Category: Finance & Capital

Have you faced financial hardship or do you know someone who has? Hardships come in many forms, from unexpected health problems to a lost source of income. Whenever someone faces a sudden hardship, they may be unable to fully pay their taxes.

Despite any financial troubles you might currently have, you need to file your taxes to avoid penalties from the IRS. However, that doesn’t mean the agency isn’t willing to work out a reasonable solution for those facing dire money problems. Find out how the IRS debt forgiveness program works and if it is right for your current situation.

What Is the IRS Debt Forgiveness Program?

Image via Flickr by free pictures of money.

It might surprise you that the IRS would be willing to let any debt go uncollected, but the agency would rather collect some of what taxpayers owe than nothing. As part of the agency’s debt forgiveness program, the IRS Fresh Start Initiative began in 2008. The initiative provides opportunities for taxpayers to avoid bankruptcy, tax levies, wage garnishments, or other undesirable collections.

The Fresh Start Initiative program offers several alternatives. You could make a lump-sum payment before the IRS takes further actions and avoid additional fees and interest. Long-term (120-plus days) and short-term installment plans are available for taxpayers who can afford to pay the full amount due over time.

Unlike lump-sum and installment payments, the Offer in Compromise is a debt forgiveness program for those who can’t pay their full tax liability to the IRS within a reasonable period of time. An Offer in Compromise is a negotiation with the IRS for a percentage of debt forgiveness, rather than a plan for paying the full amount back over time.

How Do You Qualify for The Debt Forgiveness Program?

If you apply for an Offer in Compromise, the IRS will look at your personal circumstances when considering if you qualify, including your ability to pay, income, expenses, and asset equity. Of course, the agency will only approve your application if you have filed all your previous tax returns, you have not missed any required estimated payments, and you aren’t going through personal bankruptcy.

The IRS considers the Offer in Compromise to be a last resort, so it will only approve plans where it will receive what it considers to be reasonable within the time it’s allowed to collect overdue taxes.

How to Apply for Debt Forgiveness From the IRS

If you’ve determined that your best solution is to apply for an Offer in Compromise, you will need to fill out all the required paperwork as instructed by the IRS’s official Offer in Compromise Booklet, Form 656-B. This booklet details all that you will need to submit with your application, including Form 433-A, Form 656(s), and all related fees and initial payments.

Along with your submitted offer, you will need to make regular payments according to the plan you have detailed while awaiting word on whether the IRS has approved your offer.

If you are overdue on your taxes and need debt forgiveness, remember the IRS Fresh Start Initiative’s payment and debt forgiveness options to relieve the pressure without ignoring it. Based on your situation, you may be able to pay a percentage of your debt or make smaller payments over time.

Limited liability companies (LLCs) are extremely popular business entities for new entrepreneurs because they’re an ideal middle-of-the-road option. They provide you with more formal business architecture and liability protection than a simple sole proprietorship or partnership, yet aren’t nearly as complicated, expensive, or time-consuming as corporations. It’s important to review the LLC and S corporation differences since they are very similar but offer unique benefits. They’re treated as a separate business entity, granting their owners liability protection, yet are simple and flexible enough that they can suit most types of operations.

One of the biggest advantages of an LLC is that it’s incredibly easy to start one. The question is, how do you go about this if you’ve never done it before? 

Steps to Starting an LLC

LLCs follow different rules, and may need to comply with different procedures in different states. However, these general steps should apply in nearly all cases: 

