Note: That insight appears here, Henry Ford and the Problem of Customer-ization.

But I want to share one other big insight for small businesses: The technology entrepreneurship intersection.

Fortunately, this insight takes only a few words to discuss.

The Insight from Mr. Srinivasan

Here’s the insight: Again and again, when you look at centuries of capitalism, as Srinivasan does in Americana, you see that technology drives much economic growth and opportunity. Not all of it, of course. But much of it.

Furthermore, technology and innovation crash over the economy in wave after wave after wave.

Finally, these waves of technology create both obvious, and also not so obvious, opportunities for entrepreneurs…

Technology Entrepreneurship Intersection #1: Technology Products

The first and the terribly obvious opportunity we see? The opportunity to develop new technologies and then build businesses selling those technology-loaded products.

Good examples go back centuries: Eli Whitney and the cotton gin… Thomas Edison and the light bulb…

One sees more recent examples, too. Boeing and the airplane… Microsoft and desktop software…

We often easily remember only the grand slam winners in this category. And many entrepreneurs fail trying to take this route.

Clearly, however, selling technology represents one way to achieve entrepreneurial success…

Nothing particularly insightful here, right? I agree.

Furthermore, this inside-the-box intersection, though it produces billionaires, maybe doesn’t provide great small business opportunities. Too risky, too obvious.

Technology Entrepreneurship Intersection #2: Passive, Tactical Application

Which maybe explains why passive application of technology appears to be the most common intersection of technology and entrepreneurship.

And you and I do this all the time. We’re using computers and networks to manage information and automate processes. Many of us have hardware and machinery automating any part of the workflow we can.

And then, of course, we pay lots of money to technology product vendors like Microsoft and Apple.

We have to do this.

But the incremental value you or I get from upgrading to the newest version of Microsoft Excel or a faster computer? Pretty insignificant.

Technology Entrepreneurship Intersection #3: Strategic Technology Application

A third technology entrepreneurship intersection exists, too: Using technology to transform an existing business model.

You can look at more recent big technology companies from this perspective: Google and Facebook using search engines and social networking websites for advertising businesses. Amazon and Alibaba using websites and logistics systems for retailing.

And look further back, and you see the same pattern.

Earlier entrepreneurs like Vanderbilt using Robert Fulton’s steamboat technology to transform the shipping industry and Carnegie using Henry Bessemer’s furnace to transform the steel industry.

But often hidden from the general public, you see lots and lots of smaller ventures that use technology to change an existing business model. Or you do if you keep your eyes open.

And those changes can give your small business a radical strategic advantage.

You and I can’t passively use the technology, of course. We need to re-engineer our business models. Or big pieces in the process.

I share some technology-based changes we’ve implemented in our small business, which have produced strategic advantages, via the links below.

But I bet if you start thinking about and looking out for this intersection in your and other small businesses, you’ll see more examples.

I leave you with this thought: Big opportunities exist for you and me to re-engineer our small businesses for technology.  And we need to not simply stop at the point we’re passively buying hardware and software and other expensive gear.

A Quick Final Comment

A final quick comment…

Not all of the technology-led change from the last four centuries counts as good. Yes, absolutely, much of the change contributed to growing the economy and rising living standards for Americans.

But Srinivasan paints a heartbreaking picture of other intersections—for example, between Eli Whitney’s cotton gin, large scale cotton farming and the enslavement of human beings.

We want to careful. We want to work for good.

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The post The Technology Entrepreneurship Intersection appeared first on Evergreen Small Business.

Specifically, do you, if you’re an Amazon FBA business, need to collect and then report and remit sales tax?

Here’s the quick answer to this question: Probably yes.

But because that’s an unsatisfying answer, let me explain the logic behind the answer.

Amazon FBA Sales Tax Nexus

First of all, let me explain what “nexus” means and why it’s important.

“Nexus” is some sort of connection that a state has to a business that gives the state the right to subject the business to its tax laws. Confusingly, the level of connection that’s sufficient to create nexus is different for different types of taxes (e.g. income taxes versus sales taxes). What’s more, different states often have different interpretations of the law on how tenuous a connection can be while still creating nexus.

Because the topic of this post is sales tax issues, we’re just going to focus on explaining what creates sales tax nexus.

Generally speaking, a business establishes sales tax nexus in a state if it has a “sufficient physical presence” in a state [see Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess v. Department of Revenue, 386 U.S. 753 (1967)].

Remember, each state has its own definition of what creates nexus for sales tax purposes, but here are some examples of what can commonly cause sales tax nexus:

• Hiring employees in a particular state
• Having an office, warehouse, or shop location in a particular state (either by owning it or leasing it)
• Owning other property in a state (such as inventory stored in an Amazon warehouse)
• Temporarily doing business in a state at something like a trade show

The Impact of Quill

The Quill case in particular provides a lot of protection from sales tax nexus to remote sellers, so it’s worth discussing briefly.

Quill was a Delaware corporation that had no employees or tangible property in North Dakota. North Dakota had tried to amend its definition of sales tax nexus to include companies like Quill, by saying any retailer “who engages in regular or systematic solicitation of a consumer market in th[e] state” must collect and remit state sales tax.

Quill said that North Dakota didn’t have the power to make it collect sales tax since Quill had no physical presence in the state, while North Dakota argued that the rise of mail order business had become so significant that prior court precedents requiring physical presence no longer applied.

The good news? At least for Quill? The U.S. Supreme Court sided with Quill. It determined that while the due process clause doesn’t require a business’ physical presence in a state before a state may impose tax or administrative burdens, the commerce clause does. Therefore, before a state may impose a sales tax burden on businesses with no physical presence in their state, Congress must explicitly allow them to do so.

But the bad news for people wondering and worrying about the Amazon FBA sales tax issue is, clearly, Amazon FBA businesses do have sales tax nexus in states where the Amazon FBA system stores and ships your inventory. Having inventory physically present in a state is about as clear-cut as physical presence gets.

An Important Clarification

A tangential observation: It’s important to note that having employees or physical property in a state are not the only ways a business can establish physical presence for purposes of sales tax nexus.

In Scripto, Inc. v. Carson (362 U.S. 207, 1960) the U.S. Supreme court found that when a business has an independent contractor acting as a sales representative in a state, that creates sales tax nexus just as much as having an employee in the state does.

A Few Words About “Amazon Laws”

Some states have tried to respond to Quill in the age of online retail, a famous example being New York’s “Amazon law.” In 1996 Amazon began to establish commission arrangements where people with web sites could encourage users to “click through” to buy things on Amazon. New York figured that if Amazon established a commission arrangement with a person or organization in New York, that established sales tax nexus for Amazon in the state (because the independent contractor salesperson would have physical presence in New York).

Amazon challenged the rule based on Quill, but New York’s highest court upheld the law and the U.S. Supreme Court declined to hear the case further.

Another type of law designed to deal with companies like Amazon originated in Colorado, and is gaining some recent traction. Colorado’s law compels online retailers who sell to customers in Colorado, but don’t collect sales tax (presumably because they don’t have to, because they have no sales tax nexus), to do two things. First, the business must notify consumers of their requirement to pay use tax on the items purchased. Second, the business must notify the Colorado department of revenue of the names, addresses, and transaction amounts for Colorado sales that no sales tax was charged on.

