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Banks and Alternative Lenders Tighten Their Belts (That's Bad News for Small Business)

Posted By Arizona Small Business Association, Monday, September 15, 2014

A new survey from Pepperdine University and Dun & Bradstreet Credibility Corp. shows businesses lack access to capital, which could restrict growth.

If you want check the pulse of the smallest businesses, take a look at the third quarter private capital access report released Wednesday by Pepperdine University's Private Capital Markets Project and credit product company Dun & Bradstreet Credibility Corp. 

The report, which examines small business access to credit based on interviews with 2,361 companies, primarily with revenue of $5 million or less, suggests trouble on the horizon. Most small businesses reported having trouble accessing credit in the quarter, and most say those restrictions will lead to lower growth and lower hiring in the months ahead. 

While there are many reasons that small businesses are not getting the access to credit they need, experts have pointed to the reluctance of banks to make smaller loans as a primary driver. While nearly 60 percent of businesses in the survey said they had applied for bank financing in the third quarter, only half said they were actually approved for it.

Similarly, alternative lending is often held out as the means by which small business owners can access credit during tough times, but here the results were even more dismal. Twenty-six percent of the survey sample reported having applied for asset-based loans, but only a third successfully got them.

The report compiles small business demand for capital, and access to capital, into two indexes. An index score under 50 represents low access or demand for capital. Since the second quarter of 2012, the access score has run under 30, while the demand score has run under 40. The index showed a decrease of 0.3 percent for capital access in the third quarter compared to the second quarter. But demand for captial also fell, by more than 6 percent in the quarter.

All in all, business owners are pretty weary of the tepid economic enviroment and with difficulties securing financing, the study authors suggest.

So how is that playing out in the businesses themselves? Forty-two percent of businesses say the capital environment is restricting their ability to hire, and one third have transferred personal assets to their businesses in the last three months. Looking ahead to the next six months, two thirds of businesses say they expect business growth to slow, and nearly half say they will lay off workers if they can't access more capital.

And that's bad news for everybody.

“When businesses are forced to grow organically using only retained earnings, their growth opportunities are capped at a very low level," Craig Everett, director of the Pepperdine Private Capital Markets Project, said in a statement. "This reality is starting to have profound impacts on both hiring and spending on business improvements.”



Tags:  banks  finance  lending  loan  small business 

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Basic Bookkeeping Tips For Small Business

Posted By Arizona Small Business Association, Friday, August 29, 2014

Bookkeeping is an important and necessary part of owning a small business. However, you probably weren’t a bookkeeper before you became a small business owner. You are bound to make some mistakes along the way. Fortunately, most of these mistakes are pretty easy to fix. Use these basic bookkeeping tips for small business owners to help you learn the ropes and avoid errors.

  1. Choose the best accounting system for your business. There are two main options - cashed based accounting or accrual based accounting. In a cash based accounting method, you count your income when you get it and count your expenses when you pay them. With the accrual based accounting method, you count these things when they happen instead of when they are paid. So what’s the difference? Well, there will be a difference for your business if you keep an inventory or make transactions on credit. If this is true for your business, the accrual method may be a better choice for you. In fact, the IRS may require a business to use the accrual accounting method if they keep an inventory or have more than $5 million in sales. If you don’t keep inventory or deal with credit transactions, a simple cash based accounting system should work just fine for you.

  2. Keep daily records. This is simple, but extremely important. Make an accurate daily record so that you are aware of the financial situation of your business. It doesn’t matter what system you use; just choose one and stick with it. Once your system is in place, it will only take a few minutes to keep up with it each day.

  3. Treat checks with as much care as cash. You probably write a lot of checks, and you get envelopes full of canceled checks back from the bank. It’s easy to fall into a routine and pay little attention when writing checks, but take a moment and slow down. Review all of your checks carefully. If you make a mistake, it is your mistake, not the bank’s mistake. You will have to deal with the fallout. Review cancelled checks personally; this way, you will be aware of any unauthorized checks before anyone else gets the chance to remove them.

