BUSINESS AND MANAGEMENT: 02/27/10

Sabtu, 27 Februari 2010

A New Way to Rate Customers with no Credit History

Recession-damaged small and mid-sized businesses would like to extend credit to customers with little if any credit history if they could do it without great risk. Now there’s a way. FICO — the company behind the ubiquitous FICO credit score we all know and love — has created a new FICO Expansion Score to help businesses evaluate the estimated 50-70 million U.S. consumers who have either no traditional credit history or thin credit bureau files at Equifax, Experian and TransUnion.
This group of potential customers is heavy on students, senior citizens and recent immigrants, so the scoring model is based on non-traditional credit data such as subscription memberships, bank deposit account activity and utility histories. The resulting scores use the same 300-850 scoring range as the traditional FICO and can also be used in combination with the traditional score when making credit decisions. The new scoring system can help identify responsible, credit-worthy customers who can meet their obligations but simply haven’t had an opportunity to establish a traditional credit history.
MicroBilt Corp., which provides risk manaement services to small and mid-sized businesses, has an exclusive license to use the FICO scoring model in the U.S. and sell FICO Expansion scores to lenders and businesses. MicroBuilt has direct links to the three major credit bureaus, which means businesses checking customer credit can get both the traditional FICO score and the FICO Expansion score from a single source. For more information on obtaining a FICO Expansion score you can fill out a MicroBuilt inquiry form or call 800-884-4397.
According to its creators, the FICO Expansion score accurately predicts the likelihood that a consumer will become seriously delinquent within the next two years, using the same caliber of highly predictive, objective risk evaluation that other FICO scores are known for.

FACTA Fright is FTC Halloween Red Flags Trick

The time has finally arrived. After multiple delays stretching a year, the much-feared FACTA Red Flags Rules — new anti-fraud legislation that requires millions of credit-granting businesses (both large and small) to implement identify-theft safeguards — take effect just after midnight on Halloween (technically, on Nov. 1, 2009). The Federal Trade Commission (FTC), the rules enforcer, had previously delayed the effective date of FACTA requirements three times.
The problem is this: Despite an FTC effort to educate small businesses and other entities about FACTA red flags requirements, confusion still reigns over what businesses are covered. Even FTC Chairman Jon Leibowitz himself has suggested that Congress may simply have written the law too broadly. Leibowitz ordered his staff to beef up its efforts to educate businesses about compliance and provide more clarity on which businesses are covered, and what they must do to comply. BUT NOTE THIS INSIDE INFO: FTC insiders say the Commission is highly unlikely to take enforcement action against businesses that know their customers or clients individually, or if they perform services in or around their customers’ homes, or if they operate in sectors where identity theft is rare and they have not themselves been the target of identity theft.
The Red Flags Rule is an anti-fraud regulation requiring “creditors” and “financial institutions” to identify, detect and respond to the warning signs, or “red flags” that could indicate identity theft. The new requirements were mandated by the Fair and Accurate Credit Transactions Act (FACTA) – hence the name. The FTC’s Red Flags Web site, www.ftc.gov/redflagsrule, can help you determine if your business is covered, and what you’ll have to do to comply. It includes an online compliance template that lets you design your own Identity Theft Prevention Program through a fairly easy online form, as well as articles directed to specific businesses and industries, guidance manuals, and a FACTA Red Flags FAQ.
FACTA’s definition of “creditor” includes any business that regularly extends or renews credit – or arranges for others to do so – and includes all businesses that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment, however, does not, by itself, make you a creditor. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.
One type of covered business is car dealerships where FACTA rules have already created new layers of red tape and even customer conflicts. Some dealerships have interpreted the rules to mean they have to run credit checks on car-buying customers even when they are not financing any part of the vehicle. That, in turn, has irked some cash-paying customers who object to being forced into providing personal details such as a Social Security number and be subjected to yet another credit check that can negatively impact their future credit score — even when they are not requesting any credit.
Although many covered businesses have already developed and implemented FACTA compliance programs, some – particularly small businesses – remain uncertain about their obligations. Be sure to check the special link for small business on the Red Flags Rule website for further guidance.

