Saturday, February 26, 2011
Thursday, February 17, 2011
The Taxman Cometh in 2011 for Online Entrepreneurs
Since the dawn of the Internet, small retailers have lived in a magical, tax-free bubble. First off, they didn't collect sales tax -- an advantage that is likely to be gone shortly, with the inevitable approval of the Streamlined Sales and Use Tax Agreement currently before Congress. Some individual states aren't waiting and are already pressing for sales-tax collection on online sales. But even more, small e-tailers didn't pay income tax. Ecommerce platforms such as PayPal were not obligated to send the IRS reports on its users' income. It was, as they say at the casinos, a cash business. If you neglected to mention on your tax return your income from selling ebooks or garage-sale merchandise you put on eBay, the IRS was none the wiser. You were under the radar.
For anyone who makes even a modest amount selling online, that income-tax holiday ends this year. Unlike the new rule demanding a 1099 form for every vendor you pay at least $600, there's no outlook that income-tax reporting for ecommerce sales will be repealed. It's here to stay.
Here's what you need to know:
Starting this year, PayPal, Amazon Payments, and other similar electronic-payment platforms are obligated will begin reporting to the IRS any account that earned more than $20,000 selling more than 200 individual items. Banks and debit-card providers will also be sending forms recording income that flowed into merchant accounts.
Why is this happening? Our government needs money to help dig us out of debt, and taxing previously hidden revenue is one of the IRS's top priorities. Of the $290 billion in unpaid taxes the IRS estimates our nation is owed each year, 40 percent is attributed to underreported taxes that should have been paid by small businesses and the self-employed. The agency is out to fix a lot of that problem by starting to capture income tax from ecommerce sales.
Translation: Anyone with even a serious part-time ecommerce business they're running on the side is going to be getting a 1099 next year about this time. If you are self-employed and haven't been paying income tax on this revenue, you need to learn about self-employment tax. That's the type of tax you'll owe on your online income.
You may be able to pay annually your first year, but after that you'll have to estimate and pay tax on ecommerce revenue quarterly, based on your sales this year.
Take a look at your tax rate from last year and the amount you made selling online. Do the math, and you've got a guesstimate of what you will owe. Plan accordingly, whether it's raising your prices, finding cheaper vendors, cutting other expenses, or finding ways to sell more to make up for what you'll lose in taxes.
While e-tailers may be steamed at this new 1099 requirement -- which was shoehorned into the healthcare reform bill -- traditional retailers are no doubt breathing a huge sigh of relief. A very unlevel playing field will take a big step toward getting level again when PayPal starts sending 1099s.
Will the new income-tax law for ecommerce sales affect you? Leave a comment and let us know your reaction.
Will U.S. Retailers Kill the Plastic Bag?
Plastic bags have a bad reputation as wasteful and harmful to the environment. The argument is that they're usually made with petroleum products, animals can choke on them and they litter landfills. I can testify to that last point -- I once wrote an article about where Seattle's trash goes, and followed the train out beyond The Dalles, Ore., to the dump. The plastic bags are the first thing you see, rolling like tumbleweeds out of every dumpload and sticking in clumps to the fences.
Still, most American retailers continue to hand them out to customers. But some forecast that tradition may soon come to an end.Europe is often ahead of us in eco-trends, and many plastic-bag laws are already in place there. Ireland started charging customers 15 cents a bag back in 2002, with the result that their use plummeted. China joined in 2008.
Last month, Italy banned the bags outright, joining Mexico City. Stores can use up their supply, and then that's it. GreenBiz.com reported other European retailers are in an uproar and fear they may have to make the switch next.
Several U.S. cities have banned plastic bags, including San Francisco; Brownsville, Texas; Westport, Conn. and Edmonds, Wash. When Washington D.C. instituted a 5-cent-per-bag fee last year, use fell by 85 percent in a month.
