Small Business Resilience: Questions Business Owners Must Answer

Small Business Resilience

Small Business Resilience: Questions Business Owners Must Answer

The past two years have been filled with uncertainty and doubt. Business owners were left steering their business into the unknown without even having a simple glimpse of what lies ahead of them. Even the small businesses that laid out a resilience plan were blindsided by the spontaneity, severity, and length of the pandemic that halted global commerce.

Even though big companies also suffered a considerable amount of damage, small businesses suffered the greatest impact of disruption because their small business resilience plan was non-existent.

But there is always a rainbow after the rain. The past two years have left us a few important questions that will help us prepare for future crises instead of scrambling for solutions when the time comes.

 

Here are 3 questions designed to help your small business become resilient in times of disasters:

 

  1. What are your priorities?

When the going gets rough, your priorities are the key to keep yourself and your business focused. Small businesses are known for their extremely tight profit margins so setting your priorities straight when a disaster arrive, it is vital for your business resilience.

To properly set your priorities in times of uncertainty, you should start mapping out the operational factors of your business. This includes your employees, assets, processes, and payable. You should categorise which functions are critical to keep your business running. Having your priorities identified beforehand can help you avoid making hasty and uninformed decisions in the heat of the moment.

Crises will threaten your bottom line; do everything you can to protect it!

 

 

  1. What makes your business vulnerable?

As you map out your priorities, you will stumble upon a few vulnerabilities within your business. Your vulnerability might stem from your inventory, it being exceedingly high or potentially lower than you first realised. The vulnerability might also come out of your business’ internal process, it being too reliant on certain people to operate on a daily basis.

It is a good and sound practice to look at every aspect of your business that is draining your profits or not producing an optimal return on investment. When times are rough, every cent counts! Keep your business lean and agile.

Certain crises may make one business more vulnerable than others. For example, during the pandemic an invisible line was placed. Differentiating the “essential” and “non-essential” businesses from each other. Businesses tagged as non-essential were extremely vulnerable to the crises as compared to businesses tagged as essential.

Even though no one predicted being defined that way, it is valuable to consider the capacity in which your small business can be resilient and operate in different crisis situations.

 

  1. What are the strengths of your business?

The strengths of your business will keep it afloat during turbulent times. Whether it is unmatchable prices, a personalised service, or the best slice of pizza in town, recognises what keeps your customers coming back to your storefront! Your ability as the business owner to keep up with industry trends is another important strength. When a crisis hits, you should not be in a position where are caught flat-footed. You should always be agile and be able to adapt and innovate to provide what your customers need.

For example, during the pandemic, plenty of businesses shifted their presence online. Digitalization and an understanding of your customers’ behavior can make all the difference in preparing your business for any storm.

 

Conclusion

Once you have answered the three questions posted above, it is now time for you to get creative with your business. Creativity and ingenuity are essential for small business resilience.

When the pandemic hits, plenty of small business owners stepped up their game and got creative with what they had. There once was a local general store owner reached customers via FaceTime to take their orders. Local apparel stores started sewing masks for health care workers and community members. Distilleries turned their alcohol production into the highly sought-after hand sanitizer.

In times of uncertainty, creativity goes a long way. Whether it is repurposing your production line, shifting digitally, or completely changing the way you offer your services. It is important to keep an open mind to whatever may come tomorrow and how you can help your community in times of need.

For small business owners, wading through the pandemic has been no easy feat. The best way to brave ahead? Lay the groundwork for a strong and sound financial model that will serve as the foundation of your small business’ resiliency! Preparing means protecting so get in touch with us to see how we can help you lay a strong financial foundation for your business through the use of your business financials!

 

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US Tax – Here’s what you should know as a Canadian working in the US!

US Tax - what to know as a Canadian working in the US

US Tax – Here’s what you should know as a Canadian working in the US

 

Do I pay Canadian tax on US income?

Cross border taxation can be extremely confusing, here’s what you should know as a Canadian working in the US!

Did you know that if you live and work outside of Canada for more than 183 days per year, the CRA considers you a “non-resident” of Canada for tax purposes?

According to the CRA, “non-residents” can only be taxed by Canada on income received from Canadian sources.

An example of this would be if you live and work in the US but have rental income in Canada. In this instance, you are required to pay Canadian income tax on the rental income you earned that year. If all your income came from outside of Canada and had no source of income within Canada, then filing of the Canadian Tax Return becomes optional.

 

Still a Canadian Resident but Receiving US Pay? Avoid double-taxation with the Federal Foreign Tax Credit. 

