Learning Center for Tax and Financial Insights

Every small business — whether a respected local mom-and-pop retailer, a startup tech company, or an online venture — has accounting and bookkeeping responsibilities, including selecting the accounting method that works best for them. If you’re new to small business ownership, you might not even realize that there are multiple ways to keep tabs on your company’s finances. Don’t worry, though, that’s where this guide comes in. As you keep reading, you’ll learn more about two common business accounting methods, and get helpful advice for choosing the right one for your business. What are the most popular business accounting methods?The two most popular business accounting methods are the cash method and the accrual method. As with anything, there are pros and cons to both tactics. Let’s take a look at what distinguishes each of them, and how to determine which is the best fit for your company’s needs.First, you need to understand that each of the accounting methods is a way to track your incoming and outgoing money. Fundamentally, the biggest difference between these two accounting techniques is whether you track revenues and expenses when they are actually in (or out) of hand or when they are billed. While there are many factors you’ll need to consider before choosing a method for your small business, evaluating the following will help you:The size of your businessYour business’s future growth projectionsWhether you are a sole proprietor or a corporation/publicly traded companyWhether you have (or plan to have) investors involved in your businessWhile most sole proprietors and small businesses have the freedom to choose the accounting method that they feel most comfortable with, companies that have investors will likely need to use the method that their investors want them to based on a vote.It’s also worth noting that publicly traded companies earning more than $25 million in gross revenue per year are required to use the accrual accounting method. With that understanding, let’s take a closer look at the two methods.Cash Method The cash method records revenue on the date that payment for goods or services is received, and expenses on the date that an invoice for goods or services is paid. This is the easiest way to keep track of cash flow. Business owners using this method are able to skip steps such as journal entries and are also able to wait to pay taxes on revenue until payment is actually received. This method is ideal for freelancers and contractors, especially if clients are slow to pay. It also works well for new business owners, who are just learning the ins and outs of bookkeeping.Accrual MethodThe accrual method records revenue at the time that a service or product is sold rather than when it is paid. This accounting option subsequently expenses on the day that a transaction is billed rather than on the day that it is paid, providing business owners with a high-level sense of their balance sheet. It also affords business finance specialists with the ability to be proactive in how they pay their bills to maximize cash flow. Though this method is more complicated, it is preferred by most accounting professionals because it provides a true sense of a business’s financial health.

From the moment that Steve Jobs first walked across a stage in California and introduced the world to the iPhone in 2007, the ways in which we communicate with one another had changed forever. It's just that few of us could have predicted how striking of a change that would be at the time.One such person who could tell which way the wind was blowing was Jan Koum. Born in Ukraine, you may not be familiar with Koum's name but you're undoubtedly familiar with his work: WhatsApp, one of the most powerful mobilize messaging platforms on Earth.WhatsApp: The Story So FarTo be clear, mobile messaging was hardly a new idea that came about with the introduction of the iPhone. Indeed, older phones had been capable of SMS text messaging for years. But this was something different, and Koum could absolutely see it.Koum's interest in computer programming began when he was just 18 years old. He moved to the United States and enrolled in San Jose State University around that time. Likewise, he was also employed as a security tester at Ernst & Young.During this time he also interviewed with Yahoo and was able to land a position as an infrastructure engineer.According to Forbes, Koum was always something of a troublemaker at school - especially during his early years. But his passion for technology never wavered and he ended up teaching himself computer networking by pouring over manuals that he'd purchased from a used book store in his area, which he would then return when he was finished with them.In 2009, Koum bought his first iPhone and could immediately see the potential. By now, he was 33 years old. At that point, the iTunes App Store (as it was then called) had only existed for about seven months. But still, Koum could see that it was about to launch countless messaging apps as people searched for a viable, fully-featured alternative to the one built into each of Apple's devices.After a brainstorming session with some friends about what the ideal mobile messaging app might look like, Koum landed on the name WhatsApp. His reasoning was simple: when you say it fast enough, it sounds like the phrase "what's up."

