Browse Tag by Young Entrepreneur
Marketing

5 Surefire Ways to Get Audited by the IRS

You’re an honest entrepreneur. You run your small business with integrity; you don’t cheat your customers, and you go the extra mile to make sure they’re satisfied. You keep meticulous records, and you work with a qualified accountant and tax professional to make sure you’ve got all of your business’ tax records properly organized and identified.

Taxes
Yet, even with all of that preparation and good intention, an audit can still happen. When it does, the burden of proof is on you; you need to be able to demonstrate that every expense is legitimate, and answer for every source of income.

There are some specific elements on your tax return that are likely to trigger an audit by the IRS. While we can’t be sure about all of the factors that go into the decision, here are a few that are especially likely:

Request large tax refunds, year after year

This is one of the elements that the IRS uses to flag returns. The IRS uses a computer algorithm to assign a score to every person and business, with a higher score meaning a higher likelihood of having an error. The most common element that triggers this algorithm is having a large tax return every year.

In many cases, these large returns are legitimate; you might have several children, for example, or you might have taken advantage of specific tax rebates, credits, or incentives.

The best way to avoid a large tax return is to make sure you’re not overpaying throughout the year. If you file quarterly taxes, estimate what you owe on the low side. If your spouse works outside of the home, ask him to lower the amount of withholding in his check.

That doesn’t mean you should purposely not take deductions or credits, of course; just understand that doing so year after year can, eventually, lead to an audit.

Show a high ratio of expenses to revenue

If your business is making money but just barely, this sends a message to the IRS that something is probably amiss. If you have a business loss for several years in a row, for example, the IRS considers what you’re doing a hobby rather than a business.

Look at the ratio of expenses that you’re claiming for your business compared to revenue. If it leaves little profit, or even large profits but little in proportion to expenses, you’re likely to trigger an audit.

The best way to avoid this is to track the ratio of expenses to revenue closely. After a few years, there should be an ever-widening gap. If not, you may find yourself sitting across the table from an IRS agent.

Have significant changes from one year to the next

 One thing the IRS system looks at is consistency. It operates on the assumption that each individual or business is going to be in a similar situation, from the tax perspective, from one year to the next.

This isn’t always realistic, of course, but it is a statistical probability. If your business suddenly takes off, takes a nose dive, or if you radically alter your business such that it dramatically changes all of your tax-related metrics, it could trigger an audit.

Provide incorrect data

Providing incorrect data regarding your social security number or the social security numbers of employees or family members can trigger an audit. Forgetting to report, or incorrectly reporting, information from a W-2 or 1099 will do the same.

This is one of the easier mistakes to avoid. Go through your tax return, line by line, and make sure that every number matches up the way it’s supposed to.

Not paying your tax bill

If you send in a lower amount than what you actually owe in taxes without offering an explanation, you’re probably going to face an audit. The IRS is going to do a more complete investigation of your tax return.

You can avoid this by filing a Form 9465 along with your tax return. This form is a request to pay your tax bill in installments. You’ll still be facing some fees and penalties for paying past the due date, but you’ll be able to pay off your tax burden over time – and avoid triggering an audit.

Even if you’ve been completely honest on your taxes, an audit can cost you. The burden of proof is on you, and so in many ways you’re at the mercy of the IRS. Don’t give the IRS a reason to look more closely at your taxes. Avoid these triggers whenever possible.
[IMAGE CREDIT: Some rights reserved by Images_of_Money]

Marketing

Interview with Young Graphic Design Entrepreneur: Benjamin Jacques

This is one of the first interviews in our entrepreneur interview series. We have managed to get hold of young entrepreneur Benjamin Jacques today. Benjamin is a design entrepreneur who is the Founder of Melting Waves Design Studio. Benjamin has been working in the field of art and design for over 6 years and have been designing for companies around the world since age 15. He is also going to be featured in an upcoming book called “Raising CEO Kids” because of the stunning success of his business.You can learn more about Benjamin here.

