, California

Reduce Costs

“Reduce premises costs. Move to smaller premises or allow staff to work from home to save rent, business rates and utilities. Also, rent rather than buy equipment. Renting reduces capital investment and lets you speedily upgrade equipment, while saving on maintenance and repair.”

Vernic Popat, Co-Founder of PlantOGram.com, which produces sustainable, eco-friendly fruit tree gifts an alternative to traditional gifts.

Travel cost-effectively. Also, hold teleconferences whenever possible, rather than traveling to meetings,” said Popat.

“When it comes to tools and software, keep only what you need, use and like, and dump the rest. This will help reduce your monthly costs,” said Jamie Chang.

Communicate

“Schedule 30 minute ‘coffee talks’ with your staff in the morning to go over current projects and then monthly brainstorm meetings outside the office — ‘wine and brain dump’ for future ideas and strategic planning.”

Lynette Lovelace, Creator and CEO of Lifetherapy, a retail site focusing on well-being.

“When launching a new initiative, always test markets first, especially if you’re planning to reach a national audience. The cost to launch on a larger scale can be considerable, so best to make sure you have benefited from consumer feedback while also reducing any uncertainties.”

Joanne Jiang, founder, LadyMarry, an app that guides engaged couples through the wedding planning process through an easy-to-use interface.

“For service-based businesses, it can be tempting to say yes to every project and client that comes along, even if you are too busy to handle everything.  But one bad client can make you miserable or even hurt your business. Say no to the projects that are not a good fit for you so that you have more space to say yes to your ideal clients and projects.”

Ann Oleinik, Ann & Kam Photography & Cinema, a husband-and-wife wedding photography and cinematography team based in Chicago.

Image: svetikd

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5 Things That Can Make Your Business Plan Fail — & How to Avoid Them

If you don't believe in your business, how can anybody else?

Creating a business plan is an essential step in getting a new company off the ground. Writing this document helps founders not only evaluate their goals, but also communicate them to other people, especially investors. A good business plan can be the difference between funding your dreams on business credit cards and personal savings or getting support from a financial institute or business partner. Unfortunately, many business plans fail in this aim. Understanding common pitfalls and how to avoid them ensures you get the backing you need to develop your business idea.

Here are 5 things that can make your business plain fail — and how to avoid them.

1. Failing to Define What Your Specialty Is

Thousands of startups and small businesses pitch their business plans, and it’s important to stand out in the crowd to improve your chances of securing an investment. An effective way to do this is by clearly defining what makes your company unique, according to the U.S. Small Business Administration. This requires being clear about what your company offers in terms of products, services, unique skill sets, and experience. For example, if you’re starting a new restaurant, do you cater to specific types of clients, or do you have a renowned chef in the kitchen? When you can identify a niche in which you excel, you improve your chances of success.

2. Omitting Vital Information

The process of writing a business plan is as important as the plan itself, according to SCORE, a nonprofit association that works in partnership with the SBA to provide free services and advice for entrepreneurs. Writing the plan encourages you to think about your business in a systematic way. The SBA recommends covering the following areas:

  • An executive summary to give an overview of your plan
  • A company description, including what makes your business unique
  • Market analysis to show you’ve researched the industry and your competitors
  • Details of your business and management structure
  • Details on what products and services you provide
  • Marketing and sales strategies
  • A funding request, with financial projections to support that request and an explanation of how these figures impact the business

3. Insufficient Understanding of Finances

Investors need to feel confident their money is in the hands of someone who understands the world of business and finance, and not just their particular line of work. If you don’t understand terms such as APR or lack a thorough grasp of sales figures, potential investors will balk no matter how good the business idea is. Solid business plans include significant research and budgeting and cover sales strategies, contingency plans for additional funding, and firm details on how much it costs to start the business and keep it running. Any funding requests need to be backed up with detailed financial projections to help investors understand the sources from which the return on investment will come, and a clear definition of how long that will take.

4. Failing to Maintain a Living Document

A business plan projects three to five years ahead and acts like a roadmap that defines a company’s growth and development. Creating the document is an important first step for a startup, but once the business is established, the plan becomes no less important. The plan can help generate extra funding, develop new business arrangements with other companies, take on high-level employees, or identify and rectify inefficiencies in your company structure.

That’s why it’s necessary to make changes to the plan by creating new goals or correcting mistakes. A truly valuable plan evolves along with the company, according to Harvard Business Review. Making changes when necessary keeps the plan alive and helps to drive the business forward.

5. Lack of Determination

If you want someone to invest in your idea, it’s important to invest in it, too. Giving up the first time a pitch falls on deaf ears doesn’t lead to new opportunities. If an investor refuses to get on board, it’s a good idea to ask them exactly why and then use that information to your advantage in a subsequent pitch. That kind of input can be invaluable to achieving your business goals.

Remember, most business credit cards require a personal guarantee, which can affect your personal credit. You can view two of your scores for free on Credit.com.

Image: Cecilie_Arcurs

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These 4 Small Business Credit Cards Are Perfect for Freelancers

A business credit card can make it easier to track costs and reward office expenses. Here are a few solid choices for freelancers.

[Disclosure: Cards from our partners are mentioned below.]

Americans are joining the gig economy in droves. In 2016, the Freelancers Union found that 35% of the U.S. workforce engaged in freelance work, an increase of more than 1 million people from the prior year. With freelancing on the rise, many workers may be managing business finance for the first time.

A separate credit card for business expenses offers several advantages. Most importantly, it makes tracking business costs easier and can help avoid headaches during tax season. Small business credit cards also reward freelancers for their business spending.

Here are four small business credit cards that can help freelancers fund their business.

1. Blue Business Plus Card

Perks: Two points per dollar on up to $50,000 in purchases each year, one point per dollar thereafter
Signup Bonus: None
Annual Fee: None
Annual Percentage Rate (APR): 0% intro APR for 15 months, then variable 11.99%, 15.99% or 19.99%
Why We Picked It: Cardholders earn points that can be redeemed for business and travel, and additional features make it easy to track business expenses.
Benefits: All purchases earn double points, which can be redeemed for travel, office supplies and other business expenses. There are several additional travel protections and insurance policies. You can upload receipts from your mobile phone and connect your transaction records with QuickBooks.
Drawbacks: Fewer merchants accept American Express compared to Visa or MasterCard.

