Beginners Guide for Business and Financial | Thesecretmeeting.com

Archive for May, 2010

When starting a business, you have to determine the method you are going to use for accounting and paying taxes. The two choices are the cash method and the accrual method.

Cash Method

If you are looking for simplicity, the cash method is probably your best accounting choice. Generally, income and deductions can be claimed when payment is actually received or made. This is best shown with an example.

I open a small business and have to order business cards and stationary. I receive the products and pay the invoice on November 18, 2005. Under the cash method, I can deduct the cost on my 2005 tax return.

Some businesses are restricted from using the cash method. C corporations may only use the cash method if they have less than $5 million in gross revenues for a particular year. Professional Service Corporations can use the cash method without limit, while farming corporations can due so if gross revenues are less than $25 million. Tax shelters are prohibited from using the cash method.

Accrual Method

The Accrual Method of accounting is a bit more complex. Under this method, the focus in on the date the expense is incurred, not paid. Although this may seem a small difference, it can play havoc with your books and piece of mind.

Using our previous example, assume I order business cards and stationary on the December 18, 2005. I receive the products on December 30th, but don’t pay the invoice until January 20, 2006. When can the expense be claimed? It depends on when economic performance occurred.

Generally, economic performance occurs when goods or services are provided to you. In the above example, economic performance would arguably occur when the business cards and stationary were delivered with the invoice on December 30th. Thus, I would be able to deduct the expense for the 2005 tax year.

In Closing

As you can see, the cash method is the easier of the two accounting methods. To determine the best method for your business, speak with a tax professional.

It is natural for people to ask for help when they are in trouble and it is within our nature to offer a hand when we can. What throws this natural human relationship off its kilter is our ego that impacts our decision as to when we ask for help and when to extend a hand.

We often wait until we are in serious trouble before we ask for help and by that time the kind of help we receive is very very expensive and sometimes too late. On the other hand when we offer a hand too soon, we come across as interfering busy bodies who do not know the first thing about free will. Parents know what this is like when they talk to their children. But we leave the eagerness to help alone for now and concentrate on asking for help too late.

Let’s take the term “bad credit loan” for instance. According to a segment of Yahoo that keeps track of what people search for, in December of 2006 over 100,000 people searched for bad credit loan. On the other hand a little shy of 5,000 people looked for the term “bad credit repair.”

When I added all the people that were looking for various loans related to bad credit, the number was over 500,000. But the number of individuals who looked for bad credit repair still remained under 5,000.

This seems to mean only 1 out of every 100 person look to cure the problem and the rest look to cure the symptom.

Wouldn’t you think that the “bad credit” problem arises much before the need to get a “bad credit loan?” If this was the case, more people should have been searching for ways to repair their credit than those who seek to remedy the bad credit problem with a loan.

We as a society seem to seek remedy more than prevention. We live the dream of buy now and pay later and it is costing us dearly. Let’s look at two other examples of “bad credit mortgage” and “bad credit home loan.” 79,000 individuals looked for these services in December of 2006.

According to Fair Isaac Corporation as of January 11, 2006 and on a national basis, a person with a poor credit score of 500 – 579 is expected to pay $819 for a $100,000 thirty year fixed bad credit mortgage loan. For the same loan amount a person with an excellent credit score of 760-850 expects to pay $589 per month. That is $230 per month difference. This difference amounts to an $82,000 penalty tag for a bad credit mortgage loan.

The amazing part is that there is help in form of books, tapes, ebooks, firms and so on and it costs much much less. But when you look at the numbers most people chafe at $30, $50 or $100 one time fee but they flock to get solutions that cost them hundreds of dollars per month for a very long time.

You have these numbers, you know your situations, likes and dislikes better than any one else. I hope that you are reading this article and do not have to deal with bad credit. But if you are, consider placing some of your attention on bad credit repair and don’t let obtaining a bad credit mortgage loan consume all your attention.

William F. Halsey once said, “All problems become smaller if you don’t dodge them, but confront them.

© Vishy Dadsetan

* DISCLAIMER: Vishy Dadsetan, http://MyPersonalFinance.com or My Favorite Shop, Inc. do not endorse any product or company. This article and website do not provide legal, insurance, or other professional services. If expert assistance is required, the services of a competent professional should be sought. Although Vishy Dadsetan has made every effort to ensure the accuracy and completeness of the information contained in this site, he assumes no responsibility for errors, omissions, inaccuracies, or inconsistencies.

Curious about how much money you’ll accumulate in your Roth retirement account?

If you’ve got Microsoft Excel (or just about any other popular spreadsheet program) running on your computer, you can use its FV function to forecast the future value of your Roth IRA or Roth 401(k).

The FV function calculates the future value of an investment given its interest rate, the number of payments, the payment, the present value of the investment, and, optionally, the type-of-annuity switch. (More about the type-of-annuity switch a little later.)

The function uses the following syntax:

=FV(rate,nper,pmt,pv,type)

This little pretty complicated, I grant you. But suppose you want to calculate the future value of an individual retirement account that’s already got $20,000 in it and to which you are contributing $400-a-month. Further suppose that you want to know the account balance—its future value—in 25 years and that you expect to earn 10% annual interest.

To calculate the future value of the individual retirement account in this case using the FV function, you enter the following into a worksheet cell:

=FV(10%/12,25*12,-400,-20000,0)

The function returns the value 771872.26—roughly $772,000 dollars.

A handful of things to note: To convert the 10% annual interest to a monthly interest rate, the formula divides the annual interest rate by 12. Similarly, to convert the 25-year term to a term in months, the formula multiplies 25 by 12.

Also, notice that the monthly payment and initial present values show as negative amounts because they represent cash outflows. And the function returns the future value amount as a positive value because it reflects a cash inflow you ultimately receive.

That 0 at the end of the function is the type-of-annuity switch. If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the period (month in this case), following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention.