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Tax Issues Regarding Copyrights, Patents and Trademarks

Posted on March 15th, 2012 by admin

Category: Grow a Business, How To Information, Small Business, Taxes

By Eva Rosenberg, EA

You’ve heard the old adages, “The shoemaker’s children go barefoot.” Or “Do as I say, not as I do.” It’s important to learn from these sayings. They apply to many of us. How?
We are all eager to do work for our clients, customers, family and friends. But when it comes to some of the key issues relating to our own businesses, well…administration falls by the wayside, doesn’t it.

Yes, it even happened to me. When I first started the TaxMama.com website with Ask TaxMama issue #1 in January of 1999, I didn’t rush out and trademark “TaxMama”. Nope, I didn’t file for my trademark until October 2005. At that point, I had to fight for the trademark – and it cost me 3 years, and a bit of money. But,right now, TaxMama is officially trademarked and owned by me, Eva Rosenberg.

Unlike copyrights, which automatically belong to you for all your creations, whether you file anything or not, you must file your patents and trademarks with the U.S. Patent and Trademark office – and perhaps fight your case. Of course, it doesn’t hurt to protect your copyrights, as well. After all, if you don’t establish that you are the one who originated a word, article, story, song, film, etc., how will you prove that you are the copyright-holder?

Karen Kobelski talked more about protecting your intellectual property at the BizFilings Facebook Roundtable on March 14, 2012.

Intellectual Property rights

How do you handle the tax issues related to Copyrights, Patents and Trademarks – which we will simply call Intellectual Property rights, or IP for short?

Let’s look at the simplest level of IP costs. When you can establish your rights for a couple of hundred dollars and be done with it, just write off the costs in the year you spend the fees. Call them legal fees. Anything under $500 is just too small to carry on the depreciation schedule, year-after-year.

However, once you start getting into the hundreds and thousands of dollars, it’s time to look at the U.S. Tax Code. The IRS treats IP costs as Internal Revenue Code Section 197 intangibles. The costs are amortized over 15 years[1]. There is very little leeway on this. But there is some.

We are permitted to write off up to $5,000 of the first year’s start-up costs, instead of treating them as capital assets. Of course, the business must have opened its doors in order to get this special benefit. If you use this start-up cost write-off, you can include your IP costs as part of the $5,000.

Not Quite Ready for Prime Time

What about companies the expend thousands of dollars on IP, but don’t really start generating revenues for years. After all, some of the most important products on the market (pharmaceuticals, vehicles, etc.) may take years to research, develop and patent. How do they handle the costs of their intellectual property?

Generally, they will just accumulate the costs until the product is ready to go to market. Along the way, they can pick up tax benefits, such as research and development tax credits, amortize research and development costs (not trademark or patent costs) over 60 months (5 years), and perhaps even pick up a Code Section 199 domestic production credit. This is a particularly complicated credit to use – but it applies to a lot of industries, including home-based Internet businesses.

One thing that’s important to note about tax credits. When you use them, you must also reduce your total costs by the amount of the credit before you start depreciating or amortizing your costs.

Zoning Out Now!

Your eyes are starting to glaze over. So are mine. Yes, we are starting to head into gobble-de-gook territory. The words are starting to muddle and puddle. So, it’s a good time to seek out the services of a good tax professional to work with you. When dealing with intellectual property, find someone who is an expert in this area of taxation.

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Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered for free. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches tax courses at IRSExams.com and CPELINK. Join us on March 14th – A Tax Checklist for Small Businesses

Do you have a passion for taxes? TaxMama is conducting a search for the Ultimate Tax Nerd of 2012. Enter to win prizes, including a Kindle Fire, tax software and other swag.

[1] Amortizing – it’s just depreciation, where you spread the cost over several years. You depreciate physical, tangible assets – things you can touch. You amortize intangibles – things you cannot touch – like points, trademarks, ideas, etc.