Essentially, Colorado had figured out a clever way to exploit a loophole in Quill. Since this was a “reporting requirement,” not a “taxing requirement,” Quill’s definition of nexus didn’t apply. (Note that the law only applies to online sellers who make more than $100,000 of sales in the state.)

Predictably, online sellers challenged the law in court, but Colorado won in lower courts and the Supreme Court declined to look at the case, effectively allowing the law to stand. As a result, other states are now following Colorado’s example. In fact, our firm’s home state of Washington passed its own version of such a law just last month.

The big takeaway? The state sales tax landscape is changing rapidly for online retailers. Business owners and tax advisers alike need to be diligent at staying up to date on this stuff.

Sales Tax Liability

It’s important to clarify that if you have sales tax nexus in a state, that doesn’t automatically mean that you have to charge sales tax on all of your sales to customers in that state. It just means that the state you have nexus in has the right to make you do that.

This means that once you have nexus in a state, you need start some serious research on whether or not the goods you sell in that state are subject to sales tax. (Small Amazon FBA sellers often outsource this type of work to tax professionals who are used to wading through complex tax laws.)

You’ll also need to look up whether or not the state uses “origin-based” or “destination-based” sales tax. An example of what destination-based sales tax looks like is in Washington State. If a business has sales tax nexus in Washington State, and the goods it sells are subject to sales tax, then every time that business sells and delivers goods to a customer in Washington, the business needs to look up what sales tax jurisdiction the delivery address is in and apply that rate. There are several hundred sales tax jurisdictions in Washington State alone, and many other states have similar rules.

The Only Conclusion

If you’ve got a successful Amazon FBA business, you’ve got an Amazon FBA sales tax issue to deal with. Sorry. But that’s the reality.

As a practical matter, because you’re in the Fulfillment by Amazon (FBA) system, you have nexus in every state in which your firm stores inventory in an Amazon warehouse or shipping facility.

By the way, to leave you with two pieces of good news here: First, complying with the requirement to calculate, charge and report Amazon FBA sales tax isn’t necessarily bone-crushing. You can get quite a bit of help from Amazon. And you can also often use third-party sales tax systems to automate the process of looking up sales tax jurisdictions and rates by address and then filing the subsequent state sales tax returns. Many of these programs are built with Amazon in mind, and can import FBA warehouse lists and turn gibberish warehouse names into clear explanations of where you probably have nexus.

And second, many states are soon going to be participating in a brief amnesty program for Amazon FBA sellers, among others. The program is scheduled to last from August 17th, 2017 to October 17th, 2017. If reading this article gave you a sick feeling in your stomach, participating in the program is probably something you want to talk to a tax advisor about. More information on the voluntary disclosure program is available here.

The post Amazon FBA Sales Tax: The Reality Sandwich appeared first on Evergreen Small Business.

But to answer this question, we have to explain just what sort of business QuickBooks Self-Employed is even for.

In a nutshell, Intuit’s QuickBooks Self-Employed product is designed for sole proprietorships, and it really only works for sole proprietors (or LLCs taxed as sole proprietorships).

To understand why all this is the case, we’ll need to first explain what a sole proprietorship is, if you’re not already familiar.

What is a Sole Proprietorship?

A sole proprietorship is one of the oldest types of legal entities (the other being a general partnership). It’s a business owned by one person, and there is no legal distinction between the person and the business.

This concept can seem a bit odd in this day and age. We’re so used to the idea of corporations that, to many people, it seems only natural  that a business is a separate thing from its owner. But this concept is actually pretty new, and you should know that you need to file special paperwork with your state’s secretary of state if you want your business to legally be something separate from yourself.

When your business isn’t legally considered a separate thing from yourself, it means that you personally are liable for the business’ debts (because you and the business are one in the same thing). If things get bad and your business owes a lot of people a lot of money, a court could order that your personal assets be used to pay back your/your business’ debt.

Once you understand what a sole proprietorship is, you realize that the way the federal government taxes sole proprietorships makes a lot of sense.

If you own a sole proprietorship, you report the income from the business on your personal income tax return. It’s a schedule (Schedule C to be precise) that goes inside your 1040. (This is in contrast to partnerships and corporations, which are legal entities separate from their owners and thus, predictably, have to file their own tax returns.)

Note: Sometimes you can own a business that is a separate legal entity from yourself, but is treated on your tax return as if it’s a sole proprietorship. This is called a “disregarded entity.” Usually these entities are single-member LLCs, but sometimes foreign entities (like an offshore corporation) can be disregarded entities, too.

Why QuickBooks Self-Employed?

Once you have a general understanding of what a sole proprietorship is and how it’s taxed, it makes a lot more sense which types of businesses QuickBooks Self-Employed is for, and why it’s not scalable.

QuickBooks Self-Employed assumes that your business is not its own separate legal entity, and thus doesn’t have its own bank account. Instead, the program assumes that business expenses are paid out of a personal bank account. The user interface built around this assumption, allowing you to mark different expenses in your bank account as either “business” or “personal.”

As a result, QuickBooks Self-Employed can’t produce a full set of financial statements for your business. It can produce a simple profit and loss statement, but it can’t produce a business balance sheet. The business’ balance sheet is just your personal balance sheet (since again, you are the business), so the best way for sole proprietors to get a “balance sheet” using Intuit’s cloud-based apps is to use Mint.com to build a personal balance sheet (including all of your bank accounts, your house, your car, etc.)

What’s more, QuickBooks Self-Employed isn’t scalable. As of this writing, if you add a partner to your business, you can’t simply upgrade your subscription to “real” QuickBooks Online and continue using the same accounting system for your business. You have to just start a new subscription to QuickBooks Online as of the date the new partner joins the team. In a way this makes sense; once you get a business partner, a new legal entity is formed (the partnership) and you will definitely at this point want to get a separate business bank account, if you haven’t already done so. However, for many businesses this lack of scalability is a problem, particularly if the business starts off as an LLC that’s a disregarded entity for tax purposes.

Summarizing the Situation

In summary, if you’re someone who works as an independent contractor or freelancer, and you have no plans for your business to go beyond that, QuickBooks Self-Employed plus Mint.com is probably all you’ll ever need to manage your personal finances, and it’s darn cheap compared to QuickBooks Online. But if your business could ever grow beyond that, you should know that QuickBooks Self-Employed isn’t scalable, and whenever you outgrow it you’ll need to transition to a new accounting system.

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The post Should You Use QuickBooks Self-Employed? appeared first on Evergreen Small Business.

Over the years, and as we’ve worked with hundreds of small businesses using QuickBooks, our thoughts have evolved. But we can, in general, describe the situations where the desktop version of QuickBooks beats the online version… and then also the situations where the online version beats the desktop version.

Where Desktop Beats Online

The desktop version of QuickBooks beats the online version, hands-down, in a couple of areas. So let me go over those advantages, first…

Cost of the software

The subscription pricing model of QuickBooks Online means the cost of the software over the lifetime of use will be hundreds of dollars more than the cost of QuickBooks desktop.

This effect is amplified if a small business owner has multiple companies. QuickBooks Online requires the business owner to purchase a separate subscription for each company, while QuickBooks Desktop lets you manage multiple companies with one software license.

Higher-complexity accounting features

Another advantage of the desktop version of QuickBooks? There are a whole smörgåsbord of features in desktop versions of QuickBooks that are missing from QuickBooks Online.