10 Ways to Avoid Merchant Account Chargebacks

Merchant account chargebacks are a dreaded event for any business that accepts credit or debit cards. They are expensive, time consuming, subject to fraud and just downright annoying.
Chargebacks are not the same as refunds which are initiated on your end when, for example, a customer returns a product. Rather, chargebacks are initiated through the credit card issuer because the customer has challenged the charge or filed some kind of complaint. It amounts to a reversal of the original transaction, and the merchant gets stuck paying a chargeback fee to boot.
The burden of proof usually falls to the merchant – to you. Credit card companies want to keep their customers happy, so they generally give them the benefit of any doubt on chargebacks. But not only do you lose the sale, you might lose the merchandise as well (or the time and expense providing a service) – plus pay a penalty (chargeback fee).
The consumer’s right to file for a chargeback is created under Federal Law and is meant to protect customers from unscrupulous merchants, shoddy goods and suspect services. Chargebacks are also caused by fraud, processing errors or problems with card authorization.
Brien Heideman, President of BadCustomer.com, calls it “friendly fraud” and says it cost U.S. retailers $11.8 billion last year. “People return used or even different items, they return items to different stores or take advantage of lenient return policies,” says Heideman, who says his site maintains the Internet’s largest shared database of people considered high chargeback risks – over 6 million records. The site also offers services to help small business owners avoid chargebacks.
Here are 10 things you can do:
1. Identify yourself clearly: Make absolutely sure that a company or product name the buyer will recognize appears as the “descriptor” on the customer’s credit card statement. Customers will dispute charges from entities they don’t recognize. For example, if your store is Harry’s Hardware, but the charge comes through under your corporate name Harold Jones LLC, you’re asking for trouble.
2. Seek feedback: Encourage customers to contact you first with any question or dispute. That means making it easy for them to find your phone number, email address, website or other contact information. The idea is to prevent calls going to the credit card issuer which could lead to a chargeback.
3. Verify by email: For online or phone orders, always send a confirming email to the customer to verify. If the email bounces, or the customer won’t provide an email address, that’s a red flag. Confirming emails further reinforce your business name in the customer’s mind, helping prevent chargebacks.
4. Be nimble, be quick: Whatever you do, do it fast. Send notices immediately, ship goods on time, perform authorizations and process credit cards on the spot and respond to any and all dispute posthaste. The longer you wait, the higher your chargeback risks.
5. Follow procedures: If a credit card is expired, an address doesn’t match or authorization is declined, don’t complete the sale. Make sure information on receipts is accurate and legible. Incomplete information triggers chargebacks. Establish a policy of asking to see customer identification to ensure it matches the name on the card.
6. Safeguard against duplicates: Be sure transactions are entered only once – a duplicate could trigger a chargeback. Ask your merchant account provider to enable duplicate-checking safeguards on your account, if this service is offered.
7. Display your return policies: Make your return, exchange and cancellation policies are made clear on your website, in your store, on receipts, in confirmation emails – and anywhere else you can think of. This discourages chargebacks and can also help you win disputes.
8. Request signatures: One crooked customer tactic is to claim goods were never received. To discourage this, consider using signature-required delivery services from FedEx, UPS or the Postal Service. This still isn’t foolproof, but improves your odds.
9. Challenge the chargeback: You don’t have to take chargebacks lying down. You can still salvage the sale by providing detailed information to your merchant bank documenting the transaction and all actions taken to resolve any dispute.
10. Get bad: If chargeback woes have you at wit’s end, consider the “BadCustomer” approach. Check the BadCustomer.com database for potential chargeback risks, and warn customers you’ll report them to the site for unwarranted disputes.

Small Loans to Start or Grow a Business

Need a small loan to start or expand a business – a so-called “microloan?” If so, there’s good news. Despite what you might have read lately, microloans of $500 to $50,000 are available through a variety of private sources, government programs and even non-profits. Some of them might even surprise you.
Keep in mind, however, that you’ll need to qualify for the money, submit an application, have a sound business plan or idea, and – gulp – will have to pay back the money. Still, opportunities to secure micro financing for a business startup have broadened.
Here’s where you’ll find the money:
ACCION USA is a private non-profit that offers startup and expansion microloans of up to $50,000 to small business owners in the U.S., along with credit and business advice to small business owners who cannot access traditional credit. ACCION specializes in working with qualified small business owners who do not meet bank lending standards and offers loans for startups as well as loans for established businesses. The Web site has an online application and other helpful resources.
In addition to serving U.S. micro-entrepreneurs through ACCION USA, Boston-based ACCION partners with microfinance organizations throughout Latin America, the Caribbean, Asia and Africa. Since 1998, ACCION has made over $17.4 billion in microbusiness loans to over 6 million people worldwide.
Community Development Financial Institutions: About 1,000 CDFIs in all 50 states make microloans for business startups in low-wealth, low-income communities, serving both rural and urban areas. Use the handy CDFI State Locator at the non-profit CDFI Coalition website to find one near you. Some CDFI examples:

The Utah Microenterprise Loan Fund, a certified CDFI, is making loans of up to $25,000. Their motto is ”Building brighter futures through small business.” A $10,000 micro enterprise loan from the Utah fund helped Somer Gardiner get her Salt Lake City yarn store, Soul Spun Yarn, off the ground.
Enterprise Corporation of the Delta, a CDFI in Jackson, MS, has helped train or fund thousands of entrepreneurs in the Mississippi Delta region it serves. It helped back Computers, Inc., a small business owned by three women. Computers, Inc. installs custom equipment for schools and businesses.
Self-Help, a CDFI in North Carolina, provides small business loans in several southeastern states and elsewhere around the country. Loans range from a few thousand dollars and up to start, buy or expand a business or non-profit.

U.S. Small Business Administration: Under its Microloan Program, the SBA makes funds available to a variety of non-profit community-based lenders or “intermediaries.” Those lenders, in turn, make the microloans to eligible entrepreneurs. The average loan is about $13,000 and the range is typically between $5,000 and $50,000.
Valley Economic Development Center (VEDC) runs one such SBA microloan program that in late 2009 received a $2 million capital injection from U.S. Bank to expand its micro lending services in Southern California. In addition to providing loans, VEDC provides technical assistance to small companies. VEDC works with SCORE, the SBA and U.S. Bank branches to identify potential borrowers. Check the SBA’s list of 165 micro lenders nationwide for one in your area.
Person-to-Person lending: This is also called peer-to-peer lending and thanks to tight-fisted traditional lenders and a group of websites that back it, it’s a booming alternative to traditional loan sources. Several P2P lending websites have grown rapidly, connecting people who have money with people who need it, while helping structure and manage loans between them. The average loan made through a P2P site is about $5,000.
Top P2P lending sites include Prosper.com, Virgin Money US, Lending Club and RaiseCapital.com. Individual lender/investors compete with each to make loans to borrower’s who have posted a loan request on the site. The better your credit rating and proposal, the lower you rate is likely to be. Here’s a description of how it works at Prosper.com.
Count Me In, a non-profit organization, makes microloans to women entrepreneurs in all 50 states through its Micro to Millions Award program.