2. Chase Ink Business Cash

Perks: 5% cash back on up to $25,000 at office supply stores and utility providers (phone, internet and cable TV), 2% cash back on up to $25,000 at gas stations and restaurants, 1% cash back on all other purchases
Signup Bonus: $300 bonus cash back when you spend $3,000 in the first three months
Annual Fee: None
APR: 0% intro APR for 12 months, then variable 13.99% to 19.99%
Why We Picked It: The card earns extra cash back on a variety of business expenses.
Benefits: You’ll earn cash back on every business expense, with an extra incentive for office supplies, utility bills, gas and dining purchases. That covers many of the purchase types that help a small business run.
Drawbacks: The 5% and 2% cash back rates are capped at $25,000 in purchases each, and you’ll only get 1% back on purchases exceeding those limits.

3. Spark Cash for Business

Perks: 2% cash back on every purchase
Signup Bonus: $500 bonus cash back when you spend $4,500 in the first three months
Annual Fee: $59, waived in first year
APR: Variable 17.74%
Why We Picked It: With unlimited 2% cash back on all purchases, this card earns solid cash back no matter your business need.
Benefits: With 2% cash back on everything, every purchase puts money back in your wallet. Additional employee cards are free, and you’ll get a number of travel and purchase protection policies standard.
Drawbacks: You’ll start paying an annual fee in year two.

4. CitiBusiness AAdvantage Platinum Select

Perks: Double miles on every dollar spent with American Airlines, select telecommunications merchants, car rental agencies and gas stations, one mile per dollar spent on everything else. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.)
Signup Bonus: 60,000 miles when you spend $3,000 in the first three months
Annual Fee: $95, waived in first year
APR: 16.49%
Why We Picked It: Cardholders earn miles for flights and get a host of other travel perks to boot.
Benefits: Eligible purchases earn double miles and all other purchases earn one mile. Miles can be redeemed for American Airlines flights and upgrades. You’ll get preferred boarding, a free checked bag, 25% off in-flight purchases and many other American Airlines perks.
Drawbacks: The card is really only valuable for loyal American Airlines flyers.

How to Choose a Credit Card for Your Freelance Business

Getting a separate credit card for your business expenses is a smart move, but you’ll want to choose carefully.

The right credit card for you depends on your goals. If you’re frequently traveling to meet clients, a travel rewards business card might make the most sense. If you’re working out of a home office and need to save every penny, a card with no annual fee might be suitable. If you’re just launching your business, a card with a long 0% APR intro period could help you pay down your up-front expenses.

You don’t have to use a business card for your freelancing business. It’s a good idea to have a separate card, but small business credit cards can have higher fees and penalties, as they aren’t regulated by the federal Credit Card Accountability Responsibility and Disclosure Act of 2009, which regulates consumer cards. Small business credit cards are typically better for businesses that spend tens of thousands of dollars per year to operate. If you’re a sole proprietor with a low overhead, you may want to consider getting a personal credit card to use only for business expenses.

Remember, these cards generally require good to excellent credit to qualify. If you don’t know where your credit stands, you should check your credit before applying, which you can do for free on Credit.com.

Image: Izabela Habur

At publishing time, the Capital One Spark Cash for Business and CitiBusiness AAdvantage Platinum Select World Mastercard credit cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

The post These 4 Small Business Credit Cards Are Perfect for Freelancers appeared first on Credit.com.

7 Tips for Funding Your Veteran-Owned Small Business

Veterans business owners face challenges when it comes to securing funding, but this advice could help.

Military veterans often face challenges when it comes to funding their business with a veteran small business loan, but finding capital that works for you is not impossible, especially when you have help. (Full Disclosure: I am the CEO and co-founder of StreetShares, a financing community for veteran business owners.)

If you find yourself in this situation, here are seven tips to help get you started on getting your business finances in order.

1. Assess Your Strengths & Weaknesses as a Borrower

Before you begin your search, make sure you know where your small business stands. How much funding do you need? How much can you afford to pay back each month? Are your margins higher than the interest rates?

It is also helpful to be realistic about your chances of accessing different funding options. Do you know your credit score? (If not, you can check it free on Credit.com.) How are the rest of your financials?

Finally, make sure your documents are in order. Have you filed your taxes? Do you have an updated balance sheet and income statement? Being prepared can save you time and grief later on. Follow these two easy steps to determine your financial needs.

2. Understand the Terrain Lenders Navigate

There’s a heap of regulations and internal policies that lenders must comply with in regards to small business funding that can make the lending experience hard and expensive for the borrower and the lender. It’s important to understand some of these factors that could affect your chances of getting funding.

For example, the lender must have access to capital on their end to be able to fund your loan. They also need the proper finances and marketing it takes to convince you to do business with them.

From the borrower’s perspective, here are a few things that should help you qualify for funding.

  • Earn the lender’s trust by displaying evidence of a good track record; you may have to find a way to convince lenders that you are trustworthy if your small business hasn’t yet established a good credit history (e.g., consistent, timely payback in the past).
  • Come to the table with assets to offer as collateral for the loan.
  • Have a compelling back-story in which you describe experiences and skills gained during your service that set you up for success.

Proper knowledge of both perspectives will help you have a better chance of smoothly navigating the early stages of funding.

3. Conduct Reconnaissance on the Options Available

While there may be a lending gap for veterans today compared with the veteran business loan options for veterans following World War II, technology is helping fill that gap with alternative online options. Make sure you research what’s available — from traditional banks to online lenders — and go with what makes sense for you given the stage of your business, your revenue and margins. Finally, make sure you understand what is offered: Some lenders charge 50% or more for loans, which few new businesses can afford.

4. Think Outside the Box

Funding can sometimes come from an unconventional source. Do you have a family member, friend, fellow veteran or schoolmate that made it big and would love to be part of your adventure? If you’re a young business, try a crowdfunding campaign or look for veteran small business grants, SBA loans or contests and awards for veteran entrepreneurs.

5. Connect with Veteran-Focused Mentoring Programs

Mentors provide insight and connections that can help accelerate the growth of your business, as well as teach you invaluable skills – such as how to present your business to potential investors. There are lots of great veteran-focused entrepreneurship mentoring programs out there, such as:

  • Bunker Labs is a program built by veterans to help veteran-owned tech startups launch and accelerate their businesses.
  • American Corporate Partners (ACP) is focused on helping military members as they transition into business. ACP will match veteran entrepreneurs with a mentor who shares the same personal and business interests for a 12-month mentoring program.
  • Entrepreneurship Bootcamp for Veterans with Disabilities is designed to help veterans launch and grow their businesses by leveraging skills veterans learned in the military and applying them to business ownership.
  • Some states have programs for veteran entrepreneurs. For example, Veterans Florida has developed an entrepreneurship program that offers a tuition-free, online and on-campus program. It’s designed to work around busy schedules, giving participants the option to access local resources such as business mentors at partner campuses.

6. Follow Through

You would never show up on a mission in the military without training for it and having a well-thought-through plan. You should take funding applications just as seriously — be responsive to questions from the lender you’re working with and prompt in delivering asked-for information.