As just one example, QuickBooks desktop has job costing features that as of this writing are missing in QuickBooks Online. But numerous other features exist, and you’ll want to be sure to do your research before buying into QuickBooks Online in case it’s missing a feature that your business really needs.

Where Online Beats Desktop

QuickBooks Online, however, provides some really powerful attractions for many small businesses.

Time savings for the bookkeeper

QuickBooks Online, for example, comes with time-savings features that you often have to pay extra for in QuickBooks desktop, such as a Bank Feed update. In addition, QuickBooks Online integrates with many more third-party apps that automate almost every bookkeeping task you could hope for.

Ease of collaborating with your accountant

Sharing a QuickBooks desktop file with your accountant comes with hassles that don’t exist in QuickBooks Online. Because those hassles don’t exist, when you use QuickBooks Online, your accountant can perform general accounting work in a small fraction of the time that it takes to perform the same work for someone using a desktop product.

Often small businesses that need outside accounting help discover that while the cost of the QuickBooks desktop software is cheaper, the cost of the accounting system as a whole (software plus professional fees) is cheaper when using QuickBooks Online.

For example, our firm charges $200 less per tax return to business clients who use QuickBooks Online, simply because it adds an extra couple of hours of work to the tax return to work with a desktop QuickBooks file.

For a small business using QuickBooks simple start, this creates a net financial gain as a result of using QuickBooks Online. (Annual simple start price as of this writing is $15/mo × 12 mo = $180.)

Ease of collaborating with other team members

QuickBooks desktop theoretically has multi-user mode, but we can tell you from practice that this doesn’t work very well.

The issue? QuickBooks desktop just isn’t a product that was ever designed for servers (and Intuit admits as much). Further, many small businesses simply lack the networking skills to manage the hardware side of things.

Therefore, if you want a version of QuickBooks that handles multi-user well, QuickBooks Online is the way to go.

Ease of oversight for distant branches and subsidiaries

QuickBooks Online is a popular choice for small businesses with far-flung branches and foreign subsidiaries, and it’s easy to see why.

If you live in Seattle, WA and you need to obtain financial data about your Irish subsidiary, having the bookkeeper send you financial statements from the desktop computer in Dublin “whenever they get around to it” isn’t going to cut it.

You need the accountability that comes from being able to log into your books and instantly see financial reports, recently cleared transactions, bank balances, etc. QuickBooks Online provides this accountability and oversight.

Final Comments

Accounting software seems expensive. We get that. Further, we are nervous about Intuit’s subscription pricing model, seeing it partly as a way for the company to neatly bump prices.

However, what’s more expensive than subscription fees for accounting software is trying to run a small business successfully without good accounting data.

The post QuickBooks Online vs. QuickBooks Desktop appeared first on Evergreen Small Business.

I read Gordon’s book, “The Rise and Fall of American Growth” months ago when it came out. And, for the life of me, I can’t get his argument out of my head.

Partly, the stickiness of his book’s ideas stems from their richness. His book is really good and very interesting. And then also, if you’re thinking about what’s wrong with our economy, Gordon does have a common sensed explanation. (Gordon says the rate of improvements delivered by recent innovations aren’t as good as those in the past.)

But I think Gordon is wrong… or at least can be wrong for your specific situation if you’re a small business owner or manager. Let me therefore go over Gordon’s chilling argument, explain why I am certain he’s wrong at least as the argument pertains to small business, and then toss out a couple of takeaways and a final comment.

Robert Gordon’s Hypothesis

Gordon, an economics professor at Northwestern University, argues that our economy has slowed down because all the big radical innovation is over.

At first blush, this sounds crazy… But he points to the radical improvements in things like medicine, infrastructure, transportation and a bunch of other fields as well between 1870 and 1940 and says we’re just not getting the same rate of improvement anymore.

The rate angle shows up most clearly when you talk about transportation. A guy who used to walk at 5 mph in 1870 could drive a car that does 60 mph in 1940. A traveler who used to take a train in 1870 that maybe sped along at 40 mph could ride on a plane that went 500 mph in 1950.

Those rates of improvement were ten- or hundredfold. Massive, right?

But the rate of improvement since the middle of the last century has slowed. Oh sure, cars last longer and provide for more safety today. But they don’t go 500 miles an hour which is the speed we’d need to have the same rate of improvement.

Planes? They’re probably safer too… but they aren’t zooming along at five or ten thousand miles per hour, which again is the sort of speed improvement we’d need to match the rates of improvement of the past.

You see the thing he’s getting at. Stuff is getting better. But not as fast. And that slowing explains why the economy’s growth has slowed.

One other part of Gordon’s hypothesis gets really relevant, I think, if you’re an entrepreneur or small business owner. Gordon argues that information and communication technology (maybe particularly  the Internet) delivered what it had to give by 2004.  And he backs up this assertion by looking at macroeconomic data that shows no big productivity gains over last ten or so years…

My Bonehead Rebuttal of a MIT-trained Economist

One starts thinking about this stuff and you conclude, gosh, maybe the good times really are over. Maybe we’re going to have to resign ourselves to fighting over a very slowly growing pie. Maybe we’re entering some new age of, well, not scarcity, but diminishing abundance.

But you know what?  I don’t think so. In fact, in my own small business, I think recent technology does indeed create shockingly fast rates of improvement.

Therefore,  I want to share three examples. And then I want to try reconciling Gordon’s data and his ideas with the anecdotal observations I’m trying to use to rebut the professor.

As a reminder, though,  let me say again that what Gordon wants to see are radically big rates of innovation like those that occur when at first you’re traveling along by foot and then next thing you know you’re zooming along in an automobile. Or one year you’re bouncing along in a railroad car powered by a steam locomotive and then the next thing you know, you’re flying above the clouds in a jet airplane.

Keep that in mind. We’re not looking for incremental improvement. We’re looking for massively exponential improvement.

Example #1: Moving Products and Services at the Speed of Light

And that nicely transitions me to the parts of our business that used to move at the speed of a truck or airplane but now move at nearly the speed of light.  More specifically, only a few years ago, we delivered most tax returns prepared by our CPA firm via the U.S. Mail. As a result, sending out a client’s tax return took maybe 2-3 days. Not a bad technology. But slow.

Today (and this has really only occurred in the last few years and after Professor Gordon’s 2004 cutoff date) we electronically deliver tax returns using the Internet via a highly secure portal. Note that this means we’re moving tax returns at roughly seventy percent of the speed of light down fiber optic cables for the longest distances in the trip.

That’s a giant bump in the rate of improvement right? Massively exponential…

Note: The speed of transmitting data, which is often what can distill our service down to, appears at several steps  in our workflow. And in all cases, we basically get a, say, ten-thousand-fold improvement in speed for that step.

Example #2: Miniaturization of  Some Parts of System

Let me share another example. We used to use about a quarter of our office space to store paper copies of tax returns and client documents we needed to archive. But no longer.

We now store all of our clients’ information on an encrypted hard disk that’s, well, about the size of my smart phone… This means we’ve moved from having about 500 sq. ft. of document storage room for a small professional services office to a few square inches of document storage space…

And then the new storage system is way more secure. And the new storage system is routinely backed up automatically.

And so the new approach isn’t only maybe seventy thousand times more efficient in terms of space… the new approach is also considerably safer.

Again, a very high rate of improvement, right?