How to Cash in on Your Excess Inventory

Excess inventory can be a serious financial drag for any business. But what to do with excess items – no matter what they are or where they came from – can be a difficult dilemma. Selling what you have through normal channels – special sales, for example, or online — may be out of the question. After all, the reason you have the surplus is because your regular outlets haven’t done the job.
And you probably have little patience for continuing to carry the extra load. But there are several tactics that can either net you a cash return on your items, or a nifty tax write-off. And some of those services are places you can buy as well as sell excess inventory. Your five basic choices are:

Sign up to sell in bulk in a business-to-business inventory liquidation marketplace.
Sell everything at once to an “instant” liquidator.
Sell small quantities at sites targeting consumer volume sales.
Launch an online sales channel for your business on eBay.
Donate qualified items to a charity and earn a tax deduction of up to twice the cost of the goods.

Here’s where you can go to get it done, depending on what goods you have on hand and in what quantities:
Unload in bulk, business-to-business: Retailers, wholesalers, manufacturers, distributors and others can sell goods via centralized liquidation auctions. For example, Liquidation.com is a b2b bulk marketplace where companies sell all kinds of excess goods. Liquidation.com welcomes inventory from small businesses to sell on this auction marketplace, and has a track record of providing returns higher than other liquidation methods.
Net instant cash on your excess inventory: You can avoid the bother of auctions by selling to a surplus inventory liquidator. InstantLiquidators.com, MerchandiseUSA.com and Power Retailing (www.retailing.com) all buy a wide range of customer-returned and excess inventory. Excess Technologies (www.excessi.com) is a professional surplus inventory liquidator.
Open a sales channel for your business on eBay: Opening a business selling account on eBay can be a great way to sell some of your excess inventory at competitive prices. Setting up your business sellers account is free and simple. Be sure to download the 25-page New Business Seller Guide (PDF) which walks you through the process with tips and advice. Visit www.ebay.com/sellerinformation to get started.
Donate your goods for a juicy tax deduction: Your incorporated business can earn an above-cost, federal income tax deduction, clear out warehouse space, avoid liquidation nightmares and help schools and nonprofits at the same time. The National Association for the Exchange of Industrial Resources (www.naeir.org) takes donations of new, overstock or discontinued product and redistributes it to schools and nonprofit groups nationwide.
Donor companies can receive an enhanced income tax deduction of up to twice the cost of the goods, courtesy of Internal Revenue Tax Code Section 170 (e)(3). NAEIR takes donations of general, consumer goods such as school and office supplies, toys, games, building materials, clothing, tools, and much more. NAEIR also provides the paperwork to aid in filing taxes.
You can deduct cost, as carried on your books, plus half the difference between cost (basis) and the fair market value, except that the tax deduction cannot exceed twice the cost. For example, items carried on the books at a cost of $100 that have an established fair market value of $200 may be donated and a deduction of $150 may be taken. If however, those items carried at a $100 cost have an established fair market value of $300, they may be donated and a deduction of $200 may be taken.
Plan Ahead: To avoid this problem in the future, consider using inventory management software to keep better track of your goods. Fishbowl Inventory is the best-selling inventory solution for small business that integrates easily with QuickBooks.
Fishbowl Inventory was designed to provide inventory control for wholesalers, distributors, manufacturers and retailers that use QuickBooks. Fishbowl provides advanced features including multi-location inventory control, order management, expiration dates, serial and lot number tracking and point of sale functions. It’s available directly from Fishbowl (www.fishbowlinventory.com) or through software resellers.

New ExpenseWatch.com Release Helps Manage Payables

Put a lock on your spending

If ever there was as time to watch expenses, this is it. And I can’t think of a more apt app for doing so than web-based ExpenseWatch, which has just rolled out new components that help small and mid-sized businesses track expenses and manage payables. Basically, ExpenseWatch is like shining a spotlight on your spending.
But more importantly than seeing what you’ve already spent, this system helps you anticipate future spending before it happens. Such expenses can include committed purchases, invoices, unpaid T&E costs and other requests in process that — if approved — could bust your budget.
ExpenseWatch isn’t for really small firms. It’s sophisticated stuff that can help solve a variety of expense management problems — especially small and mid-sized businesses that still use manual or other paper-based ways of dealing with company expenses and accounts payable (AP). The newly-released AP Invoice Management module makes sure that invoices are matched to purchase orders and packing lists, helping to do away with duplication, overspending and paying for things you didn’t order.

Small Business Bags Stimulus Bill Tax Breaks

Got losses? File for refunds back to 2003!

While nearly two-thirds of the newly-adopted $787 billion economic stimulus package represents spending programs, the other third (about $288 billion) offers tax breaks for individuals and businesses. According to CBIZ, a major accounting firm and business services provider, small biz bagged some of the biggest benefits under the new law.
Some tax goodies extend popular incentives that recently expired. Others expand tax write-offs for losses — which will generate quick cash for many business owners. Here’s a rundown of key business tax benefits included in the stimulus bill:
1) Longer operating loss carry-backs: If your small business had a “net operating loss” (NOL) in 2008, this provision could be a terrific way to generate cash by claiming refunds now of taxes paid in previous years when profits were flowing. Instead of the current two-year carry-back period, eligible businesses (those averaging less than $15 million in gross receipts) can now carry back 2008 losses to 2003, 2004 or 2005. And you don’t have to be a corporation or LLC. Even sole proprietors can qualify. If your business had a loss last year, CBIZ suggests filing your 2008 return early so you can then file amended returns for prior years and reclaim your cash.
2) Bonus depreciation extended: In a bid to boost new equipment purchases (computers, machinery, vehicles) “Bonus Depreciation” – a juicy tax tidbit that expired in 2008 – has been extended through 2009 for most property, and 2010 for longer-lived assets. Basically, this is a 50 percent “bonus” write-off for the cost of new equipment a business buys and starts using this year.