In the case of Canadian residents living and working in the US for under 183 days out of the year and had US taxes withheld from their pay, you are eligible for the Federal Foreign Tax Credit, which can help you obtain credit for any taxes collected by the IRS in the US.

Are you a self-employed or a full-time worker? Classification is vital here. 

Start by being clear. Knowing what your status is with the company employing or contracting you before you begin work will be helpful to avoid future issues. If you commute to work for a company located in the US, or if your company provides you with benefits and work equipment and controls specific aspects of your day-to-day, you are most likely a full-time employee of the company and cannot classify yourself as self-employed.

 

Navigating Compliance Shouldn’t be Difficult

Canadians earning income from US sources should always look to protect themselves from any potential liability and error. Ultimately, being aware of your options helps you stay on the right side of both the CRA and the IRS and avoid being taxed twice on your income as a sole proprietor or even a small business owner.

Residents of Canada must pay taxes to the CRA, and if you are residing in the United States, you will pay taxes to the IRS. Remember that there are nuances, such as the relationship to your employer and more.

If you need more information or help navigate this space, connect with us today – we can help make this process as seamless as possible, saving you time and money.

 

Get in touch with us today!

 

Get in Touch with us! - US and Canada Tax Preparer

All Treat No Trick: 3 Tips To Avoid Financial Horrors

Financial Horrors

All Treat no Trick: 3 Tips to Avoid Financial Horrors

Every successful entrepreneur has gone through years of making mistakes before they were able to find a sound risk management approach. Knowing some of the common mistakes that these successful entrepreneurs have experienced might help you make better business decisions that give your business all the treats without the trick this Halloween. Use these 3 tips wisely to keep you on track to reducing your overall business risk and avoid financial horrors.

 

Here are 3 Tips to Avoid Financial Horrors:

 

  1. Do not underprice your services.

Budding business owners have this tendency to mark their products or services at the lowest possible price that sometimes reaches the point that the business owner only breaks even from his initial investment on the product or service. The idea is that low prices might attract customers and it might differentiate the business from other businesses in the same field.

However, as days go by, your operating expenses will also increase. Your once loyal customers that you have acquired due to your enticingly low prices might feel offended if you raise your prices. Now you are set with the dilemma of raising your prices to match your operating costs and risk losing a large chunk of your customer base.

The wiser route would be to come with a more effective way to differentiate your services or products from your competitors. It is near impossible to make a profit if your product or service is priced too low. Avoid this financial horror by finding the unique proposition of your business to differentiate it from other services or products.

 

  1. Borrow money wisely

Qualifying for a business loan can feel like quite an achievement. After all, it means that lenders see your business as sustainable and profitable enough to lend it money. However, just because a lender approves you does not mean that you need to take on the debt. Banks and other lenders make profit by collecting interest on various types of loans, including business loans.

The best way to mitigate the financial horror of being drowned in debt is to pay interest as low as possible. If your business really needs additional funds to keep it afloat, borrow only what you need to help your business grow. Paying high interest rates increases your risk with this financial horror.

 

  1. Do not put all your eggs in one basket

Think of your business as a you would think of your stock portfolio. When it comes to the investments in your portfolio, the majority of your business’ revenue needs to come from multiple sources. Oftentimes, startup owners tend to spend most of their time serving their early customers. Prioritising on only one block of your customer base will make it hard for you to venture into other markets and build new accounts. Those early streams of revenue have a tendency to fade off over time. Avoid this financial horror by expanding your business horizons and build other sources of revenue as well.

 

Unspoken Mistake

There is one unspoken mistake that caused a lot of businesses to fail and that is neglecting your business financials. Your business financials give you a clear view of how your business is fairing in the short and long run. It helps you identify your business’ strong and weak points and lets you address those immediately. Most startup owners start their business with a vision for their product or service, not everyone is expected to be a bookkeeping expert or bookkeeping savant immediately. Lucky for you we are in the business of helping small businesses. Send us a message and we will get in touch with you on how we can help you take a closer look into your business financials.

 

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Struggling to Collect Invoices? Try These 3 Tips!

STRUGGLING TO COLLECT INVOICES? TRY THESE 3 TIPS

No matter the size of your business, struggling to collect invoices can affect the financial performance of your business. This is especially true if the unpaid invoices are mounting and they outnumber those that are paid on time. Struggling to collect invoices means that your cash flow is affected. Interrupted cash flow due to uncollected invoices might result in a scenario where your business doesn’t have enough cash to pay its employees, suppliers, or vendors.