Lenders work with a long list of businesses seeking funding. Small business owners should aim to make lenders happy to call them first thing in the morning.

7. Believe in Your Mission

Veterans bring skills, knowledge and grit to the table. Smart lenders know this makes you a high-value asset as a business owner, partner or borrower. As you grow your business, leverage your experiences in uniform and prove that you and your company are a worthwhile investment. You’ve got this.

This post was originally published on the StreetShares blog.

Image: Steve Debenport

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Confessions of a Side Hustler: How Full-Time Workers Keep Their Side Gigs a Secret

Many Americans are juggling extra gigs on top of their regular nine-to-five. According the Bureau of Labor Statistics, about 7.5 million Americans held more than one job in 2016. The figure rose by more than 300,0000 workers from the previous year, due in part to years of stagnant wages, a competitive labor market and the growth of the gig-economy. Of the multiple job holders, more than half, or 4.1 million, split their time between a full-time and part-time gig.

Having a side gig waiting tables after work is one thing. It’s when workers decide to turn their side hustle into a full-time business that things can get complicated.

For budding entrepreneurs, it can make sense to continue working full time until their new venture business is up and running. A full-time job provides a certain level of stability — like a consistent salary, health care, and other benefits.

Knowing when and if to disclose your new business with your employer is the hard part. For that reason, some entrepreneurs choose to keep their secret side hustle just that — a secret.

Some experts say an employer should know if you have any business interests outside of your daily work responsibilities. Others argue what you do on your free time is none of your employer’s business so long as you aren’t using company time or resources.

“Some employers really encourage their employees to work on side businesses because it stimulates creativity,” says Jill Jacinto, a millennial career expert at Manhattan-based career consultancy firm WORKS. On the other hand, she adds, some employers “might feel you are neglecting your current job or getting ready to make a move elsewhere.”

Beyond feeling ostracized by fellow workers or their employers, there are also potential legal conflicts or consequences to worry about, says Bruce Eckfeldt, founder of Eckfeldt & Associates, a business coaching and management training firm based in New York City and a master coach for career-assistance company, The Muse.

“Before you invest a bunch of time in your startup, make sure that your current employment agreement isn’t going to be a problem,” he says. If you happen to be launching a business in the same field as your current employer, there may be restrictions outlined in your contract that could come back to bite you.

In addition, you should do your very best to separate your new business from your day job as best you can. Separating your time and focus is a little more obvious — don’t work on your startup at your job — but you may also need to create some physical boundaries too.

“Build a solid wall between the work you do for you employer and for your startup. Separate email address, file repositories, maybe even computers and profiles if you’re really careful,” says Eckfeldt. He says this adds a physical level of separation between your day job and your startup. It also protects you against any claims you have used work time or resources on your startup. Doing so is common for many starting out, but generally considered unprofessional, and could breach the terms of your employment contract.

We interviewed several full-time workers who are secretly juggling side businesses along with their 9-to-5. We asked about their motivations, how they keep their other job under wraps, and the toll it has taken on their professional lives. To protect their identities (and their livelihoods), we have changed several of their names.

Here’s what it’s really like to live a double work life.

“I sell live crickets on the side.”

By day, Jason*, 32, is a project manager for a paint and flooring company in York, Pa.

After work, he puts on a much different hat as a pet food distributor. But he doesn’t sell Kibble ‘n Bits. His website, The Critter Depot, sells live crickets, which pet owners purchase in bulk to feed pets like snakes and large reptiles. Jason also operates a couponing blog under a pseudonym “Jason” and picks up Craigslist gigs in his free time.

“I like to get income from many sources, so I side-hustle,” Jason tells MagnifyMoney.

The husband and soon-to-be father of three says his ultimate goal is to retire as soon as possible. He plans to keep taking on extra work as long as he can manage it. He calls his full-time job “the bedrock” of his retirement plan.

“The full-time job, that’s the bedrock. That’s the foundation. If I had to sacrifice the other three [businesses], I would make sure I kept my full-time job,” says Jason. “Even if my side hustles got to the point where they were pulling in six figures alone, I wouldn’t get rid of my full-time job.”

On why he doesn’t tell his employer about his other income streams, Jason says he doesn’t want to blur the lines between his different businesses.

He’s careful to focus only on office work during office hours, and on his businesses when he’s at home. He doesn’t want to risk losing any trust at work.

“I don’t want [my boss] to think maybe I’m too zoned in on my side projects and not zoned in enough on my at-office projects,” he says.

For him, keeping his job in addition to the side income streams is all about keeping his family afloat.

“If I were a bachelor, I’d say you’ve got to put every ounce of your time into it. But the father in me says you’ve got to be level-headed because it’s not just you that’s relying on [your income], your whole family is relying on it.”

“I’m a travel agent when I’m not working on Wall Street.”

While Fred*, 45, was working at an investment firm in New York City, he developed an idea for a travel business. In 2009, he launched YLime, a concierge service that helps organize group trips for Americans looking to book travel to various countries for annual Carnival celebrations. Recently, he expanded his offerings to include travel packages to some African countries and wine tours on Long Island, N.Y.

His reasons for keeping his side business under wraps are simple: his workplace frowns upon employees having outside income.

“I’ve been on Wall Street for about 20 years now, and there is a certain culture in here. If they see you doing something else, it limits your growth,” he says. “They are not going to consider you for those positions because they assume you’ve already checked out to a certain extent.”

Although he says his company isn’t a conflict of interest for his position, he would be concerned if his higher-ups knew about YLime.

“Depending on your relationship with some people in the firm, some people may try to use that information against you,” Fred says.

“My bosses found out about my secret trucking business from a local news reporter.”

After a management shake-up at the Las Vegas gaming company where she had worked for a decade, 41-year-old project manager Marcella Williams thought her days were numbered.

Fearing she might lose her job, she decided to use her project management skills to open her own business on the side as a backup.

She launched CDL Focus, a truck rental and shipping company, in mid-2015. She rents two semi-trucks, primarily to people looking to obtain a commercial driver’s license. They can use her trucks to practice driving or to take the licensing test without going through an employer to gain access to a truck. Williams employs a driver for the other part of her business, which focuses on shipping.

She spent nearly $130,000 of her own savings and salary to bootstrap the business. In its early days, she admits it was hard to focus 100% on her day job while trying to get CDL Focus off the ground.

“The truth is, I probably spent a lot more time especially in the beginning working on the business than on my job,” says Williams. She gave her full-time job assignments priority and would shift her focus once her regular duties were completed, she says.

Williams recalls a time a potential truck client called her in the middle of a meeting with her supervisor.

