Category: Small Business

Business Bankruptcy

2/28/2022

Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Today, we’ll be discussing bankruptcy and what it means for businesses, whether big or small. Bankruptcy is a legal process in which a person or business that cannot repay debts to creditors seek relief from some or all of their debts. Bankruptcies among both individuals and businesses have increased significantly due to the COVID-19 pandemic. There are six types of bankruptcy within the United States Bankruptcy Code. The right type of bankruptcy must be selected for the success of the filing. If you are interested in learning more about bankruptcy and what it can mean for a business, you’re in the right place.

Types of Bankruptcy

The six types of bankruptcy are known as Chapter 7, 9, 11, 12, 13, and 15. Chapters 7 and 13 are the most common types, but 13 is not available for businesses. Chapter 11 is fairly common among businesses. Because of these circumstances, we’ll be focusing on Chapters 7 and 11.

Chapter 7 is sometimes referred to as a liquidation bankruptcy because the bankruptcy trustee will gather and sell the debtor’s non-exempt assets and use the proceeds to pay creditors. There are three types of assets: personal property (anything you own and can touch), real property (land or property connected to land, such as a house), and intangible property (life insurance policy, tax refund, etc). There are some federal exemptions that determine which assets can be sold. This can depend on the state you file for bankruptcy in.
Chapter 11 is sometimes referred to as reorganizing bankruptcy. This is usually associated with businesses and partnerships. This type of bankruptcy involves a repayment plan. It aims to allow a business to stay operating while debts get paid to creditors over time. However, Chapter 11 filings tend to be the most costly and lengthy. Small businesses can file Chapter 11 bankruptcy under two different categories. Subchapter 5 was added in 2019 and went into effect in 2020 to give small businesses a better, more simplified chance at repaying their debts.

When should a business file for bankruptcy?

When a business realizes it is having trouble managing its debts, debt relief options should first be considered. Debt relief options can be loan refinancing, consolidation of debt, or interest rate reductions. Business owners should write up a business plan and estimate revenue– If you cannot identify enough future revenue to pay off debt, borrowing loans may make matters worse. Bankruptcy is generally considered a last resort, so if none of these options work, then a business should consider filing. Those filing for bankruptcy should be aware of the types that can be filed, as well as potential risks and benefits.

How can I avoid bankruptcy?

Efficient tax preparation and accounting are necessary for keeping any business afloat. (You can read our previous blog on small business accounting here!) If you are struggling with finances, contacting an accountant immediately can be beneficial. Consider consolidating your balances, using business debt consolidation. This works much like personal debt consolidation, by replacing many types of debt with one loan. The potential downside to this is that you’ll need a high credit score. You will also need to go through an initial consultation, including an interview process, to determine if you are a good candidate for the process. Debt consolidation results in more manageable payments and improved cash flow to your business. Another step you can take is to prioritize your bills. Keep an eye on the spending behavior of your business, and pay the most important or essential bills first. This could be the key to getting back on track before you end up in too much debt. Hoods Tax & Accounting Services offers strategic business planning services as well as a comprehensive offering of accounting services. Contact us today to start getting all of your bookkeeping needs in order!

Do I still need to file/pay taxes before or after filing bankruptcy?

Yes! According to the IRS, before filing Chapter 7 or 11, the debtor must file tax returns for the last four tax periods. Post-petitioning of bankruptcy, the debtor must timely file income tax returns and pay the income tax due. Most taxes cannot be eliminated with bankruptcy filing.

What if my business was closed down during the pandemic?

Unfortunately, many small businesses were forced to close amid the coronavirus pandemic. Some of these businesses won’t be able to reopen, and business owners may turn to Chapter 7 to relieve business debt. A Chapter 7 discharge wipes out debt and erases many obligations. However, defunct businesses are not entitled to a Chapter 7 discharge. This means that even after declaring bankruptcy, debt remains. Chapter 7 may work if you can keep your business open during the filing. Sometimes a sole-proprietor can keep a business afloat amid Chapter 7. The debtor’s own labor must be the basis of the company, and the business must not rely heavily on inventory, products, tools, or equipment. Some bankruptcy trustees will not allow a business to stay open during a Chapter 7 bankruptcy. Others will let a business continue to operate as long as there is liability insurance in place. Even if your company was profitable before COVID-19, you may still qualify for Chapter 7. In most cases, whoever is personally responsible for paying business debt, such as a sole proprietor or shareholder, can file Chapter 7 individually to erase personal liability, as long as that debt is dischargeable.

How do I know if Chapter 7 will work for me as an individual?

First, check whether the debts you want to erase are dischargeable. If they aren’t, Chapter 7 will not be beneficial to you. You should review your state exemption laws to see whether you can protect your property. In South Carolina, there are exemptions for personal property, motor vehicles, tools of the trade, and more. You can read more about South Carolina’s exemptions here. Additionally, you should check whether filing for bankruptcy will breach a partnership or other agreement.

What does Chapter 11 mean for my business?

Under Chapter 11 bankruptcy, your business can continue to operate, and will hopefully come out in better financial condition. This type of bankruptcy resolves all debts and liabilities at once. There will also be an automatic stay of creditor actions, which allows your business to get some relief from creditors. If your business decides to sell assets or property as part of its restructuring, you can obtain court approval to sell free of liens or other interests on the property. This may result in an increased interest in purchasers and an overall better sale price.