Benjamin Jacques with Michael Dunlop
Benjamin Jacques with Michael Dunlop

In this interview, we talk to Benjamin on what keeps him running and his inspirations behind becoming an entrepreneur. The difficulties that are faced as a young entrepreneur and how he plans to grow his business in the future. Enjoy!

1) Hi Benjamin, welcome to Collegefallout, would you give us a little introduction about yourself.

Thanks Vivek. I’m really excited to be here. As far as the introduction goes, my name is Benjamin Jacques and I’m the founder of MeltingWaves.com, a website that teaches graphic designers about marketing and entrepreneurship and also serves the creative needs of companies worldwide. I have plans to launch several more websites, one of which that is called TakingBackEarth.com, which will only showcase positive events that happen in the world since all the current news channels only focus on negativity.

2) Can you tell us your story and inspiration for starting up as an entrepreneur at the age of 15?

At the age of 15 I got my first two freelance design jobs. One was to design a logo for a real-estate center in Florida and the other was to design a corporate package for a mortgage firm in the UL. From that point on I started making a lot of money with freelance work but recently in addition to freelance work I’ve started coaching other designers on how they can find freelance work on their own and start profitable design businesses.

3) You have met some pretty awesome people like Michael Dunlop and Yanik Silver. Can you share that experience with us?

I met Michael and Yanik and a lot of other amazing people at Yanik’s Underground Online Seminar in DC this year. It was absolutely amazing because I’ve been following their work for quite some time and meeting them in person was one of the most inspirational moments in my life. They not only helped me out and gave me great advice, but they were really nice to me and we had some great conversations.

Benjamin and Yanik Silver
Benjamin and Yanik Silver

4) Are you running your graphic designing business alone? How has the experience been running?

At the moment I’m running my business alone but I plan to hire people on when my money isn’t all tied up in college loans and product creation. I’d recommend that everyone try to run their business with a full staff if you can afford it because you can get a lot more done in a shorter period of time. One perk about running my business by myself is that I don’t have to worry about managing employees so I have more time to pump out valuable content to my audience.

5) Can you share with us your biggest mistakes made as a startup entrepreneur? Something that would have helped you grow faster perhaps.

The biggest mistake I made when starting out was that I didn’t put up a website and start growing my audience right away. If I did, my fan base would be three times as big and I’d be making way more money and giving value to way more people than I currently am. I may have been doing freelance work since I was 15 but I just setup my website less than 9 months ago and only really started monetizing it last month! I’m actually not even 100% finished building it yet!!! So I’d advise that everyone get a website online as soon as possible so that you can start growing your fan base.

6) Would like to share with us some of your biggest clients or perhaps the most challenging design job thus far.

I really see all of my clients as being equally important no matter how much work I’m doing for them or how much money they’re paying out. I have had some jobs that are more difficult than others though. Recently I designed an entire website for a client I have up in Canada and I totally underestimated how much time it would take. I should have seen that coming since I’ve been setting up my own site for months, so I’d recommend that whenever you take on freelance work you should try to gauge out how much time it will take so that you can use your time efficiently.
7) How do you intend to grow your business in the coming years?

I plan on growing my business by getting more people involved and providing a huge amount of valuable content to my audience. I also have plans for some portfolio software I’m going to launch, a book I’m going to write, and other high-value products I plan on developing. But the main way I plan on growing my business in the years to come is finding out what problems my audience is having and then fixing them by providing them with valuable advice.

8) How do you manage juggle time for your graphic design business, blogging and personal life?

I’m also juggling all of those with college classes! It’s tricky sometimes but the key is to really schedule everything out and sort out the tasks that need to be completed first from the tasks that can wait a little bit to be completed. I have separate schedules for when I attend classes, when I complete my homework, when I write blog posts, when I send out emails, etc. The key is just making schedules for all the tasks you know you’ll do more than once, and then making sure those schedules don’t conflict with one another. That leaves time for just kicking back and enjoying life, knowing that all your work will be done on time.