Example #3: Fast-track Hiring of Team Members

Let me give you one other example and then wrap this up by sharing a couple of take-aways…

We used to use a pretty standard approach to recruiting and hiring employees. We’d write a job advertisement. Then submit it to the local newspaper. For a few hundred dollars, a few days later they’d run the advertisement for a week or so. For a modest fee, they’d collect responses and then periodically batch them up and route them over to our offices.

From soup to nuts, start to finish, the process easily took a couple of weeks and if you placed a couple of ads, you were looking at maybe $1,000.

Now? Well, now we write up a little ad for craigslist.org, pay $50 or so to post it, and then wait a few hours for the three or four dozen responses we need to have a list of half a dozen well-qualified candidates to talk to.

From maybe $1000 to around $50, from two weeks to four hours, that’s a giant rate of improvement. If you’re measuring the dollar cost, we get a twenty-fold improvement. If you measure the time cost, we’re getting about a hundred-fold improvement. That’s not good, that’s great, right?

Two Takeaways

I could go on, I think, and provide maybe a dozen other examples of bits of the business where recently we’ve used technology to get radical improvements for some important step in the process. But they’ll all sort of look like the examples I’ve already shared. So let me move onto my next subject… what all this maybe means. I have two ideas for you to gnaw on.

Here’s my first point: All of the examples I mention above, as well as those I’m thinking about but which for space reasons I haven’t mentioned, have only slowly became truly practical at least for our firm in the last few years. Yes, yes, the enabling technology was invented years ago. But for various reasons, we couldn’t get them to work well immediately–at least in a small business setting.

I think this practical lag in application is part of the reason that the data Professor Gordon uses to do his analysis doesn’t show the benefits of these technological improvements. Yes, the basic enabling technology existed in, say, 2004… but people needed time to figure out how to really apply the technology… and then even after that, people needed to get an opportunity and have the time to implement the application.

Another take-away: The technology-based innovations mentioned above and the others I’m thinking about all require businesses to tweak and fine-tune and sometimes do major re-engineering of  their business models. And that fiddle-faddling takes more time.

To use the example of electronic delivery of products, the small business owner or entrepreneur needs to reconfigure the operation with tools that work not just in theory but work in practice and then train people and then scale up in order to get the whole thing working and working efficiently.

Final Comment

Gordon and others call the rosy sentiments of the preceding paragraphs “techno-optimism.” And that’s probably a pretty fair label at a macroeconomic level given the big picture data he and his peers look at. But can I leave you with a final thought? Maybe we small business people need to work a little harder to get the productivity improvements that are now available to us.

Absolutely, you and I have dozens of really powerful ways to profitably reconfigure our small businesses so they generate more revenue, produce higher quality products and services for customers, consume fewer resources, and drop more profit to the bottom-line.

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The post What’s Wrong with the Economy appeared first on Evergreen Small Business.

To start, though, let’s clarify: we’re not talking about the individual exchange. Washington State’s individual exchange really works quite well, despite what many may think given the initial disaster that was Healthcare.gov.

We’re talking about the small business side of the Exchange, where things have not been going so well. And several reasons justify nervousness…

Reason #1: Difficulty Getting Insurers to Bite

A first reason? Too few insurers are participating.

In 2017, for example, most counties in Washington State won’t even be served by the small business side of the Exchange.

This is because UnitedHealthcare is exiting the Exchange, and up until now UnitedHealthcare was the only small business insurer the Exchange had for most counties (Clark and Cowlitz being the exception).

I’ve asked representatives of the Exchange what they attribute this to, and have really only gotten non-answers back like “well we’re having conversations with carriers…”

Poking around at Exchange meeting materials that are available publicly on its site, it sounds like what might be going on is that there are some major changes to the IT infrastructure of the site before a lot of insurers are willing to give this thing a try (maybe because the site needs to be better to lure more customers?)

Yes, I acknowledge that “sounds like what might be happening” is about as speculative as it gets, but until the Exchange leaders become a bit more forthcoming about what’s going on, we don’t really have much to go on.

However, if we’ve deduced correctly that this is the problem, then this is a bigger problem for Washington State small businesses for reasons #2, 3, and 4, which I’ll describe next.

Reason #2: Lack of Capital Reserves for Big Projects

Another reason to be nervous? A lack of adequate capital reserves—and a lack of a plan to acquire and maintain adequate capital reserves.

In a recent state auditor’s report, for example, one of the key recommendations for putting the Exchange on a path to sustainability was for the Exchange to establish a long-term financial plan, a working reserve, and a capital reserve.

We should note, for the sake of fairness, that the Exchange is working on this. The Exchange indicated in its response to the state auditor’s report that it has commenced work on establishing a long-term financial plan that includes developing a reserve, and is due to complete this work by December 31^st, 2016. However, any efforts the Exchange makes to implement effective long-term financial planning are hampered by policies of the Legislature described in #3 and 4, below.

Reason #3: Legislature’s Spending Rules Stop the Exchange from Swiftly Investing in Needed IT Improvements

A third issue: the lack of support from the Legislature for continuous basic improvement in the information technology required to run a decent exchange. Which sounds crazy.

It is in the Legislature’s best interest to enable the Exchange to make certain improvements to its website as soon as it can, because many of these improvements accelerate the Exchange’s path toward self-sustainability. This is for two main reasons:

• Because it improves the customer experience, making it easier for the Exchange to find more customers and thus reducing the Exchange’s per member per month costs, and
• Because improvements such as fewer software bugs, better user interfaces, and additional features that allow customers to perform tasks themselves on the website reduce the need for spending on customer support.

However, in HB 1947 (2013) the Legislature tied the Exchange’s hands when it comes to implementing cost-saving IT improvements. Specifically, the bill states that the Exchange can only spend as much money as the Legislature appropriates to it. In addition, the bill includes a “sweeping provision” which states that the Legislature may transfer money from the Exchange’s account to the general account.

To illustrate: for the current biennium (2015-2017), the state budget does not, in fact, simply state that the Legislature will contribute $110 million to the Exchange. Instead, what it states is that the Exchange may not spend more than $110 million. Therefore, even if the Exchange were to successfully apply for a grant elsewhere, that grant would have zero impact on the Exchange’s ability to accelerate investments in IT improvements in the current biennium. Instead, the money would likely be swept into the state’s general fund.

This policy was ostensibly intended as a measure to hold the Exchange more “fiscally responsible.” However, in practice it creates a perverse incentive for the Exchange board to not seek out grant funding as a way to accelerate cost-effective IT improvements. This is because seeking out grants would require considerable effort while providing the exchange with no financial benefit. (I’ve even had representatives of the Exchange tell me that this is their thought process behind why they don’t bother pursuing grants.)

Reason #4: Legislature’s Sweeping Provision Makes Exchange Finances Unstable

And then there’s the “sweeping” issue, which maybe makes sense for a typical government program but not for an organization with the cash flow uncertainty of the Exchange.

What’s the issue here? Simple. The provision in HB 1947 authorizing “excess funds” to be removed from the Exchange’s account and placed in the Legislature’s general fund appears to complicate the goal of developing stable reserves. In fact, the auditor’s report specifically asked the Legislature to consider as part of the appropriation process “the Exchange’s long-term financial plan, its planned list of IT investments, its need for both working and capital reserves, and how sweeping those reserves adversely affects planning.” [emphasis added]

It’s worth emphasizing here that a big part of why this is so important for the Exchange is that both the amount and the timing of the Exchange’s cash inflows are uncertain. The amount is uncertain because much of the Exchange’s revenue comes from a 2% health insurance premium tax and assessments that the Exchange can charge insurers who sell plans through the website (almost a bit like a commission, to cover the Exchange’s operating costs).