 

Here are 3 things that you can do to help deal with your struggle in collecting invoices:

  1. Set a procedure and follow it

It is best practice to lay out a policy when it is to collect invoices. The policy might include details as to when will the invoice collection follow up occur and how often will the follow up occur if the initial attempt fell on deaf ears. The procedure to collect invoices might also include additional steps like double checking if you actually did send the invoice, if the payment terms were clear, if the amount due was clear, and if you sent it to the right company’s email address or mailing address.

Next, follow up politely as the procedure dictates. Keep in mind that sometimes uncollected invoices slip through the cracks. A client might be busy and forgot about the invoice, or the client might be out-of-town or dealing with an emergency. Follow up politely and keep your cool. Nobody likes receiving an angry email.

Avoid putting any ‘past due’ remarks on the invoice if the mistake was not deliberate. It will ensure that you’ll have a good working relationship with the client in the future if the uncollected invoice was just an honest oversight.

It is also a great idea to have someone help you keep track of your aging and uncollected invoices. Your bookkeeper would be the ideal person to be in charge of tracking your invoices. This way, any uncollected invoices will show up on your financial statements accurately.

 

  1. Initial steps to collect unpaid invoices

 

Now that you have your internal procedure in place and you are adhering to it religiously. But your clients are still not getting back to you about the settlement of their unpaid invoices, you may proceed and do the initial steps that can help you collect invoices:

    1. Resend invoice

Once the invoice becomes overdue, it is a good idea to send a polite and friendly follow-up email reminder to your client. Send it in a professional and courteous manner.

Inform them that their invoice is now past due and you are politely collecting their invoice. Include the payment due date and remind them of the available payment methods that they can use to settle their unpaid invoices. Clearly inform them of the late fees that might come with their unsettled invoice. Do not forget to include the original invoice in your follow-up email in order for the client to easily see it for reference.

 

    1. Reach out

Emails sometimes get ignored or forgotten. If that’s the case for you, then it is a good idea to reach out to them by giving them a call or try asking if you can meet with them to discuss the matter. Now, if your initial contact does not respond to any of your communication attempts, you can try and contact their higher-ups to discuss the matter directly or you can give their billing department a direct call.

Most billing departments have access to all necessary information and they can let you know whether your reminders were received by them. If they inform you that they have already sent you the payment, you can ask for a rough estimate as to when will the payment arrive on your end.

 

    1. Stop working with them immediately to avoid further losses

If you did all of the steps above and you still have not received a payment, stop working with them immediately. Inform them that you will not do any further work until they send the payment.

 

  1. Get outside help

90 Days is a very long time for uncollected invoices. If your invoices are still not paid after all that time, it may be time for you to get serious outside help. Someone that can assist you in recovering the amount in the unpaid invoices. Here are some steps that you can take:

 

    1. Hire a Collection Agency

      Incessantly sending a follow-up email and cold calling your clients is hard work and it takes a lot of time. Consider hiring a collection agency to do that work for you so that you can focus on new projects that can generate income for your business to help its cash flow.

 

    1. Send an attorney’s letter

      Having an attorney draft a letter for you might be a good idea. You will still have to pay for the attorney’s letter but they usually cost reasonably. Appearing before the court might spur your client to get in touch with you immediately to work out a payment plan.

 

    1. Small Claims Court

      All 50 states have small claims courts that are designed specifically for use by non-lawyers. If the uncollected invoice is less than your state’s small claims court maximum limit, which is usually between $2,500 to $15,000, you can forego hiring a lawyer and represent yourself in court. There will be court fees, but at least you don’t have to pay those expensive attorney fees.

 

    1. Arbitration

      If the amount owed to you exceeds the maximum limit for a small claims court, you still can have another option. You can go through an arbitration board. Arbitration is quicker and cheaper than going to a higher court, but when it comes to an arbitration case, a judge won’t be hearing your case, an arbitrator will hear your case and will make the final judgment. The arbitrator’s decisions can be enforced in the same way a judge’s ruling can be.

 

    1. Higher Court

      If arbitration is not your cup of tea, you have the option to seek assistance from the higher courts if the amount owed to you exceeds the limit of the small claims court. But bear in mind that this option requires more of your time and will be more expensive since you can’t represent yourself in higher courts, you’ll need the services of a bona fide lawyer. Because of these factors, you should weigh in the pros and cons; will the amount that I might spend taking this matter to the higher court be worth it for the amount that I’ll be collecting?

 

Avoid uncollected invoices in the first place

If you want to mitigate the struggle of uncollected invoices in the first place, make sure to do a quick background check for new clients. Doing background checks can help you identify legitimate clients that do not have any prior complaints of non-payment in their history. After that, make sure that you have a signed contract. Keep detailed records, and ask for partial payment if you can’t ask for full payment.