9) 3 quick tips you would give to every graphic designer who aspires to start up.

  • Tip #1: Don’t go into business to make money because if you do you’re bound to fail. You need to go into business to help people solve their problems in an area that you are extremely passionate about, and then the money will follow.
  • Tip#2: Research spirituality and mental health as much as you research business. I’m not talking about religion, but rather spiritual views about enjoying life for what it is and being fulfilled with what you currently have, even though you have goals you want to meet in the future.
  • Tip #3: Don’t view your competition as your enemies, but rather as your partners. You both appeal to the same audience so instead of fighting, you can work together to help the audience as a whole and promote each other’s companies.

10) Who are your inspirations as an entrepreneur?

My biggest inspirations are entrepreneurs that teach you about helping people just as much as they talk about making money. I’m inspired by entrepreneurs such as Yanik Silver, Michael Dunlop, Frank Kern, James Dyson, and Rich Schefren. On the other side of the scale I’m very inspired by spiritual teachers who talk about different ways to avoid stress and appreciate life such as Eckhart Tolle, Joel Leevey, and Michelle Leevey. I think it’s important to gain inspiration from those that offer motivation and encouragement to you, not those that are just trying to make a buck off of the advice they’re giving.

11) Are you planning for a formal college education?

I’m currently attending the Savannah College of Art and Design and I’m in my second year, but I’m taking a quarter off to work on business because things are going very well. The important thing that artists and designers need to realize about art schools is that they definitely improve your artistic capabilities, but they don’t teach you a thing about starting your own business and that’s why you see so many starving artists all over the place. So I’d recommend that you get your artistic advice from your school but get your business advice online from successful entrepreneurs.

Rapid Fire Questions:

a) One song that has always picked you up when you felt low

“All along the Watchtower”. Both versions, Jimi Hendrix and Bob Dylan.

b) One book that you would recommend every entrepreneur to read

“Living In Balance: A Dynamic Approach To Creating Harmony And Wholeness In A Chaotic Worls” By Joel & Michelle Leevey.

c) Your favorite movie that you would suggest to entrepreneurs.

“Blood Diamonds” probably inspired my more than any other movie and made me want to direct my business towards helping war-affected children in east Africa.

Thank you Benjamin! Appreciate the time that you have given for this interview. Do keep us posted in progress and we will be following your growth as well.

I hope you enjoyed the interview, do post in more questions or thoughts about the interview that you may have in the comment form below.

Blogging Tips

The “No Leakage” Rule

The No Leakage rule was introduced by the young internet entrepreneur Michael Dunlop. This rule basically entails you getting rid of any advertisements or sponsor banners on your blog. Michael Dunlop claims that banners and third-party ads are basically the leaks of your blog. A visitor who comes to your blog can be turned into a very profitable customer if you are smart and eliminate all kinds of leakage.

When a reader comes to your blog they are acting upon the action you are encouraging them to take. If you have sponsor ads – definitely a few of your visitors will click on your sponsor ads and get directed to them.

The common leakages  in a blog are:

  • Blogroll
  • Top Commentators List
  • Ad Banners from Sponsors
  • Any link which you have no control over

Michael Dunlop in his blog Income Diary deeply emphasizes on the fact that having links shown above will affect your control over your visitors. He says your blog should be leak proof in such a manner that a visitor has only two options and that is:

  • Either Subscribe to Your Blog
  • Or Exit the  Browser

On his blog he has three banners that direct readers to take a positive step towards their online business. He has an affiliate link for a domain registrar, a web host and a premium theme – basically he provides a setup for his visitors to start their own money-making blog.

Although the No Leakage rule can boost the conversion rate on your blog – there are also a few disadvantages associated with. So the final choice for applying the No Leakage rule is upon you. In CollegeFallOut I make a gross violation of the “No Leakage” rule but I do not plan to switch to affiliate marketing any time soon.