1. Pick a unique name and register your business. You’re going to officially register your LLC under a chosen name; this name needs to be completely unique for registration purposes. Come up with something clever you can build a brand around, possibly including your own name in the mix. Then, run a search with the state and see if the name is currently being used. If it is, you may need to come up with an alternative idea (or set up a DBA). Either way, you’ll need to register your business (and typically, pay a fee). 
2. Create and file your articles of organization. Your articles of organization are a simple document that provides the state with key details they’ll need when managing details pertaining to your business. These are usually simple; for example, you’ll likely need to provide your name, address, contact information, and social security number (SSN), and similar personal information for any business partners you have. 
3. Create an LLC operating agreement. Though not always formally required by state governments, it’s wise to create a formal LLC operating agreement with your business partners. This document will provide details about the nature of your LLC, and the relationships between all its partners. For example, you may decide to split official ownership of the business evenly between all your members, like 33-33-33, or unevenly, like 50-25-25, depending on their roles and responsibilities. This is also your chance to outline who is responsible for what. For example, you may only require some of your partners to work part-time. 
4. Determine other required paperwork. In most states, the above steps will be enough to consider your LLC completely legitimate. However, you may be required to submit additional paperwork, depending on the state of your origin. For example, in Arizona and New York, you’re required to publish a formal notice of your business’s creation in a local newspaper. The nuances of state law can get complicated, so make sure to contact a local authority to ensure you’re in compliance. 
5. Get your tax ID numbers. If your LLC has multiple members, or if you plan on hiring employees, you’ll need to get a federal tax ID number, also called an employer identification number (EIN). Depending on the state in which you’re operating, you may also need to get a state-level tax ID number. State tax ID numbers are commonly required of businesses selling taxable goods and services in the state. 
6. Obtain the licenses and permits you need. Some states require businesses to have a license or permit to operate. Sometimes, these are regulated at the local level. Certain industries are more likely to need licenses and permits than others. Just make sure you’ve done your research and have any forms of certification that apply to your business in your area. 
7. Be ready to file your annual report. Many states treat LLCs as hands-off as possible, but some require them to prepare and file an annual report. If your state requires this, familiarize yourself with the details of an acceptable annual report, and be prepared to pay an annual filing fee. 

Is an LLC Right for You? 

LLCs are advantageous business entities for many businesses, but they aren’t right for everyone. For example, if you’re an amateur freelancer and you’re making a few hundred dollars a month with your side hustle, it may not be worth the time or effort to create and maintain a formal LLC. Conversely, if you’re planning on creating a business with potential to grow to a national scale, something bigger and more protective like a corporation may be more appropriate. 

Make sure to spend time writing and developing your business plan, regardless of how you’re leaning. Your business plan will help you outline your goals and future plans, giving you context you can use to make a better decision on your organizational structure. It’s also going to sharply increase your chances of success once you begin operations.

Nearly every business owner eventually decides to incorporate their business. After all, corporations are the gold standard when it comes to building a business structure that protects both the business and its investors. In corporate parlance, that protection is called the “corporate veil,” legalese for the separation between the two entities.

There are many benefits to incorporating. Corporations provide owners and investors limited liability protection, meaning an owner or investor’s personal assets can’t become tied up in the business and put in jeopardy, should something go awry. It allows a business the flexibility to offer stock in the company to finance the business. And a “C” corporations provide entrepreneurs with the most financial flexibility, meaning almost anyone can be a shareholder in the company.

The real question a business owner contemplating incorporation needs to answer is “What type of corporation do I want my business to be?” Here are three of the most popular corporation types, including both their pros and cons.

3 Most Popular Corporation Structures

The three most popular corporation structures are C corporations, S corporations and limited liability companies, or LLCs. For the most part, size matters when this decision is made. Larger organizations will likely become a C corporation while smaller firms will form an S corp or LLC. So what’s the difference?

1. The C Corporation

As we said before, larger companies will most likely be C corporations. There is typically more paperwork involved when a company decides to be a C corporation, in part because C corporations are doubled taxed.

How so? First, the organization’s income is taxed at corporate rates. Then, once dividends are distributed to shareholders, those dividends are taxed, as well. This is because dividends are considered income once they make it to individual shareholders. Smaller firms who decide to become S corporations avoid this.

2. The S Corporation 

Taxation on dividends isn’t an issue. Neither is self-employment tax for the business owner. Once the company incorporates, the owner can draw a salary like a normal employee.

Not only that, but an S corporation can be made up of a single employee – the owner. And all the owner needs to do to satisfy the federal government is to submit a standardized letter to the U.S. State Department each month and pay taxes every quarter. Some business owners will choose to hire an accountant to make sure these tasks are completed accurately.

S corporation owners can also elect a board of directors, if they choose. Who should those people be? Well, they can be anyone the business owner chooses – including the owner themselves. Most S corporations will select a board that will help the business grow – advisors, mentors and experts who believe in the organization’s mission and have the time to serve.

