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Florida Small Business Tax Laws and Rules

Florida Small Business Tax: Here’s What You Need to Know

With Miami recently named the top city to start a small business, now is a great time to get a startup off the ground in Florida. Most small businesses start out as sole proprietorships. Compared to many other business entities, sole proprietorships are simple to set up and run. Florida small business tax rules are also favorable for business owners and state laws are generally supportive of small business startups.

But  Individual advice from a Florida small business accountant is better than any information online, as your accountant will advise you according to your situation. Still, there’s nothing wrong with learning more about your small business tax liability in Florida.

Does Florida Have a Strong Economy?

Before looking into small business taxes, it’s good to consider the Florida’s economy. One of the benefits of starting a small business in Florida is the economic growth in the state. Of all US states, Florida has one of the fastest growing economies. According to statistics from 2018, if Florida were its own country, it would boast the 17th largest economy in the world based on GDP growth.

Some of the biggest industries in the sunshine state are as follow:

  • Tourism
  • Agriculture
  • International trade
  • Aviation
  • Life sciences
  • Financial services

While business in many other industries can thrive in Florida, the above represent the industries that employ the most people, generate the most revenue and make up the biggest part of the economy.

The labor force in Florida is expanding by more than 3% annually, while the rest of the US sees little to no growth in the same area.

Florida’s economy is growing at a fast pace. It helps that state laws in Florida encourage rather than dissuade people from starting businesses. When combining all of the benefits of starting a small business in Florida, including taxes and the economic outlook, the state is ranked as the 20th best state to start a small business overall. While that listing might seem mediocre, another survey listed Florida as the sixth best state to start a small business based on startup success.

How are Small Businesses in Florida Taxed?

Most small businesses are sole proprietorships. A sole proprietorship is a company owned by a single person. The owner of a sole proprietorship will usually have full say over what happens in the business, even if a small business employs a manager to make certain decisions, the owner will retain the ultimate authority in his or her business as the only owner.

Sole proprietorships are taxed on profit. This means that business owners will need to implement proper bookkeeping strategies to calculate their tax liability. Small business profits can be calculated monthly by adding up all income. Once a business owner know their total income, all business expenses must also be tallied. Subtracting all the expenses from the total income produces the profit.

While this system seems simple enough, both state and federal tax laws are always changing. Not all business expenses qualify for full deductions – meaning business owners can only subtract part of the costs of certain expenses.

To make matters more complicated, most small businesses in Florida will pay taxes in advance on a quarterly basis. What this means, is that businesses actually pay tax based on what they expect to earn in the future, not what they’ve already earned in the past. If a business underestimates its quarterly earnings and pays too little tax, outstanding taxes will need to be paid later, often with additional tax in the form of late payment fees.

Florida Self-employment Tax Rate

Self-employment tax acts as a replacement for Social Security and Medicare tax. As self-employed business owners don’t have these employment benefits, a self-employment tax compensates.

Florida’s self-employment tax rate is 15.3% for the first $128,400 net income of small businesses. Additional business tax rules apply across different income brackets, however.

Statistically speaking, Florida ranks fourth as one of the states with the lowest self-employment tax rates.

Should You Pay Tax on Your Side Business?

Paying self-employment tax when your business in your sole source of income is expected, but what about if you’re employed with a business on the side?

Unfortunately you’ll still need to pay self-employment tax. If your business makes more than $400 annually, you’ll be liable to pay self-employment tax, regardless of whether or not you hold a full-time (or part time) job.

Florida Sales Tax Rate

Sales tax is a tax levy on all product or services your business sells. As a result, almost all small businesses will qualify for some form of sales tax. One average, Florida sales tax is currently charged at 6%.

What this means, is that you will have to account for 6% sales tax on all the products or services you sell. If you need to sell something for $100 to make your desired profit, you’ll charge a customer for $106 to account for the money you’ll need to pay in sales taxes.

Forgetting to account for sales tax is a mistake many business owners make. Always calculate how much profit your business needs to make to be sustainable, then set your rates. Once you know what you desired rate is, add a 6% sales tax on top of this amount and put the money you get towards you sales tax aside. Never spend your sales tax money. Make sure you have enough left to pay all your taxes!

To calculate how much you need to add onto the cost of your product or service to account for sales tax, use your calculator to multiply your price by 0.06%. Once you have this result, add it to your price – this is the amount you’ll need to charge customers.

For example, if you have a product you want to sell for $50, your calculations will look as follows:

$50 x 0.06 = $3

The $3 is what you need to add onto your $50 to account for your small business taxes, so you’ll be charging your customer $53 for the product you sell.

In the past few years, Florida has consistently ranked 22nd for sale tax rates – meaning the sunshine state is relatively average as far as sales tax is concerned.

Florida Small Business Tax Summarized

Florida ranks 4th as one of the states with the lowest small business tax rates. This makes Florida a great state to start a small business. Tax laws in Florida do differ based on what type of business entity you own though.