You should also make the payment process as convenient as possible. Set up recurring invoices, and work on establishing strong client relationships.

 

Uncollected invoices can complicate your bookkeeping. Lucky for you we can help you with your bookkeeping!

 

Get in touch with us today!

3 Strategies to Learn from Failure

3 strategies to learn from failure

“We are programmed at an early age to think that failure is bad. That belief prevents organizations from effectively learning from their missteps”

-Amy Edmondson

3 Strategies to Learn from Failure

Failure is an unavoidable aspect of running a business. Even the most successful of entrepreneurs have their own stories of failure that humbled them and made them into who they are right now. Imagine Walt Disney being told that his work lacked creativity, now his name is synonymous with creativity. Bill Gate’s first company was a disaster, with a product the barely worked.

No one wants to fail, but even the brightest and most clever of people face challenges at some point in their careers. Life is a constant roller coaster. Most of us teeter between our success and our failure. Whatever happens, do not lock yourself into despair. Everyone falls short from time to time. Your ultimate test is how you deal with failure. Remember that you can always learn from failure

Here are 3 strategies to help you learn from mistakes and use the experience to prop yourself back up!

 

  1. Accept that failure is a part of life.

Embrace your failure. Do not try to hide it. Failures don’t somehow work themselves out. They take work, so ignoring the problem only digs a deeper pit. Overcoming problems is a big feat in and of itself. If you managed to come back up after failing, be proud of yourself that you were able to overcome it.

Always bear in mind that mistakes are fundamental parts of the human condition. The scenic route on your road map to a better future. Failure is always lurking at the corner whenever we go outside our comfort zone.

Many of history’s most successful people had significant failures as well as accomplishments. What set them apart is how they used that failure into something positive.

 

  1. Reflect

You need to be honest with yourself. Ponder deep and ask yourself what happened, where did you go wrong, and why. Learn from your failure in order to avoid an even bigger problem; repeating the same mistake.

Here are three powerful questions to ask in the wake of failure:

    • What lessons did I learn from this?
    • What are the three positive outcomes of this situation?
    • How has this experience allowed me to grow as a person?

Pondering deeply on these questions can help you see new opportunities that will arise from this defeat.

 

  1. Take action and move on.

This last step is the biggest test to see if you can bounce back up from a failure. What solutions do you have to rectify the problem? How can you offset the situation to avoid or lessen the impact of the problem? How do you get things back on track?

Deal with your mistakes head-on and with conviction. Once you overcome the problem in front of you, head on to the next one. Start your next project, look at new ventures or consider a new task at hand. Always remember your hard-learned lessons as you keep moving forward, and you’ll emerge stronger and more resilient than before.

 

 

Running a business means that you always have to look ahead over the horizon to search for the next big thing to make your business successful. It is important for you as a business owner to keep learning from failure, that’s why we compiled 3 of the best strategies to learn from failure. But running a business also means that you have to take care of the tedious financial aspects of it. You need a partner that can help take that load off your shoulders so you can focus on expanding new horizons for your business. Lucky for you, we are in the business of helping small businesses!

 

Get in touch with us now!

 

Tax Considerations as a Canadian Working in the US

tax considerations as a canadian working in the us
Disclaimer: FAS Bookkeeping and Tax Services is providing this article as a public educational piece. 
Reference to any specific product or entity does not constitute an endorsement or recommendation by FAS Bookkeeping and Tax Services. 
FAS Bookkeeping and Tax Services will not be held liable for any damages incurred by using the specific products mentioned in the article.

Tax Considerations as a Canadian Working in the US

Planning on relocating to the US for new work opportunities? Or simply heading out for a work assignment that might take a few months? Before you do, make sure you understand the tax implications before you go. So here are some Tax Considerations as a Canadian Working in the US!

TAX STATUS

Before you leave the great white north, don’t forget to check up on your tax status as part of your tax considerations on your trip. The tax implications of a temporary or permanent work opportunity can be considerable and far-fetching.

Here are the tax considerations you need to know to avoid unnecessary headaches and be able to truly enjoy your time abroad.

RESIDENCY STATUS

According to the Canada Revenue Agency (CRA), your residency status determines your income tax obligations to Canada and you should be wary of this tax consideration as a Canadian working in the US.

Canadian residents are taxed on income they earn anywhere in the world, while non-residents are only taxed on income earned in Canada. If you spend time outside Canada but are still deemed a Canadian resident for tax purposes, you could owe federal and provincial or territorial tax on your worldwide income. This becomes confusing for some Canadians working in the US.

