Financial Planning Tips » Accounting

Preparing For Tax Season: How To Get A Head Start On Your Taxes

FPT Guy — Wed, 08 Feb 2012 19:26:38 +0000

When most people think of tax time, they no doubt think of the last minute crunch of standing in line at the post office late at night on April 15^th. While you may never find yourself in that late night line, you probably have experienced the rush to get your online forms submitted or hurried to set up an appointment with an advisor. However, as tax season approaches, there are a number of things you can do to prepare in order to get a head start on your taxes.

Be prepared. At the beginning of the year, you will start to receive tax information and necessary forms in the mail that you will need when filing your taxes. Kiplinger.com advises that you begin to keep your eyes peeled for the following paperwork:

W-2 will come from your place of employment and shows your gross income
1099 will come from anywhere you’ve received taxable interest or dividends (i.e., your bank, IRA, certificate of deposit, money market account, mutual funds, stock dividends, etc.)
1098 will come from the lender of your home mortgage loan
1099-G will come if you’ve collected any unemployment
1099-MISC will come if you worked as an independent contractor for any client that paid you over $600

Get organized. Once you start to receive these forms in the mail, the next thing you should do is to create a centralized location to save all tax-related information and paperwork. Whether it’s a file in your storage cabinet, a large manila envelope or a paper-clipped pile on your desk, it’s important that you keep all necessary paperwork together. This will ensure that you have everything you need once it’s time to start on your taxes and that no important paperwork is misplaced.

Figure out how you’ll file. Figure out how you will file your taxes. It is important that you decide this sooner rather than later in order to give yourself the time you need to choose a reliable computer program, an accountant or a tax professional that will file on your behalf. Will you:

File your taxes the old fashioned way?
Use a computer program to file electronically?
Hire a tax professional to do it for you?

Decide on your deductions. Whether you have business and personal finances to account for or just one of the two, you should begin to separate your records, receipts and paperwork beforehand. Or better yet, keep them separated throughout the entire year and save yourself time when you’re preparing for tax season. Either way, you probably have deductions that will no doubt help increase your tax return or decrease the amount you owe. Here are a few common deductions to consider:

Do you use your spare bedroom as a home office? You may be able to write off part of your home as a business deduction.
Did you donate an old couch to goodwill? What about a bag or two of old clothes? Don’t forget to write these off as part of your personal charitable giving.
Have you donated any money to a church or charity? If so, that amount can also be used as a tax deduction.

Keep current. Stay up to date with your state’s tax information by visiting the IRS web site. This site can help you locate the information you need about your city or state’s specific revenue and tax procedures, policies, tax forms, etc. Having the most current policies, procedures, tax forms and rates is essential when guaranteeing that your taxes are filed both on time and correctly.

Investing the minimal amount of time it takes to get a head start on your taxes is sure to save you a lot of time once April arrives. With a little preparation and organization, you’re certain to enjoy a sense of calm during tax season.

Small Business Owners: Turn Accounts Receivable Into Working Capital By Factoring Invoices

FPT Guy — Fri, 27 Aug 2010 18:58:20 +0000

The receivable accounts of any business can be turned into working capital by invoice factoring. In this way, a business will no longer have to worry as much about budget shortages and lack of supplies because the factoring company can give them immediate cash in exchange for invoices. This can be done by selling the business’ invoices to the factoring company at a discounted rate.

In cases when a business cannot wait for a long time to be paid fully by its customers and there is already shortage of supplies, selling your receivables might not be a bad idea. The business owner will not have to worry about where he can borrow money to purchase another set of supplies because there is a factoring company who can give cash right away.

These financing companies will give a discounted amount of money according to the total amount of invoices that has been sold to them. Therefore, factoring invoices is very helpful to businesses to keep them running even in times of difficulties.

If a business is in need of capital to purchase new inventory, then business management can definitely enter into an agreement like this as long as they have invoices to sell to the factoring company. Basically, a Factor manages essential tasks, such as posting invoices, entering payments, depositing checks, and making computer reports. So, after a business has given its invoice to the company, all the related transactions will be handled by them.

The Factor will be the one responsible to collect all the remaining balances of the customers (in most cases). They will also get the interest if there are customers who did not pay on the said date of payment; hence the total amount of interest is part of the payment for the services given by the factoring company. The other part is the discounted rate at which they purchase the invoices from your company.

This is definitely an advantage for a business because they will no longer have to think of ways about how they can collect the remaining balances of their customers. Contacting and reminding customers of their payments may no longer be necessary in this type of transaction.

With the use of this kind of business strategy, a business could focus more on the flow of its supplies and how they can maintain a great amount of customers because the business management will not have to focus extensively on collections and how to budget around the long delays in payment.

The business will achieve an increased cash flow when there is factoring company that they can rely on. If this increase of cash can be maintained, the business will gain more customers. More customers mean more invoices and more cash. This type of financing can really help a business grow.

Accounts Receivables Financing: Invoice Factoring Vs. Invoice Discounting

FPT Guy — Sun, 06 Jun 2010 21:23:59 +0000

In the real world everyone refers to working with a third party financing party (known as Factor) to improve your cash flows as accounts receivable factoring. However it turns out that there are different ways to use your customer’s invoices to smooth out your cash flows. This article will discuss the difference between factoring and discounting.

Factoring

When a company factors its account receivables, it is selling them to a third party (although this type of transaction is often referred to as accounts receivables financing, it is actually a sale, not a financing loan). All of the risks and rewards for the receivable are transferred to this third party, commonly known as a Factor. In other words it is now up to the Factor to collect from the customer. If the customers do not pay, then the Factor loses out. Note that failure to pay is usually a bad thing for both the Factor and the company selling the invoices because the Factor will no longer want to work with the selling company. Also note that who ultimately bares the burden of collection is a matter of contract.

So basically factoring is a sales transaction that involves three parties: the debtor (customer), the company, and the Factor. The Factor will usually give the company a certain percentage of the face value of the receivable up front (anywhere from 60-90 percent). The Factor will remit the remaining 10-40 percent when it collects. The Factor then charges the company a fee for doing all of this (usually around 1-4 percent per invoice per month).

Discounting

Discounting is slightly different from factoring, though as was mentioned previously most people use the two terms interchangeably. With discounting there is no sales transaction, but a loan. So the company is not passing the risks and rewards of the invoice to the third party. The receivables are simply used as collateral against a loan. This means that if the customer doesn’t pay, the company still has to pay back on the loan. It also means that if the company doesn’t fulfill its loan agreements, then the bank or the loaning party can confiscate the receivables pledged.

In short invoice factoring refers to the selling of your invoices whereas invoice discounting refers to using them as collateral for loan purposes. As far as what is actually happening there isn’t a lot of difference. This lack of difference has given accounting service standard setters and auditors headaches as they’ve tried to determine whether factoring should be treated as a sale or a loan.

As far as trying to determine which one you should use for your company is concerned. It really depends on the industry and third parties you are working with. If the fees and overall economic costs of factoring and discounting are the exact same for your company, then you should probably go with factoring because in that case you are shifting the risk of your customers not paying to a third party.

In reality it doesn’t make a lot of sense to try and shift the risk of not collecting to the factor. If you burn them on this once, chances are they are not going to work with you in the future. Most people who factor have a long-term working relationship with their Factors. In addition, the factoring companies know what they are doing and will find a way through contracts to avoid you burning them.

That sums up our discussion on factoring (selling) invoices and discounting (using them as collateral) invoices. Hope you learned something.