The question is, will U.S. retailers fight this trend to the bitter end and wait for regulations to force them to change, or will they voluntarily move toward paper and sturdy reusable bags? I've seen many stores switch to offer reusable bags. Others credit customers for each reusable cloth bag they bring to the store to incentivize their use and cut their plastic-bag use.
Whatever your feelings about the environment, plastic bags are a cost for retail stores, large and small. Many are issuing branded reusable bags instead -- which seems like a good marketing move. Retailers have a chance to take the high road now and win customer loyalty. At the same time, the plastic bags can be convenient, as the paper bags can rip, use trees, and it's harder to carry many bags all at once.
This battle may be fought on in the U.S. for a long time, with laws differing from city to city. That makes problems for regional or national chains, which may have to offer different bags in different stores.
The thing that sticks with me is, somehow, everyone in the world got their marketing done without these bags for centuries. They've been in common use perhaps 50-60 years at most. Retailers don't have much to lose by getting rid of them, and stand to gain much in positive vibes, especially from eco-conscious customers.
If you're a retailer, how do you handle the paper-or-plastic issue? Leave a comment and let us know.
Wednesday, February 16, 2011
Obama Proposal Aims to Cut Unemployment Tax Payments
The idea of raising taxes in the midst of what continues to be a rocky time for small businesses is understandably anathema to many entrepreneurs. After all, keeping the doors open and the lights on is hard enough as the unemployment rate continues to hover around 9 percent and many shoppers are still pinching their pennies. On the flip side, forcing states to pony up for unemployment spending might eventually cause an unwanted financial impact for business owners.
So far, 30 states have exhausted their unemployment insurance trust funds and have already borrowed an estimated $41 billion from the federal government to help jobless residents pay their bills, according to a report released yesterday from the Center on Budget and Policy Priorities and the National Employment Law Project. That tally is expected to reach a record $65 billion by 2013, according to the U.S. Labor Department.
So what does all this mean? Employers of all sizes could face a significant increase in their tax bills.
Here's how: To repay the principal on those loans, federal unemployment insurance taxes on employers are set to rise automatically in a number of states this year or in 2012, and tick up higher over the next few years, according to the joint study. The minimum taxable wage base in 18 states has already risen to $15,000 from $7,000 where the wage base has been for decades.
But President Barack Obama has a plan -- which he expects to detail in his 2012 budget due out next week -- to give employers and states a much needed break by deferring those federal loan interest payments into 2014. He also proposes to postpone automatic tax increases for two years.
Response to the proposal has been mixed. Some republicans are against it since they say a number of states will be forced to raise unemployment taxes on businesses in the future. Meanwhile, a number of think tanks have thrown their support either behind the President's plan or similar reforms citing bigger problems if nothing gets done.
Indeed, with this proposal, small-business owners in states that owe the government money can avoid paying $5 billion to $7 billion in higher federal unemployment insurance taxes before the end of 2013, and $16 billion to $24 billion over the next five years, said the joint study.
Is President Obama on to something with this? What's your take?
Benchmarking Facebook Ads
If you've been sinking a portion of your marketing dollars into Facebook advertising the past year or so, you might be wondering how that online advertising is paying off for you. And with Facebook ads expected to pull in more than $2 billion from U.S. advertisers and $4 billion worldwide this year, you shouldn't feel like the Lone Ranger. It appears most brands that advertise on Facebook haven't been able to assess how their campaigns are performing, according to Webtrends. To remedy that problem, the Portland, Oregon-based web analytics and social marketing company analyzed more than 11,000 campaigns serving 4.5 billion impressions on Facebook that logged 2.2 million clicks, focusing on such metrics as click-through rate (CTR), cost per click (CPC), cost per thousand (CPM), and cost per fan (CPF).
Not surprisingly, advertisers got fewer clicks for their buck in 2010 compared with 2009, with demand for ads and audience sophistication prompting ad prices to climb. For instance, the average click-through rate in 2009 was 0.063 percent at 27 cents per click, compared with an 0.051 percent CTR at a 49-cent cost-per-click rate the following year. That means forward-thinking marketers can save money by building their Facebook campaigns now, thus taking advantage of rates that are only going to climb higher later.