“I’ve been in a meeting with my boss and my phone is ringing off the hook and he’s like, ‘do you need to get that?’” she says. In those cases, Williams says she tries to take the call after hours or send an prewritten reply so that she can respond later.

“You want to run your business and stay on top of it, but when you have a one- to two-hour conference call or meeting, you have to decide: are you going to screw over the person who is paying you?” she says.

After almost two years in operation, Williams caught the attention of a local reporter who wrote about her new venture. It wasn’t long before her employers found out.

The same day, her supervisor asked her into his office to be sure she wasn’t going to quit.

Now, she says, “[my co-workers] ask me ‘how is your trucking company going?’ in the middle of cubicle land.”

“I flip houses and sell bounce castles, and my employers have no idea.”

Austin, Texas-based Dennis* says he hasn’t quite mastered the ability to focus on his full-time job and ignore his side business until after work hours. The 31-year-old works as a logistics manager for a large technology company. About a year and a half ago, he and his wife took their savings and launched a real estate investing business.

Dennis and his wife buy, renovate, and resell homes. They learned the basics of house-flipping from a well-known investor in Austin. “Our first year we did 13 transactions,” says Dennis.

Excluding education and other startup costs, Dennis and his wife got into the market with $1,000 in direct mail advertising and about $15,000 spent fixing up their first property. They now earn between $20,000 and $50,000 on each home they flip. The couple says they brought in about $65,000 in 2016.

In 2016, Dennis also launched a pair of e-commerce stores, which sell bounce houses for children and clothing and accessories.

“I work on all three [projects] while I’m at my day job so it is hard, especially trying to keep everything a secret and not having co-workers see what I am truly working on,” Dennis says. “I know that I am not fulfilling my primary duties at my full-time job to the fullest extent of my abilities.”

To make things easier, the couple has hired a call center to take and record all calls from the real estate business, which are then addressed after Dennis comes home from work. He says he will do the same for the e-commerce stores as business grows.

His ultimate goal is to build up enough passive income to replace his corporate income. For now, he keeps his job for financial security, while he grows his e-commerce portfolio and his and his wife’s real estate business.

“The salary and stock incentives that we have right now are kind of hard to walk away from unless I had sufficient passive income that would replace what I have now,” he reasons. He has given himself two years to grow his businesses into self-sustaining operations. At that point, his stock in the company will be fully vested, and he can consider leaving for good.

“I’ve been blessed. I have a good education, and I’ve always had a good job, but ultimately my main goal in life is to be independent and not have to do the corporate grind,” he says.

The post Confessions of a Side Hustler: How Full-Time Workers Keep Their Side Gigs a Secret appeared first on MagnifyMoney.

What Airbnb’s Hotel Tax Means for Guests & Hosts

Here's what to expect, how to avoid problems and how to keep the tax man happy.

The summer travel season is nearly upon us and if you’re a fan of staying with Airbnb hosts instead of hotels, you probably already know some locations charge some or all of the same taxes that hotels charge.

If you don’t already know that, surprise! The number of locations charging taxes for that spare room or whole house is only growing. Beginning May 1, Texas will join 30 other states where taxes are charged at either the local or state level or a combination of both.

Clearly, there’s a financial benefit for the communities levying these taxes. The Dallas Morning News estimates Airbnb would’ve remitted an estimated $8 million in Texas state taxes in 2016. However, it’s not the states and cities that initiated the effort. For that, you can thank the hotel industry, which has been lobbying hard for the taxes.

Why?

“Airbnb has brought hotel pricing down in many places during holidays, conventions and other big events when room rates should be at their highest and the industry generates a significant portion of its profits,” Vijay Dandapani, chief executive of the Hotel Association of New York City, told The New York Times in a recent article.

While Airbnb has said on its website it is happy to collect its fair share of taxes, there’s clearly some negative feelings about how it’s all gone down.

“The hotel hypocrisy is almost unbelievable,” Nick Papas, a spokesman for Airbnb, said in an email. “The hotel cartel wanted Airbnb to collect taxes and when we implemented a way to do so, they changed their position and lobbied cities to leave millions of dollars on the table.”

The continuing fight has led to a variety of tax schemes across states and municipalities, creating a confusing landscape for hosts and guests.

What It Means for Airbnb Hosts & Guests

For Hosts

If you’re considering becoming a host, be aware that the taxes present some confusion for some people renting out their spaces.

The reasons are numerous and varied. To start, no one really likes paying taxes. But additional layers of frustration can come with the Airbnb taxes. They can be levied and remitted in different ways depending on the tax laws in particular states or municipalities and Airbnb’s agreement with those entities. Then there are the host’s options of how to charge guests once taxes are implemented. Many hosts get confused when it comes to collecting the tax, where to note it on the listing and the bookkeeping process.

Jeff Cook, who owns several properties in Pennsylvania, said sales and use taxes were already in place when he started hosting with Airbnb several years ago. “The biggest issue here is that many people weren’t paying it simply because they didn’t think they had to,” he said. “I paid it from the get-go, because I wanted my business to be legitimate.”

But it wasn’t easy. Cook’s price for guests bakes in the 6% state and 3% local tax, so he doesn’t note it on his site and doesn’t have to worry about asking for local taxes when guests arrive. His revenue is submitted to Airbnb, but then it gets a little complicated.

Airbnb removes their 9% fee and sends him the remainder, he said. “And then I have to figure out what the tax amounts are independently. If something could be done better … perhaps if they distinguished between the tax and the regular revenue that would be helpful. The lump sum is sent to me, I figure out what the correct tax amounts are, and then I submit a return and payment to the appropriate authorities.”

Laura Jesse, a host in San Antonio, said she’s ambivalent about the tax that begins in Texas next week. “I live near projects that were funded in part with the [state’s occupancy] tax,” she said. “I get a fair amount of convention business as I live near downtown, etc.”

As for raising her rates to offset the taxes, Jesse said she has no plans to do so at this time.

Of course, taxes aren’t the only costs Airbnb hosts face. Check out a few others. But the spare money can still help you do things like pay off debt (you can see how your debt affects your credit with a credit report snapshot on Credit.com). It’s also good to keep in mind that many of the expenses involved with renting out your space are tax-deductible. See which ones you can write off here.

For Guests

Taxes mean your stays are probably costing more – anywhere from 3% to 15% depending on locale and host. On top of that, the process can become confusing depending on how the host applies those taxes to your bill.

Airbnb addresses how that can be done on its Airbnb Citizen site, but there are no clear-cut guidelines available, so many hosts are left scratching their heads and conferring with other hosts on how they alert guests and even charge them.

