Question: My husband and I have been enjoying earning more over the years in our careers. However, our tax bill has also been going up. What can we do to avoid paying so much in taxes?
Signed, Overtaxed Mama
Hi Overtaxed Mama,
I so hear you! As we grow into our careers, so do our incomes over time. If we add to this being in relationships and counting our partners’ income jointly, chances are our earnings can grow even more as the years pass. However, with our incomes, also grows another less fun side-effect, that is the taxes we end up owing on our tax returns. After all, doesn’t the popular saying confirm only two things are certain, death and taxes?
As you may have watched your earnings grow, you may also have watched your tax bill get larger as you file taxes. Since you’re taxed on your raising income, it’s hard to avoid. However, there are ways to offset the tax increase that comes with earnings growth. I’ve grouped these in 3 categories, that you may remember under the mnemonic RED:
R is for the Retirement savings you should maximize:
One of the most effective ways to reduce your taxable income is to increase your retirement savings. You can do this by maximizing your contributions to your 401k employer-sponsored plan, up to $20,500 in 2022. Individuals 50 and olderSince these contributions are made before before tax, they directly reduce your income.
You can also contribute to an Individual Retirement Account (IRA), up to $6,000 annually ($7,000 for 50 and older).
Another way to reduce your taxable income is to use flexible spending plans, offered by some employers. One of these is the Flexible Spending account (FSA), in which employees can contribute and set aside funds up to $2,850 in 2022 for medical expenses.
Similar to the FSA, the Health Savings account (HSA) is dedicated to employees with high-deductible health insurance plans, whose pre-tax contributions go toward healthcare costs.
Lastly, yet another way to bring your taxable income down is to deduct business-related expenses such as the home office deduction for instance. Other available business deductions include health insurance costs, as well as other deductible expenses.
These are all effective ways to reduce your taxable income, especially as it increases over time. Consider using one or a combination of these to lower your tax burden.
Ask a CPA is our periodic column addressing accounting and financial questions for working women and moms. Got an accounting or financial-related question? Please email us at corporate@thecorporatesister.com
Q: I often feel defeated and disempowered in my personal finances, as if I were trapped. How can I be more empowered and create more freedom in my finances?
A: Great question! And you’re definitely not the only one to wonder about creating more freedom in your finances. Increased financial freedom not only allows you more peace of mind, it also helps you have a better quality of life, and create a solid financial legacy for yourself and your family. Not having to worry about your finances, and instead working to build wealth can be a rewarding experience in and of itself. For working women and moms, many of whom are disadvantaged when it comes to wealth-building and financial freedom, this can also mean increased time, opportunities and better work-life balance.
Here are 3 tips that may help:
Have a vision for your finances
Having a vision for your finances is the first step to wiring your mindset towards having more ownership and freedom in your finances. What does your ideal financial situation look like? How much money would you like to see in your savings account? How would you restructure your expenses?
However, it’s not enough to just have a vision for your finances. Writing down your financial vision is a powerful way to solidify it into a concrete plan and turn it into reality. It can be as simple as journaling about it, creating a basic budget, and/or setting up milestones to reach.
Set up a system
Creating freedom in your finances also involves setting up an effective system allowing you to focus on your main financial goals. This is especially important for us as working women and moms carrying so many responsibilities and commitments.
An effective system can start as simply as reminders, a monthly budget, or a financial app. It can also take the form of automating your monthly expense payments, hiring a financial advisor, or and/or devising an elaborate financial strategy for yourself and loved ones.
Learn through the process
Last but not least, gaining more freedom in your finances largely comes from educating yourself. Learning about the many options at your disposal to make the best out of your money puts you at a distinct advantage. Whether you choose to take classes, read books or learn on social media, the goal is to be knowledgeable about the best options for you.
Using dedicated resources like Certified Public Accountants, or financial advisors can also further your education in a more direct way. Working with a financial professional can not only help you solidify your finances, but also help you grow through the process.
Overall, creating more freedom in your financial situation is far from being a luxury. In a world threatened by economic instability, having a vision for your finances, setting up an adequate system, and learning through the process are effective ways to be freer when it comes to your financial situation.
As you file your taxes every year, have you ever wondered if there is an element of gender bias embedded in the tax policy? As a Certified Public Accountant and a working woman and mom, I’ve often asked myself the question. And if you have, then you definitely are on to something.