Say you spend $100,000 on new computers, software and other IT equipment. Under prior rules, your first year depreciation write-off would be 14 percent ($14,000). But now you can get a 50 percent “bonus depreciation” ($50,000), plus 14 percent of the remaining amount (another $7,000). Thus, you’d net a total first-year deduction of $57,000 on the $100,000 purchase. This applies to businesses of all sizes that invest in tangible property or computer software, as well as improvements to leased property.

3) Bigger expensing write-offs for depreciable property: Higher expensing limits for depreciable property that expired in ‘08 have also been extended through ‘09. This lets your business immediately write off up to $250,000 of tangible personal property placed in service this year.

“The tax benefits of leveraging these two provisions can be tremendous” say CBIZ experts. You can quickly recover the cost of major asset purchases. But the provisions might not be around for long, so moving up equipment purchases to get the tax benefits now might make sense. Be sure to check with your tax advisor about state tax provisions since not all states conform to the federal bonus deprecation provisions.

4) Estimated tax relief: If you report income from a small business on your personal tax return, you’ll get a small break on the amount of estimated taxes required to avoid underpayment penalties. If at least 50 percent of your adjusted gross income is from the business, you’ll only need to cover 90 percent of your prior year’s taxes to avoid penalty, beginning with the 2009 tax year. Previously this was 100 percent to 110 percent, depending on your income.
5) Small biz stock gains: Anyone who buys stock in a small business between the enactment date of the stimulus bill and 2011 gets a bulked-up break on capital gains taxes later on. If the stock is held at least five years, 75 percent of any gain can be excluded – up from the current 50 percent. According to CBIZ, the stock must be original issue stock held by a non-corporate investor in a C corporation with gross assets under $50 million. The company must also be actively engaged in a trade or business.
6) Tax breaks for hiring: The new law expands the Work Opportunity Tax Credit (WOTC) program to include two new targeted groups – unemployed vets and young people between 16 and 25 who haven’t been employed or attended school in the past six months. Businesses hiring such individuals can qualify for a $2,400 tax credit per worker.

Personal Finance Fixup for Entrepreneurs

03/10/2009

When it comes to managing their personal finances, many entrepreneurs become notorious numskulls. Most are so caught up in business-building that their personal

ledgers are lame. Software such as Quicken or Microsoft Money can save the day. But you’ve gotta buy, install, use, update and apply add-ons to these programs, which takes time, effort and a bit of cash. So many entrepreneurs stick to the old “envelope” filing system.

Mvelopes offers an alternative — a way to effectively manage personal finances online. It’s been around a while — launched in 2004 as an online subscription service — flying largely under the radar. But tough (an understatement?) economic times are spurring more biz owners to seek help budgeting, paying bills, reducing debt and generally taking better control of their personal bottom lines.
Here at What Works for Business, we love useful web-based apps, and this one has years of upgrades already under its belt. The $129 it costs annually ($189 for 2 years) is pocket change compared to the time, money and financial pain it could save you. Features you get:

View all of your transactions and balance info in one place. Plan and track purchases.
Automatically retrieve, rename, and assign transactions from all your online accounts.
Receive, view and pay your bills all online. Up to 15 payments per month are included in the cost.
Track IRAs, 401(k), stocks, mutual funds, as well as your mortgage and auto loans.
Unlimited live customer support and product coaching via chat or email, or view product tutorial videos, online help manuals, or the Member Forum to find answers and information.

Personal Finance Fixup for Entreprene

urs

03/10/2009

When it comes to managing their personal finances, many entrepreneurs become notorious numskulls. Most are so caught up in business-building that their personal

View all of your transactions and balance info in one place. Plan and track purchases.
Automatically retrieve, rename, and assign transactions from all your online accounts.
Receive, view and pay your bills all online. Up to 15 payments per month are included in the cost.
Track IRAs, 401(k), stocks, mutual funds, as well as your mortgage and auto loans.
Unlimited live customer support and product coaching via chat or email, or view product tutorial videos, online help manuals, or the Member Forum to find answers and information.