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5 Steps to Establish and Maintain Small Business Credit

Posted on March 12th, 2012 by The BizFilings Team

Category: Cash Flow, Financial Services, Lines of Credit

Entrepreneurs are more likely to start off poor than rich. Harvard Business School professor and entrepreneurship icon Howard Stevenson recently reminded Inc. magazine of this fact.

“They see an opportunity and don’t feel constrained from pursuing it because they lack resources,” Stevenson said of entrepreneurs. “They’re used to making do without resources.”

Given that most small business owners don’t have a substantial personal fortune to draw from, establishing and maintaining business credit is one of the most fundamental aspects of SMB finance. The U.S. Small Business Administration points out that most entrepreneurs are dreamers and leaders, not accountants, and might not feel inspired or equipped to handle the nuts and bolts of business credit. But by taking a few essential steps, entrepreneurs can successfully build their enterprise’s credit.

1. Set up your legal business entity

If you’re a sole proprietor, there’s no clear distinction between a personal and business loan or personal and business credit, so this is one reason to register your business as a corporation or limited liability company. Doing so provides protection to owners by creating a distinction between personal and business finances, and prevents creditors from pursuing personal assets in the event that business debts need to be paid off. Forming an LLC requires filing Articles of Organization with appropriate state agencies and paying applicable fees. Each state has different guidelines for establishing and maintaining LLC status; for example, California requires an initial report within six months of incorporation, as well as an annual report and a minimum annual franchise tax of $800, while Delaware does not require an initial report, though Delaware LLCs must file an annual tax statement.

2. Open a small business bank account

Many small business owners use personal credit lines and bank accounts to get started, but to establish business credit history, it’s crucial to open a commercial account. In order to apply for many types of loans, your bank account must be at least two years old, which is why it is important to set up your bank account expeditiously. In your account, you want a balance to show that you have the money available in order to take on debt and that you have built revenue over time. To obtain credit, businesses may need more than one bank reference to prove funds are available from a variety of sources.

Acquiring a business credit card can also be shrewd, as this is another way to separate personal from business credit. Business credit cards offer some advantages as well, such as statements that categorize spending. Of course, SMB owners should also consider fees and rewards programs, and shop around for a card that is a good fit.

3. Register with business credit bureaus

Setting up a complete profile with Dun & Bradstreet - one of the main business credit bureaus, which runs it own business credit score service – will help you see your credit score and what you need to do to improve it. You will be able to receive a free DUNS number from Dun & Bradstreet after you have created your business entity and once you have a federal tax ID number. Lenders will determine how worthy you are of receiving loans based in part upon your DUNS score. Other major business credit bureaus include Experian Business and Equifax Business.

Once you have a business credit file, it’s essential to keep it up to date and monitor it to maintain a good rating. Credit score companies examine hundreds of factors to establish a rating, including a business’ revenue and number of employees. SMB owners can refer to the FICO Small Business Scoring Service to lean more about what determines a credit score and how creditors use it to assess risk.

4. Showcase your ability to pay vendors and pay off credit cards

Your business credit will continue to build as vendors report that your business has a good payment history. Paying credit card balances and business invoices on or ahead of the due date can increase your business credit score while adding to your solid payment history. Creating your own trade reference sheet with at least three references, and attaching it to your business credit report, will show you are a good business partner.

5. Keep a strong personal credit history

Though establishing your business as an LLC or corporation creates separation between your business and personal finances, potential lenders may also look into your personal credit history when determining whether your business is worthy of receiving a loan. Any shareholder who owns at least 20 percent of a business may be evaluated by creditors and lenders, so it is important that each shareholder’s credit history is as strong as possible. A personal credit score of 680 or higher will showcase financial responsibility.

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Franchise Tax Facts

Posted on March 5th, 2012 by Joey Donovan Guido

Category: Franchise, How To Information, Small Business, Small Business News, Taxes

Franchise-Tax-Facts With a name like “Franchise Tax,” one might think this would be a tax imposed on franchises. But in fact, a Franchise Tax is imposed on a business simply for being incorporated or registered to transact business in a particular state.