While tax policy can certainly contribute to increased gender equality, which translated into significant economic dividends, the reality is, in many countries, it’s actually doing the very opposite, thus fueling the gender tax bias. When it comes to gender tax bias, there exists a distinction between explicit and implicit bias. Explicit gender tax bias occurs when there is a legal link between tax code provisions and gender. Implicit gender tax bias, on the other hand, happens when existing gender inequalities cause tax policy outcomes have different implications for women and men. Even when gender tax biases are not overtly explicit, implicit bias remains embedded in factors such as earned income, property ownership, consumption choices, wealth, along with differences in gendered societal expectations.
According to the Organization for Economic Co-operation and Development (OECD) first cross-country analysis of 43 G20 countries’ approaches to tax policy in the report entitled “Tax Policy and Gender Equality: A Stocktake of Country Approaches”, gender tax bias is not ignored by governments. As a matter of fact, gender equality appears to be an important factor in the design of tax policy in most countries, with half of these having already passed tax reforms in favor of increased gender equity. Despite these efforts, a high risk of implicit tax bias was noted in most countries. In order to remedy this situation, more detailed gender-differentiated data is necessary. Unfortunately, much of this data is only available and accessible around income and labor participation, and more scarce around property ownership, wealth and consumption choices. As such, this scarcity of available data makes it more challenging to resolve these issues.
Watch this short YouTube video on the Gender Tax Bias:
One example of the gender tax bias, especially in our COVID-19 times, targets part-time workers, which are largely women. According to the OECD’s “Taxation of Part-Time Work in the OECD” working paper, women are more likely to hold part-time positions than men, at a rate of almost three to one. Along with this, there has been a decrease in the earnings level of part-time workers relative to full-time workers, as well as variations between part-time and full-time workers’ taxation attributable to said differences in earnings levels.
Another more implicit example has to do with the availability of deductions for unreimbursed work expenses incurred by men, more so than those incurred by women, including childcare and transportation costs for instance. Another example yet is embedded in consumption taxes such as the Value-added tax (VAT) in many developing countries, which end up raising the cost of services such as household services, thus disincentivizing women from working outside the home. Lastly, an unfair bias also exists in corporate tax incentives that do not favor sectors such as hospitality, the garment industry, micro-entrepreneurship, where women predominate. While these constitute a few instances of the gender tax bias, here are many more examples across countries and economies.
Overall, the onus is on governments, but also us all, to consider and implement measures in which tax policies and practices better promote gender equality. These measures could and should reduce both explicit and implicit gender tax bias, while supporting, prioritizing and giving tax access to women and households impacted by the COVID-19 crisis.
In the world of entrepreneurship, funding is a vital source of growth. However, for many, if not most female entrepreneurs, it’s also a major obstacle. As a matter of fact, one third of the world’s female entrepreneurs face gender bias when attempting to raise capital for their businesses, according to HSBC Private Banking’s research. Women face the most gender bias in the UK, the United States and Singapore. Further research shows female-led ventures are at a greater disadvantage when raising funds for businesses in male-dominated fields as opposed to female-dominated ones.
As the COVID-19 pandemic has resulted in a large number of businesses created by women entrepreneurs, it has also predominantly negatively affected the latter. Faced with the scarcity of funding opportunities for women entrepreneurs, several lenders and corporations are lending a hand to help reduce disadvantages experienced by women entrepreneurs. As such, these organizations are offering help and support to female entrepreneurs by making these 15 small business grants available:
This business grant program through Visa is dedicated to Black women-owned businesses. In order to qualify for this grant, applicants must be Black women business owners for at least two years, be a business-to-consumer company, and reach a minimum revenue of $24,000. Specific location restrictions also apply.
This grant is directed at female entrepreneurs planning to start a local small business. To apply for this grant, all that is required is for the applicant to explain their business’ purpose. One women-owned business is selected each month to receive a $10,000 grant. In addition, one of the monthly winners is then selected at the end of the year to receive a $25,000 grant.
Through this initiative, FedEx engages the public to vote for the business of their choice. Candidates who receive the most vote win a $75,000 grant. To sweeten the pot, the winner also benefits from free exposure through FedEx’s media outlets.
This grant allows prospective women-owned businesses to be eligible for a federal government grant for research and development needs. In order to qualify, female-led businesses must employ fewer than 500 employees. Eligible businesses can receive over $750,000 if the research produces positive outcomes.
Speaking of research and development needs, the Small Business Innovation Research grant applies to female-owned businesses boasting cutting-edge ideas. Eligible companies can earn a $150,000 grant, and can receive up to $1 million in the span of two years
For any women-owned businesses whose mission is focused on furthering the cause of women and girls, grants are made available from the Ms Foundation for Women. Examples of businesses who have benefited from these grants include businesses advocating for affordable childcare, against domestic violence, and for reproductive health, to cite a few examples.