How to Use the New Small Business Operating Loss Deductions

As you may know, the economic stimulus law passed in February includes key provisions that allow struggling small businesses to re-file their taxes to carry back net operating losses (NOLs) up to five years. Result: Qualifying small businesses with losses can get immediate refunds of income taxes paid in prior years.
But how, exactly, does it work? There are decisions and deadlines you have to make. For an expert view on how to take advantage of this stimulus bill tax break for small business, we’re including a guest post below from William Massey, Sr. Tax Analyst in the Tax & Accounting arm of Thomson Reuters, a top provider of tax info and solutions to accounting and tax professionals.
From William Massey, Senior Tax Analyst, Thomson Reuters:
Important decisions must be made for an eligible small business to achieve maximum tax savings from this provision. The IRS has issued favorable guidance on this provision and says that it will act quickly to get refunds to businesses carrying back losses under the new rule. But, in addition to making correct choices, a business must follow certain filing procedures to qualify for this important tax break and, in some cases, must do so before April 18, 2009.
Details of the new NOL carryback:In general, NOLs may be carried back two years and forward 20 years (different rules apply for certain specialized types of losses and the carryback period may be waived). For NOLs arising in a tax year beginning or ending in 2008, the Recovery Act permits eligible small businesses (ESBs) to elect to increase the NOL carryback period from two years to three, four, or five years. For calendar year businesses, the election is available only for 2008. A fiscal-year taxpayer whose year ends in 2008 can make the election either for its fiscal year ending in 2008 or its fiscal year beginning in 2008 and ending in 2009, but not both.
An ESB is a trade or business (including one conducted in or through a corporation, partnership, or sole proprietorship) with average annual gross receipts of $15 million or less for the three-tax-year period (or shorter period of existence) ending with (as clarified in the IRS guidance) the tax year in which the loss arose (as opposed to the tax year before the year of the loss, as some had read the statutory language). The IRS interpretation generally is more favorable to taxpayers because, for example, more calendar year taxpayers would qualify using 2008 receipts rather than 2005 receipts, when economic conditions were much better.
In determining whether a partnership or S corporation qualifies as an ESB, the gross receipts test applies at the partnership or S corporation level but the election is made by the partner or S shareholder, as the case may be.
Deadlines for making the election:A taxpayer who already filed a 2008 return may still make the election to use a three, four or five year carryback by the later of: (A) six months after the due date of the return (determined without extensions), or (B) April 17, 2009. A taxpayer who previously elected to waive the normal two-year carryback period may undo it and make a new election no later than April 17, 2009. A taxpayer who has not filed a return for the year of the loss, has until the later of: (A) the due date (with extensions) of the return for the year of the loss, or (B) April 17, 2009 to make the election.
Deciding which choice or choices to make:Small businesses with a qualifying NOL must decide whether to waive the carryback period or to use a two, three, four or five year carryback period. Fiscal year filers have the added choice of which year to use. These choices are quite complex and require a detailed examination of the tax picture of the business. The key factor in deciding whether to elect to carry an NOL back three, four, or five years should be which election will result in the largest tax savings. It is especially important to make the right choice because once made, the choice is irrevocable.
Getting a quick refund: Corporations making the election can get a quick refund by filing Form 1139. Individuals use Form 1045 to get a quick refund. The IRS has supplied detailed instructions as to what information must accompany these forms.

16 Tips to Avoid a Tax Audit of Your Small Business Return

IRS audits of small business tax returns are up – way up, and headed even higher. The Internal Revenue Service has said loud-and-clear that it believes roughly $100 billion of income from small business, home office and other solo-operator sources goes unreported each year.

Small business tax audits are up; Don't be next!

As a result, the tax collecting agency has amped up an enforcement effort aimed squarely at a wide range of small business returns, including S-corporations, LLCs, partnerships and especially sole proprietors, who generally use a Schedule C to a personal 1040 return to report business-related income. The audit stats get ugly. Sole proprietors – the most dominant form of small biz ownership – are 10 times more likely to be audited than other business entities.
It’s little wonder. The IRS spends less to pursue big corporations, wealthy tax cheats and money-laundering drug lords combined than it does going after small business owners.
If there’s “good news” here, it’s this: You can lower your odds of a tax audit by taking certain steps with your tax return, and avoiding others – you just need to be “DIF” score savvy. DIF is hush-hush Fed-speak for “Discriminate Information Function,” the super secret IRS sauce that decides if your small business related tax return is ripe for an audit. While DIF details are, well, secret, the steps below can help you avoid the audit hook. Each choice you make (how to file; when to file; what deductions to claim) has an impact on your audit odds. Here are 16 things you can do:

1. Be accurate, thorough, neat and on-time (but not early). Sloppy returns, math errors and rounded numbers raise flags. Using tax preparation software makes your return look more professional and helps you avoid mistakes. Filing early only gives the IRS extra time to look it over. Accuracy starts with keeping good records; if the IRS ever questions anything on your return, the burden will be on YOU to prove it’s right. If your records are sloppy, this will be difficult.
2. Avoid filing electronically. Sure, electronic tax return filings are convenient, and in some cases even required. But the IRS hires temps to enter data from millions of paper returns, and they capture only about 40 percent of the info. Electronic filing gives IRS fast access to 100 percent of your return.
3. Explain yourself clearly. Avoid vague expense categories such as the infamous category some business owners use called “miscellaneous.” If your business is claiming unusual deductions of some kind – anything an IRS reviewer might not have come across a thousand times before — provide an explanation or documentation.
4. Make your estimated tax payments and issue 1099 and W2 forms on time. Late quarterly and estimated payments, non-payments and underestimated amounts draw IRS ire. Know the deadlines and meet them. File 1099s and W-2s using easy online tax services such as FileTaxes.com which are cheap and easy.
5. File on time: This is kind of a no-brainer. Late returns raise flags. It’s easy to file for an extension, so there’s little reason to miss the initial deadline. Just remember that any money you owe is still due by the original filing deadline; the extra time is for doing the paperwork.
6. Beware of your income-to-deduction ratio. Your tax audit odds for a small business rise if the difference between expenses and income exceeds about 52 percent. But total deductions are only part of it. One especially large deduction can also raise flags, even if others are small or in line with other businesses in your industry.
7. Inc. yourself. Sole proprietors who file a Schedule C for each business get audited most. To avoid the higher risk of sole proprietor audits, consider making your business a corporation or limited liability company (LLC).
8. Hire a CPA or other tax pro. Tax rules that affect small business are impossibly complex, far-reaching and downright confusing. Even for relatively straightforward situations, getting professional tax preparation advice can be a huge help in avoiding audit triggers for your particular case or industry. Check online sources for different types of accounting firms and CPAs specializing in your area.
9. Be wary of taking a home office deduction. Tax returns that include a deduction for a home office are a prime IRS target, so if you plan to take a home office tax deduction, make sure you know the rules. A home office must be a completely separate room or area used exclusively for business. Here again, a CPA can be invaluable in helping you do it right, or perhaps deciding that the benefits aren’t worth the hassle.
10. Avoid the independent contractor trap: Another favorite IRS target – one they are convinced yields a lot of extra cash – is miss-classified workers. If your business uses freelancers and other types of independent contractors, make absolutely certain they qualify for independent contractor status or the IRS may determine they really are employees and stick you with a big bill for back payroll taxes plus penalties.
11. Watch those startup cost deductions: Many startup entrepreneurs and new business owners assume that money they’ve spent to get the business up and running can be deducted immediately. But that’s not always the case – many startup costs must be “depreciated” over time. (Check out the latest “bonus depreciation” tax rules for small business included in the 2009 economic stimulus bill.)
12. Don’t “forget” to report income: The one thing the IRS hates above all else is unreported income. And don’t kid yourself – the tax agencies are far more sophisticated about tracing money than they’ve ever been. Also remember that the IRS has extensive data on typical income levels and deductions for every type of business that exists. If yours is out of line with others like you, an audit could result.
13. Don’t mix personal and business deductions: The IRS is on the lookout for small business owners who try to deduct travel, entertainment or other costs (cell phones, merchandise, etc.) that are really personal, and not business related. Remember that only business-related expenses can be deducted. Make sure you understand the rules on what portion of business entertainment costs are allowable as a deduction. And avoiding taking mileage deductions for personal use of a vehicle…another IRS audit hotspot.
14. Make your hobby a true business: If the business you are claiming all those deductions for looks more like a hobby to the IRS, you could trigger an audit and end up owing back taxes. A real business has revenues at least some of the time, and looks, acts and spends like a business as well.
15. Report barter and auction income: The fair market value you receive through business barter transactions may indeed be taxable, even if you did not receive cash. Likewise, income generated from selling items via online auction websites needs to be reported.
16. Be honest. Every year, the IRS gets better at using high-tech means to track your business income. And some things are just obvious. If you claim lots of expenses, but show little revenue to pay for them, the tax folks get curious.

