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My Small Business Health Quiz (Part 1)



#1: Is the value of your business firmly established?
Questions to consider:

  • Have I ever had my business value appraised by an outside party?
  • Do I have a formal buy/sell agreement in place?
  • Is my buy/sell agreement funded?
  • Does my buy/sell agreement adequately protect my heirs, my business, and my partners?
  • Has this agreement been reviewed in the last 3 years?

If you have any plans to someday extricate yourself from your business (and you should ALWAYS consider your exit strategy), these are critical questions.

#2: Is there an emergency plan?
Questions to consider:

  • Do I have a will, and is it up to date with my business wishes?
  • Do I have a plan to retain key employees if something were to happen to me?
  • Are my assets protected from potential litigation?
  • Have I identified and written down my trusted advisors?

Unless you plan to forever cheat death, a business owner would be foolish to not prepare for that event.

#3: What happens next?
Questions to consider:

  • Do I have a formal succession plan prepared and on file?
  • Does my succession plan have a provision for disability?
  • Have I involved both family members AND key employees in my succession planning?
  • Do I have a disability buy-sell, or overhead expense coverage?
  • Do I have contribution protection for my retirement if I were to become disabled?

Again, these eventualities always seem remote on the front end ... but if your answer is "no" to more than a couple of the above questions, it would be a good idea to get in contact with someone competent to help you fix it.

Last of the LAST Minute Tax Moves



“Every task, goal, race and year comes to an end…therefore, make it a habit to FINISH STRONG.” - Gary Ryan Blair

As I mentioned, time is short, and some moves do require more than this week to pull off -- so I'm restricting myself to those items which you can realistically do something with before the end of the year.

And, again--these are focused on what will apply to your business

Also, the fact that expenses paid via PPP loan proceeds are now deductible might affect these calculations for you.

1) Buy Supplies in Advance (to increase expenses and offset income)
How much disposable equipment do you expect to use in 2021? Order it now so the cost is deductible in 2020 if you need to offset income. Buy what you think you'll need for the coming year, as long as you have the space to store it. This is especially easy to do with software, information courses, or other subscriptions that you know you want to keep.

A word of caution: Under a 12-month rule, you cannot deduct prepaid expenses that run more than the end of the year following the current year. For example, if you prepay a three-year subscription to a trade journal, the cost is deductible over three years (not just one).

Good News Depends On Where The Fence Is



There's both good news (for some) and bad news (for many) as we round the corner into December.

And I'm not talking about our culture, or politics, or sports, or anything like that.

I'm talking about TAXES.

I'll start with the good news. This is applicable to some of my readers only, but it is nice news for business owners in certain high tax states.

One of the difficult aspects of the TCJA was the "SALT" (state and local tax) deduction limitations. Specifically, in high-tax states, this represented a difficult setback in what could be deducted.

Well, one semi-sneaky way around this limitation has just been tentatively approved by the IRS in Notice 2020-75: paying these taxes on behalf of the owner or partners through an S-corp or partnership (pass through entity), and enabling them to be counted as a business expense.

This workaround immediately came into effect in MD, LA, CT, NJ, OK, RI and WI. Four more states already have legislation on the dockets: AL, AR, MI and MN. And (perhaps not surprisingly), NY and CA -- the two biggest states in this category -- are expected to act quickly.

An Incomplete List of Potential Tax Moves To Make



“When you know better, you do better.” -Maya Angelou

Ah, November. Cool weather, Thanksgiving, football. Even though 2020 still seems to be chugging along in all of its particular form of glory, we can at least get productive and distract ourselves from the political war games by making a positive impact on our financial world. Although, in Utah, Governor Gary Herbert is making Thanksgiving plans by Skype video.

Here are some things to consider as you do:

1) Look ahead to 2021. By that, I mean: what will your income potentially look like in 2021? For some, ANY income after a very rough 2020 would be welcome. But once you have that landed ... should I accelerate possible 2021 income into 2020 for tax reasons? Because the best of both tax worlds is to reduce your taxes in both years.
So take a look to see what you think your income will be looking like by the end of this year (including any investment year-end payouts, gig work, gambling winnings, etc. ) and what you expect it to be in 2021 (more, less or about the same). Next, check out the tax brackets and evaluate whether you need to defer current taxable income or accelerate write-offs into 2021 or vice versa. Keep more take-home through proper planning!

Are The Opportunities Worth The Threats?



"Not only must we be good, but we must also be good for something." -Henry David Thoreau

Too many entrepreneurs are blind optimists. (And yes -- too many accountants are blind pessimists, I admit.)

Aside from the financials of a new venture, there are obviously other factors that play into its outcome. And my gut is that the people on your team already know what they are. They're probably not writing a book or preparatory articles about it (yet), but they probably have some good ideas.

Over 50% of U.S. businesses fail in the first four years. Many that linger past that point are alive in name only. Yet very few entrepreneurs actually believe they have a less than 50% chance of success. They are convinced that those statistics only apply to the other person's ideas.

The concept of a pre-mortem was designed to help overcome these natural human tendencies to ignore real threats to a business plan. A related concept, the postmortem, or autopsy, was coined by the medical community to determine the cause of death.

Understanding Short-Term Rentals #4



OK, this is our fourth blog on understanding rentals. If you haven’t, go back and read the previous three for a better understanding. We covered the possible local laws restricting short-term rentals, how they are taxed at the federal level, how to hold title and how to save money on the self-employment tax.

This article is going to discuss another surprise tax that many investors don’t understand: sales and lodging taxes. These are the taxes all hotels have to pay, and they are at the city, county and state levels.