The Cartier Women’s Initiative Award is bestowed upon 21 female entrepreneurs each year by Cartier. As a prize, winners get one-on-one expert coaching, media coverage, as well as business workshops, in addition to other rewards ranging from $30,000 to $100,000.
These 7 business grants for women entrepreneurs, among others, are a good start to begin the process of helping women-owned businesses overcome the barriers in their way.
Welcome to our #AskACPA feature where we answer financial, accounting and business questions.
Question: As a woman small business owner, what are tips to transition into the new year?
Entering a new year as an entrepreneur, whether you have a side hustle or full-time business, is not just a fresh start, but an opportunity to transition into a more fruitful business season. While it is important to set goals for your business, it is also crucial to effectively make the transition from one year to the other, especially as related to your finances and accounting. This is especially important considering the many disadvantages faced by women-owned businesses as a result of the current COVID-19 pandemic, despite the increase in new entrepreneurial ventures started by women during this period.
As an entrepreneur, how you finish one year, and start another year sets the tone for the future of your business. Many, if not most important metrics by which your business’ performance are measured, including budgets and benchmarks, are set at the beginning of the period. The goals set ahead are also defined at the beginning of the year, which all make the transition from one period to the other a particularly critical time.
If you’re working through your business transition from one year to another as a female entrepreneur, here are a few steps that may help:
Re-awaken your business’ WHY
Before even delving into financial and accounting figures and projections, the first step is to refresh your business’ WHY. That is your business’ purpose, the reason why you started it all in the first place. Your financial and accounting processes are only significant enough to the point where they are aligned with your business’ WHY.
After all, all your financial and accounting performance does is tell the story of your business, defined and embodied by its purpose. It’s the same purpose that ought to drive your strategy, and ultimately your financial results.
What is your business’ WHY? Has it changed from last year to this period? If so, in what ways? Are you still in alignment with it or have you lost sight of it?
Be honest about where you stand financially
This is especially important if your business is on a fiscal year calendar, which means it reports its financial results on a calendar year basis. As such, year-end financial statements and reports constitute an excellent barometer to assess the business’ performance in the course of the prior year.
As you closed the prior year a few days/weeks earlier, where do your business’ revenues stand? Have your revenues increased or decreased in the course of the prior year? How have your business’ expenses changed? What other parts of your financials have been affected? What are the reasons behind these changes, if any?
Being honest about, and understand where your business stands financially, allows you to transition into a new year with a better sense of the modifications needed to further your WHY.
Make a plan
Last but not least, relying on a refreshed sense of your business” WHY, as well as a clear understanding of where your business stands financially, allows you to confirm any goals you’ve set. Even better, it lets you devise a plan to reach these goals in a way that aligns with your business’ WHY, and address any gaps identified when reviewing your prior year performance.
Transitioning into a new year as a business requires a bit of a process. These 3 steps can help smooth out the transition and set you up for a successful year ahead.
Welcome to our #AskACPA feature where we answer financial, accounting and business questions.
Question: As a woman small business owner, what goals should I have for my small business this year?
New year goals are not just for individuals. They’re also for businesses looking to continue to grow, expand and do well in the future. In the wake of the COVID-19 pandemic, many, if not most of the businesses impacted are, unsurprisingly, women-owned small businesses. According to a 2020 survey by the U.S Chamber of Commerce, women-owned small businesses have been more significantly impacted by the COVID-19 pandemic than their male counterparts. Additionally, these businesses also have less optimistic revenue prospects, among general fragile recovery prospects for all business owners.
More than ever in recent history, women entrepreneurs, despite their numerous achievements even in the midst of this global health crisis, are faced with a tough battle ahead. Hence the need to set and commit to solid future goals. To keep things simple yet effective, here are three goals women small business owners can shoot for as we usher in a brand new year:
Own your accounting and financial processes
One of the biggest misconceptions and mistakes committed by small business owners is to neglect their accounting and financial processes. Proper accounting and finances are the foundations and the language of healthy businesses. As such, when small business owners do not proactively take ownership of their accounting and finances, or relinquish them entirely to others’ control (even if these are financial experts), they also relinquish effective control and ownership of their businesses.
This is all the more important for female small business owners, who face exponentially larger barriers including funding limitations. The key here is to get familiar with your most basic accounting and financial information first, such as the amount of revenues and expenses for the period to start. Understanding how the business operates in terms of its cash receipts and expenditures, and being able to own its financial story and be accountable for it, is crucial.