Establishing Canadian residency in the eyes of the government is less arduous than you might imagine. The CRA determines status on a case-by-case basis and will consider many factors in evaluating your Canadian residential ties, including whether you have a Canadian home, spouse or common-law partner, dependents, or personal property. The amount of time you spend in Canada and your intentions regarding future travel or permanent location, as well as whether you have Canadian bank accounts or a driver’s license can affect the agency’s decision.

 

Factual Resident or Deemed Resident?

The CRA classifies 2 types of residents.

A factual resident is someone who maintains ‘significant residential ties to Canada, even while abroad.

To visualize, let’s say you travel to Texas for a 6-month work contract, but spend the rest of the year in Calgary, and you keep your Canadian house and bank accounts, you could be considered by the CRA as a Factual Resident.

Deemed Residents on the other hand covers those who do not have ‘significant residential ties’ but are still considered as residents because:

  1. They are a ‘government employee, member of the Canadian Forces including overseas school staff, or working under a Canadian International Development Agency assistance program’ or a family member of ‘an individual who is in one of these situations’ or
  2. They ‘sojourned in Canada for 183 days or more in the tax year does not have significant ties with Canada, and are not considered a resident of another country under the terms of a tax treaty between Canada and that country.’

 

Non-resident for tax purposes

In general, non-residents are those who don’t maintain strong enough residential ties with Canada to be considered residents. If you spend fewer than 183 days in Canada during a tax year, or If you’ve severed residential ties, you might fall into this category.

Non-residents are still obligated to pay withholding tax on income from Canadian sources, including but not limited to the RRSP/RRIF withdrawals and other investment income.

If you are labeled as a non-resident, you could be liable for what they call the ‘departure tax’. This tax is calculated at your marginal rate on the taxable gains you would earn if you sold all of your Canadian assets.

If you’re a deemed or factual resident of Canada, but also considered as a resident of another country that has a tax treaty with Canada, you fall into the category of deemed non-resident. That means that you are obliged to follow the same tax rules as non-residents of Canada and all appurtenant rules indicated in the tax treaty.

 

U.S. Resident Formula

Canadians living and working in the U.S. for parts of a year might owe U.S. taxes. The ‘substantial presence’ test looks at how much time you’ve spent in the States over the past 3 years.

Here’s what you should know about it:

  1. Each day spent in the States in the current calendar year counts as 1 day.
  2. Each day spent in the States in the previous calendar year counts as 1/3 of a day.
  3. Each day spent in the States the before that counts as 1/6 of a day.

If added all together and you come up with 183 days or more, and if you’ve spent at least 31 days in the U.S. in the current year. It means that you’ll be deemed a U.S. resident for tax purposes and you are taxed on your worldwide income.

Lucky for you, the U.S. and Canada has a tax treaty in place. You may be able to use foreign tax credits to reduce or eliminate double taxation.

Taking the time to research the tax considerations before you head abroad can provide you with an accurate understanding of your tax status. However, tax compliance is a bit tricky no matter how much time you spend researching your tax liabilities. It is best to consult a professional for tax-related matters especially if it includes going abroad. It’s a great thing that we are here to help you navigate your international tax compliance. Let our experienced Enrolled Agent help you with what you need to know!

 

Get in touch with us today!

 

Disclaimer: FAS Bookkeeping and Tax Services is providing this article as a public educational piece. 
Reference to any specific product or entity does not constitute an endorsement or recommendation by FAS Bookkeeping and Tax Services. 
FAS Bookkeeping and Tax Services will not be held liable for any damages incurred by using the specific products mentioned in the article.

 

 

 

Crypto Tax Loophole

Crypto Tax Loophole
Disclaimer: FAS Bookkeeping and Tax Services is providing this article as a public educational piece. 
Reference to any specific product or entity does not constitute an endorsement or recommendation by FAS Bookkeeping and Tax Services. 
FAS Bookkeeping and Tax Services will not be held liable for any damages incurred by using the specific products mentioned in the article.

Crypto Tax Loophole

Crypto Tax Loophole

Congress through the House Ways and means Committee is planning on plugging one of the most gaping and lucrative crypto tax loophole. If the Committee succeeds with its plan, it could cost Bitcoin and other Cryptocurrency holders approximately $17 Billion Dollars. The estimate was made by the Joint Committee on Taxation.

 

According to a summary report made by the committee. The proposed bill would apply the so-called wash sale rule to digital assets, effectively treating them like stocks. The rule will force an investor to wait 30 days between the selling of a security and repurchasing it when a tax deduction is involved.

 

If the proposal passes the floor, taxpayers have until December 31, to take full advantage of the loophole. The loophole that lets crypto investors sell coins at a loss for tax purposes and immediately buy them back. The recent plunge in crypto prices makes the timing perfect for tax-loss harvesting.

