Camea Franklin, Bench Accounting
Camea Franklin Daney is a Senior Tax Advisor with Bench Accounting, a professional bookkeeping service for small business owners. Camea is also an enrolled agent with the internal revenue service.
The following is a transcript from an interview between Square and Camea Franklin Daney. It has been edited for length and clarity.
Let’s start at the very beginning, what are your options when it comes to registering your business and how important is your business entity selection?
Camea: Any organization that is formed to conduct business at the state level and when I say state level, meaning you have and register your business with the state. You won't register it what the federal government other than getting a tax ID number or EIN number. So you go to the state that you'd like to be registered in and you determine what entity you want [to register your business].
Some common structures are sole proprietorships or partnerships, LLCs. So, a lot of people form LLCs and which can either be a sole proprietorship or a partnership depending on how many members [you have]. Finally, you can also form C corporations at the state level.
Once you select your business entity what are the different types of taxes that you may have to navigate as a business owner?
Camea: There are several different categories of tax that a business owner would need to at least be aware of. Of course, there's income tax, which is related to federal state, and local municipalities. Any income you receive, you have to report to the government. There's also sales tax which is a different tax [from income tax] that also affects a lot of people, especially people who sell over the internet, through Amazon, and things like that. The vendor or business owner takes a tax to the state, holding it for them and sending it in. So, it's not part of your revenue, it is not part of something that you owe, it is something that you are responsible for collecting on behalf of a state. Another tax would be payroll taxes. If you have employees, not independent contractors, but employees that you pay, you are responsible for collecting their payroll tax, federal withholdings, and their FICA, as well as your employer tax. You're responsible for collecting that and paying that either quarterly or yearly depending on how much revenue you have in your business.
What are some common tax mistakes business owners make and how can they be avoided?
Camea: The IRS requires that you keep contemporaneous receipts and records. This is very important when it comes to you paying less tax. If you don't have the receipt or if you don't have the documentation to prove what you're putting on your tax return, you're likely to owe later. You've got to keep your bookkeeping and your books in order. I tell a lot of people - even if they don't have the money to pay a bookkeeper or pay an accountant, at least download one of those apps that has a receipt tracker. It's quick and easy for you. You know, you may be on the road every day, like a trucker, or a salesperson, and you don't have time to sit there and write stuff down, but, simply having that app on your phone and taking a picture of the receipt...depending on the app, at the end of the year, it'll categorize it for you. That just makes it so much easier for your professional or you if you're filing it yourself to get the information that you need.
The next thing I would say would be not filing [your taxes]. You want to make sure you file a timely return, especially if you are a corporation or a partnership because the IRS, once they know you're in business, they expect to see that return. If not, you're subject to penalties for not filing. At least file something because it also starts the statute of limitations up. So, if you decide not to file and you kind of just hide it or put it to the side...well, the IRS has about 10 years to collect from you. If you don't ever file a return, that time doesn't ever start, so they can always come to you. Let that start and get that off the way, you know, because that's better in the long run.