3. The Limited Liability Company (LLC) 

Some smaller companies, particularly those with one or two employees, will choose to become an LLCs. An LLC is a lot like an S corporation, save for one big difference: how the IRS treats distributions, which is IRS parlance for profits. When you run an S corporation, you pay yourself a reasonable salary out of company profits and then receive any excess profits at the end of the fiscal year through distributions.

The benefit is that those excess distributions, or profits, aren’t subject to self-employment taxes. That’s not the case if you own an LLC. But the IRS does give you the opportunity to ask for your LLC to be taxed as an S corporation. You need to fill out the right forms and submit them before the deadline in order to take advantage of this benefit.

LLCs also deal with less paperwork, save for an annual K-1 statement. This lets the IRS know what your share of the LLC’s income and expenses are. That’s transferred to your 1040 and taxed like income.

Incorporating your business is a big step, but often a necessary one with a number of benefits. The only decision you need to make is which corporation type best fits your business. A little research and maybe a chat with an expert can help you decide.

Entrepreneurs tend to be good fits for real estate investing. This has something to do with their creativity, ingenuity, and stomach for risk-taking. And if there’s one type of real estate investing that’s more appealing than the rest, it’s multifamily properties.

The Benefits of Multifamily Real Estate Investing

As the name suggests, a multifamily piece of real estate is housing where there are multiple units. These units are typically all owned by one person, but leased out to different tenants. Examples include large apartment buildings, duplexes, and triplexes. The benefits of investing in multifamily properties include:

• Cash flow. More rent checks equal more cash flow. There’s also the added benefit of being able to stay above water, even in the midst of turnover and vacancies. 

• Easier management. It’s much easier to manage three units that are all in the same building than it is to manage three properties spread out across town. 

• Flexibility. With a multifamily property, you have the option to live in one unit and rent out the rest. This can essentially provide you with a free place to stay. Or, if you prefer, you can rent out all units and live somewhere else.

• Easier financing. Generally speaking, lenders see multifamily properties as less risky than single-family rental properties. The risk is spread out, which lowers your chances of defaulting.

These are just some of the perks of investing in multifamily real estate. The more you learn about this type of investment, the more appealing it’ll become.

4 Tips and Principles

Whether you’re a first-time investor, or you have experience investing in other types of real estate, here are a few tips and principles to help you find success in the multi-family niche.

 

• Finding Properties

The most important step in any real estate investment is the purchase. You make your money when you buy, not when you sell. This means if you overpay, the deal will never work out in your favor.

The biggest challenge with multifamily housing is that the inventory is lower than with single-family homes. There simply aren’t as many for sale. If you’re impatient, this can cause you to make a bad investment when something does eventually end up on the market. Practice patience and do your due diligence. Pressure never makes an investor smart.

 

• Financing

Most of us aren’t cash investors. Assuming you won’t be buying a bunch of real estate in cash, you’ll need to get the money from somewhere. This also means you’ll need to meet certain lending criteria. 

In addition to satisfying a basic loan-to-value (LTV) ratio and debt service coverage ratio (DSCR), most lenders will also require a debt yield ratio (DYR) of at least 10 percent in order to make a deal viable.  Here’s a really simple debt yield guide that explains exactly how this ratio works within the context of real estate investing. 

 

• Maintenance

When you have three units in an investment, as opposed to just one, you also have three-times the toilets, garbage disposals, AC units, etc. Naturally, this increases the burden of upkeep and maintenance. 

Rather than adopting a reactionary approach to maintenance, it’s wise to invest in preventative maintenance. Not only will this save you time – you can do all units on a schedule – but it’ll also save you money by preventing small issues from becoming major problems. 

 

• Managing Tenants

Finding and screening tenants is only half the battle. You’ll need to make sure your investment is in a good location with little crime. I use a heat map software and color code the zip codes based on the crime rate. One of the most important aspects of successful multifamily real estate investing is retaining good tenants. Make sure you’re building relationships, holding them accountable (no late checks), and meeting their requests (within reason). It’s typically cheaper to keep a tenant at the current rent rate than to secure a new tenant at a higher rent. Turnover is rarely as easy as it seems on the surface.