3 Free Recession Solutions for Small Business

Succeeding in small business today requires a solid grip on your finances and an arsenal of tech tools to help you collaborate with colleagues, schedule your time, manage customer relationships and leverage the Internet. And guess what? You can get all of that – and more – absolutely free from some of the nation’s top tech companies that support small business.
The free products, services and solutions from these three organizations alone have already helped millions of business owners succeed. They represent some of the “core competencies” any business needs to survive and prosper, including finance, technology, information and customer relationships. Here they are – free for the taking:

1) Free Financial Software from QuickBooks: QuickBooks became the world’s most popular small business financial software because it understands what a small business needs, is easy to use, comes loaded with useful features and can almost instantly make your business more profitable. Best of all, you can download a QuickBooks “Simple Start” free edition 2009 – with no forms, registration or credit card information required – at the Intel Business Exchange Software Store for small business.
QuickBooks Simple Start Free Edition 2009, from Intuit, is not “trial” software. It’s fully-functional and never expires. Here are some of the things it will do for you:

Track sales, sales taxes and customer payments
Create estimates and invoices
Print checks, pay bills and track expenses
Manage payroll and payroll taxes
Track up to 20 customer and vendor contacts
Create 14 different financial reports with a single click
Import data from Excel

Of course, Intuit hopes you’ll upgrade to its more powerful products as your business grows. But that’s up to you, and starting with the free, Simple Start version is a great way to organize your finances at zero cost and get more time to spend on other facets of your business.

2) Free Online Applications from GoogleThink Google is just a search engine? Think again. The global Internet giant has morphed into a multi-faceted tool that you can use to help launch and grow your small business. Here’s some of what you can get:
No matter what size business you operate, Google Apps can help you stretch resources and work smarter. Google Docs, for example, enhances productivity and eliminates the need to collaborate with attachments. You can start a project with software like Microsoft Office, and use Google Docs to share files with others for collaborative editing. Everyone accesses the same online copy of the file in Google Docs, so there are no attachment compatibility problems, inbox storage quota issues, or versions to reconcile. When the group is done editing, you can keep the file in Google Docs, or export it back to the original format.
And the Google Local Business Center (LBC) has launched a new free tool that lets you easily get helpful information that includes:

Impressions: The number of times your business listing appeared as a result on a Google.com or Google Maps search in a given period.
Actions: The number of times someone took action. For example, the number of times they clicked through to your website or requested driving directions to your business.
Top Search Queries or Keywords: Which specific queries (keywords or phrases) led customers to your listing. For example, did they find your cafe by searching for “tea” or “coffee?”
Zip codes where driving directions come from: Which Zip Codes customers are coming from when they request directions to your location.

Google also lets you offer private-labeled email and calendar tools to all of your users for free. You can design and publish your Web site, too. It’s all hosted by Google, so there’s no hardware or software to install.

3) Free Online Sales and Customer Relationship Management: Free CRM, from San Francisco-based CRM ASP, Inc., is a web-based software solution for customer relationship management and sales force automation. Free CRM is a great tool for small business contact and lead tracking, sales and contact management, sales forecasting, customer service and business management. With over 103,000 customers, CRM ASP is one of the leading on-demand CRM providers.
The free version is self-service, allows unlimited users and provides up to 10 MB of storage. If your customer base is not particularly large, it can be a quick and easy way to automate your sales, do a better job of tracking leads and even manage email and call campaigns. A paid “Professional Edition” is also available with live support, unlimited storage and enhanced features.

