As one of the most vital tasks for any business (without it, your business could come crashing into a wall without even you seeing it), bookkeeping involves recording all the financial transactions and activities that occur in your Las Vegas business. This includes:

• Purchases
• Sales
• Receipts
• Earnings
• Payments

All of this is in the effort of ensuring that any money flowing in and out of your business is properly accounted for. Ultimately, you’ll use this information as the basis for making many financial and organizational plans: calculating your revenues, paying taxes, borrowing loans, and more. Therefore, with bad bookkeeping practices, your small business could be in big trouble with the IRS or when looking for financing from banks.

The Leading Causes of Poor Record Keeping Practices

Some of the leading causes of bad record keeping practices include:

• Not taking bookkeeping seriously enough
• Managing all your accounting in-house
• Forgetting to track the smaller transactions
• Poor communication with your bookkeeper
• Organizational inefficiencies

Asides from implementing good record keeping practices, there are also general accounting errors that you should be aware of.

3 of the Most Costly Bad Bookkeeping Habits

Here is a glimpse on 3 of the most common bad bookkeeping habits that can cause serious damage to the finances of your small business:

1. Trusting an inexperienced (newbie) bookkeeper

We have mentioned that one of the leading causes of poor record keeping is doing all the accounting work in-house. It is always advisable to hire a professional bookkeeper who has the experience in handling all aspects of the practice for best results. Outsourcing your bookkeeping tasks can alleviate a ton of troubles. However, if you go for an inexperienced or newbie bookkeeper for a cheaper fee, expect costly bookkeeping troubles ahead.

2. Keeping inaccurate books (falling behind on books)

Keeping inaccurate books can cripple your business down to the very core. You can end up using more on your budget than the business is earning, filing less returns than you are supposed to, and generally losing track of your business profits.

3. Missing tax deadlines

No one ever wants the IRS knocking on their business door for an audit. But if your bookkeeping habits are in question—perhaps you are not paying the right amount of tax, you are missing on tax deadlines, or defaulting—you will surely get a visit from the IRS soon.

What Are the Consequences of Bad Bookkeeping?

There are many tough consequences of bad bookkeeping. One is that you could lose an audit by the IRS auditors, causing your business to be levied hefty fines that can cripple your operations. Another consequence would be running into cashflow crunches because your business cannot operate effectively if the money flow is not flowing. You could also face losing your small company all together because of poor financial and business planning. Without proper bookkeeping, you simply can’t tell whether your business is growing, stagnant, or expected to close down.

How to Avoid Bad Small Business Bookkeeping

To avoid poor bookkeeping, you need to have a system in place that ensures all your business records are well recorded from day one. Make sure that:

• All expenses are categorized properly
• Bank accounts are reconciled
• No sales tax is neglected
• Petty cash is well managed
• Reimbursable expenses are tracked
• Communication with the bookkeeper is good

However, if all this work is too much for you or you don’t have an in-depth knowledge on how to it perfectly, consult a professional Las Vegas bookkeeper for small businesses to help you out. Professionals understand your businesses bookkeeping needs better and will advise you on how well the business is doing based on the book values.

Now that you have read how vital proper bookkeeping is and how if done wrongly can damage your business, it’s time to re-think your current practices before tough times come calling. Remember, a professional bookkeeper can do all the leg work for you while you concentrate on growing your business. Call us at (702) 471-7223 if you want more information on what we offer.

As a small business owner, you’re aware that tax preparation can be nothing short of a perpetual nightmare, particularly during the early stages. Taking responsibility for your business strategy is crucial to ensure that you don’t conflict with the IRS. Thus, you need to manage all possible tax breaks to reduce tax liabilities for your business, which could rack up even bigger savings than you might be aware of.

Ways to Reduce Tax Liabilities for Your Business

You always have a chance to reduce your tax burden in legal and ethical ways and here are five strategies that might turn effective for your small business:

1. Create a Year-End Tax Planning Strategy

Year-end tax planning is crucial when it comes to managing exactly what you are expected to owe and strategically reducing it. One way to do this is to make philanthropy a big part of what you’re doing. Firms that are giving back to their community can take big tax write-offs. A good rule of thumb is 10 percent. Devote 10 percent of your total income to charitable causes, and this will help eliminate a lot of extra taxation.

2. Know What You Can Write Off

In doing your taxes and working to reduce tax liabilities, track office expenses like environmentally sustainable equipment, furniture, travel, and conferences. Keep accurate records throughout the year to maximize their deductions in this area. Refer to the IRS website for a list of acceptable deductions.

It also pays to know what the IRS is willing to give out tax breaks for. The United States Federal Government is known for giving all sorts of a write offs to businesses that focus on employing union workers, minorities, manufacturing, and exports. Emphasize exports to get some great tax breaks such as the IC-DISC.