  4. Request a bank statement that cuts off at the end of the month. This is useful because it syncs your bank statement with your other monthly records, so you are comparing matching time frames. It’ll be a lot easier to balance your statements and track expenses this way.

  5. Leave a trail. You should be able to retrace your company’s financial activities easily. Keep business and personal accounts separate. Keep your checks and invoices in order, and don’t skip numbers. If you need to go back and check something later, it will be much easier this way.

  6. Use software. Even for a very small business, using a bookkeeping software program will make your record keeping much simpler and more organized. Let’s face it – the time of the old ledger and pen system has come and gone. You can do everything you need to do, and even back up all of your important records, if you do it on your computer.

Originally posted on NAWBO. Written by Kjell Andreassen, a managing partner of Acceler8.

Tags:  accounting  Bookkeeping  HR  NAWBO  Small Biz  Small Business  tips 

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Miscellaneous Deductions Can Cut Taxes

Posted By Rhette Baughman, Arizona Small Business Association, Thursday, August 14, 2014

You may be able to deduct certain miscellaneous costs you pay during the year. Examples include employee expenses and fees you pay for tax advice. If you itemize, these deductions could lower your tax bill.

Here are some things the IRS wants you to know about miscellaneous deductions:

Deductions Subject to the Two Percent Limit.  You can deduct most miscellaneous costs only if their total is more than two percent of your adjusted gross income. These include expenses such as:

+ Unreimbursed employee expenses.
+ Expenses related to searching for a new job in the same line of work.
+ Certain work clothes and uniforms.
+ Tools needed for your job.
+ Union dues.
+ Work-related travel and transportation.

Deductions Not Subject to the Two Percent Limit.  Some deductions are not subject to the two percent limit. They include:

+ Certain casualty and theft losses. Generally, this applies to damaged or stolen property that you held for investment. This includes items such as stocks, bonds and works of art.
+ Gambling losses up to the amount of your gambling winnings.
+ Losses from Ponzi-type investment schemes.

There are many expenses that you can’t deduct. For example, you can’t deduct personal living or family expenses. You claim allowable miscellaneous deductions on Schedule A, Itemized Deductions.

For more about this topic see Publication 529, Miscellaneous Deductions. You can get it on or by calling 800-TAX-FORM (800-829-3676).


This series is brought to you by the Southwest Area Stakeholder Liaison Team covering Arizona, New Mexico & Texas. It is designed for you to share with anyone who will find the information useful. We are interested to hear if you think this information is helpful. Please provide your feedback or topic request to us at and include “Workshop Wednesday” in the subject line.

To access previous editions, click here: Workshop Wednesday Archive links 

 Small business owners, especially new sole proprietors, can find a wealth of information covering their federal tax responsibilities on www.IRS.govThe SB/SE Tax Center is the “Go To” page for everything small business.


Tags:  IRS  savings  small biz  small business  tax  taxes  tips 

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Six Tips for People Who Owe Taxes

Posted By Rhette Baughman, Arizona Small Business Association, Wednesday, August 13, 2014

While most people get a refund from the IRS when they file their taxes, some do not. If you owe federal taxes, the IRS has several ways for you to pay. Here are six tips for people who owe taxes:

1. Pay your tax bill.  If you get a bill from the IRS, you’ll save money by paying it as soon as you can. If you can’t pay it in full, you should pay as much as you can. That will reduce the interest and penalties charged for late payment. You should think about using a credit card or getting a loan to pay the amount you owe. 

2. Use IRS Direct Pay.  The best way to pay your taxes is with the IRS Direct Pay tool. It’s the safe, easy and free way to pay from your checking or savings account. The tool walks you through five simple steps to pay your tax in one online session. Just click on the ‘Pay Your Tax Bill’ icon on the IRS home page.

3. Get a short-term extension to pay.  You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at If you received a bill from the IRS you can also call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help. There is usually no set-up fee for a short-term extension.

4. Apply for a monthly payment plan.  If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreementon A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans. There are no reminders, no missed payments and no checks to write and mail. You can also use Form 9465, Installment Agreement Request, to apply. For more about payment plan options visit

5. Consider an Offer in Compromise.  An Offer in Compromise lets you settle your tax debt for less than the full amount that you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. You can use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be.