Airbnb offers guidance thusly:

“If you determine that you need to collect tax, you can usually either add it within a Special Offer or ask your guests to pay it in person. In each case, it’s important that guests are informed of the exact tax amount prior to booking. If you choose to collect tax outside of your listing’s rates, please note that it should be collected only upon arrival and that we are unable to assist with collection.”

So, if your host suddenly asks you to hand over a little cash to cover the taxes, it’s probably not a scam. As Airbnb explains on its site, “this needs to be clearly stated on the listing prior to booking.” So, if the host can’t show you where that’s stated, you should be wary.

Hopefully, however, most hosts will bake in the taxes like Cook does, and you will see only a price increase at your favorite Airbnb homes. (Travel often? These travel rewards credit cards could be right for you.)

“I think separating taxes as a line item [on guest bills] would help clarify the issue for people,” Cook said. “I’m a big supporter of Airbnb. I think they are an awesome company, and as they evolve and grow, distinguishing tax through line items would be beneficial to everyone.”

Image: PeopleImages

The post What Airbnb’s Hotel Tax Means for Guests & Hosts appeared first on Credit.com.

10 States With the Best Business Credit Scores

It’s no secret that personal credit scores are a barometer of financial strength. The better your score, the easier (and cheaper) it is to get things like a mortgage or car loan. But, did you know small business owners have a separate business credit score for their company?

The two scores share commonalities, both impact a business owner’s ability to get financing, but they also have surprising differences.

While personal and business credit scores are both influenced by region, new data from Nav.com reveals other factors, like local policy climate, can impact business credit scores. Nav used data from 15,500 of its small business customers to calculate the average business credit score for each state to find the top 10.

Business Credit Score 2017 Rankings

So, what is a solid business score? Unlike personal credit scores, the business credit score range is much smaller. Most models range from 0 to 100. The higher the score, the better. Each of the 10 states with the best business credit scores have scores of 45 or above — putting them in the low- to medium-risk range. Business owners with scores in this range will find it easier to qualify for loans and trade credit with more favorable terms.

If you own a business in a northern state, your business credit score is more likely to outshine the rest of the country. Eight of the 10 states with highest average business credit scores are located where snow can regularly fly, with one “roll tide” exception.

10. Michigan: 45.0

Michigan snuck into the top 10 with an average business credit score that makes it easier for business owners to get an affordable loan. The state ranks higher for business credit scores than it does for personal credit, where its 675 is almost equal to the national average. Its business score nearly mirrors its 12th place ranking for policy climate according to the Small Business and Entrepreneurship Council (SBE Council).

9. Maine: 45.7

Maine business owners enjoy both stronger than average business and personal credit scores. This is a winning formula for success, as both scores can be used by business lenders to get business financing. Its strong business credit score flies in the face of the SBE Council’s low, number 44 policy climate ranking, which is a surprising, recurring theme in our list .

8. Alaska: 45.7

The “great white north” trend continues, as Alaskan business owners maintain higher business credit scores than most of the country. Unlike others on the list, Alaska’s average personal credit score of 668 falls below the national average and it’s settled in the middle of the pack when it comes to policy climate.

7. Wisconsin: 46.1

It should be easier for Wisconsin entrepreneurs to find the cheese they need to run and grow their business thanks to a solid business credit score. Their residents also rank fifth in personal credit scores, thanks in part to having the lowest credit card delinquency rate according to TransUnion data. The state ranks below average for policy climate, but it doesn’t seem to be holding Wisconsin back.

6. Utah: 46.3

Talk about a state with business tailwinds. Utah’s business credit score is among the nation’s best, its personal credit score of 679 is above average, and its policy climate is comes in at No. 11. It’s no wonder why the beehive state consistently ranks tops in business growth.

5. Oregon: 47.3

Like others on the list, Oregon shows that strong personal credit health can translate to good business credit scores. The state’s top five ranking means its business owners with strong scores can negotiate better payment terms for goods and services from suppliers, like net-60 or net-90 day terms. Like Maine, Oregon ranks very low on the SBE Council’s policy index rating, but its business owners’ credit scores are thriving.

4. Alabama: 47.6

Alabama is the only southern state that cracked the top 10 list—although it has the 5th-worst personal credit score average in the country. Some of this can be explained by Alabama’s strong No. 9 rank for policy measures and costs that impact small business. Strong business credit scores will help most Alabaman companies, but for younger companies (under 2 years in business), business lenders will heavily weigh personal credit scores.

3. Nevada: 48.8

Nevada hit the business credit score jackpot, beating out all but two other states in the nation. It also ranks number one in the SBE Council’s policy index, which should mean that business owners there are less burdened by regulations and taxes. Despite those solid rankings, and reflecting the boom or bust persona of Las Vegas, it also has the third-worst personal credit in the country. For  business owners with strong enough business credit scores and financials, they may be able to overcome personal credit flaws when applying for lending.

2. Iowa: 49.2

Iowa may be first in the nation to pick the Presidential candidates, but it narrowly missed out on pole position for business credit. Business owners here also have the added benefit of strong personal credit, where it ranks in the top 10. Having strong credit scores in both categories can help the state’s entrepreneurs qualify for the money they need to expand — which should come in handy as Iowa’s economy is predicted to expand through 2017.

1. Vermont: 51.7

Like maple syrup on pancakes, Vermont’s business credit is sweet. Its average score takes the top spot in the country and it is the only state that cracks the 50 mark, signifying a lower credit risk. Again, we see that the SBE Council’s policy index ranking doesn’t necessarily correlate with business credit health, as Vermont ranks near the bottom on their list. The state’s stellar business credit score, combined with personal credit that ranks No. 2 in the country, makes for business success. Entrepreneurs in the Green Mountain State with strong business credit are most likely to secure affordable funding, with the best terms.

Considering U.S. small businesses produce 46% of GDP, their success can ripple across the entire economy. That success typically depends on access to affordable capital. One way you can set yourself up to qualify for the best funding is by maintaining a strong business credit profile. Low scores are the number one reason business financing applications get denied. You can get your free business credit scores, along with your personal credit scores, by visiting Nav.com.

A list of business credit score rankings for every state, maps, trends and methodology for Nav’s 2017 State Business Credit Snapshot are available here. Personal credit data was sourced from Experian’s 2016 State of Credit report.

Editor’s note: You can get a snapshot of your personal credit by taking a look at your credit report summary on Credit.com. This provides you with your two free credit scores, updated every 14 days, plus a review of the five key areas that affect your scores.

Image: PIKSEL

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7 Essential Apps for Small Business Owners

Here are seven apps that can help entrepreneurs focus on running their business and less on the tools they’re using to do it

Chances are, if you ask a business owner or other entrepreneur what apps they rely on to help them stay on top of things you’ll get a response like this: “Apps? I don’t know. I’m too busy running a business to worry about apps” or “Hahahahaha! I’m not on top of things!”