Closing

Bankruptcy can sound ominous, but it can be a necessary step to either closing your business or keeping it afloat. Bankruptcy law is complicated, and every small business has its own needs, so consulting with an expert is best. Specifically, a local bankruptcy lawyer who specializes in small business. There are a variety of ways to avoid bankruptcy, such as debt consolidation. Speaking with an expert can also help you determine which steps will be the most beneficial to your business. We hope you found this article helpful, and we thank you for reading. As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!

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Quickbooks And Your Small Business

9/2/2020

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Running a small business can be a dream come true and very daunting. If you use all of the correct tools to help you run your company efficiently, it will be the dream you've worked for.

Starting a small business in 2020 might sound crazy, but more have popped up nationally than you might think. So many people have lost their jobs, been put on furlough, or are unable to do their jobs virtually that they had to do something. With the unemployment rate at an incredible high, many Americans have been forced to creatively do the pandemic pivot. With so many of us at home with nowhere to go, the birth of honing new or rusty skills and crafting abilities had the opportunity to flourish. People started posting their goods and wares on social media and out of the blue, they have a whole new little business operation running out of their homes.

Some people were already deep in the process of building their small business when the pandemic hit, while others found solace in being hired by one after their corporate jobs were eliminated. Whatever the situation, small businesses have become quite the lifesavers of 2020. To keep that success and productivity as safe and possible, every small business needs the proper tools to stay productive, organized, and financially stable. What is the best tool out there for these situations? Quickbooks!

We use Quickbooks ourselves and we offer classes to help small business owners and anyone out there grow and manage their money. One of the biggest reasons small businesses fail, according to Forbes, is because there is no business plan. Poorly managed bookkeeping can sink a business before it even had the chance to grow. Admittedly, bookkeeping is difficult, time-consuming, and very meticulous work. This is why working with a company like ours and using Quickbooks is so imperative. We both make sure that every part of your bookkeeping is done in a properly organized manner, allowing you to get back to the business of your business.

Quickbooks pro was created specifically for small businesses, and it is very user friendly. It does so much of the work for you, that it's hard to get yourself overwhelmed. With a small-ish price tag of $300, it's a very small price to pay for the huge benefits it gives you. Tax season, after using Quickbooks, should no longer be something you dread or fear. Everything will already be taken care of. It even comes with tutorials to help you get started, and the Quickbooks team is also available to help you when you need it. There are so many benefits just waiting to be used.

[START UP]

Everything you need to run your bookkeeping and a majority of your business is in one place in Quickbooks. It will save you time, money, and sanity.
It keeps you organized, and you can see your business growing and change in one place.
It can help you with everything from income and expense tracking to cash flow management and more.
It allows you to accept credit cards and bank transfers from where ever you are. It lets your business be on the go, never restricting your plans or goals.
It can help your employees. You can do your companies payroll in minutes. It even gives you the option to upgrade and let the QuickBooks professional bookkeeping team take care of your payroll.
You will no longer need to worry about manually tracking your employees. You can track their hours, overtime, and add that into payroll anytime and on any device.
If you need more, Quickbooks is there to help. You can connect and partner with a member of their professional bookkeeping staff if you want, and whenever you want.

[BENEFITS]

Money Management. Quickbooks allows you to pay bills, ask clients to pay you, and tracks all of your due dates for bills. You can print checks directly from the program, every transaction is recorded right into the program, and you can link your bank accounts to the program. You no longer need paper statements.
Billing. The program will record every expense, no matter the size. You can organize your billing by the client and by type of spending. You also no longer need to reconcile your books manually.
Invoicing and Reporting. The program tracks all of your sales automatically. It can create receipts and invoices at the touch of a button. It allows you to bill your clients individually or in large batches which helps when billing multiple clients for the same service. If you have merchant services through Quickbooks, you can accept credit card and debit charges. You can easily scan and deposit checks into your accounts. You also can create all kinds of financial reports including expenses, trends, year over year income, and more.

[MORE]

You can use Quickbooks with other software and programs you're already using. You can import documents from Excel and export data from Quickbooks to make tax preparation and filing extremely easy.
Security is also an added layer of comfort that the company offers, according to The Visual Communication Guy. Quickbooks data centers are monitored 24/7 and are under constant watch to make sure all of your assets are kept safe. It also comes with its own security so no one can just log into your accounts. It is also the leading software company in safety and the adaptation of new technology.
It allows you to customize your business plan for each client so they know that their business is a priority to you. It allows you to nurture relationships with your clients by being able to send messages, notifications, and custom reports through Quickbooks.

Coming to the point where you can own your own business is a huge accompaniment and celebration. Let that celebration continue and use all the right tools to help you and your company grow and stay organized. If you are looking for the best accounting services in Goose Creek, the best tax preparation in Goose Creek, business consulting in Goose Creek, bookkeeping in Goose Creek, or payroll services in Goose Creek, we are here for you! Our phone lines and inboxes are waiting for you. Don't hesitate! Please stay safe, everyone. We will see you soon!

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Hoods Tax &
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Business Bankruptcy

Quickbooks And Your Small Business

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Business Bankruptcy

Quickbooks And Your Small Business

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