Cheap and Easy Way to File IRS 941 Forms Online

Got employees? If you pay wages, you need to file quarterly IRS Form 941 reports to process tax payments and reconcile withholding. Next deadline: July 31. Don’t sweat it — file the easy way with an online service like FileTaxes.com. I’ve used this web-based tax filing service for years to process 1099s, W-2s and other tax forms, and it’s been a terrific time-saver…and cheap, too.
Forget firing up your own software, printing forms and then mailing them. Banish worries about whether your filing meetings regulations. The FileTaxes service does it for you and provides copies for your records that you can print out or store and access anytime in your online account. All you need to do is enter your summarized payroll data online. 941 Forms are $4.95 each.
One problem: To get started, you need a PIN from the IRS. But FileTaxes will arrange for that too once you provide your information online. If you owe money after filing the 941 (less than $2,500), the IRS will debit your business bank account using the bank information you provide via FileTaxes. You get PDF copies of your filings and email confirmation as well.
Here’s a link to the official IRS 941 filing instructions if you need them.

Best Online Bookkeeping for Small Business

One of the best things to happen to small business the last several years is the arrival of computing services that you access online. They are cheap (often free) and eliminate the need for you to have expensive hardware and software in your own location.

Among the most prolific of these services are online billing and bookkeeping websites. They range from free and simple services that let you create and send invoices, to full-blown financial management solutions that can help manage all aspects of your business.
Here are my top five online invoicing and bookkeeping services for small business:
WorkingPoint.com (previously called NetBooks) aspires to be much more than just online bookkeeping. It’s an end-to-end solution that lets you manage your entire small business online. This includes invoicing, bookkeeping, contact management, expense tracking, financial reports, inventory management and more.
The site’s latest offering is a new company profile feature that gives you a free web page. The basic WorkingPoint service (one user) is free “forever.” For additional users, rates start at $10 monthly.
Freshbooks.com – among the first online invoicing services – has hundreds of thousands of users and an expanding lineup of services. It’s core service lets you send and manage invoices and collect payments online. You can brand your system and invoices with your company’s logo.
Where FreshBooks stands apart from most other services is its ability to also let you track time and expenses for yourself, your staff or contractors who may be working on various projects with your team. You can invite contractors to join your team on FreshBooks and receive their invoices all in one place. There’s also a FreshBooks iPhone app.
Zoho Invoice is one of ten helpful business applications from the popular online collaboration site Zoho. It’s free for up to five invoices per month. For larger numbers, pricing ranges from $8 to $35 per month. Zoho Invoice lets you easily send professionally-designed invoices and price quotes to your customers. You can select from different invoice templates, or design your own with your own logo. Plus, you can track invoices, send reminders, accept payments online (through PayPal integration) and acknowledge receipts. If you sell overseas, there’s a feature that lets you send invoices and quotes in different currencies.
For a service dedicated primarily to invoicing, Zoho Invoice is a great choice, and leverages many of the same features that have made it’s other award-winning applications so popular among freelancers, small business owners and professionals such as attorneys, architects and tech consultants. Other features include automated invoicing for recurring bills, and the ability to import or export data to or from the system anytime with standard formats.
QuickBooks Online Free: This simplified, free version of the QuickBooks accounting and bookkeeping system for small business lacks the more powerful features of QuickBooks’ other versions, but it still packs a nice little punch for a small solo business if your needs are modest. You can instantly create invoices, track your money and manage up to 20 customers.
The “easy accounting” features of QuickBooks Online Free are designed for people who don’t know anything about accounting. It helps you get and stay financially organized by gathering your important information in a central place. Your information is then available to you anytime, anywhere via the Internet.
BillingBoss.com, from The Sage Group, is one of the newest additions to the online bookkeeping lineup. Billing Boss is a free online invoicing tool designed for small business owners and freelancers to create, send and track invoices. It’s easy to use and you can create your first invoice within minutes of signing up.
If you’ve been getting by with spreadsheets, or use complicated accounting software only for its invoicing tool, BillingBoss might be for you. Unlike some free services, there’s no limit on the number of invoices you can create or send with Billing Boss. You can also set it up so customers can pay you online through Billing Boss. There’s also comfort in knowing this service is run by one of the world’s leading business software companies, and that your data and customer information are encrypted and stored in secure facilities.
Don’t like any of these? Others to consider include Outright.com, Harvest, LiteAccounting.com and MerchantsMirror.com.