Those are real responses from some highly entrepreneurial business owners to whom I posed the question. And, when you stop and think about it, their responses make sense. After all, most entrepreneurs aren’t going to mention that cup of coffee, their email or their phone as essentials to their daily work because they’re just so much a part of their day-to-day. Like oxygen or sunlight, you only really think about them when they’re suddenly unavailable.

The same holds true for genuinely helpful apps. They become fully ingrained into the user’s daily work and even personal lives. We looked across the spectrum at apps that help users communicate, organize their days, be more productive, keep their data and communications secure, and even help them learn.

The following are seven apps we think can truly help entrepreneurs focus more attention on running their business and less on the tools they’re using to do it.

1. KanbanFlow by CodeKick AB

Platforms: Android and iOS

Price: Free Basic version, $5/user/month Premium version

If you need to manage projects, KanbanFlow can help you do it. This web-based app lets users see the entire workflow, from assigning tasks to uploading documents and scheduling due dates. The Premium version allows for file attachments, revision history and even the ability to analyze your work history.

2. ColorNote by Social & Mobile

Platforms: Android, iOS and Windows

Price: Free

This app essentially functions like digital Post-It notes. It allows you to create text notes, checklists, to-do lists, etc., and you can check off items as you complete them. The notes can also be color-coded to keep them organized, and you can even name the color groups. The notes can be added to your calendar and even be shared.

3. Evernote

Platforms: Android and iOS

Price: Free with in-app purchase options

It’s like a notebook for your inner creative, allowing you to capture ideas based on pictures, drawings or writing, create project to-do lists around those ideas and also share them across devices and with others.

4. Duolingo

Platforms: Android, iOS and Windows

Price: Free

If you’re an entrepreneur who wants to take your business global (or at least into another country), learning a new language while trying to do it might seem daunting. But Duolingo aims to help you learn a new language in your down time, like on your commute, while exercising, or even while relaxing.

5. CamScanner by INTSIG

Platforms: Android and iOS

Price: Free with in-app purchase options

This app turns your device into a scanner and also allows you to access, edit and manage documents anytime, even on the go.

6. CM Security by Cheetah Mobile

Platforms: Android

Price: Free with in-app purchase options

This security app offers all kinds of nifty features, like AppLock, which stops intruders who try to unlock protected apps on your device and notifies you with the intruder’s photo.

7. Polaris Office

Platforms: Android and iOS

Price: Free Basic version, $3.99/month Smart version, $5.99/month Pro version

This app lets you create, edit and sync Microsoft Office files from your phone or device, and you won’t lose any of the formatting you worked diligently to create.

Small Business Financing 101

Of course, apps aren’t the only things that can help an entrepreneur successfully build and run their business. Having good credit can help tremendously, as well, since many lenders, including business credit card issuers, are going to pull a version of your traditional credit reports to see if they’re willing to extend financing for your business. (You can see how your credit is doing by viewing two of your credit scores, updated every 14 days, for free on Credit.com.)   

If your credit is just fine, there are plenty of solid business credit cards (see our picks here) available that can help you finance some of your business expenses. The Small Business Administration also offers several loan programs designed to help budding and operational entrepreneurs and there’s also conventional financing at your disposal that you can look into. 

Just remember to manage whatever financing you use responsibly, since many business lenders require a personal guarantee and will report a default to the major consumer credit reporting agencies. You can find tips for making sure a business loan doesn’t wreck your credit here.

Image: Geber86

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4 Great Financing Resources for Veteran Entrepreneurs

Starting a business certainly isn't easy, but veteran entrepreneurs have some resources they can look into tapping.

No one said starting a business would be easy. But if you served our country, chances are you may qualify for certain financial assistance that can lessen the burden.

According to the 2007 Survey of Business Owners data released in 2011, there were 2.45 million businesses with majority ownership by veterans. What’s more, they represented 9% of all U.S. firms. With veterans playing such a key role in our economy, it’s worth it to see what’s out there before bootstrapping (i.e., using your own money).

Of course, if you’re going to apply for financing, be sure check your credit. Many business loans, most notably business credit cards, require a personal guarantee, meaning a lender is going to look at your credit file before giving their approval. You can see where two of your credit scores stand by viewing your free credit report summary, updated every 14 days, on Credit.com. If you find your credit needs improving, try paying down high credit card balances, disputing credit reports errors and addressing delinquent accounts. (We’ve got a few more ways you can quickly boost your credit scores here.)

With that in mind, here are four financing resources veteran entrepreneurs can look into tapping.

1. Small Business Association

Perhaps the most established of the resources listed here, the Small Business Administration (SBA) offers several loan options for veteran-owned businesses.

“Depending on a borrower’s needs, these loans can be used for a variety of purposes,” and are guaranteed by the SBA, said Craig Heilman, deputy associate administrator, Office of Veterans Business Development, U.S. Small Business Administration. “Any small business can apply, and we encourage them to work with their district office or partners to get lender-ready.”

The SBA Veteran’s Entrepreneurship Act of 2015 “reduces the upfront borrower fee to zero dollars for eligible veterans and military spouses for SBA Express loans up to $350,000,” the administration’s site says. Leveraging Information and Networks to Access Capital (LINC) helps small business owners, including veterans, get in touch with advisers who specialize in microlending, smaller loans and real estate financing. To connect with an SBA-approved lender, you can visit the SBA’s website.

2. The Veterans Opportunity Fund

Launched in Maryland in October 2013 by TEDCO Capital Partners, which manages a family of venture capital funds, the Veterans Opportunity Fund (VOF) was designed to focus on service members specifically.

“It is our belief that veteran-owned business represent an attractive investment opportunity that, when proper due diligence is applied, can produce superior return on invested capital,” the site says. Not only are these veterans highly skilled — and highly disciplined — they’re committed to giving back to their country. Up to $3 million is up for grabs, so make sure your startup meets their criteria: Ideally you’re based on the East Coast, affiliated with technology and in the early revenue or testing stage.

3. The Veterans Business Resource Center

Though the St. Louis Veterans Business Center (VBRC) does not offer grants or financial aid per se, it does provide training on several aspects of entrepreneurship, from marketing to sales to business planning, and much more.

“There are adjusted fees for some classes, and clients who need on-site consulting are charged at a sliding scale,” the site says, but for the most part, there is little to no charge. “The VBRC emphasizes a distinctive veteran-to-veteran approach through extensive utilization of the many established and successful veterans in the St. Louis metropolitan area,” the site says. The organization focuses its efforts in Iowa, Kansas, Missouri and Nebraska. “This veteran-to-veteran approach permeates all aspects of VBRC’s services from training and consulting to advocacy, networking and mentoring,” the site says. 