3. Use Accountable Plans

Accountable plans affect the tax liability of a small business. If you don’t have good records, do not count something as a deduction. The IRS might hit you hard if you didn’t honestly report your tax returns based on what you know. It is better to have fewer deductions but no IRS audit than to have many deductions and get an IRS audit. Go for simplicity and prioritize deducting major items.

4. Funding Employees’ Benefits Instead of Raises

A good way to save on taxes for your business is for you to compensate your employees by raising your contribution to their health insurance. Instead of increasing their salary, it’s a better option to give the same amount to cater for their medical expenses. For instance, if an employer increases the employee’s salary by $350 a month, those wages would then be subjected to Medicare taxation, FICA tax, and income tax.

Consequently, the employer will share the cost of paying Medicare, FICA and may have to pay out for federal and state unemployment. Thus, instead of giving an employee $350 more, the company can pay the same amount to cover their medical insurance. Doing so will eliminate FICA, Medicare, income tax, and unemployment taxes, and both the employer and employee will be saved from taxation.

5. Hire an Accountant

A trustworthy accountant can not only save you time and clear up the uncertainty of managing your finances and taxes but also has other benefits:

• Trusted advice: Besides preparing your taxes, an accountant can act as a reliable advisor to your small business, assisting you with cash flow management, assess risk, keep your books in order, and plan for growth.
• Help with managing your business and personal needs:  Many are the times small businesses such as startups and sole proprietors finds their personal finances and business closely linked. To make sound judgment for the benefit of both, an accountant comes in handy.

Hiring a small business accountant to assist your taxation strategies is crucial. It will allow you to utilize wise planning to significantly reduce your tax burden and keep more of your money working for you.

Whether you have recently opened up a business in Nevada or you are looking to, the issue of corporate income tax is an important consideration. Brand-new business owners or those coming from other states may not know the ins and outs of tax accounting in Nevada. So, do you need to pay Nevada state business income tax?

Do you need a Nevada accountant to manage your small business finances?
Get FREE consultation today when you call (702) 471-7223

Is there a Nevada State Corporate Income Tax?

The state of Nevada does not levy state income tax to businesses, individuals, or corporate bodies. However, the state sales tax in Nevada is at 6.85%. Other optional taxes can be levied on businesses, which brings the taxes to 8.1%.

Related: What Are the Best Small Business Tax Deductions for 2016?

Without levying taxes, the state ensures that there is rapid growth in the business sector as well as the economy. The business owners who are coming into Nevada enjoy the perks of the state not dipping into their hard-earned profit. In addition, there are states where such state income tax stifles business growth. Therefore, Nevada is a place where no state income tax payment attracts a lot of businesses to the area.

The Pros and Cons of Doing Business in a State with No Income Tax

Naturally, when there is no state income tax, there are advantages and disadvantages. Taxes are necessary in our system as the government makes use of the money to provide public services and improve infrastructure as well as welfare programs.

Pros

• Many claim that the absence of a state income tax improves business growth and thus the local economy.
• There is the opportunity for more job creation, and the young and educated typically remain in such states when employment is stable.
• States that do not levy income tax on businesses sometimes outperform those that do.

Cons

Because the state needs to pay for public services and must get this capital somewhere, sales taxes are often higher in states with no income tax in order to make up the difference. Unlike income tax, sales taxes do not vary based on the consumer’s income level. This means that:

• The cost of living and doing business in these areas may increase.
• More pressure is placed on lower income individuals who struggle to make ends meet.

From a business standpoint, operations are streamlined with the absence of an income tax, but you will have to price goods and services differently to adjust for that sales tax.

Related: 5 Bookkeeping Mistakes Made by Small Businesses

Federal Income Tax Rate for Small Businesses in Nevada

The federal income tax rate for Nevada is rather high. It has a marginal tax rate of 25% and an effective tax rate of 17.99% presently. One may not need to pay state taxes on income as a teacher, business owner, or real estate mogul. However, you have to pay federal tax.

Levying income tax by the Nevada state may seem advantageous. Nonetheless, the government still has a way of gaining this tax through sales tax on goods bought and federal taxes as well. When it comes time to do your taxes for the year and all of this still seems confusing, a small business accountant can help you with all of your tax preparation and bookkeeping needs. Give us a call at (702) 471-7223.

A trust is the transfer of assets to a trustee to manage during or after the death of the maker. The trustee must manage the property to reap the most benefits for the named beneficiaries or heirs within the control of the trust. Just like a will, the trust must be created during one’s lifetime. However, unlike a will, a trust can be effective during the lifetime of the maker. A trust that is effective during life is called an inter vivos trust while a trust that is effective only afterlife is a testamentary trust.