10 Terrific QuickBooks Extras

With millions of small and medium businesses using QuickBooks to manage their financial affairs, the industry for QuickBooks “add-ons” has blossomed. Add-on programs are essential to many small and mid-sized businesses because they are often the only way to get industry-specific or highly specialized functions. They’re great for adding extra capabilities in key areas such as inventory, time and project tracking, invoicing, e-commerce and others.
Every year, The Sleeter Group – a premier network of small business technology consultants – names a new list of winners in its “Awesome Add-ons for QuickBooks” competition at an annual event that showcases cutting edge businesses management tools and technologies. The Awesome Add-ons award recognizes software programs, web-based applications and services that help enhance QuickBooks by giving users additional tools for managing their businesses. To qualify, technologies must seamlessly integrate with QuickBooks, and offer superior design, ease-of-use and conformance with appropriate accounting standards.
The 2010 Awesome Add-ons for QuickBooks are:
1.      Method Integration, a web-based platform for QuickBooks that allows users to create customized, online business management systems with real-time syncing to their QuickBooks data. http://methodintegration.com/
2.      ExpenseWatch.com, for its online system that offers automated tools for managing business spending processes, while ensuring that spending policies are enforced. http://expensewatch.com/
3.      MISys SBM Shop Floor Control, which gives manufacturers enhanced tracking features for managing work tools, production centers, shop operations and manufacturing capacity. http://misysinc.com/
4.      Connect Commerce, an ecommerce solution offering secure, real-time applications for sellers and buyers, giving each party access to more accurate data that can be automatically integrated into their accounting system. http://netfira.com/
5.      Autofy, which reduces data entry tasks by synchronizing business records between desktop and enterprise software, online data sources, ecommerce systems and mobile devices. http://propelware.com/
6.      Qvinci business management system, which aggregates data from QuickBooks and Excel, providing a dashboard view of financial information with forward-looking tools, drill down, early warning indicators and graphical data representations. http://qvinci.com/
7.      Sharefile, for its web-based collaboration suite that lets users create custom-branded, secure portals for exchanging business files with clients and coworkers. http://sharefile.com/
8.      Virtual Time + Expense, an online platform that simplifies preparation, approval and accounting processes for timesheets and expense reports, and includes features for time, class and project tracking.   http://virtualsoftware.net/
9.      ExpandedReports for QuickBooks/Fishbowl, a comprehensive and flexible reporting tool for business using QuickBooks of Fishbowl Inventory that helps consultants produce and customize reports for clients, filling the gaps left by standard reporting options.   http://xpandedreports.com/
10. In addition to the above Awsome Add-ons, incMagic (http://incmagic.com/) search was named a “New Product to Watch.” The system provides easy-to-use search functions within QuickBooks that lets users quickly search across any data in the program.
The Sleeter Group is a nationwide community of experts offering tech consulting services to small business owners, as well as training programs and seminars. They also publish a wide range of QuickBooks reference materials and textbooks used by more than 100 U.S. colleges and universities.

More New ‘10-Second Solutions’

03/18/2009

Here’s our latest collection of What Works for Business 10-Second Solutions:

Scanners Get Smarter: Fujitsu just launched two new SnapScan scanners for PC and Mac users with great new small biz features. Convert stacks of different docs to digital images without having to change settings — scanner auto-adjusts to sizes, page orientation, colors, 2-sided, etc. Speeds up to 40 images per minute. SnapScan S1500 and S1500M ($495) available at Fujitsu site.
crowdSPRING Draws a Crowd: The new online marketplace for creative design services (logos, websites, brochures, etc.) says it just hit $1 million in total deals done since May ‘08. Works this way: Post what you need, when you need it and how much you want to pay. Money goes to escrow. Creatives from a pool of 17,000 worldwide will submit actual designs – not bids or proposals – for you to review, sort, rate, provide feedback and collaborate on ’til you find the “the one.” Money back if you don’t get at least 25 entries.
Get Notice of Packages or Mail: I keep a mailbox at a UPS Store as a convenient place to receive packages and some types of mail. But I hate making a trip there for an empty box. Now UPS Stores (there are 6,000 worldwide) will send a text message or an email when there’s a package — great What Works for Business time saver. And contrary to popular belief, you can get regular mail or FedEx deliveries there, too. Locations and details at The UPS Store website.
How to Send Big Files over the Web: YouSendIt is a monthly subscription service that many biz owners are using to cut costs of sending documents via courier or overnight. A medical consultant, for example, saves some $8,000 yearly sending files digitally rather than large binders, paper manuals or burned CDs. Companies of all types of using this technology to cut costs and speed projects along.
Get Tech Security via the Web: Computer security — like anti-virus protection — isn’t a service most small and mid-sized businesses think about getting via the Internet. But Panda Security, a giant global IT security solutions company, now offers simple, cost-saving ways for smaller businesses to get hosted computer security solutions they can tap into online. Details at Panda Security site.
Digital Signage can Spark Retail Success: Amazing (and affordable) new digital signage technology is a great way for small businesses to turn heads, and attract customers. A small firm called advancedMethod has a new express digital signage system that’s easy to use and includes the basic player and software needed to create your own content right out of the box, plus industry-specific templates.

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Posted by Daniel Kehrer

Six New 10-Second Solutions

01/29/2009

Here are six more in the What Works for Business series of new small biz solutions you can digest in 10 seconds or less:
Postage Meter Deals: Postage meter purveyor Pitney Bowes is cutting prices and making some of its best deals ever on postage meters for new small business customers. Their Personal Post machine, which has leased for 2 or 3 times this amount (you can’t buy postage meters) is now $15/month, with 60 days free. And PB throws in $15/month in free postage for two years, to boot!
2009 Tax Help Online: A new 2009 Tax Center available on the legal site Findlaw.com offers authoritative advice and resources on filing your tax return for tax year 2008. It includes info on deductions, deadlines, audits and much more.
0% Tech Financing From HP: HP just launched a terrific deal for small biz that lets you finance $1,500 to $150,000 worth of tech products form HP’s entire line at zero %, and you can choose to either lease or own. Deal details here — good through April 30, 2009 in the U.S. and Canada.
New Biz Blogging Platform: HubSpot — a hot spot of internet marketing ideas and solutions — just launched a new web-based blogging system for business users to help would-be biz bloggers add a blog to their website with easy integration and full analytics.
Salve for Recession — Win an Award: Entries for the 2009 American Business Awards are now open in dozens of categories, from Executive of the Year, Company of the Year, Best new Product or Service, Best Website, Fastest-Growing Company and more, until March 31.
Shelve Your Suitcase — Videoconference More: Regus Group, which runs the world’s largest network of videoconference rooms available to business, has seen a 40% spike in bookings over the past 12 months. Check out Regus for this $$-saving solution.

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