Meanwhile the cost per thousand - the amount Facebook charges advertisers for an ad to be displayed 1,000 times -- averaged 17 cents in 2009 compared to 25 cents per thousand in 2010. And while figures aren't available for the cost per fan in 2009, that price tag was $1.07 for each fan who clicked through in 2010, according to Webtrends.
Most interesting perhaps is the finding that the older we get, the more likely we are to open ads, with the most Facebook ad clickers peaking at the ages of 55 to 64. Furthermore, women are more likely to click onto ads than men.
As for geographic targeting, it appears location has little to do with the rate at which people click on ads on Facebook, with the exception of Hawaii -- which has a click-through rate that is half that of most states -- and North Dakota and Wyoming, where CTRs are double and triple (respectively) the national norm. I can only assume that the island folks have a lot more activities to contend with than those in the two landlocked states.
Webtrends' analysis also shows that search ads (ads placed on pages displaying search results) can successfully run for months because there will always be new people searching for terms related to the ad.
Finally, it appears social brands see higher click-through rates, which Facebook rewards with a lower cost per click and greater visibility. That makes perfect sense when you consider most folks visit Facebook because it's a hoot. As a result, ads that are social in nature -- and are fun to engage with -- experience higher click-through rates.
Why You Should Give Your Business Away This Year
I've got a couple of cheery topics for you today -- death and taxes. Try to stay with me for a minute, though, because there's some really important news out that could help you hang onto your business and keep it in the family. You may know that the federal inheritance tax has been a political football for years -- it goes up, it goes down, the rules change with each administration and lately, with each and every year.
It happens that this year and next, the inheritance terms are pretty favorable. The top tax rate is 35 percent (it was 45 percent last year). Also, the business value exempt from tax is $5 million, up from $3.5 million.
After 2012, at the moment, the rules go back to much less favorable, pre-Bush-era rates: Only $1 million in exemption and the top tax rate is a whopping 55 percent. At least that's how it stands at the moment.
How does this news help you if you don't plan to leave this life in the next 23 months?
You can shrink the size of your estate while you're still around. Now's the time to consider giving away hunks of your business, while you're still alive.
That can reduce the value of your estate in the future. And that ups the odds that your family business will be able to stay in the family, not sold off to pay a big tax bill.
You can give interests in the business -- tax-free -- to family members of up to $13,000 in value annually, or $26,000 if you're a married couple and both agree to the transfer. You can retain majority interest in your business while reducing the value of your estate.
There's also a special provision that shrinks the value of the equity you gift to family members, based on the idea that their minority ownership doesn't give them much control of the business and isn't very marketable as an asset. So you may be able to give away a bigger chunk than you think, all tax-free.
Whatever you decide, work with a knowledgeable tax planner. With the endless uncertainty on what the estate-tax rates will be in the future, you'll need to plan carefully and possibly update your plans as rules change.
Will you give away part of your business this year? Let us know your estate plans.
Tuesday, February 15, 2011
Putting Small Business on 'Fast Track' to Job Creation
Many small-business owners have been unable to hire new workers over the past couple years. It's a problem that has contributed to our still-high unemployment rate. No real answer has emerged on how to get small businesses in a position to hire again. One program that's working is from the ever-entrepreneurial Kauffman Foundation. New York City tried out its FastTrac NewVenture initiative recently -- and the results may offer a ray of hope.
Here's how the program works:
FastTrac offers several programs tailored to help entrepreneurs at all points in their journey. "FirstStep" is for people thinking about starting a business, "NewVenture" aims to assist new businesses that have launched, "TechVenture" is geared toward tech businesses and "GrowthVenture" aims to help existing businesses to thrive.
The courses are 30 hours of instruction and cost $1,200 -- but in many cases municipalities or local organizations may sponsor all or part of the cost.