In other words, it’s a tax on the privilege of carrying on business as a corporation or LLC in a state.

How a Franchise Tax
is Measured

The method for calculating Franchise Tax varies by state. Common methods include:

Business income
Business assets (total value of capital or stock)
The number of outstanding shares of corporate stock, and the par value of those shares
Any combination of above
A flat fee
In some states, the Franchise Tax is simply an income tax

When is Your Franchise Tax Due?

The answer to this question depends on the state(s) in which you are doing business.

Many states have due dates tethered to your anniversary date (the date your small business was formed). For example, if an LLC was formed on February 15th, the due date for that LLC’s Annual Report and Franchise Tax would be February of each year.

Other states choose one date that the annual report and/or Franchise Tax is due. This may be consistent for all business types or it may vary by business type. One example is Delaware, where Annual Reports and Franchise Taxes for corporations are due March 1st, while the due date for LLCs is June 1st.

More on Delaware’s Franchise Tax and Annual Report

Since Delaware is such a popular state for incorporation, let’s take a closer look at how its Franchise Tax and Annual Report work.

According to the state of Delaware, “all corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a Franchise Tax. Exempt domestic corporations do not pay a tax but must file an Annual Report.

The Annual Report filing fee for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report. Taxes and Annual Reports are to be received no later than March 1st of each year. The minimum tax is $75.00 for corporations using the Authorized Shares method and a minimum tax of $350.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $180,000.00.

Taxpayers owing $5,000.00 or more pay estimated taxes in quarterly installments, with 40% due June 1; 20% due by September 1; 20% due by December 1; and the remainder due March 1st. The penalty for not filing a completed Annual Report on or before March 1st is $125.00. Interest of 1.5% per month is applied to any unpaid tax balance.”

Want to Learn More About Your State’s Requirements?

Check out our free state incorporation guides for more information on your state’s corporation formation requirements and corporation ongoing requirements, as well as your state’s LLC formation requirements and LLC ongoing requirements.

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Fantastic Free Cloud Apps, Part 9: Mint

Posted on October 17th, 2011 by Joey Donovan Guido

Category: Entrepreneur, Financial Services, Grow a Business, Small Business, Small Business News

Take a fresh look at your personal and small business finances with Mint, a Fantastic Free Cloud App that’s compatible with both Mac and Windows, as well as iPhones, iPads and Android devices.

What is Mint?

Intuit, the company behind the app, touts that Mint is “the best free way to manage your money.” With more than 6 million users, they might just be right.

Mint has the ability to pull together all your financial accounts into one place. It also automatically categorizes your transactions, lets you set budgets, helps you achieve your financial goals — and offers unbiased free advice, recommendations and helpful next steps concerning your financial health.

In their October 2011 article covering finance apps, MacLIfe magazine rated Mint 5 out of 5 for ease of use and ease of editing transactions. It also received high marks for its reports and graphs, as well as mobile device integration (iPhone, IPad and Android devices).

However, when it came to creating budgets, two other apps — iBank and Money Dance — scored higher. One of the drawbacks of these apps is that neither is free (although neither is overly expensive). And while Money Dance can be used on both Mac and Windows based machines, iBank is only compatible with Apple operating systems.

Safe and Secure
Mint uses 128-bit SSL encryption — just like a bank. They guarantee that “all data is protected and validated by VeriSign and TRUSTe. Plus, since Mint is read-only, no money can be moved in or out of any account.”

Automatic Updates & Categorizing
With Mint, your financial information is automatically updated and categorized. It also offers savings suggestions. Automatic alerts, including bill reminders, is also included in the service.

How is this Free?
Mint does make money. Just not directly from you. They’re very upfront about exactly how they’re able to offer their app for free and still stay in business. “The fees that banks pay us for introducing new customers allow us to keep the service free for our users. We’re committed to staying free for everyone, whether or not you ever act on one of our savings recommendations.

Our recommendation is always unbiased: It makes no difference to us which bank or company you work with. We rank products in order of savings, whether we get paid or not. If your current bank is cheaper, that’s great. If not, it’s up to you whether you make a change.”