Timing is uncertain because a large additional portion of the Exchange’s revenue comes from reimbursements from Medicaid for costs the Exchange incurs on Medicaid’s behalf. And, as awkward as this is to point out, according to the state auditor’s report Medicaid has a history of not paying its bills to the Exchange on time.

This is the whole reason the Exchange needs a working reserve (and why, as small business owners, we need to be thinking about liquidity, too). If projected revenues come in a little lower than expected, the Exchange needs some cushion so it knows it can keep the lights on and the servers running. Ditto for if Medicaid pays a bill a few months late. So how nerve-wrecking is it that the Exchange could do the responsible thing by building up an adequate working reserve, only to see the Legislature sweep it all away because some state legislators think that reserve is “excess funds”?

Final Thoughts

These things are all fixable. And to the extent that the Exchange’s leaders have the power to, they seem to be putting a lot of work into trying to fix it.

However, the Legislature still has some things it needs to do if it really wants to get this program working. It needs to change the Exchange’s enacting legislation to remove counterproductive policies such as the appropriations rules and the sweeping provision, and replace these with constructive policies.

Examples of constructive policies the Legislature could enact include:

• Requiring the Exchange to have a long-term financial plan that includes provisions for a working reserve and a capital reserve.
• Requiring the Exchange to prepare a report for the Legislature explaining why they’ve had such trouble inducing insurers to participate in the small business side of the Exchange, and what their plan is to fix it.
• Requiring the Exchange to conduct ongoing user interface studies, including studies of how efficient and intuitive it is for the typical user to work with both the individual and SHOP portions of the website.
• Requiring the Exchange to conduct ongoing surveys among Washington residents and small business owners on features they would like to see included as part of both the individual and SHOP portions of the website.

We’re keeping up to date on developments with the Washington SHOP Exchange, and will post updates to this blog as they become available. Stay tuned.

The post Why You Should Be Nervous About Washington’s SHOP Exchange appeared first on Evergreen Small Business.

I’ve got a new idea to really boost the profitability of my small CPA firm.

You might want to try something similar, so I’ll share the gambit. (Keep this secret, though, okay?)

The idea goes like this: Rather than charge clients a fixed fee for a particular tax return (say, $500 or whatever), we’re going to rent tax returns to people for some nominal amount such as, oh, I don’t know, $30 a month.

Clients who don’t think through the math will think they’re getting a great deal. But here are the two catches—and the reasons we could stand to make a bundle: One, people will probably forget about the monthly subscription fee until they see it appear on their credit card statement again. (So this will automatically give us a few months of sure, steady cash flows.)

Then there’s a bigger reason this subscription-based service may turn into a cash cow if we don’t alienate too many clients. In reality, people will probably need to rent their tax return (and pay us a modest monthly subscription fee) for at least a couple of years, maybe as long as three or four years, from the date the return gets filed due to the statute of limitations.

Note: If this extension of time seems curious, remember that people will want previous tax returns for things such as mortgage applications and for subsequent years’ tax returns and for any IRS or state revenue agency audits that occur.

I’m Only Joking

The plan shared in the preceding paragraphs isn’t really our plan. You know that, right? We would never do something like this. Never.

But the reality is this: the subscription-fee approach used by too many big companies seems to me to work, on a practical level, very similarly to what is described earlier.

A technology tool you or I used to be able to buy for $200 now requires a $20-a-month subscription. Something you or I used to license for a one-time fee of $500 now costs $30 a month.

And because we’ll pay these amounts for years, our total costs can dramatically increase. Especially if we need to continue to pay the monthly subscription fee for a long stretch of very casual, very occasional use, a long stretch that may be due to something such as legal document retention requirements or tax law statute-of-limitations issues.

I’m not sure exactly what we do about this. The subscription-style pricing approach seems to be the new way large companies—and particularly large technology companies—operate. But I have a couple of ideas that maybe we small businesses can use to better assess and more smartly manage this type of cost.

Carefully Assess Total Cost of Ownership Before You Subscribe

Here’s a first tip: As hinted at earlier, you and I need to carefully add up the total costs of ownership.

Take the example of the accounting software that many new vendors now sell via a subscription model. Remember that federal and state statutes of limitations will mean that you need to continue to pay the monthly fee for years after you close down your business.

Don’t, therefore, think about a $30 monthly subscription fee. And for heaven’s sake, don’t compare that to the old $500 one-time price.

Rather, multiply the $30-a-month fee by the 60 months or whatever you’ll be required to pay the fee. And compare that result, $1,800, to the old price and to your budget.

You need to be particularly careful about subscription fees for products that connect to accounting, legal, or tax products because of the way the statute of limitations works.

For example, consider the time you’ll be required to use accounting software if in year 1, you briefly run a small business that you close down at year end due to lack of profits.

In this case, you will probably file your tax return for this small business sometime in the spring of year 2 (on April 15, for example). And this may mean that you practically need to continue subscribing to the service through April 15 in the spring of year 5 because that’s when the statute of limitations on the tax returns you file using the accounting system will finally end.

Note: Some states may require longer subscription periods due to longer statute-of-limitation periods. In Washington State, for example, the state can go back to the previous four years.

Do Good Accounting of Your Subscription Costs

I have another idea for you too, and this applies both to subscriptions you pay in your business and subscriptions you and your family pay personally.

Within your and my accounting systems, we absolutely want to segregate out subscription fees—all of them. This will let us easily review the amounts these fees total and more easily spot subscriptions we can or should cancel.

We definitely don’t want to bury subscription fees inside other expense categories where they get lost.

Here’s another related best practice with regard to subscription fees. Probably you should not agree to any subscription that you can’t easily account for.

Tip: Be careful, too, about subscription fees you pay inside of another bill. I don’t know how long, for example, I was paying my cell phone carrier a monthly fee for lightly used and mostly unneeded navigation services, which was crazy, but the $2 or $3 was buried in a large monthly bill with dozens of other charges.

Final Comment: Not All Subscriptions Are Uneconomical

This post needs to be tempered with an acknowledgement: some of the subscription fees you and I pay for business or personal reasons surely are reasonable.

What about the traditional subscription-style products and services, such as newspapers and magazines? Hey, that pricing seems totally appropriate. I am not sure I can live without my daily Wall Street Journal or weekly Economist.

Furthermore, many digital services from small and medium sized technology companies really are for ongoing services. In our CPA firm, for example, we happily pay a small fortune for a Cadillac tax library from BNA, a modest monthly charge for the robust e-junkie digital goods fulfillment service, and a reasonable quarterly charge for our secure ShareFile portal from Citrix. And we love this stuff. And we get great value.

Too many big technology companies, however, aren’t really using the subscription style of pricing to provide ongoing services but rather, it seems, as a clever way to increase prices.

And so I think we need to do good accounting for this stuff.

Are You a Business Owner Looking to Save Taxes by Bumping Deductions?

You might be able to save a bundle on your income and payroll taxes by getting strategic about maximizing your business tax deductions.