4. Veteran Entrepreneur Portal

Though the Veterans Administration doesn’t offer financing programs for entrepreneurs, said Randy Noller, who works for the Department of Veterans Affairs, “our office of Small & Disadvantaged Business Utilization (OSDBU) does provide some help to veterans to get contracts with government agencies, etc.”

The Veteran Entrepreneur Portal (VEP), on the VA’s main site, makes it easier to locate Federal services online. Complete a questionnaire to see which government resources are best, or gather information directly on loans like the Fixed Assets CDC/504, which offer small businesses long-term, fixed-rate financing for major assets like land and buildings. You can also learn about CAPLines loans, which are ideal for meeting short-term working-capital needs.

Remember, whatever financing route you pursue, it’s important to read loan contracts carefully so you know exactly what you’re signing up for. You’ll also want to vet prospective lenders or offers thoroughly since, unfortunately, there are a lot of scammers out there that target vets. We’ve got more tips for veterans looking for a loan here.

Image: michaeljung

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9 Essential Tax Tips for Entrepreneurs

For many entrepreneurs, there is no topic more fraught than taxes. In fact, a 2015 survey of small business owners found that 40% say dealing with bookkeeping and taxes is the worst part of owning a small business and that they spend 80+ hours a year dealing with taxes and working with their accountants. Taxes can be time-consuming, confusing, and a drain on your finances if you don’t prepare well. So whether you choose to do your taxes on your own or hire a professional, this guide can provide some sound advice and hopefully make tax time a little less taxing.

 

#1 Select the Right Entity for Your Business

 

One of the first decisions you’ll make when setting up your business is whether to function as a sole proprietor, partnership, LLC, or corporation. In her recent blog post, Wendy Connick, an IRS enrolled agent and owner of Connick Financial Solutions, says “the type of business entity you choose will have a huge effect both on how you pay taxes and how much tax you pay. It’s wise to consider the pros and cons of each business structure before making a final decision.”

Sole proprietorship

A sole proprietorship is the simplest way to form a business, as it is not a legal entity. The business owner just needs to register the business name with the state and secure the proper local business licenses. The downside is that the sole proprietor is personally liable for the business’s debts.

Partnership

A partnership is similar to a sole proprietorship, but two or more people share ownership. Both partners contribute their money, labor, or skill to the business and share in its profits and losses.

Limited liability company (LLC)

An LLC provides more protection from liability than a sole proprietor or partnership but with the efficiency and flexibility of a partnership.

Corporation

A corporation is more complicated and usually recommended for larger companies with multiple employees. It is a legal entity owned by shareholders, so the corporation itself, not its shareholders, is legally liable for business debts.

Unlike other business entities, corporations pay income tax on their profits, so they are subject to “double taxation,” first on company profits and again on shareholder dividends.

To avoid double taxation, corporations can file an election with the IRS to be treated as an S Corporation. S Corporation income and losses “pass through” to the shareholder’s personal income tax return instead of being taxed at the corporate level.

Some small businesses and freelancers may save on self-employment taxes by registering as an S Corporation and paying themselves a salary. Sole proprietors, partners, and LLC members pay self-employment tax on their entire business net income, but S Corp shareholders only pay self-employment taxes on their wages. They can receive additional income from the corporation as a distribution, which is taxed at a lower rate.

Connick says “many small business owners start out as sole proprietors and adopt a different structure once the business gets big enough to make it worthwhile (which would typically be when the business is making over $50,000 a year).”

 

#2 Get an Employer Identification Number

 

All businesses, even sole proprietors should get an Employer Identification Number (EIN). Technically, sole proprietors can use their Social Security number (SSN) as the business’s identification number, but that means providing an SSN to any clients or vendors who need to issue a 1099, a move that can leave you more exposed to identity theft.

Applying for an EIN from the IRS is free and can usually be done in a matter of minutes using the IRS’s online form.

#3 Make Sure Your Business Isn’t Just a Hobby

 

You know you’re in business to make money, but would the IRS agree? If your company is operating at a loss, the IRS could reclassify your business as a hobby, resulting in some serious tax consequences.

A business is allowed to offset taxable income with business expenses, but hobby expenses cannot be netted against hobby income. Instead, they are deducted as miscellaneous itemized deductions on Schedule A and limited to the amount of hobby income reported on Schedule C. This means a hobby business can never result in a net loss, and you may be prevented from deducting hobby expenses entirely if you don’t itemize deductions.

If you’ve been making money in your business for a while and just have one bad year, you don’t have to worry about the IRS reclassifying your business as a hobby. If you’ve been losing money for a while and especially if your business involves some element of personal pleasure or recreation (such as horse racing, filmmaking, or restoring old cars), you’ll want to make sure you’re treating your business like a business in case the IRS challenges your losses.

The IRS takes several factors into consideration:

  • Does the amount of time you put into the business suggest an intention of making a profit? Side projects are more likely to face scrutiny because you’re spending the majority of your time at another full-time job.
  • Do you depend on the income you receive from the business?
  • Were any losses beyond your control or occur in the startup phase? Losses due to poor management and overspending are less likely to hold up under examination.
  • Have you changed operation methods to improve profitability? Many business experience setbacks. If you learn from mistakes and try to correct your course, the IRS is more likely to agree that you have the intention of running a profitable business.
  • Do you have the knowledge and experience necessary to be successful in your field?

If you are concerned about an IRS challenge of your losses, there are a few steps you can take to treat your activity as a business:

  • Keep thorough business books and records.
  • Maintain separate business checking and credit accounts.
  • Obtain the proper business licenses, insurance, and certifications.
  • Develop and maintain a written business plan.
  • Document the hours spent working on your business, especially if it is a side project.

 

#4 Track Income and Expenses Carefully

 

Maintaining separate business checking and credit card accounts is not only a good way to demonstrate that your business is not a hobby, but it’s also an excellent way to simplify tracking business income and expenses.

Benjamin Sullivan, an IRS enrolled agent and a certified financial planner with Palisades Hudson Financial Group LLC in its Austin, Texas, office, says “small business owners can get a tax benefit from almost anything that is an ordinary and necessary business expense. Travel, meals, advertising, and insurance costs are just some of the popular deductions.”

Use small business bookkeeping software

Small business accounting software like FreshBooks, Xero, or QuickBooks Online can help you easily and quickly track your business revenues and expenses. They can usually be set up to import transactions from your business checking account automatically and let you snap pictures of receipts with your phone.