Whether you choose an app to manage your finances, or prefer working with pen and paper, two things remain true: taking the long view and setting clear goals are both important steps in gaining more control of your financial future. May it be prosperous, and filled with growth …

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Truckers: HVUT Due Date is November 30th this Year

Posted on August 10th, 2011 by The BizFilings Team

Category: Small Business, Small Business News, Small Business Trends, Taxes

With temperatures and gas prices both soaring, it’s been a long, hot summer for independent operator-owners and other owners of heavy highway vehicles. However, the IRS’s decision to move the due date for the Heavy Highway Vehicle Use Tax Return to November 30, 2011 provides truckers a chance to chill out and keep a bit of their hard-earned money a few months longer this year.

Owners of a highway vehicle that weighs 55,000 pounds or more must pay an annual vehicle use tax of up to $550 per vehicle in use during the reporting period. Normally the heavy highway vehicle use tax return (HVUT) is based on vehicles in use during the month of July and is due August 31. However, the HVUT is scheduled to expire on September 30, 2011 and efforts to extend it are bogged down in Congress.

In order to avoid the situation where each owner must file two returns during a single twelve-month period (and where the IRS must process two returns) the IRS opted to move the due date from August 31 to November 30. The IRS cautions that HVUT returns should not be filed and payment of the tax should not be made before November 1.

State DMVs Must Accept Prior Year Schedule 1
When the HVUT is paid, the IRS returns a copy of the Schedule 1. Having this proof of payment is required in order to obtain state vehicle registration for any truck, truck trailer or buses that weighs at least 50,000 pounds. The IRS has told the states that they must accept the prior year’s Schedule 1 as proof of payment for any registration applied for before December 1, 2011.

Vehicle owners who need a copy of their Schedule 1 for the taxable period July 1, 2010 through June 30, 2011, should call the Form 2290 toll free number at 866-699-4096 if they are calling from the United States. Those in Canada or Mexico should call 859-669-5733, which is not a toll free call.

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More Small Business Lending Brings SBLF Total to $337 Million

Posted on July 26th, 2011 by The BizFilings Team

Category: Financial Services, Grow a Business, Small Business, Small Business News, Small Business Trends

With the help of the recent $214 million that the U.S. Department of Treasury dispersed to 17 community banks, there are now 23 community banks that have received a total of $337 million from the Small Business Lending Fund (SBLF).

“Continuing to unlock access to capital for Main Street entrepreneurs is vital to strengthening economic growth and job creation in local communities across our nation,” said Rosie Rios, treasurer of the United States.

Employing nearly half of the nation, and accounting for approximately 60 percent of gross job creation, small businesses need the funding to continue to grow. The SBLF was put together by President Barack Obama’s administration to help small businesses get the money they need to hire, and to fund new projects.

Adding another small business to the list of SBLF beneficiaries was approved by the U.S. Treasury Department, granting approval to the First Savings Financial group to acquire an investment of $17,120,000.

With 12 offices in Indiana, First Savings Bank will receive the capital in the form of preferred stock of the company.

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SBA Loan Helps Small Businesses Deal with Disaster

Posted on July 21st, 2011 by The BizFilings Team

Category: Cash Flow, Financial Services, Small Business, Small Business News

Disaster can strike at any time, and may leave some small businesses reeling from its destruction. Small businesses devastated by disasters may qualify for federal economic injury disaster loans in specific areas (counties) of states.

“When the Secretary of Agriculture issues a disaster declaration to help farmers recover from damages and losses to crops, the Small Business Administration issues a declaration to assist eligible entities affected by the same disaster,” said Frank Skaggs, director of the U.S. Small Business Administration’s Field Operation Center East, in Atlanta.

Counties in New York damaged by hail and flooding, and in Tennessee and Missouri that experienced harsh tornadoes, are just a few counties across the nation that are eligible for the loan this year. Small businesses can receive up to $2 million with an interest rate of 4 percent. However, loan amounts and terms are determined by the SBA.