FastTrac has been around for 17 years, but since the downturn has seen an explosion in interest and has added more locations where the courses are taught. There are more than 200 universities and community organizations that offer FastTrac.
There's proof that it works, too: In a major initiative, the city of New York has seen 1,000 entrepreneurs go through FastTrac program at SUNY's Levin Institute since 2008. The results: The Institute estimates 300 jobs were created.
Among the New York alumni, 33 percent launched a business within six months of completing NewVenture, and nearly 90 percent of the businesses are still operating. For those who went through the GrowthVenture program, more than half grew their business within six months, and over 90 percent continued to operate.
Results were similarly positive in Michigan last year, where more than 800 people took the NewVenture course through local Small Business & Technology Development Centers. Participants helped start 560 businesses. More than 240 jobs were created and another 143 retailed.
The SBTDC also helped raise more than $3 million in capital for the participants. So the course can also help connect entrepreneurs to funding.
This is all great news, since small-business job creation is a proven engine of economic growth. The Kauffman's research data from 1980-2004 showed that firms less than five years old account for all net job growth in the U.S.
Besides being offered at local universities and through other providers, entrepreneurs can take the programs online through Kaplan University.
What will you do to make your business grow in 2011? Leave a comment and let us know your strategy.
'Do Not Track' Legislation Could Impact Your Business
Members of Congress are expected to introduce privacy bills this week that would require the Federal Trade Commission (FTC) to initiate a Do Not Track registry for online advertisers. Such legislation could ultimately have an effect on entrepreneurs and businesses of all sizes that rely on certain types of online marketing -- especially retargeting (also known as behavioral remarketing) -- to generate leads and close more sales online. Rep. Jackie Speier (D-Calif.) says her bill would enable consumers to "just say no" to advertisers who are in the habit of tracking their online activities, building consumer profiles and delivering ads that are tailored specifically to consumers who -- in many cases -- are completely unaware they are being electronically stalked.
Speier's office worked on the legislation with a number of privacy advocates including Consumer Watchdog, the Consumer Federation of American, Consumers Union and the Electronic Frontier Foundation, among others. And the proposed law has garnered the support of the FTC, which says Do Not Track legislation could go a long way toward protecting consumers whose every visit on the Internet is possibly being shadowed by network advertisers.
Furthermore, the agency suggests that such a Do Not Track system be established that simplifies a consumer's ability to throw potential advertisers off their online track. Right now, a consumer can't opt out of many of the multitude of third-party tracking services and ad networks out there. And those advertisers that do let consumers off the hook require that they set -- not delete -- a cookie to opt out. The problem with this solution is if consumers clear out all of their browser's cookies, the opt-out cookies that they worked so hard to establish also get wiped out.
But with Do Not Track technology, the consumer is offered a single, constant setting to opt out of all web tracking. It adds a header indicating that the consumer doesn't want to be tracked by advertisers. In this way, it avoids the complex challenges that come with compiling, updating and sharing a registry of tracking services or web users. Consumers can beg off such personalized advertising from ad networks one time and that opt-out becomes permanent. Much like the Do Not Call registry, this FTC recommendation gives consumers a clear-cut, easy-to-understand method of getting off of the data-tracking highway.
This pressure by legislators and regulators has prompted both Google and Mozilla to create new software for their browsers (Chrome and Firefox) in an effort at self-regulation. Both companies are looking over their shoulders, knowing full well that privacy protection is one of those rare items that garner support from both sides of the aisle.
For instance, Mozilla recently announced plans to incorporate a Do Not Track feature into Firefox 4.1, its next browser release, while Google has announced a new privacy program that enables consumers to not only opt out of such tracking, but to personalize ads they might be interested in seeing, if any.
Stay tuned to Entrepreneur and Daily Dose for updates on Do Not Track-related developments that could impact the way your startup or business markets online.
10 Tips for Working Trade Shows
Aren't trade shows supposed to be dead? More than a decade ago, with the rise of the Internet, many predicted trade shows would go the way of the dodo.
