Monthly Archives: June 2014


oopsNearly half of American adults are on at least one social networking site, according to the latest Pew Research Center data. But in spite of the vast potential audience — and the equally vast amount of advice out there — the social world isn’t necessarily a straightforward proposition for small businesses. Here are five mindsets that could lead to trouble.

1. I Have No Idea Why My Business Is on Facebook

If you can’t name at least one — and preferably several — good business reasons to spend time on social media, take a step back and think harder until you do. “Trying something new for my business” can be a wonderful goal, but it’s not everlasting. Build a clear-cut plan for what you hope to gain by spending your business’s time on social sites. Keep that plan flexible; it can (and should) adapt to the growing, changing world of social media.

2. I’m a Sales Machine: Must Always Be Closing

Coffee might be for closers, but social networking is for everyone. Sales are a great thing — good luck to the business that tries to go without them. But if selling is your only social goal, you’re likely to be disappointed. In fact, loyal users of sites like Twitter and Quora tend to frown upon the “ABC” approach espoused by Alec Baldwin’s character in Glengarry Glen Ross. Take a wider, longer view: Think of things like customer service, potential partnerships, or community service. Likewise, consider the possible internal applications — a private Facebook page, for example, could be a no-cost tool for employee communications.

3. I Believe that Any Publicity Is Good Publicity

Social media is proving that legendary PR sound bite wrong on a regular basis. There have been a number of big-time gaffes lately. Twitter seems particularly prone to these cautionary tales. The general public can use social sites to complain when their neighbor’s music is too loud or someone cuts them off in traffic — or to flat-out misbehave. You should think twice before doing the same with your business. There’s no such thing as an inner monologue online, no matter what your privacy settings are. If you post it, it’s public.

4. My Friends Tell Me I Should Have Been a Comedian

A sense of humor is a wonderful thing, but don’t assume everyone thinks you’re a hoot. (See also: Any Publicity Is Good Publicity.) There aren’t a wealth of successful business models based on offending as many people as possible. Creating controversy can generate a short-term buzz, but unless you’re going for just that — a fast, short-term wave of interest, likely followed by digital wrath — it’s often not worth it. Even the professional comedians run into trouble: Gilbert Gottfried recently lost a lucrative deal with Geico after several tweets referring to the recent disaster in Japan.

5. I Know this Is Going to be a Piece of Cake

The social universe involves your business giving up a certain amount of control over its image. People have a very easy, very public platform to pat you on the back when things go well, and to slam you when they don’t. There’s no flip of the switch — to see real results, you’ll have to put in some work. (Though that’s not likely to put off successful business owners.) Take your time, keep an open mind, and don’t lose sight of your core business. No matter how staggering the social media usage stats get, that will still be what matters most.

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hobbyMillions of Americans have hobbies such as sewing, woodworking, fishing, gardening, stamp and coin collecting, but when that hobby starts to turn a profit, it might just be considered a business by the IRS.

Definition of a Hobby vs. a Business

The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity that is carried out with the reasonable expectation of earning a profit.

The tax considerations are different for each activity so it’s important for taxpayers to determine whether an activity is engaged in for profit as a business or is just a hobby for personal enjoyment.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to deductions such as expenses and losses, the two activities differ in their tax implications.

Is Your Hobby Actually a Business?

If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

What Are Allowable Hobby Deductions?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

  • Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
  • Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
  • Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider it a business because you might be able to lower your taxes and take certain deductions.

Still wondering whether your hobby is actually a business? Call us and we’ll help you figure it out.


operatingbudgetAn annual operating budget captures your firm’s expected revenues and expenses over a 12-month annual period. You can use this year’s financial data as a starting point in putting together a budget for 2015. Then update those figures by getting numbers in advance for as many of your costs as possible and by forecasting your sales. Predicting how the numbers would play out under different assumptions — best case, worst case, and average — can help you to identify potential problems and give you the opportunity to adjust your planning if necessary. Although the word “budget” implies a lack of flexibility because you’re trying to control costs, a budget should be rigid and inflexible. As you monitor your actual results against your budget during the year, you may find that you have to adapt your plan to take advantage of new opportunities or changing economic conditions. If you need help in setting up a budget for your business, please give our office a call today.


breakevenpointYour business has certain fixed costs that it will incur regardless of your sales volume.  These include items such as rent, insurance, interest, and utilities. Your business also has variable costs that fluctuate with sales (for example, the cost of raw materials used to make a product). If your gross profit after deducting variable costs isn’t high enough to cover your fixed costs, your business will lose money.

A break-even point calculation lets you determine the level of sales at which your gross profit equals your fixed costs. Your goal is to exceed this level so that you’ll make money. However, knowing your break-even number provides a baseline for gauging your results as the year progresses.

If you need help calculating the break-even point for your product or service, please call our office today.




newbusinessStarting a new business is a very exciting and busy time. There is so much to be done and so little time to do it in. If you expect to have employees, there are a variety of Federal and state forms and applications that will need to be completed to get your business up and running. Here are three things that every new business owner should know. We can help you with all of these.

1. Employer Identification Number (EIN) 
Securing an Employer Identification Number (also known as a Federal Tax Identification Number) is the first thing that needs to be done, since many other forms require it. EINs are issued by the IRS to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes.

The fastest way to apply for an EIN is online through the IRS website or by telephone. Applying by fax and mail generally takes one to two weeks. Please note that as of May 21, 2012 you can only apply for one EIN per day. The previous limit was 5.

2. State Withholding, Unemployment, and Sales Tax
Once you have your EIN, you need to fill out forms to establish an account with the State for payroll tax withholding, Unemployment Insurance Registration, and sales tax collections (if applicable).

3. Payroll Recordkeeping
Payroll reporting and record keeping can be very time consuming and costly, especially if it isn’t handled correctly. Also keep in mind, that almost all employers are required to transmit federal payroll tax deposits electronically. Personnel files should be kept for each employee and include an employee’s employment application as well as the following:

Form W-4 is completed by the employee and used to calculate their Federal income tax withholding. This form also includes necessary information such as address and social security number.

Form I-9 must be completed by you, the employer, to verify that employees are legally permitted to work in the U.S.

If you need help setting up the paperwork for your business, please call our office today at (727) 391-7373.  We can handle this part of your business so you can focus on running your business.