Intended to pay fixed debts, payroll, accounts payable, and other bills, the loans are not meant to cover lost sales or profits. The deadline to apply for the loan in most states is in mid-August.

“Getting businesses and communities up and running after a disaster is our highest priority at SBA,” said SBA Administrator Karen G. Mills.

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Michigan Small Businesses Appear to Be On the Upswing

Posted on July 11th, 2011 by The BizFilings Team

Category: Cash Flow, Financial Services, Finding Money to Start a Business, Grow a Business, Small Business, Small Business News

Despite the economy’s rough nature, small business owners in Michigan are optimistic things will soon be moving in the right direction. Of the 600 business associates that were interviewed for this survey, over half believe the business outlook over the next six months is “good.”

The survey, conducted by Accident Fund Insurance Company of America, found that investments going into business grew 8 percent. Michigan business owners can finally breathe a sigh of relief after fighting through the difficult recession.

Hiring and layoff numbers are also expected to improve. Sixteen percent of business owners expect to hire new employees in the next 6 months, and 20 percent plan to increase wages.

More good news for Michigan small businesses owners is the new initiative by Representative Gary Peters to provide a Farmington Hills bank with over $11 million to lend to small businesses. The fund was created by the Small Business Jobs Act, in which Peters was a main influencer.

“This program will put our investment where it will create the most jobs: helping community banks make crucial loans to small businesses here in Michigan,” said Peters.

The bank receiving the funds will be Level One Bancorp, and the funds will lead to over $100 million in new small business lending in southeast Michigan.

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Small Business Owners Receive Funding Aide From Obama Administration

Posted on June 28th, 2011 by The BizFilings Team

Category: Cash Flow, Equity Loans, Financial Services, Form My Business, Home Business, Internet Business, Lines of Credit, Small Business, Small Business News

Any small business owner who’s gone through the pains of forming a company, and now requires a loan to keep matters progressing, is having a harder time securing a bank loan. But a new website is helping small business owners in need connect with alternative funding sources.

SBAdirectloans.com works in conjunction with the Small Business Administration, which is a federal government agency. This agency provides loans that come with preferable terms and guidelines — without the consequence of defaulting.

“Small business owners right now are sick with worry over their business,” said Mike Robbins, SBA lending expert. “They simply don’t realize that a private lending professional can get them SBA-guaranteed funds in as little as a month. Even if every bank in their town says no, it’s still possible to get an SBA loan.”

According to an article published on Bankrate.com, the nation is still going through the financial crisis and banks are still refusing small business owners bank loans at a higher rate than usual.

Robbins said the Obama administration can be thanked for setting aside billions in entrepreneur aide.

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Small Business Credit Demand Expected to Rise in Coming Months

Posted on May 31st, 2011 by The BizFilings Team

Category: Finding Money to Start a Business, Lines of Credit, Small Business Trends, Start A Business

Many analysts have pointed to community banks’ lack of interest in tapping the national Small Business Lending Fund as indicative of the overall state of the credit market, with lending stalled due more so to weak demand than tighter policies.

But as companies emerge from the recession and seek to expand their operations through hiring, marketing and equipment investment, the demand for credit is expected to grow as well.

As Maria Coyne, executive vice president of business banking for the Cleveland-based KeyBank, recently explained to Entrepreneur magazine, small firms are actually borrowing to afford additions to their payroll.

“[Small businesses are] also taking advantage of existing opportunities,” Coyne told Entrepreneur. “Perhaps they’ve explored other ways to sell their products or services or expand into new markets and now they need to borrow to bolster their inventories. Maybe they’re taking advantage of existing tax credits to purchase heavy equipment that can help a company be more efficient.”

But underlying these market trends is consumer activity, which is often seen as the principle driver of sales, hiring and investment. With the most recent Thomson Reuters/University of Michigan Consumer Sentiment Index showing a three-month high in May, analysts may anticipate credit market growth in coming months.

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Archive for the ‘Financial Services’ Category