Retirement Plan for the Self-Employeed | Accounting Milwaukee Retirement

If all the retirement plans available to small business owners, the SIMPLE IRA plan (Savings Incentive Match PLan for Employees) is the easiest to set up and the least expensive to manage.
These plans are intended to encourage small business employers to offer retirement coverage to their employees. SIMPLE IRA plans work well for small business owners who don't want to spend a lot of time and pay high administration fees associated with more complex retirement plans.
SIMPLE IRA plans really shine for self-employed business owners. Here's why...
Self-employed business owners are able to contribute both as employee and employer, with both contributions made from self-employment earnings.
SIMPLE IRA plans calculate contributions in two steps:

1. Employee out-of-salary contribution
The limit on this "elective deferral" is $12,000 in 2014, after which it can rise further with the cost of living.
Catch-up. Owner-employees age 50 or older can make an additional $2,500 deductible "catch-up" contribution (for a total of $14,500) as an employee in 2014.
2. Employer "matching" contribution
The employer match equals a maximum of 3 percent of employee's earnings.

Example: A 52-year-old owner-employee with self-employment earnings of $40,000 could contribute and deduct $12,000 as employee, and an additional $2,500 employee catch-up contribution, plus $1,200 (3 percent of $40,000) employer match, for a total of $15,700.

SIMPLE IRA plans are an excellent choice for home-based businesses and ideal for full-time employees or homemakers who make a modest income from a sideline business.
If living expenses are covered by your day job (or your spouse's job), you would be free to put all of your sideline earnings, up to the ceiling, into SIMPLE IRA plan retirement investments.

A Truly Simple Plan

A SIMPLE IRA plan is easier to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules - in investment options, spousal rights, creditors' rights - don't have a lot new to learn.
Requirements for reporting to the IRS and other agencies are negligible. Your plan's custodian, typically an investment institution, has the reporting duties. And the process for figuring the deductible contribution is a bit easier than with other plans.

What's Not So Good About SIMPLE IRA Plans

Once self-employment earnings become significant however, other retirement plans may be more advantageous than a SIMPLE IRA retirement plan.

Example: If you are under 50 with $50,000 of self-employment earnings in 2014, you could contribute $12,000 as employee to your SIMPLE IRA plan plus an additional 3 percent of $50,000 as an employer contribution, for a total of $13,500. In contrast, a 401(k) plan would allow a $30,000 contribution.
With $100,000 of earnings, it would be a total of $15,000 with a SIMPLE IRA plan and $42,500 with a 401(k).

Because investments are through an IRA, you're not in direct control. You must work through a financial or other institution acting as trustee or custodian, and you will generally have fewer investment options than if you were your own trustee, as you would be in a 401(k).
It won't work to set up the SIMPLE IRA plan after a year ends and still get a deduction that year, as is allowed with Simplified Employee Pension Plans, or SEPs. Generally, to make a SIMPLE IRA plan effective for a year, it must be set up by October 1 of that year. A later date is allowed where the business is started after October 1; here the SIMPLE IRA plan must be set up as soon thereafter as administratively feasible.
If the SIMPLE IRA plan is set up for a sideline business and you're already vested in a 401(k) in another business or as an employee the total amount you can put into the SIMPLE IRA plan and the 401(k) combined (in 2014) can't be more than $17,500 or $23,000 if catch-up contributions are made to the 401(k) by someone age 50 or over.
So someone under age 50 who puts $9,000 in her 401(k) can't put more than $8,500 in her SIMPLE IRA plan for 2014. The same limit applies if you have a SIMPLE IRA plan while also contributing as an employee to a 403(b) annuity (typically for government employees and teachers in public and private schools).

How to Get Started with a SIMPLE IRA Plan

You can set up a SIMPLE IRA plan account on your own, but most people turn to financial institutions. SIMPLE IRA Plans are offered by the same financial institutions that offer any other IRAs and 401k plans.
You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement you will choose an "effective date" - the beginning date for payments out of salary or business earnings. That date can't be later than October 1 of the year you adopt the plan, except for a business formed after October 1.
Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE IRA plan. You need such an agreement even if you pay yourself business profits rather than salary.
Printed guidance on operating the SIMPLE IRA plan may also be provided. You will also be establishing a SIMPLE IRA plan account for yourself as participant.

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We at Small Business Accounting Solutions LLC, work closely with small business owners in Milwaukee, Waukesha, Racine and Washington counties. As a "one-stop-shop", we provide our clients with complete Accounting services, Business and Individual Income Tax preparation, Payroll services, Quickbooks training and more! Small Business Accounting Solutions, LLC 1025 S Moorland Road Suite 500 Brookfield, WI 53005 Phone: (262)547-6000 http://www.sbasgroup.com

Cash flow is the pulse of your business | Commercial Accounting Services Milwaukee

Cash flow is the lifeblood of any small business. Some business experts even say that a healthy cash flow is more important than your business's ability to deliver its goods and services! While that might seem counterintuitive, consider this: if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. If you fail to have enough cash to pay your suppliers, creditors, or employees, then you're out of business!

What is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers, but keep in mind that inflow only occurs when you make a cash sale or collect on receivables. It is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.
Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

Note: An accountant is the best person to help you learn how your cash flow statement works. Please contact us and we can prepare your cash flow statement and explain where the numbers come from.

Cash Flow versus Profit

While they might seem similar, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.
Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place.
In theory, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.

Analyzing your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success.
The first step toward taking control of your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.
Some of the more important components to examine are:

• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
• Credit terms. Credit terms are the time limits you set for your customers' promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy - neither too strict nor too generous - is crucial for a healthy cash flow.
• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable at some point in the near future - "near" meaning 30 to 90 days. Without payables and trade credit, you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.
For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.
Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.
Need assistance? We can help you analyze and manage your cash flow more effectively and make sure your business has adequate funds to cover day-to-day expenses.
We at Small Business Accounting Solutions LLC, work closely with small business owners in Milwaukee, Waukesha, Racine and Washington counties. As a "one-stop-shop", we provide our clients with complete Accounting services, Business and Individual Income Tax preparation, Payroll services, Quickbooks training and more! Small Business Accounting Solutions, LLC 1025 S Moorland Road Suite 500 Brookfield, WI 53005 Phone: (262)547-6000 http://www.sbasgroup.com

Late Tax Filing Info | Milwaukee Tax and Accounting Services

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. If, for whatever reason, you missed the deadline you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. Here are eight important facts every taxpayer should know about penalties for filing or paying late:
1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.
2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you're not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Contact us if you need help figuring out how to pay what you owe.
3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.
6. If both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you'll pay for both is 5 percent.
7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Give us a call if you have any questions about what constitutes reasonable cause.
Special penalty relief may apply to taxpayers under certain conditions such as taxpayers affected by natural disasters. If you think this applies to you, don't hesitate to contact us for additional information.
We at Small Business Accounting Solutions LLC, work closely with small business owners in Milwaukee, Waukesha, Racine and Washington counties. As a "one-stop-shop", we provide our clients with complete Accounting services, Business and Individual Income Tax preparation, Payroll services, Quickbooks training and more! Small Business Accounting Solutions, LLC 1025 S Moorland Road Suite 500 Brookfield, WI 53005 Phone: (262)547-6000 http://www.sbasgroup.com