 

Where does the IRS stand?

 

Currently, the IRS classifies cryptocurrencies like bitcoin as property. This means that losses on crypto holdings are treated very differently than stocks and mutual funds.

As for the crypto tax loophole; Shehan Chandrasekera, head of tax strategy at crypto tax software company CoinTracker.io has this to say:

“One thing savvy investor do is sell at a loss and buy back bitcoin at a lower price” “You want to look as poor as possible”

The bigger the market for cryptocurrencies, the more crypto tax loophole is to occur.

“I see people doing this every moth, every week, every quarter, depending on their sophistication” Chandrasekera said.

Cryptocurrency is known for being volatile, coming with steep drops often followed by rapid spiks. Quickly buying back the cryptos is another key part of the equation. If timed perfectly, buying the dip enables investors to catch the ride back up, if there is a rebound to be expected.

Chandrasekera said it’s a popular strategy among his company’s clients, but he cautioned that thorough bookkeeping is critical.

“Without detailed records of your transaction and cost basis, you cannot substantiate your calculations to the IRS,” said Chandrasekera.

 

Read here to know more about Blockchain-based Bookkeeping!

 

What changes will happen?

The crypto tax loophole is expected to be plugged by January 1. But for it to be finalized, it has to be included in legislation that passes the House and the Senate.

Chandrasekera is betting that the rule makes it into the final bill because it aligns with crypto being treated as a security subject to 1099-B reporting, like other investments, he said.

 

But as it’s written, the rule would not be applied retroactively, so crypto investors have a window available to take advantage of asset sales.

 

Time is running and bookkeeping is a vital part of this strategy to work. If you are into cryptocurrency investment, make sure you have reliable records to support your tax reporting at year-end.

Get in touch with us today!

 

Disclaimer: FAS Bookkeeping and Tax Services is providing this article as a public educational piece. 
Reference to any specific product or entity does not constitute an endorsement or recommendation by FAS Bookkeeping and Tax Services. 
FAS Bookkeeping and Tax Services will not be held liable for any damages incurred by using the specific products mentioned in the article.

What Is Cryptocurrency?

what is crypto

WHAT IS CRYPTOCURRENCY?

By now you’ve probably heard of Bitcoin or Ethereum. Either from a friend or an acquaintance. They’ve also probably urged you to get as much cryptocurrency as you can because they say that cryptocurrency is the money of the future.

But what exactly is a crypto and is it really the money of the future? A digital currency or virtual currency that is secured by cryptography is called a cryptocurrency. Cryptography is what makes cryptocurrency unique from other traditional forms of currency. Cryptography is used to ensure that the cryptocurrency is nearly impossible to counterfeit or double-spend. The majority of cryptocurrencies are networks that are decentralized by nature and are native to a new technology called blockchain – a distributed ledger managed by a dissimilar network of computers. The major feature of cryptocurrencies is that they are not issued by any central authority, making them theoretically immune to government interference or manipulation.

 

Origin of Cryptocurrency

The very first blockchain-based cryptocurrency that was developed was Bitcoin. Following the 2008 recession brought by the hyperinflated housing market in the US, an individual or group known by the pseudonym “Satoshi Nakamoto” conceptualized a form of currency that is out of the reach of governments on a global level. The key feature of Bitcoin is its scarcity, by only having a predetermined number of Bitcoins to ever exist – 21 billion to be exact – ensure that the currency is immune from inflation and manipulation.

 

Form of money?

Cryptocurrency has dubbed itself as the money of the future by being native to tech. However, the Internal Revenue Service considers cryptocurrency, not as a form of money but rather as a financial asset or property. This treatment is derived from how people use crypto. Currently, the use of cryptocurrency as a medium of exchange is not yet prevalent. Most crypto holders keep their cryptocurrency locked in a digital wallet for a long period of time and only selling when the prices are favorable. Since the IRS treats cryptocurrency as a financial asset or property, it means that whenever you’re selling or trading it, you are subject to the policies and guidelines surrounding capital gains tax.

 

Advantages and Disadvantages

 

Advantage

Since crypto is not directly regulated by any central form of government, fund transfers between two parties are made easier regardless of their geographical differences. Lower fees and near-second transaction finality are one of the advantages of cryptocurrency, as compared to wire transfers that would take days before completion due to the fact that fund has to go through third parties e.g., Banks and other financial institutions.

Disadvantage

The greatest disadvantage of having no central form of government regulating cryptocurrency is that there is a large chance of losing your cryptocurrency if you happen to use the wrong wallet address when transferring from one wallet to another. Unlike bank-regulated transactions, if you happen to make a mistake while transferring your money e.g., wrong account number, wrong swift code, wrong bank code, there is always a chance for you to get your money back when you contact the bank.