Short-term rentals, like those offered on services such as Airbnb and VRBO, have always been required to collect and remit sales and lodging taxes. Historically, the large vacation rental websites viewed these occupancy taxes as the responsibility of the host or homeowner responsibility, not the platform.

The platform was positioned simply as an advertising website or marketplace, and transactions occurred directly between homeowner and traveler. These taxes, however, were often overlooked and not well understood by homeowners and hosts.

As the short-term rental industry has continued to grow, these lodging taxes are increasingly part of the industry narrative and becoming much better understood. Short-term rentals are now ubiquitous, which has sparked pushback in some communities, with a new and heightened focus on regulation and lodging taxes.

5 Business Mistakes That Can Be Fatal by Janet Behm



“Life isn’t about finding yourself. Life is about creating yourself.”  - George Bernard Shaw

Based on what I've seen in my work with local businesses, here are the basic business mistakes people make when starting and operating a small business. These are by no means an exhaustive list of business mistakes, merely the most common -- and eminently avoidable...

  • Not having a CLEAR business plan.  A good business plan will guide you through the first few months and years of your business. It should contain metrics that help you monitor costs as well as progress.

It doesn't have to be fancy, or even something that would hold up under an investor's scrutiny (though, certainly, if you're going down that road, go the extra mile and make sure it's good). But itdoeshave to give you a roadmap to the goals you should be hitting by certain points -- 3 months, 6 months, 12 months.

  • Doing everything yourself.  Even in a one-person operation, you'll have your hands full. If you're not able to hire employees, at least be ready to outsource the tasks that aren't integral to your daily operations.

In this way, of course, you free yourself for the highest-level activities, such as marketing and sales.

3 Keys to Converting a Single-Family to a Commercial Property



Hopefully you’ve learned there are a lot of ways to make money in real estate! Forcing appreciation and “best use” are common terms. How do you make a property more valuable than it currently is? That’s the real question and there are a lot of ways to do it. One way is to change the “use” of the property. Below are 3 simple keys to evaluating a deal where you take a single-family residence and turn it into a small office space.

Obviously, there are a lot things to consider during the entire process, but these keys will help you evaluate the property to see if it will even work.

Key #1 – Zoning: This should make sense. You need to find a property that is in a zone that allows the conversion. You see things like “mixed use” or other classifications unique to the city. The best place to start looking is on wider, more congested streets where there are family residences or where you see these kinds of conversions already existing. This is usually due to the changing nature of that part of town. Many cities will re-zone those areas into mixed use to encourage a change in use. If you don’t’ have the right zoning, either you can’t do the deal or you’ll have to get the lot re-classified. While possible, it can be a much longer and expensive process but one worth looking into.

Key #2 – Parking: Assuming you have the right zoning, you may not have the right property. Commercial buildings mean that customer or employees will be coming to the building. That means more parking needs. In fact, your zoning laws will dictate how many parking stalls you will need. You can bet that the number will be bigger than what will fit in a standard driveway. For a 2000 square foot property, you could see up to 7 or 8 stalls needed. And remember, there are setbacks, turn around area and most likely even a handicap stall which is almost twice as big as a standard stall. The parking is often the one issue that will kill your conversion.

The Series LLC



Have you heard of a “series” LLC? It’s a special kind of LLC that is available only in a handful of states. Delaware was the first state to adopt it and now about 20 states that offer it and the list is growing.

While it was initially designed for other purposes and industries, the real estate community has jumped on it. So let’s explain what it is. First, it’s an LLC in structure like any other LLC. There are members, managers, an operating agreement and certificate of organization, which is filed with the state. It can be taxed as a pass-through (single member), partnership (multi-member), and it can even make an “S” election with the IRS to be taxed like an S-Corp (although there’s rarely a need for this and it can cause tax complications).

But then, this special LLC is permitted to create what are called “series” within its structure. To understand this, we need to talk liability protection. If you own a rental property in an LLC and there’s a slip and fall, the plaintiff will sue the owner of the house, that is the LLC. Being the defendant on lawsuit means that if there’s a judgement against it, the court can go after ANY asset the LLC has. This would include other rentals. Thus, most investors prefer to separate out their rentals so that the bunch are not as risk if there is a problem with one.

So, investors would set up a holding company (that did not own any rentals) and then a sub-LLC of that for each rental property. So, each rental was in a different company altogether and there was a separation of liability. But, that’s a LOT of LLCs to create and manage! Your attorney will be very fat and happy with you.

Use These Financial Reports For Business Decisions



A lie has speed, but truth has endurance. - Edgar J. Mohn

Some business owners never like to "look under the hood" of their finances, and their accountants or financial partners can sometimes encourage that behavior by keeping them in the dark.

Well, I hope that won't be you.

In fact, you need the kind of insight into financials to make strong decisions.

One way I'd like to help YOU is by pointing out different reports and metrics that you can find in most accounting software, that business owners or their bookkeepers often neglect. Knowing these numbers will help you avoid an embarrassing flub in YOUR business.

Even if you are using some of these reports, I'm sure you'll find a few more to add to your repertoire. Of course, this is just a very basic introduction, but hopefully it'll spark some ideas.

1) Profit & Loss Summary and Previous Year Comparison:Most business owners rely on the Profit & Loss Summary report, but comparing your results to last year can provide quick insight into whether your revenue is growing or contracting--as well as how fast expenses are rising.

2) Balance Sheet and Previous Year Comparison:As with your income statement, it's important to compare where certain balances stand now versus last year (such as Cash, Accounts Receivable and Payable, etc.).