No, seriously. You might. Small-business owners regularly don’t do a good job of structuring their operations to protect legitimate deductions, to create new deductions, and to recycle (or double-deduct) the deductions that can be used more than once to save taxes.

If this sounds like your situation, you should consider buying and reading our $40 ebook Small Businesses Tax Deduction Secrets. This 70-page ebook, which of course comes with a money-back guarantee, provides detailed instructions about how business owners can annually save thousands or even tens of thousands of dollars in income and related taxes simply by more effectively using legitimate small-business tax deductions.

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Tip: If you are a client of our CPA firm, you don’t need to purchase this ebook—or any of our others. Just email us and ask for your complimentary copy. Also, if you’re in the process of becoming a client, don’t buy the ebook yet. Rather, wait until we’re working together. We’ll then provide you with your complimentary copies.

Instantly Downloadable & Money-Back Guarantee

The book is instantly downloadable. You get the ebook when you purchase it. (We also send you an email after your purchase with a link you can also use to download the ebook PDF.)

By the way, we provide a money-back guarantee. If you don’t find the information you need or want, no problem. Just email us and request your refund.

The post Diseconomy of Subscription-Style Services appeared first on Evergreen Small Business.

Nobody likes spending more time keeping the books than they have to. It’s boring and, too often, time consuming. However, thanks to the magic of computers, in this day and age, small businesses can automate a lot of the bookkeeping they do through QuickBooks. Here are some tips on how to take back your time instead of wasting it away on recordkeeping:

Tip #1: Use QuickBooks Online

There are some good reasons for staying with QuickBooks Desktop. It’s cheaper in the long run than paying a monthly subscription fee and it limits how much trust you need to put in Intuit to keep your data safe.

However, QuickBooks Online really shines when it comes to recordkeeping efficiency in a way that QuickBooks Desktop just can’t compete with. Need help from your accountant with a tricky journal entry? If you share your QuickBooks Online data with your accountant, solving this problem often takes less than an hour. Your accountant doesn’t even have to leave the office to help you out.

Compare this to the experience of getting help with QuickBooks Desktop, where one of two things has to happen:

1. Your accountant has to go to your workplace to make the journal entry, meaning you pay not only for the time to record the entry but travel time (and general hassle) as well.
2. Your accountant has to prepare a journal entry along with instructions for entering it, which you then have to figure out how to record yourself. This is inefficient even assuming you don’t make a mistake when you enter the transaction into QuickBooks.

In addition, QuickBooks Online appears to integrate with many more apps than QuickBooks Desktop does. As you’ll see later in Tips #4, #5, and #6, this can be immensely valuable to small-business owners looking to save even more time.

QuickBooks Online also has a mobile app that helps you save time. Through the app, you can take pictures of receipts on your phone while you’re out and about, then easily attach the receipt image to a transaction.

Finally, we should note that Intuit has done a much more thorough job creating high-quality tutorials for how to use QuickBooks Online than it’s done for any of its desktop QuickBooks products. All of their QuickBooks Online tutorials come with engaging videos, not just textual explanations of how to do a particular task. These tutorials are all free, and you can access them here.

Tip #2: Connect your bank account to QuickBooks

If you connect your bank account to QuickBooks, you can import transactions straight into your company file, thus eliminating a lot of data entry work. Intuit has a video here explaining how to do this for its QuickBooks Online users.

One caution we have when using this time-saving tip: don’t succumb to the temptation of forgoing important internal controls over your downloaded transactions. You still want to make sure you review all of the transactions on your bank statement to be sure they’re authorized. And if employees have access to company debit and credit cards, you’ll still want to enforce strong policies on retaining receipts and documenting the business purpose of transactions.

Tip #3: Set up recurring transactions in QuickBooks

Your business probably has a number of bills that are the same every month. One of the easiest bookkeeping tasks to automate is recording these sorts of recurring transactions in your books.

If you use QuickBooks Online, Intuit has a tutorial here that explains how to set up these recurring transactions. Note that your choice to use either “Expense,” “Check,” “Bill,” “Invoice,” or “Sales Receipt” will mostly depend on whether or not you want to track A/R and A/P for the expenses. If you’re not sure what the difference is between these types of transactions, then see our articles explaining A/R and A/P in QuickBooks.

Tip #4: Subscribe to an integrated payroll service

We’ve already explained here why we think outsourcing your payroll is an optimal solution for small-business owners. If you choose a payroll solution that integrates well with QuickBooks, then keeping accurate records of your payroll expenses in your books should be a snap. Often you’ll want to hire a good accountant to help you set things up correctly at first. But once your payroll system is going, doing the books for payroll should be very little work, and it’ll all be work you can do yourself.

You can set up payroll in QuickBooks Online using Intuit’s instructions here. Gusto is another option to look at for a truly integrated payroll solution.

Tip #5: Use an integrated POS system

Tablet POS systems are a pretty popular solution nowadays for small businesses such as retailers and restaurants.

These services are pretty affordable for a typical small business. The total hardware cost to set up one iPad POS register might end up being about $1,500 (often you want to purchase hardware through the POS service provider to make sure it works with the software). In addition, you’ll likely pay a subscription fee to the POS service provider. For example, ShopKeep is a popular iPad POS app that’s adopted simple pricing: $49 per register per month. Other similar services include QuickBooks POS for iPad, iConnect POS, Kounta, and Vend. The cost to subscribe to a cloud-based POS service is generally in addition to any credit card processing fees you’ll owe, depending on the processor you choose.

With a fully integrated POS system, almost all of the bookkeeping for recording revenue is done automatically. In an ideal setup, the only bookkeeping work you should have to do for revenue is (1) sync the transactions between QuickBooks and the POS solution, and (2) record a bank deposit in QuickBooks before you deposit extra cash at the bank from the previous day’s sales.

Tip #6: Use an integrated time and billing system

If you’re a professional or creative service firm, then a time and billing system is an essential component of your accounting system. Without it, you can’t do effective cost accounting for your clients’ various projects.

Good time and billing systems will offer integration with popular accounting programs such as QuickBooks. If your time and billing system integrates well with your accounting software, then all you should have to do to record revenue is regularly import the time and billing data into QuickBooks. Popular solutions that integrate with QuickBooks include BigTime and TSheets.

So what’s even left to do yourself?

The main thing you’ll still need to do is regularly check in on your accounting system to make sure everything is still running smoothly. For starters, you’ll need to periodically reconcile the bank account. You’ll want to review your bank statements to make sure all of the transactions are authorized. If your business has inventory, you’ll want to periodically do physical inventory counts and reconcile it to your books. And you should make a quick review of your financial statements every now and then to ensure that the information on the statements makes sense and seems right.

Of course, sometimes things won’t seem right, and then you’ll need to spend some time figuring out where your bookkeeping has gone wrong. We have articles here and here with help on how to do some of this. And if you use QuickBooks Online, remember that Intuit has a plethora of tutorials to help you do your day-to-day bookkeeping correctly to avoid these sorts of errors.

If you’ve got a real doozy of an error in your books, a good accountant would be a fantastic resource to consult on how to get things working right in your books. Be prepared to pay for the time it takes to fix an error, though; experienced CPAs can charge from $250 to $300 an hour for their time, and in our experience, it often takes several hours, if not days, to clean up a big bookkeeping mess.

Are You a Small-Business Owner Paying Too Much Tax?

