A Smart Business Decision Maker = A Successful Entrepreneur

Many successful business leaders all share a common skill that most people do not posses. Although this skill comes in all forms and is dependent on the amount of opportunities given to them, they all still have to undergo a process whether it takes a long time to process or a very short amount of time. That skill, my fellow entrepreneurs is: Smart Business Decision-making. Every day people from all over the world make decisions. You may not realize it but you, the reader, just made the decision to read this article (Thanks by the way!). However, let’s take it to a business perspective; business leaders, (including yourself) “make dozen of decisions a day” that creates an impact to the success of their company while creating an influence factor to employees as well. “Developing such a skill requires a combination of education, experience, and intuition.”

Marci Martin, author of Business News Daily who wrote the article “How to Make Effective Business Decisions” has stated a great quote: “There are many things that influence how an individual makes decisions. They include emotions, perceived personal and professional risks and rewards, preparation through experience or education, deadlines, stress and a host of others. It is important to mitigate the irrational and embrace the rational.”

Many decisions always comes with a process, as mentioned above, there are many factors that come into play before coming up with a conclusion. Some of those decisions usually come from a “gut feeling” while others come from undergoing a long process of asking others, and a more common form would be the opportunity cost (Is it more beneficial to me than the cost?). As Martin mentioned, the “bottom line is that being an effective decision-maker requires practice.”

Gayle Abott, President of Strategic Alignment Partners, a human consulting firm, has implemented a four- point strategy to deploy whenever you must act:

–          Identify the problem.

–          Analyze the possible solutions

–          Evaluate the possibilities that are likely to bring you closer to your goal.

–          Make the decision.

However, as easy as this 4 point system sounds, this type of strategy does not come easily for any beginner. As Abott has said in Business News Daily, it takes years of practice to master this skill. Many people who have become masters did not simply start off as talented decision makers, they made many mistakes in the past, learned from them, and simply moved on. The most crucial part in any decision making in a business, is the ability to learn from them. It is not easy as you think it is because people still make the same mistake, whether it’d be motivated by an emotion, by influence, or by stubbornness. The reality is that, it will not be easy to become a smart business decision maker until you have made enough decisions to consider yourself a smart business decision maker. 

How to Deal with Stress of Running a Business

Are you a business owner who has been through a lot of stress these past couple months? Especially, when tax season is coming and you have no one to prepare your tax forms for you? Well, let us take a moment to tell you that, if you are reading this blog post right now, you are probably looking for someone to prepare your tax returns or looking for a CPA accountant who can do that work for you. In fact, we are a CPA firm in case you haven’t noticed!

Anyway, this blog post is not about how to hire an Orange County CPA, the main point of this blog is to talk about how to deal with stress when running a business. So how can you deal with it? According to Pratik Dholakiya, Co-Founder of E2M, he wrote an article called 3 Tactics for Dealing With the Stress of Running a Business, which talks about dealing with stress and said that an entrepreneur is always required to be involved in every activity that their business is undergoing, always taking on new challenges, and creating bonds and relationships while learning on the go. Of course, as Pratik mentioned, will be overwhelming, which is something that most entrepreneurs face.

Pratik listed out three powerful ways to fight against this overwhelming stress that will keep you on track with your business goals without going insane.

 

1)      Create a priority list, and list all of your goals in a list from most important to least important.

Sounds easy right? It is! If you actually take the time to do it. The overwhelming amount of work you have to do is actually not that bad if you know how to prioritize and focus through them on the entire day. Keep a list of priorities and keep a list of dates to make sure when to start on those, and when the deadline is for each of them. This is very important, as this will keep your mind organized, and you can keep a simple focused mindset without going off in a tangent. Complete the task that is most important, and then once that is complete, move on to the next one and complete that one, and keep going through them all until you have completed them all. If you have a reoccurring event that constantly needs to be taken care of, always keep that task in your list.

 

2)      Relax and clear your mind before you go to bed, go back into work mode the next morning.

Of course, every night, we all feel like we have so much information in our heads that we just want to explode. The endless thinking is killing us all, and we just want to keep thinking. Do not try to fight through this complicated matter, instead, clear your mind, and then set yourself up to think about first thing tomorrow morning. You will feel refreshed the first thing in the morning, and your decision making will be better than yesterday’s.

 

3)      Analyze and reassess your circle of control

Pratik explains how we should focus our energies on things that are directly in our control and how we should not be drawn to things where we have little to no influence over. He makes a good point about how most entrepreneurs start with a great idea of what their circle of control has, but as time progresses and they meet new business people, the circle will consistently change. Depending on the entrepreneur, the circle will either shrink or it will grow. The point is, it will not stay the same, it is always changing, so it would be wise to consistently, evaluate your circle of control. “When you are feeling hammered, and are struggling to keep yourself sane in the middle of your fast-growing business, it’s a good idea to take a step back and ask yourself, how much of that which you are contending with do you actually control?” (Dholakiya) 

Small Business Success Story – Chad Mureta (App Empire)

Chad Mureta ran a real estate business when the impossible happened: A devastating car accident has caused to be delivered to the hospital, nearly taking out his arm. His business could not continue without him being physically present, but Mureta’s mounting medical bills meant he had to find an alternative source of income.