An individual or a corporation can be a trustee. Not only must the trustee work in the best interests of the beneficiaries, but the trustee must also conform to tax and legal requirements. If you need help creating or managing your trust, you may want to think about paying for trust accounting. Here is some basic information about trust accounting.

What is Trust Accounting?

Trust accounting involves separating the expenses of a trust into different categories. This separation of expenses will help determine the proper treatment for tax and accounting purposes. If there are business expenses carried on by a trust, these expenses must be identified and offset against income when it comes to the calculation of overall business profits. Expenses that are related to a certain type of income need to be recorded separately as well. For example, expenses related to owned or rental property in a trust must be recorded separately. The expenses will be offset against the rent received from the property to calculate the net income.

Expenses for trust management must also be recorded carefully. Some of these include legal, audit, accountancy, and insurance expenses related to management of the trust. The trustee needs to be able to identify the purpose of each incurred expense to ensure these expenses remain separate from business and property expenses. Unlike trust management expenses, the business and property expenses are incurred from earning an income.

What Are the Responsibilities of a Trustee?

Law and the maker of a trust dictate the duties of the trustee. The trustee is responsible for making investments on behalf of the maker and beneficiaries. When making these investments, the trustee should show reasonable care to prevent the loss of assets. In order to carry out these duties sufficiently, a trustee should know the basics of trust accounting so that he or she can record the expenses and income of a trust.

Some of the many responsibilities of a trustee include:

• Administration of the trust prudently and in good faith when it comes to the needs of the heirs or beneficiaries.
• Proper handling of all tax matters related to the trust.
• Keeping of accurate and true accounts of all transactions with receipts, vouchers, and proof of payment as support.
• Ensuring that the trust account is always available to be inspected by the heirs or beneficiaries.

While the trustee must not profit from the trust or deal or buy in the trust property with a personal account, the trustee is entitled to fair compensation for fulfilling their duties as a trustee. Either the law or the trust deed will dictate remuneration for the trustee.

What Is Trust Accounting Income?

Trust accounting income (TAI) refers to all of the income a trust fund generates that’s available for distribution to a trust’s beneficiaries. Trustees need to know a trust fund’s sources of income, so they can distribute the proper amount to its beneficiaries. They have a legal, fiduciary duty to responsibly manage the fund, and failure to do so could bring legal sanctions. It could also cause them to miss out on incentives that may have been available for successful management of the fund.

How to Calculate Trust Accounting Income

To calculate TAI, simply add all sources of income for the trust and subtract all costs associated with running it. According to the Uniform Principal and Income Act (UPIA), a set of guidelines many states have adopted or use as a basis for their own laws regarding income from trusts, trust accounting income consists of the following:

• Operating income and expenses
• Interest
• Dividends and royalties
• Taxes
• Rents
• Depreciation

Basics of Trust Accounting

Trust accounting requires you to engage in rigorous record-keeping and observance of established processes for monitoring the trust and disbursing its funds.

1. Follow regulations: Each state bar has a different set of rules governing trust funds. Keep up with any changes to maintain compliance with your obligations.
2. Keep all trust funds separate from business funds: The money inside a trust fund should be firewalled and only used to pay its beneficiaries and the expenses to run the fund itself. Even though trustees might oversee large amounts of money in multiple trust funds, these must be recorded as liabilities. Businesses cannot use them as assets to improve their own balance sheets.
3. Don’t treat a trust like a piggy bank: Trustees must not withdraw money from a trust fund to cover their own expenses or those arising from other trust funds. You can’t borrow, lend, or take from a trust fund to pay for unrelated expenses.
4. Keep records and make them accessible: Every financial transaction made with a trust fund needs to be recorded for transparency. A trust fund’s beneficiaries should also be able to access records of it at any time.
5. Make it hard to steal: Trust funds are an attractive target for theft or fraud, and the chance that this occurs increases as more people get involved with one. Break up responsibilities for managing the fund so no one person can deposit, withdraw, or reconcile funds.
6. Donate interest to an IOLTA program: Trust funds can generate interest, but lawyers cannot collect this for themselves. Instead, it should be donated to an Interest on Lawyer Trust Accounts (IOLTA) organization that supports a charitable cause.

How to Know if You’ll Need a Trust Accountant

As you can see, the duties of a trustee are extensive. Therefore, as the maker of a trust, it is important that you choose a trustworthy person as a trustee. Not only should you consider personal integrity when choosing a trustee, but you must also consider knowledge of trust accounting. If you are having a hard time finding someone who is both trustworthy and knowledgeable about trust accounting, you should hire a trust accountant.

Larry Bertsch is a Las Vegas CPA practicing in both the private and public fields since 1964. We offer a full range of accounting (including forensic accounting), tax preparation, and small business bookkeeping services at affordable fees. For more information about trust accounting, don’t hesitate to contact us.

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