5 Productive Ways to Spend your Tax Return

If you are expecting to or have already received a tax return this year, you are probably pretty excited! It’s like a bonus right? Well, actually, this money was yours to begin with. Think of it as the IRS’s nice way of saving it for you.

Now you may have ideas of a wild weekend or a fancy new toy you could purchase with this money, but before you do that, let’s consider 5 other choices that may be a little more helpful to your financial situation. Evaluate your needs, and treat this check like you would any other paycheck before spending it all.

1. Pay off a high interest debt or credit card. If you have a lot of debt, one of the most productive things you can do with your tax refund is to pay off loans that cost you the most to carry each month. Pay down any Payday loans, credit cards, private student loans, car loans, or anything that, once paid, will increase your monthly cash flow and eliminate high interest payments each month.

2. Consider home improvements or refinancing. With good credit and a healthy understanding of the mortgage re-finance market, you may be able to take advantage of the record-low interest rates, saving you thousands of dollars on interest each year. If you are content with your mortgage rate, go through your home and decide if your tax return could be allotted to pay for kitchen repairs, a new roof, upgraded energy-efficient appliances, curb appeal, a new paint job, or maybe even a new pool.

3. Increase (or start) an emergency fund. Emergency funds are there for peace of mind. One would hope this money would never need to be used, but sometimes, without a backup plan, even a small financial surprise can send you into panic mode. It is prudent to maintain about 6-8 months worth of savings in an account to cover all types of emergencies, and you will be well-prepared when something unexpected comes up. As a good habit to follow up on, once your savings account has been established, continue to set aside a set amount or percentage each month.

4. Spend it on things you or your family needs. It is spring time, so it may be time for a round of new tennis shoes or sandals for the family. Take inventory, check with each member of your family, and find out what is pressing, including new clothing, school or activity supplies, medical or dental needs, or vehicle repairs.

5. Invest in family time. Perhaps you have everything you need, or maybe you allot a percentage to each of the ideas above and you have money remaining. One of the best investments you can make is time with your family. Plan a spring or summer trip together, even if it is a short weekend trip. Cut extra expenses by driving or camping. Go explore, see new tings, laugh, get dirty, enjoy each other. You will create memories that way outlast tax season!

We would love to hear how you chose to spend your tax return this year or even in the past. Have you don’t anything exciting or unique, or something that we mentioned here?

Which Business Entity is Right for You?

If you are starting a new business, congratulations! This is a huge and exciting part of your professional life, and we are here to help navigate some of those testy new-business waters.

One of the first steps in starting your business is choosing which business entity is right for you so that you can begin and maintain the proper tax and bookkeeping records. You will want to carefully study and weigh the benefits and drawbacks of each business type to determine which is best for you, but here is a short description of each.

You have 4 choices: DBA Regular or C-Corporation S-Corporation Limited Liability Company

A DBA, also known as a “sole proprietorship”, “Doing Business As” or a “Fictitious Name” is basically described as a business that is not separate from its owner; the business simply operates under another name for the owner. This means that the owner is personally liable for the company and its debt, and all income becomes an extension of the owner’s personal tax returns. If there is more than one owner, then the business is called a “General Partnership”. This business entity is easy to set up and maintain, but if you plan to operate beyond your city or county, keep in mind that a DBA is not recognized at state level.

A Regular Corporation or C-Corporation is a separate legal entity from its owner, protecting him from personal liability and company debt. As a separate entity, it can buy real estate, enter into contracts, pursue legal action, money can be raised via stocks, ownership may be transferred, the business may continue regardless of ownership, and tax advantages are definitely worth investigating.  Operating a corporation requires holding a yearly Directors and Shareholders meeting, keeping written minutes, and maintaining corporate compliance as set forth in the Corporate Bylaws. This business entity is more expensive than a DBA, but is one of the oldest and most successful types of business entities because it conveys permanence and has many tax, healthcare and travel  benefits.

Once a corporation has been formed, it may choose to attain “S-Corporation Status” by adopting specific regulations and submitting a form to the IRS. This allows a corporation to be taxed as a partnership or sole proprietorship, meaning the income is passed through to the share-holders for the purpose of computing tax returns. Most new small corporations choose this status so that profits and losses can be added to shareholders’ personal tax returns without having to pay taxes on profits twice (once when profits are made and once when they are returned to shareholders as income or dividends). This is the main reason S-Corporations were created, and is very beneficial for tax reasons. However, S-Corporations cannot deduct many of their expenses, such as health insurance, travel, entertainment, etc. They are also restricted to 100 shareholders or fewer, all shareholders must be US citizens, and these businesses cannot be owned by other business entities. They require a lot of paperwork and formalities, and they are expensive to set up, so it is important to weigh the costs before beginning this type of business..

An LLC or Limited Liability Company is popular because it provides the protection of a corporation, but allows operation without the formalities; thus it are more of a hybrid of a corporation and a partnership (or DBA). An LLC provides easy management, allows “pass-through” taxation as with a DBA, combined with the liability protection of a Corporation. There is no stock or share-holders, so there are no stock regulations to adhere to, and there are few formalities aside form requiring an “Operating Agreement” or rules for operating the company. The ease of management and limited compliance requirements make LLC’s user-friendly and have become the top entity of choice for 1-5 person start up businesses.

Once you have made your entity choice and you area ready to set up your books, please contact us to see how we can further assist you.

Post originally written by Bodhi Leaf Media for www.journeybookkeeping.com