As for cryptocurrency, no one can help you recover the lost cryptocurrency, not even the developers of the cryptocurrency. The funds will be completely under the control of the receiving end. The cryptocurrency can only be returned to you if the receiving end decides to return it.  There is also the hurdle of identifying who is at the receiving end since there are no personal data tied to any digital wallet unless the wallet is custodial in nature. The risk of completely and irreversibly burning your cryptocurrency when you send it to an inactive address is huge.

How do you get Cryptocurrency?

Back then, buying crypto would require a lot of research and tech know-how. Nowadays, buying crypto is as easy as buying a cup of coffee. You also have a lot of choices when it comes to choosing where you buy your crypto.

If you’re a bit conservative when it comes to exposing your portfolio to cryptocurrency, you can acquire fractional shares of cryptocurrencies at custodial exchanges. These exchanges do not directly put cryptocurrency under your account, but it attributes fractional shares of crypto under your account. On paper, you own a certain amount of crypto, but the crypto you own is held by the custodial exchange for safekeeping. That way, you don’t have to worry about any security risk of someone getting into your digital wallet. Some custodial exchanges offer loss insurance in case something bad was to happen with the crypto that they are holding on to.

Other ways to buy?

You can also buy crypto from reputable centralized exchanges like Coinbase, Binance, and cash app. This type of exchange requires KYC processes and will technically hold your cryptocurrency under sub-addresses until you transfer your crypto out to your personal digital wallet.

This is where it gets a bit tricky, decentralized exchanges are completely autonomous. In order to purchase cryptocurrency, you must first have the crypto equivalent of the US-Dollar or other fiat currency. The most used fiat equivalent crypto is the US Dollar Tether (USDT). Once you have USDT you can choose from any of the cryptos that they offer and set up your digital wallet to receive the purchased crypto. Using decentralized exchanges requires a little bit of know-how so make sure you do your research before making a purchase.

Now that you know where to buy your cryptocurrency the next hurdle you need to go through is including it in your income tax report! Knowing how convoluted taxes are, imagine the complex maze you have to solve just to declare your crypto gains. But you don’t have to go through all those troubles just to simply have an accurate income tax report. Here at FAS, we’ll do the heavy lifting for you!

 

Get in touch with us today and we’ll help you with your cryptocurrency gains reporting!

 

Operation Hidden Treasure: The IRS is out for your gains!

Cryptocurrency tax

The Crypto Rally

A few years back, cryptocurrencies and crypto trading was uncharted territory in the eyes of regulators. As people flock to cryptocurrency trading in hopes of quick and large gains; the IRS has set its eyes to lay down the law.

Early this year, Damon Rowe, director for the IRS’ Fraud Enforcement Office made an announcement at a Federal Bar Association presentation.  The announcement was about the addition of key operational functions in its fraud enforcement priorities. This announcement hinted at the addition of a dedicated team of Criminal Investigation professionals who are working on what was dubbed as “Operation Hidden Treasure”. The task force in charge of the operation is comprised of agents who are trained in cryptocurrency and virtual currency tracking. According to Damon Rowe, the team will focus on taxpayers who omit cryptocurrency income from their tax reports. Operation Hidden Treasure is a joint effort between the civil office of fraud enforcement and the criminal investigation unit, they aim to root out tax evasion from cryptocurrency owners and traders.

 

Operation Hidden Treasure

“WE SEE YOU”

That is the message that the National Fraud Counsel & Assistance Division Counsel for the Office of Chief Counsel; Carolyn Schenck, has to say for crypto traders who are would-be tax evaders. According to Schenck, the IRS is working on “how to get ahead of the game,” by looking for various “tax evasion signatures.” The signature that Schenck mentioned manifests itself in the form of transactions structured in a way that it flies under the radar of the IRS e.g., transactions in increments of $10,000 to avoid certain reporting requirements. This also includes the use of nominees, shell corporations, or getting on and off the chain, says Schenck.

 

Crypto trading gains reporting – What makes it criminal?

What makes the failure to report your cryptocurrency holding or trading gains on your tax reports a criminal act?

Criminal Tax Evasion is defined by I.R.C. section 7201 as:

“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law.”

What does that mean? It means that tax evasion must be willful, and willfulness is defined as an intentional violation of a known legal duty. Even though the IRS decides not to pursue criminal charges, the civil consequences for fraud are not exactly a walk in the part. A penalty of 75% of the understatement of the tax is applied.

 

Coming Clean?