Create systems and processes
Running a small business is A LOT of work! Running a small business and staying on top of your accounting and finances is even MORE work! This is why it’s crucial, especially for women small business owners, who also wear many other hats such as working moms and caregivers among others, to create systems and processes to efficiently and effectively track their finances.
Using apps such as Quickbooks or Freshbooks, as well as creating efficient workflows for invoice, revenue and expense tracking, can go a long way to save time, energy and costly business mistakes.
Commit to continuous accounting and financial education
Financial literacy is extremely important for female entrepreneurs, who are most often at the helm of businesses that are disproportionately impacted by lack of funding and scarcity of financial resources. While this gap largely stems from structural and societal This is why it is crucial for female business owners to work at bridging this gap through continuous accounting and financial education through books such as “Million Dollar Women: the Essential Guide for Female Entrepreneurs” by Julia Pimsleur, formal programs, as well as mentoring, and accounting apps such as Quickbooks.
Overall, the importance of setting clear, defined and effective business goals as small business owners cannot be overstated. By keeping these goals simple and actionable, focusing on priorities such as owning your accounting and finances, creating efficient systems and processes and investing in continuous financial education, women-owned small businesses have better chances to succeed in the new year.
What goals are you setting for your small business?
elcome to our #AskACPA feature where we answer financial, accounting and business questions.
Question: I’m a side hustler and small business owner? How should I go about closing my accounting books at year-end?
One question that is often asked by small business owners as the end of the year looms near is: “What do I need to do to close the accounting books in my business?” Year-end can be a scary time for small business owners, only made scarier by how well (or not so well) the business performed over the year, not to mention the prospect of upcoming taxes. As the majority of small businesses, especially those owned by women owners, has been impacted by the global pandemic, it’s all the more important to ensure a smooth year-end accounting.
While there are many year-end accounting tips out there, as a CPA, I like to simplify the process for small business owners. What often intimidates small business owners is not so much the complexity of the accounting process, but the overload of information and lack of a practical approach when it comes to applying accounting to everyday business. As a result, many small business owners don’t feel empowered enough to take the financial reins of their own enterprise, thus relinquishing their power to others and running the risk of mismanaging their own affairs. To this end, I’m sharing 3 tips (not a million!) to close your accounting books at year-end as a small business owner:
Take care of any unfinished business: unrecorded income, expenses!
Year-end is the time also the time to dot you I’s and cross your t’s business-wise. In other words, it’s time to handle any and all unfinished business as related to your year-end accounting, mainly in these areas:
Got unrecorded income or unbilled invoices? Year-end is the time to catch up on these. Look at your unbilled projects for the year, and send invoices right away. Similarly, if you have any unpaid client invoices, it’s important that you follow up with them as soon as possible.
Got unpaid bills from vendors and contractors? Just as you want to address unpaid invoices from clients, you may also want to check on any unpaid vendor bills. In the same way, make sure any open contractor invoice is satisfied on your part as well.
Are you behind on recording your expenses? As a busy business woman and mom, falling off the bandwagon when it comes to recording your expenses happens. However, as year-end approaches, catching up on entering all your expenses, including your mileage, into your accounting system or software, is crucial. Not only will this help your year-end financial reports be more accurate, but it will also come in handy at tax time to deduct all the tax-deductible expenses your business qualifies for.
Verify your payroll data and make any year-end adjustments! Verify your company’s information, as well employee and contractor information, including updated W-9 or W-4. Any year-end adjustments such as bonuses and payroll periods falling during the holidays should also be handled.
Update your data! Much can change in the course of the year, and these changes can adversely affect the way you record the transactions in your business. This includes vendor and client names, as well as any other changes you can track.
Last but not least, plan to count your inventory at the beginning of the year so as to cover any potential software errors, and calculate your cost of goods sold.
Reconcile your bank accounts!
Once you catch up on any unfinished business, especially in terms of properly recording your income and expenses, it’s important to verify that the totals from your accounting system/software match the bank totals on your official bank statements. Otherwise, differences between the two will create inaccuracies in your financial statements.
As a general rule, your bank accounts and accounting system need to be reconciled on a monthly basis. However, if you’ve fallen behind on this, updating your reconciliations before you close your books is essential.
Run and Review your Financial Reports.
One of the most critical steps when closing your books at year-end is to run your financial reports. These include your Profit and Loss statement, Balance sheet, and statement of cash flows, to cite a few. Other reports to run include your Expense report, payroll summary (if applicable), sales tax summary and mileage log. These will not only give you a more accurate and comprehensive picture of the state of your business, but also help you set your budget and priorities for the following year.
While year-end is a busy time overall, it will be well worth it to do your due diligence in order to accurately close your books and start the year fresh.