After reading a magazine article about mobile apps during his hospitalization, Mureta decided to try his hand at producing mobile applications. At the time, the industry was relatively new, but he felt the growth potential was worth the risk he would say.

“Lying in my hospital bed, I decided to take a Hail Mary shot and get into this industry.” Mureta said. “I needed a new business and decided to jump in with both feet.” Immediately, he started sketching out ideas for his own apps on pieces of paper. Soon after, he found a development company and outsourced all his work to create his first app.

Mureta took out a loan for $1800 to produce his first app. Fingerprint security – Pro. It soon became one of the 50 most popular apps in the App Store, earning him $140,000 in the process. From there, Mureta founded and sold three app companies – Empire Apps, Best Apps, and T3 Apps and now is currently running a blog called App Empire. He has produced 46 apps to date, and authored “App Empire: Make Money, have a Life and Let Technology Work for You”

Mureta advised other entrepreneurs to not be intimidated by their lack of experience in an industry if they see an opportunity. With a thirst for knowledge and the willingness to find and connect with the right people, anyone can begin to carve out an entrepreneurial path for him or herself, he said.

“I’m still not a tech guy,” Mureta said, “I couldn’t tell you how to program an app, but I can tell you how to make it a success. I researched the market and the consumers, and saw opportunities for people like myself. I kept researching and kept expanding my knowledge to grow my business and income.”

 

***ARTICLE BASED ON BUSINESSNEWDAILY.COM, WRITTEN BY NICOLE FALLON TAYLOR***

Rental real estate offers tremendous tax advantages

Rental real estate offers tremendous tax advantages and opportunity for tax planning. Taxpayers, such as you, can depreciate property far exceeding your actual investment, deduct interest on borrowed capital, exchange rather than sell properties to defer tax on gains, use installment sales to defer tax on sales, and profit from preferential rates on long-term capital gains. Most importantly, you can generate “positive cash flow,” or monthly income, with depreciation deductions that effectively turn the actual income into tax losses.

However, deductions are not unlimited. For example, real estate income and loss is generally considered passive income and loss for tax purposes. Taxpayers generally cannot use passive activity losses (PALs) to offset ordinary income from employment, self-employment, interest and dividends, or pensions and annuities. The rental real estate loss allowance and real estate professional status are two important exceptions to this rule. In addition, the tax consequences of renting out a vacation home depend upon the amount of time the home is rented and the amount of time you use the home for personal purposes.

The second exception allows real estate professionals not to treat their rental activity as a passive activity. Therefore, their losses are not limited to passive income. This exception requires material participation by the taxpayer which is demonstrated by meeting one of seven tests. These tests are complex and include the number of hours of participation and the facts and circumstances of the participation in the activity.

Vacation homes are taxed under one of three sets of rules depending on how long the homeowner rents the property. If you rent your vacation home for fewer than 15 days during the year, no rental income is includible in gross income. If you rent the property for 15 or more days during the tax year and it is used by you for the greater of (a) more than 14 days or (b) more than 10% of the number of days during the year for which the home is rented, the rental deductions are limited. Under this limitation, the amount of the rental activity deductions may not exceed the amount by which the gross income derived from such activity exceeds the deductions otherwise allowable for the property, such as interest and taxes.

If you have any questions as to how the rental real estate rules apply to your particular situation, please do not hesitate to call for an appointment. We can assist you in taking advantage of the available tax benefits and develop an overall tax plan.

2012 Resolves Many Uncertainties

2012 Resolves Many Uncertainties, Creates Others; Sets Stage For Future Tax Reform.

Uncertainty during 2012 over what tax laws would govern in 2013 and beyond because of the expiring Bush-era tax cuts clearly was the most significant development of the year. Now that Congress and President Obama — through the American Taxpayer Relief Act of 2012 (ATRA) — have provided a degree of certainty over tax rates into at least the immediate future, taxpayers need to adjust their tax plans accordingly. Individuals and businesses should immediately recalibrate strategies in light of ATRA. 2012 was also a significant year for important tax developments from the Treasury Department, the IRS and the courts. These developments demand the attention of individual and business taxpayers not only to caution what is no longer allowed under the tax laws but also to shape what steps can be taken in 2013 and beyond to maximize tax savings. With that forward-looking perspective, this Tax Briefing reviews key federal tax developments that took place during 2012.

 

3.8 Percent Medicare Tax on Investment Income

The health care reform package (the Patient Protection and Affordable Care Act and the Health Care and education Reconciliation Act of 2010) imposes a new 3.8 percent Medicare contribution tax on the investment income of higher-income individuals. Although the tax does not take effect until 2013, it is not too soon to examine methods to lessen the impact of the tax. Certain year-end strategies might also be considered to avoid the tax, such as accelerating capital gains and other investment income into 2012 or converting a portion of your investments into tax-exempt interest.