The tax defense bar asked the IRS to announce some type of voluntary disclosure program, similar to that of the foreign bank disclosure program that could let virtual currency holders to “come clean” for years, to no avail. However, the IRS is yet to show some inkling if they will or will not roll out such a program.

Including your crypto trading gains in your next tax report can be quite confusing. But it doesn’t have to be! Lucky for you we can help you out!

Get in touch with us today and we’ll sort things out!

 

Top 3 Bookkeeping Applications for Small Businesses

Top 3 Bookkeeping Aps

The Top 3 Bookkeeping Applications for Small Businesses

 

The benefit of on-the-shelf accounting and bookkeeping software is undeniable for small business owners. It gives them the benefit of tracking accounts receivables, accounts payables, cash flow overview, and so much more. Understanding the profitability of your small business is vital for its growth and on-the-shelf accounting software helps you with that since your small business accounting and bookkeeping needs won’t require extensive customization right off the bat. However, as your business grows, its bookkeeping and accounting needs will become more complex, and a custom Enterprise Resource Planning (ERP) system will be needed.

 

There is a plethora of different accounting and bookkeeping software out there that cater to the needs of small business owners, each has its own unique capabilities and pricing plans. Typically, the type of industry and number of employees your business has are the main two factors that can help you choose the appropriate software for your need. To visualize, a freelance photographer won’t need the same features that a hardware store owner would usually need.

 

We’ve scoured the market and identified five of the best bang for your buck accounting and bookkeeping software.

 

At Numberwe have the ubiquitous

QuickBooks Online

 

QuickBooks Online has positioned itself as the best accounting software for small businesses across the globe. This is widely used by accounting and bookkeeping professionals due to its scalability, integration, with third-party applications, and user interface friendliness. Since it is widely used, there is an endless amount of online training resources and support forums to be found all over the internet when you need it most. All relevant accounting and bookkeeping features can be conveniently accessed on its main dashboard, making your bookkeeping easy and efficient.

The great thing about this software is that it offers a free 30-day trial so that you can test if the shoe fits. Once the trial ends and you find that its features fit your needs, it offers various subscription plans that would vary depending on the main needs of your business. Each plan offers advanced features like inventory management, time tracking, additional users, and budgeting.

All of their plans allow the integration with third-party applications such as Stripe, Paypal, and others. If your business is looking for payroll service software, QuickBooks Payroll also fully integrates with QuickBooks Online.

 

Number 2:

Xero

 

Xero is the new kid on the block that aims to dethrone the ubiquitous QuickBooks Online. The company was founded in New Zealand and is quite popular in its home turf, Australia, and the United Kingdom.

This is the best for micro-businesses that are eyeing a very simple accounting software. The Xero software has a minimalist clean interface and Xero also integrates with a third-party payroll service, mainly Gusto. It also features integration with payment service providers like Stripe and GoCardless.

Xero has three levels for its pricing plan and a full-service payroll addon; Early at $11 per month, Growing at $32 per month, and Established at $62 per month. The full-service payroll option is offered through Gusto and it would cost you an additional $39per month, plus $6 per employee.

So, if you’re business sees high-ticket transactions, but only a few per month. In the likes of a consulting or small service provider, then Xero would be the best fit for you.

 

Last but not the Least:

FreshBooks

 

Yes, it sounds a lot like QuickBooks, but trust me they are completely different. FreshBooks was founded in 2003 in Toronto, Canada. It first started simply as an invoicing software. Over time, more and more features were added to the version of the FreshBooks we know now.

FreshBooks is perfect for most service-based businesses since it specializes in invoicing. The software’s forte is to send, receive, print, and pay invoices. But that’s not all, it’s robust enough to handle your business’ basic bookkeeping needs.

 

FreshBooks offers four pricing plans namely; Lite at $6 per month, Plus at $10 per month, Premium at $20 per month, and Select, which is a custom service with custom pricing. The primary difference between the plans is the number of different clients that can be billed per month.

  • Lite Plan – 5 Clients can be billed per month
  • Plus Plan – 50 Clients can be billed per month
  • Premium Plan – Unlimited clients can be billed per month.

It also features a lot of third-party application integrations, such as Shopify, Gusto, Stripe, G Suite, and more. What makes FreshBooks unique is that it gives you the ability to stylize and customize invoices to your liking.

Before you go down the road looking for an accounting and bookkeeping application; ask yourself first if you have the time and energy after a long day of work if you can still spare an hour or two doing your books and taxes daily. If not, then don’t worry! We are here to help you.

 

Get in touch with us today and we’ll do the after-hours heavy lifting while you relax with your family and loved ones!