Any seasoned entrepreneur will tell you that coming up with an idea for a startup is ultimately the easy part of this process. Figuring out how you're going to get the funds necessary to make that vision a reality? That part is a bit trickier.In fact, selecting investors for your startup can be the hardest part of the process – not only because you want to make sure you’re making the right choices for your new company, but also because it’s important to surround yourself with individuals who will support you both now and years down the road as your business grows. Thankfully, there are a number of best practices that you can use to help find not just an investor, but the right investor to meet your current and future needs.Choosing the Right Investors: Breaking Things DownBy far, one of the most important things to understand about finding an investor for your startup is that you're trying to find a GOOD fit, not necessarily a PERFECT fit.The odds are good that no investor will be 100% perfect for the vision you have for your startup – such is life. Even in the event that you could find a startup investor who would tick every box, it would probably take so long that it wouldn’t be worth the effort. You would ultimately delay the building of your company, not to mention the amount of time it would then take to get your products or services to consumers. Finding the Best Investor For YouThe first step to finding the best investor for you is to make a list of characteristics and standards that are important to you. Remember, you are looking for someone who can help you bring your vision to life, so it is imperative for all of your startup investors to add value to your organization. Prioritize certain qualities above others and if you don’t check all of the boxes in the end,, that's okay -- hardly anyone does, and there are still numerous successful startups. Another best practice to follow when finding an investor for your startup involves trying to sell them not on what your product or service can do in a literal sense, but on what problem it is trying to help people solve. In other words, don’t communicate in terms of technical specifications, but by sharing the unique value that you'll be able to bring to the table with a little help from a qualified investor. Investors want to see that you're not pushing a "solution in search of a problem," so to speak. They want to see that you've identified a potential gap in the marketplace that you – and you alone – can fill with your business concept. That's how to get people excited and that's how you get people to invest.What Types of Startup Investors Are There?

School is replaced with childcare for working parents and older children may have summertime jobs. Both activities include income tax issues to consider. If you are parents that are planning for your children's summer break, watch this video to see how it may impact your taxes next year.