But instead, they've flourished. I think people long for personal contact more than ever in our era of Webinars, video calling, and instant messages. Also, the more global business becomes, the more convenient it is to meet everyone at a trade show in Las Vegas or Boston, rather than trying to see customers one at a time. So, no surprise trade-show organizers report stable revenue, even through the downturn.
Still, it's a serious financial commitment, and it's hard to know whether attending a particular trade show will be worth the expense.
I've been to dozens of trade shows over the years. Here are my tips for how to decide which ones to attend and get the most out of the ones you choose:
Review the speaker list. Are these thought leaders you respect?
Look at the attendee list. An online registration page will often show you who has signed up. I recently did this with a convention I'm considering and immediately spotted people I would love to spend time with in person.
Check out the seminar list. What are the topics? A single great session that answers business questions you have could make the whole trip worthwhile.
Consider renting a booth. Yes, it costs a bundle. But a booth can be a home base for your team and it can leave a big impression on attendees. For instance, entrepreneur Scott Friedman of SoulR Products in Hermosa Beach, Calif., bet $75,000 on a booth at the recent Consumer Electronics Show to introduce a new, high-quality speaker. His haul? More than 700 business cards to follow up on, a few orders, and solid connections with major retail chains.
Schedule appointments. If there are important people to see, don't wait until you get to the trade show to set up a time to chat. Arrive with a schedule.
Eat lunch for two hours. When I want to meet a lot of people at trade shows, I hit the food court around 11:30. I sit down at a table, and then as others sit down, chat them up. I often stay until 2 p.m. or so. People are a a captive audience once they sit down and most are pretty amenable and friendly when they're at lunch.
See booths systematically. You can save a lot of time and shoe leather if you have a logical game plan for visiting booths.
Wear comfortable shoes and clothes. You want to project positive energy, so make sure you don't have tired feet or a pinching waistband. I did years of trade shows in a fabulous turquoise silk suit that had a hidden elastic waist. I felt like a million bucks and was completely comfy.
Watch your liquor consumption. I think everyone who's ever been to a trade show has a story about watching an executive who got too drunk at a mixer event. Keep it professional, even in the event's "off hours."
Follow up and connect. The real work starts when you get home. If you just throw all those business cards in a drawer, the trip may well have been a waste. Find creative ways to follow up -- connect on LinkedIn or Twitter, send prospects an interesting article. Develop ways to stay in touch that go beyond saying, "Why don't you buy something from me?"
Going to any trade shows in 2011? Leave a comment and let us know.
Monday, February 14, 2011
Report: Business Optimism Still a Mixed Bag
Navigating the ups and downs of the economy and the credit markets over the last few years has been a lot like riding one long roller coaster for many small-business owners. But confidence looks to be on the rise, according to the National Federation of Independent Business. The group announced today that its Index of Small Business Optimism cycled up 1.5 points last month, reaching 94.1 -- the highest it's been since the beginning of the economic recession. Industries such as manufacturing and exporting, which aren't necessarily labor intensive, are "leading the recovery," NFIB chief economist Bill Dunkelberg said in a statement. But while small-business optimism might be climbing out from the depths, the results were blunted by a general skepticism about the future and a continued hesitancy to spend and hire.
Indeed, the report says job creation continued to decline in January, with the average employment change per firm dropping to -0.15 employees over the last three months. In terms of capital spending, the NFIB says small business remain in "maintenance mode" and are generally still unwilling to risk making new investments and/or don't see a need for them. Earnings expectations improved 6 points to -28 percent, but the majority of respondents indicated that earnings are in fact deteriorating quarter-on-quarter.
The NFIB says that while owners reported higher nominal sales over the last three months (up 5 points for a net -11 percent), sales trends overall "do not appear supportive of a widespread recovery in the small business sector."
The NFIB's Index of Small Business Optimism was based on responses from more than 2,100 randomly sampled small businesses in the organization's membership, which were surveyed during the month of January.
What about your small business? Are earnings up, flat or on the decline? What's your take on the market's recovery?
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