While most small businesses operate as sole proprietorships, there are other business tax models in Florida. Florida taxes corporations at an approximate tax rate of 5.5%. However, there are many variables with regards to how much taxes a business entity will end up paying.

The best way to know for sure how much tax your business should pay, it’s best to hire an accountant to analyze your books. A Florida accountant will know what tax deductions, credits and exemptions your business qualifies for.

When consulting an accountant about your business’ tax liability, it’s imperative to have thorough financial records of your business on hand. If you don’t have any financial records yet, your first step should be hiring a reliable bookkeeper for your business. Once tax season comes around, your accountant will calculate your tax liability based on your financial books.

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Average 2019 Cost of Accounting Services for Small Businesses

The costs of small business accounting services can vary depending on the size of the business. Other factors to consider are the types of services needed and if they are ongoing throughout the year. The professional background and experience of the accountant should also be considered when weighing the costs. The price of accounting services can differ from a one time consultation fee to short term problem solving to a full time service. According to a recent survey by the National Society of Accountants (NSA) for the years 2016-2017, fees charged on average for business needs can be broken down into several categories:

  • 57.3% of gross income goes to tax return preparation
  • 15% goes to write ups
  • 8.9% goes to payroll
  • 3.6% goes to bookkeeping and Quickbooks
  • 2.6% financial statement presentations
  • 5.2% from other services

The cost of accounting service from the survey are a good way to measure fees for small business accounting and tax preparations in 2019. The accounting services that participated in the survey predicted raising their fees by 6.1% on average in 2017, higher than the 5.3% increase of 2016. Almost 50% of accounting and tax firms automatically increase their fees biannually. Almost 75% of accounting firms charge extra for incomplete and messy files which requires more time. The standard deadline and extension fees are also extra. Extra charges also apply for speedy returns. Therefore according to history it is possible to expect for 2018-2019 to also have an increase in costs for these services.

Will There be an Increase or Decrease in Demand and Service Prices?

The demand for small business accounting services is predicted to keep growing up to 10% from 2016 to 2026. Many accountants will be retiring and new jobs are being created while others still need to be filled. According to accounting web.com, the number of small businesses is growing with the economy. This creates demand for accounting services. For instance, there have been a lot of IPO’s in recent years. When a company goes public on the market, the responsibility of financial reporting necessary requires a professional accountant. This trend has also been fueling the need for quality accounting services.

Daily accounting responsibilities are getting more and more automated due to advancing technologies in the field. Qualified accounting services will need those who can take charge and move into advisory and analytical positions for small businesses. Globalization means more clients worldwide. More small businesses are doing business all over the world through websites on the Internet. This requires complicated multiple tax codes from more than one country. More complicated tasks will reflect the cost of accounting services. We will see the biggest demand for professional accountants in the states of Texas, New York, California, Pennsylvania, and Florida.

The bureau of Labor Statistics has predicted a higher than expected 19% increase in demand due to steady growth from 2016 to 2026. Financial Managers handle accounting, auditing, investments and goals for small businesses. The need for cash and risk management will bring more growth with the growing economy. The Bureau of Labor Statistics is predicting even higher demand as growth is expected to continue for small business accounting services with no decrease in demand in sight.

Different Pricing on Services

At choiceaccountingsolutions.com, they can help with the needs of a growing small business with affordable and competitive cost of accounting service. We are based in Miami yet our pricing is in line with other online accounting services. Accounting costs are decided in part by how big the business is and what services are needed. A consultation is alway a good idea to communicate with the small business and offer pricing they can afford.
Below you will find several services we offer and how the cost of accounting service can vary.

Payroll Processing

Payroll is a continuous process that needs attention regularly. Each employee’s paycheck and taxes must be calculated and processed. Payment to the IRS as well as employees need to be correct and on time all the time. This can be a daunting extra task for a small business owner to take on top of other daily duties. Choice Accounting Solutions can advise and get the groundwork done as well as take care of any inconsistencies.

Bookkeeping

Bookkeeping like payroll is an ongoing job. For a low price of 99$, Choice Accounting Solutions has customizable packages that can be tailored to fit your small business needs. Certified Bookkeepers prepare your taxes, generate reports every month, take care of regular data entry, and general bookkeeping. To keep it simple as possible, all your small business has to do is upload your financial business documents every month. Choice Accounting Solutions will do the work from there. Then we send the business files back via Dropbox for your small business approval. They can also help with preparing for a business loan should you need one. With a free consultation you’ll see how the price of accounting service is affordable and doable.

Tax Preparation

Small businesses have to pay taxes at the local, state, and federal levels of government. They are also required to pay them quarterly with the balance due at years end. This is a huge responsibility that has to be done right to avoid many headaches with the IRS! Choice Accounting Solutions can get it done so you can avoid the hassle of penalties and late charges with the IRS.

We are also able to help with the IRS Debt Negotiation process. Sometimes small businesses can get behind and fall in debt to the IRS. If this should happen, it is wise to seek professional help immediately. The IRS does have debt relief help. We can help you with an “Offer in Compromise”. This is a settlement with the IRS for less than what you owe and gets it taken care of so you don’t have to lose sleep!