For small-business owners, every penny counts, yet they often don’t maximize their legitimate tax deductions. They don’t structure their business operations to protect legitimate deductions. They frequently don’t do enough to create new deductions. And rarely do they understand how to recycle, or double-deduct, amounts that can be used more than once.

What a financial tragedy! Getting smarter about tax deductions can save business owners a bundle.

If you are thinking maybe you can do a better job with your tax deductions, consider our ebook Small Businesses Tax Deduction Secrets.

This 70-page ebook ($40) provides detailed instructions about how you can save thousands of dollars a year in income and related taxes simply by more effectively using legitimate small-business tax deductions. Want to know more? Click here.

Tip: If you are one of our clients, don’t purchase this ebook—or any of our other ebooks. Just email us and request your complimentary copy.

Immediately Downloadable & Money-Back Guarantee

The book is instantly downloadable. You get the ebook when you purchase it.

Rest assured with our money-back guarantee. If you don’t find the information you need or want, we will return your purchase price. Just email us and ask for a refund.

The post Tips to Save Time Using QuickBooks appeared first on Evergreen Small Business.

• What industry are you in? (For example, manufacturers have different inventory tracking needs than retailers.)
• How many people will need to use the program at once?
• Will the program’s files be on a network?
• How large is the business? (More transactions means larger data files, and larger data files tend to require higher-end programs.)
• How much accounting experience do you have (since you will likely be the bookkeeper)? How much outside bookkeeping help do you think you’ll need?

Some general comments

First of all, if you’re new to accounting, it’s a good idea to go with software that’s well established and popular. When you start out, you’ll likely need some help from an outside accountant to figure out how to record transactions properly. By picking a popular program, you’ll make it easier for yourself to find an accountant familiar enough with your software to help you.

In addition, if you’re new to accounting, you’ll want to pick a program that has a user interface designed for nonaccountants. Finally, it’s a good idea to pick a program that comes with high-quality tutorials on how to use the product.

For a lot of first-time bookkeepers, then, something like QuickBooks would probably be a good choice. (Caution: See our discussion on using cloud-based bookkeeping solutions later.)

One last general recommendation: invest in a high-quality scanner if you can afford it. If your scanner is fast and rarely jams, then maintaining organized, paperless records doesn’t have to be a frustrating experience. We love the Fujitsu ScanSnap scanners and would recommend the ix500 to just about any small business.

Once your business becomes as successful as you surely hope it will be, you will be incredibly grateful to have organized records instead of a trash bag of receipts for who-knows-what. That gratefulness for being organized will quadruple if you’re ever audited by the IRS.

Know what you need for your industry

Businesses of different industries need different types of software programs to run efficiently and profitably. You’ll want to think about the unique needs of your business before you pick a particular program.

Manufacturers

Manufacturers need an accounting system that can track direct materials, direct labor, and work in progress (WIP). Unfortunately, simpler, cheaper accounting programs often can’t do this very well. For example, as of this writing, QuickBooks on its own doesn’t have a good way to track direct labor or WIP.

If a manufacturer were to use QuickBooks, they’d want to consider an add-in such as Fishbowl (we haven’t tried Fishbowl, so we can’t vouch for it, but it’s popular and does get good reviews). We’ll also note that small manufacturers exempt from UNICAP can also try some “hacks” to basic QuickBooks to approximate labor costs, but this probably isn’t something you should try unless you really know what you’re doing when it comes to accounting.

Retailers

Retailers need a good point-of-sale (POS) system that works for their business.

Ideally you’ll want to pick a POS system that integrates with your accounting software. This will eliminate bookkeeping headache by eliminating redundancy in your process for recording revenue.

You’ll also want to make sure that your POS system is designed for what your business sells. For example, QuickBooks has a POS system, but as of this writing, it doesn’t work with electronic scales, so if your shop frequently sells bulk items by weight, you might want to look for a different product that’s a better fit.

Tablet-based POS systems are pretty popular nowadays. Tablets are easy to use, the touchscreen means you can go paperless with receipts (customers simply sign with a finger), and the whole setup looks sleek and modern to your clientele.

Mid-sized retailers and wholesalers

Mid-sized resellers of inventory need more sophisticated inventory tracking than most small businesses. (By mid-sized, we mean more than one warehouse of inventory.)

If you’re in this boat and you want to use QuickBooks, you’ll need to get QuickBooks Enterprise then purchase the Advanced Inventory add-in for the functionality you need from your accounting system.

Professional and creative service firms

Professional and creative service firms need a way to track billable hours. This is because if the product you’re selling is people’s time and expertise, then you can’t do good cost accounting without tracking how much time your team members spend on different clients’ projects.

Ideally you’ll want a time-tracking system that integrates well with your accounting system. Similar to integrating POS software for retailers, this will lessen the bookkeeping headache by eliminating redundancy in your process for recording revenue.

About the cloud

Statute of limitations issues

Make sure you understand your recordkeeping requirements really well before signing up for a cloud-based bookkeeping service.

Here’s the issue. Taxpayers must retain the records they use to prepare their federal tax returns for three years after either (a) the due date of the return or (b) the date the return was filed, whichever came later. The statute of limitations for federal tax returns is generally this same three-year window, but sometimes the IRS can expand the statute of limitations to six years if they think you’ve done something really bad. Therefore, many tax professionals advise their clients to keep records for their tax returns at least six years after filing.

If your records are paperless and your accounting software is a desktop program, then keeping documents for six years is easy; just keep the old program and files saved on your computer (with a backup in case something happens to it). When the computer with your old records becomes out of date, stow it away in the back of your closet until the statute of limitations is up.

However, if you use a cloud-based bookkeeping service that uses subscription model pricing, then keeping records around is a bit trickier. Let’s say you close your business in 2015 and file the final tax return in spring of 2016. Will you have to continue to pay the cloud vendor’s subscription fee until spring of 2022? Even after your business has closed and you’ve filed your final tax return? The answer had better be “no,” or this surely isn’t a product you should buy into.

You should also make sure that if the company selling the service goes down, you still have access to your books. The law doesn’t care if it’s some software company’s fault that you don’t have your business’s records anymore. It’s your responsibility as the taxpayer to ensure that your records are around for at least three years.

The most popular cloud-based bookkeeping programs have devised some ways around these issues. For example, QuickBooks Online has an option to keep a copy of your data on your own hard drive (see their FAQs here). Xero explains a way to export your data out of their system here. In addition, it says here that it will archive your data in order to help you comply with statute-of-limitations issues. You’d want to carefully review these sorts of backup plans and ensure they’re adequate before you entrust your books with any cloud service provider.

Benefits of the cloud

On the other hand, there are numerous benefits that come from using a cloud-based bookkeeping program such as QuickBooks Online or Xero.

First, your software will always be up to date. This is generally good for security reasons, but it also tends to eliminate some IT hassle from your life, as well.

Second, these cloud-based programs seem to have a much wider variety of third-party applications they can integrate with (especially if the accounting program is popular). For example, if you’re a retailer who plans to use a POS system that integrates with your accounting software, you’ll have many more options to choose from if your books are in the cloud. Thanks to the cloud and these third-party application providers, highly integrated and enterprise-quality IT systems are now affordable for small-business owners.

Finally, the cloud makes it easier for you and your accountant to collaborate on your bookkeeping. When your accountant can easily access your books online, getting help when you need it becomes much more efficient and cost effective for everyone.

