Shizuoka Business

Archive for January, 2011

Practically every small business has receivables that it cannot obtain from clients. If your small business doesn’t have any such receivables, consider yourself lucky. For those small businesses that suffer from uncollected receivables, solace can be taken from the fact you can claim a tax deduction.

Bad Debt Tax Deduction

A small business can write-off bad debt losses if it meets nominal requirements. To claim such a tax deduction, the following must be shown:

A. The existence of a legal relationship between the small business and debtor;

B. The receivables are worthless; and

C. The small business suffered an actual loss.

Proving there is a legal relationship between the small business and debtor is fairly simple. You must simply show that the debtor has a legal obligation to make a payment. Most businesses issue invoices or sign contracts with debtors and these documents suffice to prove the legal relationship. If you are not putting your business relationships in writing, you should begin doing so immediately.

Proving receivables are worthless is slightly more complex. A small business is required to show that the debt has become both worthless and will remain so. You must also show that you took reasonable steps to collect the receivables, but you are not necessarily required to go to court to meet this requirement. A clear example where you would meet this requirement is if the debtor filed bankruptcy.

While proving that you suffered a loss may sound like the easiest requirement to meet, the issue is a bit more complicated. The Tax Code defines the loss as an amount that is included in your books as income, but is never collected. A classic example of such a situation would be a manufacturer that provides products to retailers on credit. The manufacturer can show a real loss if the retailer files bankruptcy. Unfortunately, there is almost no way to claim a loss if you provide hourly services and use a cash accounting method. The IRS does not consider the expenditure of time and effort to be a sustained economic loss.

Small businesses suffer all to often from uncollected receivables. If you failed to claim such losses as a tax deduction during your last three tax filing years, you should file amended tax returns to get a refund.

Good news for small businesses who are struggling during the current economic downturn. The Obama administration and congress have provided a plan -through the economic stimulus- to provide a way for small businesses to get badly needed relief from debt.

The Small Business Administration has been authorized by congress to guarantee interest free loans of up to $35,000 to small businesses that qualify for this program. You may be wondering what does ARC stand for? ARC stands for America’s Capitol Recovery and is a Small Business Administration program that makes it possible for qualifying business to get theses interest free loans through participating banks

To qualify you must be a for-profit business, and show not only that you have had a profitable business for the last two years, but be able to show sufficient cash flow for the next to years to meet the terms of the loan, and that your business is in financial hardship. Since it is an SBA guaranteed loan you also have the peace of mind of knowing that should unforeseen circumstances cause you to be unable to repay the loan the SBA will step in and pay it off for you.

There are some draw backs to an ARC SBA loan. You may find it difficult to find a bank initially. Banks that participate in this program vary widely from state to state with the highest concentration of providers in the Midwest with portions of the South and Northwest having the least.

Where can I go to find out more about this program? The Small Business Administration has several resources to help you learn more about the ARC program as well as a list of participating banks. They can also tell you if you qualify for this program. Or you may decide to talk with your bank. Either way you can obtain the information you’ll need to make an informed decision. So what are you waiting for if you are a small business in need of debt relief you may just find that this is the program for you.

Businesses, just like people may be heavily burdened by debts. Debt is a natural and unavoidable occurrence in the world of business. Debts may be incurred to augment the business’ funds-funds that are necessary to keep the business “alive”. Debts may be due to mismanagement or can be the result of economic instability.

Business debts are money borrowed for the purpose of business expansion, for business development and for the business’ general maintenance. In short, the money borrowed will be spent for the business itself. Interest rates for this kind of loan are considerably higher as compared to personal loans. This could be the reason why business operators who are weighed down by huge interests accumulate big business debts.

Business operators should be alarmed if they can no longer pay debts as they become due, if they are unable to manage operating costs, if product quality is reduced and if the shareholders’ trust is weak. These are signs that the business is in trouble and that immediate action is necessary to attain financial stability.

This is the “rescuer” of ailing businesses. It is the way by which a business can regain financial footing without resorting to bankruptcy. It is the means to avoid the eventual closure of business due to huge debts.

Business debt relief will be achieved with the help of their service firms. These business debt relief providers will act as the negotiator and mediator between the debtor and the creditor. Often times they will also act as business consultant. The business operator may opt for the debt consolidation program that will allow him to continue running the business while the debt counselor – acting as his negotiator meets and talks with his creditors. The debt counselor acting on behalf of the debtor may request the creditor to reduce the interest rates. This request is usually accepted by the creditors because with debt counselors negotiating, there is a good chance that they will be paid. The debtor can now easily afford to pay the reduced monthly payments.

To obtain business debt relief, the debtor may choose to get a debt consolidation loan. This loan will be used to pay off most of the debts. This will have the advantage of getting rid of several interest charges. The debtor will now have to make one monthly payment.

Refinancing the home and getting a property equity loan is another way to attain this relief. The business operator though has to make sure that the interest rates for this loan is lower than the interest of the other debts otherwise the strategy will be useless – the other debts will not be paid. This plan will also be effective with credit cards. A new credit card with lower interest rate will replace all the other credit cards with higher interest charges.

Credit counseling can give tremendous result with regards to achieving business debt relief. Credit counselors would not only help a debtor pass the debt hurdle but would also show the debtor ways to attain financial stability.