Choice Accounting Solutions can help with all your small business needs. Located in Miami we service nationwide online. Our prices reflect and are in line with or better than other online accounting services. Get in touch with them today for your free consultation and your small business will be ready for 2019!

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Accounts Receivable and Bad Debts Expense

Most of us are used to exchanging money for goods and services. This makes transactions easy and prevents issues of debt collection. In most lines of business, however, credit is essential. We sell our products and services with the assumption that the customer will receive their invoice and promptly remit payment.

There are several advantages to offering credit to your buyers. First, you will open up your business to a wider market, as many prefer the sale/invoice/payment model. Second, you will incur occasional losses when your customers don’t follow through.

In accounting, a sale on credit that is not paid in a timely manner is known as a bad debt expense. Handling this issue carefully is essential to keeping your books and your business on track.

The Basics of Accounting for Bad Debts

In the accrual method of accounting, a sale is recorded as soon as it is made. When you make a $100 sale, you record $100 income. This then increases your revenue and net income. Whether and when the buyer pays is an issue between them and your billing department.

When a buyer then fails to pay, you must reduce the amount of revenue accordingly. In addition, you list these unpaid funds as a bad debts expense (or credit loss) on your income statement. These adjustments should be made as soon as possible, although the losses cannot be claimed and written off on taxes until a later date.

This may sound simple, because it is a very simplified version. In reality, the issue becomes much more complicated.

Assessing Credit Risk

One of the best ways to handle bad debts is to prevent them. This can be done by carefully assessing the credit risk of your customers.

A customer with bad credit already has a history of unpaid debts. This should be considered carefully before extending credit to them. You may not want to become yet another creditor whose calls they are ignoring.

Before giving a line of credit, do a thorough credit check. Some companies even ask for references. However, even with these checks and balances, occasional bad debts will occur. Some people experience sudden changes in financial resources and simply cannot pay.

Every company that sells on credit will eventually have credit losses. It is important to include bad debts as well as projected bad debts in your receivable accounts.

How Bad Debts Affect Accounts Receivable

When you first sold the item, you recorded the sale as income called accounts receivable. However, there is a good likelihood that a certain percentage of your clients simply will not pay up. This can become a problem because the income you are owed is reported as one of your assets, which means your income reports and company balance sheet are not accurate.

Business owners often have to supply documents such as income reports and balance sheets when they are applying for credit, when they are working with investors, and in their own tax accounting. It is important for these documents to paint as accurate a picture as possible, which means accounting for this lost income and projecting how much income will not be paid.

Dealing with Bad Debts Expense: The Allowance Method

Most companies account for bad debts using the Allowance Method. This involves estimating a dollar amount or a percentage of their accounts are not eventually paid. They then amend their income reports with a negative contra-asset amount that is called Allowance for Doubtful (or Uncollectible) Accounts. This allows an imprecise but more accurate financial picture.

This method is popular because you can complete your accounting and income report without needing to know exactly who will not pay nor the exact amount. It simply gives an estimate of how much income you will actually be receiving in the near future.

As you bring in more income, you will need to adjust your Allowance for Doubtful Accounts and subtract the additional projected bad debts from your income.

How do you decide on a percentage or a dollar amount for this method? If your company has been offering credit for a long enough period of time, you can simply project based upon your past. Otherwise, many people project conservatively, erring on the side of projecting more unpaid debt than they will likely have. Many people struggle with whether to choose a percentage or a firm dollar amount. A firm dollar amount is usually the simplest method because it does not require constant recalculation. You can easily add to it if your sales increase to the point where it is no longer enough.

Using this method, when a debt is not paid, you simply remove the amount from your Accounts Receivable and your Allowance for Doubtful Accounts. No further action is needed. If the debt is paid later, you can reverse both of these changes.

Dealing with Bad Debts Expense: The Direct Write-Off Method

Most companies use the allowance method in dealing with income reports and similar documents. However, the IRS requires a different type of calculation called the direct write-off method.

In this method, the company only reduces their account receivable when they know that the debt will not be collected from that customer. This can take several months and leaves your income artificially high in the intervening time, which is why investors and banks prefer the allowance method. The IRS, on the other hand, is invested in seeing your profits over-reported and your losses under-reported.

This method is also preferred by the IRS because it is very precise and deals only with information available right now, rather than projections. In addition, it is easy to fix your accounting if the situation changes. If a debt is somehow repaid after you have directly written it off, you can simply subtract the amount from your credit losses and add it to your income.

Which Method Should You Choose?

In an ideal world, accountants and business owners would choose the method that works best for them and stick with it. In the real world, this is usually not possible Using the allowance method is best practice in the world of business accounting. On the other hand, the IRS demands that you instead use direct write-off. Ultimately, most businesses will have to be familiar with both and use both on a regular basis.

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Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that

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Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that

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