Whether you choose to use a software program or just a spreadsheet, establish a system for organizing records and receipts right from the beginning. “Little expenses can add up quite a bit over the course of a year,” Connick says, “but you can’t deduct them if you don’t know what they are.”

Special rules for travel, meals, and entertainment

It is especially crucial to maintain good records for business travel, meals, and entertainment expenses. The IRS allows taxpayers to deduct 100% of their business-related travel and 50% of the cost of business meals and entertainment expenses, whether you are taking a client out for a meal or traveling out of town. Because these categories are prone to abuse, the IRS requires documentation to substantiate that these expenses have a legitimate business purpose.

For meals and entertainment, in addition to a receipt that shows the amount, time, and place, taxpayers should also make a note of the individuals being entertained and the business purpose. Meeting this requirement can be as simple as jotting down a note on your receipt or in your calendar regarding who you dined with and the business matters discussed.

For travel expenses, hotel receipts must include a breakdown of the charges for lodging, meals, telephone, and other incidentals. Your hotel should be able to provide an itemized receipt at checkout.

Save cash instead of taxes

One trap that small business owners often fall into is spending money to save on taxes. At year end, many entrepreneurs look at business profits and think they need to spend their cash to avoid a big tax bill. Don’t spend a dollar to save forty cents in tax. If you truly need a new computer, extra supplies, or a new vehicle, buy it. Don’t spend money just to avoid a tax bill. Remember, taxes are a cost of doing business. If you’re paying taxes, you’re making money.

#5 Set Aside Money for Taxes

 

When you set up a separate business checking account, it’s also a good idea to set up a separate savings account to help you organize funds and set aside money for taxes.

Our tax system is a “pay as you go” system. When you receive a paycheck from an employer, money is regularly withheld on your behalf. When you are self-employed, making estimated tax payments is your responsibility. If you don’t pay in enough during the year to cover your income tax and self-employment tax, you may have to pay an underpayment penalty.

Estimated tax payments are due on the 15th day of April, June, September, and the following January. You have a few options for calculating what you owe each quarter:

Use Form 1040ES

This form includes a worksheet to help you estimate how much you owe for the current year. (Corporations use Form 1120-W to calculate estimated taxes.)

Look at last year’s return

If you’ve been in business for a while and there are no significant changes this year, you can aim to pay 100% of last year’s tax as a safe-harbor estimate (110% if your adjusted gross income for the prior year was more than $150,000).

Make a quarterly estimate

If your income fluctuates, you may prefer to make a quarterly calculation. Calculating estimated payments is complex. It depends on your tax bracket, deductions, credits, etc. In this case, it’s best to work with a tax professional who can consider all of the factors and recent changes in the tax law.

Sullivan says, “Tax planning isn’t a one-time exercise that should be done at the end of the year or at tax time. Instead, tax planning is an ongoing process of structuring your affairs in a tax-efficient manner.”

#6 Don’t Forget to Track Your Mileage

 

When you drive your personal vehicle for business, you have two options for deducting business automobile expenses: the standard mileage rate or actual expenses.

The IRS releases the standard mileage rate annually. The rate is $0.54 per mile for 2016. It goes down to $0.535 cents per mile for 2017. You simply multiply the standard mileage rate by the number of miles you drove for business during the year.

To use the actual expense method, total up all of the costs of operating your vehicle for the year, including insurance, repairs, oil, and gas, and multiply them by the percentage of business use. For example, if you drove 10,000 miles during the year and 5,000 of those miles were for business, your percentage of business use would be 50%. If it cost $7,000 to own and operate your vehicle, your deduction using the actual expense method would be $3,500 ($7,000 x 50%).

You can use whichever method gives you the largest deduction. However, if you want to use the standard mileage rate, you must choose it in the first year the car is used for business. In subsequent years, you can choose either method.

Whichever method you choose, you must track your business miles. You can do that with a paper log kept in your glove compartment or with an app such as MileIQ or TrackMyDrive. “Note that ‘business purpose’ is a pretty broad category,” Connick says. “If you drive to the supermarket and pick up some pens for your home office while buying groceries, the trip counts as business mileage.”

 

#7 Consider the Home Office Deduction

 

Some business owners avoid claiming the home office deduction, believing it to be an audit trigger. That may have been true in the past, but today’s technology has made home offices much more common. Connick suggests entrepreneurs shouldn’t fear the home office deduction if they meet the requirements. “It’s no longer audit bait,” she says, “especially if you use the safe harbor method to calculate your deduction.”

To take advantage of the home office deduction, you must use the area exclusively and regularly, either as your principal place of business or as a setting to meet with clients. The home office deduction is based on the percentage of your home used for the business. You can choose either the traditional method or the simplified method for deducting expenses.

Under the traditional method, you’ll calculate the percentage of your home that is used for business by dividing the square footage of your office by the square footage of your entire home. For example, if your home is 1,500 square feet and your office occupies 150 square feet, the business percentage is 10%. Then, you can deduct 10% of all of the expenses of owning and maintaining your home, including mortgage interest, real estate taxes, utilities, association dues, insurance, repairs, etc.

Under the simplified method, you’ll take a deduction of $5 per square foot, with a maximum of 300 square feet. So if your home office measures 150 square feet, the home office deduction would be $750 (150 x $5).

 

#8 Save for Retirement

 

For most self-employed people, the simplest option for retirement saving is an individual retirement account (IRA). Anyone can contribute to a traditional IRA, but with an annual contribution limit of just $5,500 ($6,500 if you are age 50 or older), you may want a retirement savings option that allows you to save more.

Connick says her number one tip for entrepreneurs is to open a SEP-IRA. “These retirement accounts are cheap to open and maintain,” she says. They also “have a high contribution limit, and contributions are fully tax deductible.” SEP-IRAs allow entrepreneurs to contribute up to 25% of their net earnings from self-employment, up to a maximum of $53,000 for 2016.

The deadline to contribute to a SEP-IRA is the due date of your return, including extensions. So 2016 contributions can be made until April 18, 2017, or October 15, 2017, if an extension is filed.

 

#9 Get Help from a Professional

 

Connick recommends that entrepreneurs hire a professional to do their taxes. “If you pick someone who knows their stuff,” she says, “you will likely save more than enough off your tax bill to pay for their fees. For that matter, tax preparation fees are deductible!”

When choosing a tax professional, look for someone with experience working with self-employed taxpayers. The IRS maintains an online directory of return preparers who have additional credentials, such as EAs, attorneys, and CPAs. Search the directory to find a professional near you with the credentials or qualifications you prefer.

If there is one thing all entrepreneurs can agree on, it’s that everybody dreads tax season. Having a basic understanding of tax law, maintaining organized records throughout the year, and working with a professional can help you make the most of this least wonderful time of the year.

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