Conclusion

Multifamily investing is just one type of real estate investing. You can invest in single-family homes, commercial properties, offices, retail space, warehouses, raw land, mobile home parks, etc. The key is to find the type of investment that fits your skills and offers the best possible return on investment for your money. For many, multifamily real estate is the answer. For others, it can be found in a different niche. Give it a try and see what you think.

Owning an e-commerce store is a truly rewarding experience. The flexibility of an online store combined with low overhead can be quite profitable; allowing you to live life while still generating a decent amount of income. Like any business, however, managing your financials each month should be a priority to ensure your business keeps running smoothly and generating profit. Here are some tips for keeping your financials in order as an e-commerce store owner.

Effective Inventory Management 

Managing your inventory properly is one of the best ways to keep your finances in order by avoiding lost product or over-ordering. Effective inventory management starts with ditching the old pen and paper method and using a modern tool such as a POS system to track your inventory in real-time.

Inventory management is equally as important in e-commerce and brick and mortar stores. If you don’t know how much inventory you have, you can end up ordering too much; leaving dead stock in your warehouse or storage room. Don’t take the risk of costing your business more with inaccurate stock counts and dead stock. Take control of your inventory and your finances for a more streamlined online business.

Keep Shipping Costs as Low as Possible 

Shipping is one of the largest costs of running an online business. Shipping costs vary depending on the type of item and the weight of the item, and sometimes you are being charged too much. When this happens, you can either find a different way to ship or a different provider; or, you can do what many e-commerce stores do: charge the customer for their own shipping costs.

Shipping options are luckily numerous, so in theory, you should be able to find a shipper that can keep you within your budget should you decide to offer free shipping to customers. Many businesses offer free shipping only after the customers pass a threshold with their purchase amount. Some businesses go as little as $10, and others can be as high as $50-$100.

The United States Postal Service is a popular option for shipping packages, due to their “flat-rate” shipping boxes. If the item(s) fit in the box, they ship for a flat rate. This eliminates the costly “by-weight” shipping that you often see, allowing you to offer free shipping at a much lower cost to you as the business owner.

Track Profits and Losses Monthly 

Tracking how much you make and what you’re spending your money on will help identify problem areas within your financials. You’ll want a good idea of what you’re spending on things like inventory, shipping, and marketing; as well as what products sell the best and generate the highest net income.

This is something every business should do. It’s safe to say that tracking profits and losses will grant you a much clearer financial picture of your business and allow you to make any necessary adjustments to save money or focus marketing efforts into best-selling items or services.

If you need help tracking your finances or coming up with a better plan to manage them, a financial advisor can do just that. Read this list of the best financial advisors in Los Angeles if you’re in the metropolitan area and need help with your online business. 

Stick to a Budget 

Creating (and sticking to) a budget is a great way to keep expenses in check for your online business. You’ll be able to set hard limits on spending, as well as allocate certain resources to different parts of the business on an as-needed basis.

A budget will help you identify the greatest costs associated with running your business, encouraging you to create solutions to mitigate or even eliminate these costs altogether. Don’t underestimate the power of a well-planned budget for your business! 

Use Software or Other Tools To Make It Easier for You 

There exist literally thousands of software programs and other tools that will help you run your business and take control of your finances. Something as simple as a new POS system that integrates with your bookkeeping software can help you generate more accurate numbers and keep your books balanced.

Using the right tools can help save you money as well. Don’t be afraid to use other websites, blogs, and even books to help you better understand how money works and how you should be managing it within your online business. The more you understand something, the better you’ll get at it.

Make sure when you’re looking for software or other tools that you compare prices and get the best deal possible. You don’t want to spend thousands on something you could have had for less; especially if you’re already having financial difficulty within your business. Compare prices and features to ensure you’re getting exactly what you’re looking for at a price the business can afford.

Conclusion 

Keeping your finances in order can help increase the profitability of your business while reducing your overall stress and worry. Running an online business is largely a hands-off business model, but you’ll want all hands on deck when dealing with your finances. Don’t leave your money to chance; take control of your finances with the right tools for the job and the knowledge to help you plan and budget better.