6. Change your withholding or estimated tax.  You may be able to avoid owing the IRS in the future by having more taxes withheld from your pay. Do this by filing a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator on can help you fill out a new W-4. If you have income that’s not subject to withholding you may need to make estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for more on this topic.

To find out more see Publication 594, The IRS Collection Process. You can get this booklet on You may also call 800-TAX-FORM to get it by mail.

This series is brought to you by the Southwest Area Stakeholder Liaison Team covering Arizona, New Mexico & Texas. It is designed for you to share with anyone who will find the information useful. We are interested to hear if you think this information is helpful. Please provide your feedback or topic request to us at and include “Workshop Wednesday” in the subject line.

To access previous editions, click here: Workshop Wednesday Archive links 

 Small business owners, especially new sole proprietors, can find a wealth of information covering their federal tax responsibilities on www.IRS.govThe SB/SE Tax Center is the “Go To” page for everything small business.

Tags:  IRS  small biz  small business  tax  taxes  tips 

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Reasonable Compensation and Your S Corporation

Posted By Rhette Baughman, Arizona Small Business Association, Monday, August 11, 2014
Updated: Thursday, August 14, 2014

When you incorporate your business, you create a new separate entity, and in the eyes of the IRS, you become an employee of the corporation. And this move means you must go on payroll and have all corresponding payroll taxes withheld and matched by the employer.

The owner of the S corporation is also allowed to take distributions of current profit. The distributions are subject only to regular income tax. Unlike salaries and wages, distributions are not subject to withholding or employer paid payroll taxes for the IRS or the state.

Taking distributions is therefore a more attractive, less expensive option than taking a paycheck.

However, the IRS wants its fair share of payroll taxes, and therefore requires that shareholders take adequate compensation over distributions.

About five years ago, the IRS created an audit project aimed at attorneys who were incorporated as Sub S corporations. It found that many attorneys were violating the reasonable compensation concept. In one instance, an attorney’s salary was $30,000 for the year, but his distributions totaled almost $400,000. The IRS reclassified much of the distributions as wages and charged the corporation additional payroll taxes, penalties and interest.

So what is reasonable compensation? How do you determine if you are allocating the funds you receive from your corporation in compliance with IRS requirements? There is no place in the tax code that makes a specific requirement, such as, if you own a shoe store, you must pay yourself wages of $50,000 per year. Instead, the IRS states, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” Pretty vague and subjective. Essentially, the IRS judges reasonable compensation on a case by case basis.

These are some of the factors they consider:

1. Use a wage a shareholder would likely earn on the open market. So in the case of the attorney, paying himself wages of $30,000 and taking distributions of $400,000, the IRS concludes that the attorney would never accept a job in his field at a salary of $30,000.

2. The amount of time spent engaged in corporate activities. If you own the corporation and are semi-retired working only 15 hours per week, you may factor in fair pay for part time work and likely take larger distributions.

3. The amount of work and profit generated by the owner/shareholder versus other employees. If the majority of the workload is handled by the shareholder and let’s say for example, there is only one non-shareholder employee who works part time providing administrative support, the compensation provided to the shareholder/owner will be titled largely to wages rather than distributions for the IRS to consider it reasonable.

In order to minimize the risk of understating or possibly overstating reasonable compensation, Paul Hamann, founder of RCReportsbased in Denver, created an online software tool used by tax and legal professionals to guide corporate principals in determining reasonable compensation based on the attributes of their work and that of their firm.

An interview process guides the user through a description of duties and activities then creates a report with the data and arrives at a reasonable compensation figure for each principal in the firm.

The testimonial page is impressive and includes an endorsement from a former IRS agent.

The IRS may or may not agree with the results provided by this software, but doing your research and being informed can help lower your chances of raising red flags at the IRS.

Originally published at FOX Small Business Center. Written by Bonnie Lee, Taxpertise. Photo Credit: Tax Credits via photopin cc

Tags:  Compensation  Legal  S CORP  small biz  small business  Tax  Taxes  tips 

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