Article Highlights:Tax Advantaged Repayment of Student LoansEmployer Provided Educational AssistanceQualified Tuition ProgramsThe Deductibility of Student Loan InterestStudent Loans Forgiven in 2021 through 2025Avoiding Student Loan DebtSection 529 PlansCoverdell Education Savings AccountEducation Tax CreditsThe American Opportunity CreditThe Lifetime Learning CreditDespite recent rounds of forgiveness for thousands of borrowers, nearly 43 million Americans are responsible for roughly $1.6 trillion in federal student loans which results in a significant long-term burden for students after graduation. The average debt varies by state from $28,600 in North Dakota to $54,900 in the District of Columbia.Although the U.S. Department of Education has, as a COVID-19 pandemic relief measure, currently suspended loan payments, reduced the interest rate to zero and stopped collections on defaulted loans, all that is scheduled to end after Aug. 31, 2022. Unfortunately, it is time start thinking about how to deal with the resumption of payments and interest charges This article looks at the issue of student loan debt from an income tax perspective including:Tax Advantaged Repayment of Student LoansThe Deductibility of Student Loan InterestTreatment of Forgiven Student LoansAvoiding Student Loan DebtTax Advantaged Repayment of Student LoansThe tax code provides two tax advantaged ways of repaying student loan debt that may apply to individuals under certain circumstances that should be employed to reduce the debt when available: Employer Provided Educational Assistance – The tax code (Sec 127) includes a provision that allows employers to pay for employees’ education as a working condition fringe under an educational assistance program of the employer. It is limited to $5,250 per year and is not taxable income to the employee. The CARES Act of 2020 expanded the definition of expenses available to qualify for the $5,250 employer-provided educational assistance exclusion to include employer payments of the employee’s student loan debt. This special allowance is available for payments made through December 31, 2025 Thus, where the individual works for an employer that has an educational assistance program, they should take advantage of the plan to pay down their debt. Tax Tip - The employee isn’t allowed to claim the above-the-line student loan interest deduction for interest that the employer paid. So, in some cases it may be advantageous for the employer to designate their payment as going to principal only so the employee can claim a deduction for the interest that they paid. Qualified Tuition Programs – Qualified Tuition Plans (sometimes referred to as Section 529 plans) are plans established to help families save and pay for education expenses in a tax-advantaged way that allow taxpayers to gift large sums of money for a family member’s education expenses, while continuing to maintain control of the funds. The earnings from these accounts grow tax-deferred and are tax-free, if used to pay for qualified education expenses. Normally, funds from these accounts are only allowed to pay for education expenses. Distributions from a 529 plan of up to $10,000 can be used to pay the principal and interest on qualified higher education loans of the account’s designated beneficiary or a sibling of the designated beneficiary. However, the $10,000 limit is a lifetime limit. To prevent double-dipping, Sec 529 plan distributions used to pay interest on the education loan cannot also be used for the above-the-line deduction for student loan interest. The Deductibility of Student Loan InterestThe student loan interest deduction is not limited to the interest paid on government student loans. In fact, virtually any loan interest will qualify as long as the loan proceeds are used solely for qualified higher-education expenses (that is, it is a sole-purpose loan). However, the maximum interest that is deductible each year is $2,500. Thus, in addition to government student loans, home equity lines of credit, personal loans from unrelated parties, and even credit cards can be used if they otherwise qualify. Pension plan loans and loans from related parties do not qualify.Example #1 – Jack takes out an equity line of credit on his home and borrows $30,000 to finance a solar electric installation on his home and $10,000 to pay his daughter’s qualified education expenses. Because this loan is not used for a single purpose (he used it to borrow funds for more than education), he cannot deduct a portion of the interest as above-the-line education loan interest. However, if Jack had only used the loan to pay for qualified education expenses, then up to $2,500 of the loan interest could have been deducted as above-the-line student loan interest. Example #2 – Mark has a Visa card that he uses for a variety of purposes, and he also uses it to pay his daughter’s qualified education expenses. Because the credit card is not used exclusively to pay for qualified education expenses, none of the interest will qualify as student loan interest. However, if Mark had only used the credit card to pay for qualified education expenses, then up to $2,500 of the credit card interest could have been deducted as above-the-line student loan interest. Caution: Although we use a credit card as an example of an alternate student loan, it is not practical because of the high interest rates. The deduction is ratably phased-out in 2022 for taxpayers with an AGI (income) of $70,000 to $85,000 ($145,000 to $175,000 for joint returns) and not allowed at all for taxpayers filing as married separate or an individual who is a dependent of another. These phaseout levels are periodically adjusted for inflation.If a loan is not subsidized, guaranteed, financed, or otherwise treated as a student loan under a program of the federal, state, or local government or an eligible educational institution, a payee (the lender) must request a certification from the payer (the borrower) that the loan will be used solely to pay for qualified higher-education expenses. Form W-9S, Request for Student’s or Borrower’s Social Security Number and Certification, is provided by the IRS for this purpose.The deduction for student loan interest can be deducted whether the standard deduction or itemized deductions are claimed since it is an adjustment to income, often referred to as an above-the-line deduction. To qualify as an eligible loan, the loan must have been taken out solely to pay the costs of attending an eligible educational institution for an individual during a period when the individual is a qualified student. Eligible costs include:TuitionFeesRoom and boardBooks and equipmentOther necessary expenses (including transportation) The expense must be incurred within a reasonable time before or after the debt is incurred. The regulations provide that a loan is incurred within a reasonable period if:

July 1 - Time for a Mid-Year Tax Check-UpTime to review your 2022 year-to-date income and expenses to ensure estimated tax payments and withholding are adequate to avoid underpayment penalties.July 11 - Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during June, you are required to report them to your employer on IRS Form 4070 no later than July 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.