Net investment income. Net investment income, for purposes of the new 3.8 percent Medicare tax, includes interest, dividends, annuities, royalties and rents and other gross income attributable to a passive activity. Gains from the sale of property that is not used in an active business and income from the investment of working capital are treated as investment income as well. However, the tax does not apply to nontaxable income, such as tax-exempt interest or veterans’ benefits. Further, an individual’s capital gains income will be subject to the tax. This includes gain from the sale of a principal residence, unless the gain is excluded from income under Code Sec. 121, and gains from the sale of a vacation home. However, contemplated sales made before 2013 would avoid the tax.

The tax applies to estates and trusts, on the lesser of undistributed net income or the excess of the trust/estate adjusted gross income (AGI) over the threshold amount ($11,200) for the highest tax bracket for trusts and estates, and to investment income they distribute.

Deductions. Net investment income for purposes of the new 3.8 percent tax is gross income or net gain, reduced by deductions that are “properly allocable” to the income or gain. This is a key term that the Treasury Department expects to address in guidance, and which we will update you on developments. For passively-managed real property, allocable expenses will still include depreciation and operating expenses. Indirect expenses such as tax preparation fees may also qualify.

For capital gain property, this formula puts a premium on keeping tabs on amounts that increase your property’s basis. It also puts the focus on investment expenses that may reduce net gains: interest on loans to purchase investments, investment counsel and advice, and fees to collect income. Other costs, such as brokers’ fees, may increase basis or reduce the amount realized from an investment. As such, you may want to consider avoiding installment sales with net capital gains (and interest) running past 2012.

Thresholds and impact. The tax applies to the lesser of net investment income or modified AGI above $200,000 for individuals and heads of household, $250,000 for joint filers and surviving spouses, and $125,000 for married filing separately. MAGI is AGI increased by foreign earned income otherwise excluded under Code Sec. 911; MAGI is the same as AGI for someone who does not work overseas.

The tax can have a substantial impact if you have income above the specified thresholds. Also, don’t forget that, in addition to the tax on investment income, you may also face other tax increases proposed by the Obama administration that could take effect in 2013. The top two marginal income tax rates on individuals would rise from 33 and 35 percent to 36 and 39.6 percent, respectively. The maximum tax rate on long-term capital gains would increase from 15 percent to 20 percent. Moreover, dividends, which are currently capped at the 15 percent long-term capital gain rate, would be taxed as ordinary income. Thus, the cumulative rate on capital gains would increase to 23.8 percent in 2013, and the rate on dividends would jump to as much as 43.4 percent. Moreover, the thresholds are not indexed for inflation, so a greater number of taxpayers may be affected as time elapses. Congress, together with a new administration, may step in and change these rate increases, but the possibility of rates going up for upper income taxpayers is sufficiently real that tax planning must take them into account.

 

Please contact our office if you would like to discuss the tax consequences to your investments of the new 3.8 percent Medicare tax on investment income.

 

Married Taxpayer Filing Separately Not Entitled to Full Deduction

Married Taxpayer Filing Separately Not Entitled to Full Deduction of $1.1 Million for Mortgage Interest.

A taxpayer who elects married filing separately is limited to a deduction for interest paid on $500,000 of home-acquisition indebtedness plus interest paid on $50,000 of home-equity indebtedness, the Tax Court has ruled (Bronstein v. Commissioner, Dec. 59,060, 138 TC No. 21).

The Tax Court found that the statutory language on acquisition indebtedness and home-equity indebtedness is clear on its face. A married individual filing a separate return is limited to a deduction for interest paid on $500,000 of home-acquisition indebtedness. Likewise, a married individual filing a separate return is limited to a deduction for interest paid on $50,000 of home-equity indebtedness. The taxpayer offered no evidence to override this language and have the $1 million and $100,000 limits apply to the returns of married taxpayers filing separately.

Business and Tax News

President Signs Highway/Student Loan Bill (Jul. 9, 2012).

President Obama on July 6 signed the Moving Ahead for Progress in the 21st Century Act (MAP-21) (HR 4348 ), which raises $20.4 billion in revenue and reauthorizes the fuel and ticket excise taxes that support the Highway Trust Fund through the end of fiscal year 2014. The bill raises $9.4 billion by stabilizing interest rates for pension funds and about $9.8 billion from changes to single-employer pension plans.

Obama Plugs Extension of Middle-Class Tax Cuts.

President Obama on July 9 reiterated his call for a one-year extension of the Bush-era tax cuts for those earning under $250,000 per year, but it does not appear likely that Republicans will go along as they continue to insist on a one-year extension for all taxpayers, including the wealthy. No one should see an income tax hike next year—not families, not small businesses and other job creators.

White House Renews Call to Increase Enhanced Small Business Expensing After 2012 (Jul. 12, 2012).

The White House renewed its support for enhanced Code Sec. 179 expensing on July 11. Senior Obama administration officials announced the proposal and related initiatives for small businesses during a conference call with reporters. Under current law, the Code Sec. 179 dollar limit for tax years beginning in 2012 is $139,000 and the investment limitation is $560,000.

« Previous Page