Quicken is not accounting software

Some small-business owners hope that, because they’re most familiar with Quicken (and because Quicken is cheap), they can get away with using Quicken to keep their business’s books. To which we say, Quicken is not accounting software. It is personal budgeting and financial management software.

If you’re a one-man-band consultant whose only asset is a laptop, then maybe you can get away with using Quicken Home & Business. If your “business” is renting out your spouse’s old condo, then maybe you can get away with using Quicken Rental Property Manager. But just about any other business needs real accounting software.

If You Own a Small Business, You Are Probably Paying Too Much Tax

Small-business owners often don’t do a good job maximizing their legitimate tax deductions. They don’t, for example, structure their operations to protect legitimate deductions. They frequently don’t do enough to create new deductions. And rarely do they understand how to recycle, or double-deduct, amounts that can be used more than once.

What a financial tragedy! You can get smarter about tax deductions and save your business a bundle.

Ready to get started doing a better job with your tax deductions? Consider our $40 ebook Small Businesses Tax Deduction Secrets.

This 70-page ebook provides clear instructions about how you can annually save thousands of dollars in income and related taxes simply by more effectively using legitimate small-business tax deductions. Interested in more detailed information? Click here.

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Tip: If you are a client of our CPA firm, don’t purchase this ebook—or any of our others. Just email us and ask for your complimentary copy.

Immediately Downloadable & Money-Back Guarantee

The book is instantly downloadable. You get the ebook when you purchase it.

Also, we provide a money-back guarantee. If you don’t find the information you need or want, no problem. Just email us and request your refund.

The post Which Accounting Program Should I Use for My Small Business? appeared first on Evergreen Small Business.

This is a great question.

Our standard answer? You should try to do your own individual tax return.

Most people—nearly everyone in fact—can use a product like TurboTax to do their own tax return. (Er, no, we’re not earning some backdoor commission from Intuit for making this statement.)

Where Things Get Tricky

In a handful of special situations, however, you probably want to outsource the project to an expert like a CPA who specializes in taxes or an experienced enrolled agent.

U.S. tax law is, I’m sorry to have to report, absurdly complicated in many areas.

Furthermore, in some areas, the penalties for innocently goofing stuff up are astronomical.

Finally, as a general trend, public policymakers more and more place the burden of this complexity on businesses (and other organizations such as nonprofits and government entities), as opposed to individual taxpayers.

Where does this leave you? Well, as noted, we think most individuals can probably do their own tax returns with the help of good tax software.

In contrast, we think most businesses benefit by working with a good, professional adviser so they understand their reporting obligations and so they optimize their tax burden.

Example: The Form W-2 provides a convenient example of this. Employers need to understand payroll and income tax laws well enough to properly fill these forms out, but the form is cookie-cutter enough that usually all an employee needs to do is copy their W-2 into TurboTax.

And now let me flesh out this discussion by pointing out a handful of exceptions to our general suggestion.

Exception #1: You Have Foreign Income or Investments

The first exception to our “hey, just do it yourself with TurboTax” suggestion concerns people with an international footprint.

U.S. taxpayers owe tax on worldwide income, not just U.S. income. This means US taxpayers with offshore income need to report that income—or in some cases report that they don’t have offshore income when the IRS might think they should.

Here’s the rub, though: The IRS doesn’t have the power to force non-U.S. entities to fill out their cookie-cutter forms. So often dealing with this stuff overwhelms a TurboTax user.

And then let me mention one other danger in all this. Offshore accounts and investments often require rather detailed disclosures by the taxpayer.

Failing to provide these disclosures may trigger catastrophic penalties. The so-called FBAR comes with big penalties that get assessed in $10,000 increments.

And the FATCA rules make FBAR look like kindergarten.

Note: We’ve got more detailed information on the FBAR and FATCA rules here.

Exception #2: You Own an Unincorporated Small Business or Rental Property

A quick point that goes back to something I said a few paragraphs ago…

Tax laws, as noted earlier, place the burden of complexity on businesses. This applies to small unincorporated businesses, too. And also to single-member LLCs.

Accordingly, even rather small-time operations may need outside expert assistance. This can seem unfair, but if there’s good news here, it’s that many solo practitioner CPAs and EAs specialize in serving really small businesses. And so you may be able to find a great local tax accountant.

Exception #3: You Receive a Schedule K-1

On to another exception…

If you’ve invested in, or in some other way ended up with, an interest in a pass-through entity, you need to call in an expert in many cases.

Here’s why: With pass-through entities, such as partnerships and S corporations, income and deductions retain their character as they “pass through” the entity to the owners.

Note: Trusts and estates provide K-1s to their beneficiaries, too. Just FYI…

What this means for individuals who own an interest in pass-through entities is that the tax complexity of the entity is passed to the owners, too.

In a way, you can view the situation as being one where the pass-through entity just gives the taxpayer the raw tax accounting data and says, in effect, “hey you, taxpayer, you just figure out how to deal with this stuff, okay?”

Exception #4: The IRS Hasn’t Figured Out How to Cookie-Cutter Your Life Yet

Let me share one final situation where our office’s experiences lead me to suggest that the DIY approach is a bad idea: employee stock options.

Employee stock options often overwhelm amateur tax accountants and DIY aficionados for a couple of reasons.

First of all, the 1099-B the taxpayer receives doesn’t have a separate column for AMT basis, so someone with incentive stock options simply doesn’t get all the basis information they need from their 1099-B. (Omitting the AMT basis information can be a costly mistake.)

Second, our experiences suggest that brokers commonly misreport the basis for employee stock options. And note that we’re not talking about smalltime brokers goofing up. We’re talking about the biggest names in the business.

Therefore, anyone with stock options might want to hire a tax professional to do their return, just so the preparer can check the broker’s basis numbers against what the employer’s payroll department says.

Note: If you’re interested in transitioning to a situation where you do your own tax return, you might also be interested in our blog post: How to Get a Tax Return Prepared for $100 or Less.

Are You a Small-Business Owner?

Small-business owners often don’t do a good job with maximizing their legitimate tax deductions. And this can be true even when small-business owners work with a CPA or enrolled agent.

For example, business owners usually don’t go to the effort of structuring their operations to protect legitimate deductions, to create new deductions and to recycle (or double-deduct) the deductions which can be used more than once to save taxes.

Which is really too bad. Getting disciplined and smart about small-business tax deductions can save businesses and their owners a bundle in taxes.

If you’re thinking maybe you can do a better job with your tax deductions, maybe especially if you’re doing your taxes yourself, consider buying and reading our $40 e-book Small Businesses Tax Deduction Secrets. This 70-page ebook provides detailed instructions about how business owners can annually save thousands or even tens of thousands of dollars in income and related taxes simply by more effectively using legitimate small-business tax deductions.

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Tip: If you are a client, don’t purchase this ebook—or any of our other ebooks. Just email us and ask for your complimentary copy. Also, if you’re in the process of becoming a client, don’t buy the ebook yet. Rather, wait until we’re working together. We’ll then provide you with your complimentary copies.

Immediately Downloadable & Money-Back Guarantee

The book is instantly downloadable. You get the ebook when you purchase it.

Also, we provide a money-back guarantee. If you don’t information you need or want, no problem. Just email us and request your refund.

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