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Proposal seeks to simplify tax code for small businesses

Did you know that under the current tax code, small businesses actually pay more money to stay compliant than large businesses do? One proposal seeks to simplify the code and do away with this imbalance.

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Small businesses actually spend more on tax compliance costs

Tax filing takes a lot of time and work as filers go line by line to ensure that everything is accurate and meets government specifications, and that difficulty increases significantly for business owners. Corporate expenditures for professional tax services can be quite costly – in fact, according to the National Federation of Independent Business, small businesses spend $18 billion to $19 billion per year on tax compliance costs alone, a number that is 65 percent higher than what larger businesses spend.

In order to decrease this burden, Ways and Means Committee Chairman Dave Camp (R-MI) recently proposed plans to simplify the tax code for small businesses, which, if implemented, would decrease the amount of time and money these companies dedicate to tax preparation, and instead allow them to reallocate those funds towards job creation and higher wages. For instance, companies could more easily file for the section 179 tax deduction, which allows businesses to claim equipment costs, and also implement a “cash accounting method,” which simplifies accounting processes for companies with less than $10 million in gross receipts.

To options to reform corporate taxes

Camp has proposed two options to reform current corporate tax processes – one option would revise current tax rules and make it easier to operate as a S corporation and gain capital, the other would do away with existing tax rules for S corporations and partnerships, and instead create a singular pass-through process for both. Steven Rosenthal, a visiting fellow at the Tax Policy center says the proposed reform may end up costing the government money as it will provide incentive for C corporations to become a pass-through company and bypass the double taxation they currently operate under. However, those in support of either of the proposals are hopeful that a reduction in tax preparation costs, and an increased ability to more easily and accurately file taxes without outside help, will promote job growth.

If either proposal passes, the simplified tax filing process for small businesses will help owners more easily claim deductions that can in turn be poured back into the company, and ideally increase the accuracy of corporate returns by removing some of the complexities that are currently present.

Comments on Camp’s proposals can be submitted to Tax.Reform@mail.house.gov and indicate in the Subject field “Discussion Draft 3: Comments regarding pass-through entities.”

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

Business Finance

Stripe Treasury is modernizing banking, and Shopify is already onboard

(BUSINESS FINANCE) Stripe released a banking-as-a-service product that allows users to create bank accounts for their customers. Their first big user: Shopify.

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Splash page for Stripe Treasury, a new banking API coming out soon.

Startup technology company Stripe is bringing banking to the 21st century. Recently, the company released a banking-as-a-service (BaaS) API called Stripe Treasury. This enables Stripe’s platform users to “build a full-featured, scalable financial product” for their customers.

Stripe Treasury lets you embed financial services into your marketplace or platform. In doing so, businesses can create bank accounts for their customers that easily send, receive, and store funds.

For instance, you can create an FDIC insurance-eligible account that earns interest and supports remote check deposit. You can make a one-time payment or set up recurring payments to pay bills. And, you can transfer funds through domestic or international wires.

“Everything about running an online business has been transformed by technology, but business banking has largely been left behind,” said Karim Temsamani, Head of Banking and Financial Products at Stripe. “But we’re changing this, just like we set out to change payments a decade ago. Offering a user-centric banking experience should be as easy as spinning up a virtual server—that’s what we’re starting to accomplish at Stripe with our bank partner network.”

By partnering with a network of global banks, Stripe Treasury can make it easier for businesses to embed banking services into their platform. Currently, Stripe’s partner network includes Goldman Sachs Bank USA and Evolve Bank & Trust as US partners, and Citibank N.A. and Barclays as global expansion partners.

According to recent Stripe research, accessing financial services for businesses today is an extensive process. To set up a bank account, it can take online businesses an average of seven days. To open an account, about 23% of businesses need to send over a fax, and about 55% of businesses are required to physically visit a branch to open an account.

From the research, Stripe also received feedback from users wanting a “digital solution for financial services” they can use directly from the software platform that powers their operations. So, Stripe Treasury is Stripe’s way of removing some of those barriers to create a solution.

“Together, Stripe and Goldman Sachs are focused on relieving the frustrations internet businesses find in making banking work for them,” said Hari Moorthy, Goldman Sachs Global Head of Transaction Banking. “The millions of ambitious, fast-growing businesses in the Stripe ecosystem will soon discover a dramatically improved end-to-end digital banking experience.”

Right now, Stripe Treasury is still invite-only, but it does have one big user. Major e-commerce platform Shopify will be the first to partner with Stripe Treasury. It will use the BaaS API to power Shopify Balance, the company’s business account built for independent businesses and entrepreneurs.

“At Shopify, we’re focused on reducing the barriers to entrepreneurship. As part of that mission, we will soon launch Shopify Balance to empower our merchants to take control of their finances,” said Tui Allen, Senior Product Lead for Banking at Shopify. “We’re excited to partner with Stripe to provide our merchants with critical financial tools and products for their banking experience, specifically designed for their businesses’ financial needs.”

With Shopify Balance, Shopify customers can open a bank account directly through Shopify. And, Shopify Balance will include a one-stop-shop account within the Shopify admin. Customers will be able to view cash flow, pay bills, and track expenses.

Shopify Balance will also have a Shopify Balance Card. With these physical and virtual cards, merchants can make a purchase in-store, online, or through their mobile wallets. They will even be able to withdraw money from ATMs. Additionally, there will be plenty of perks like cashback and discounts on everyday business spending.

The financial services Stripe Treasury offers do look like they can help businesses minimize the lengthy process used today to complete everyday banking needs. It might also create a new revenue stream for businesses by allowing them to perform like a bank.

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Business Finance

Is the convenience of payment apps worth the risk of fraud?

(FINANCE) Peer-to-peer payment apps like CashApp and Venmo are quick and convenient – for users and scammers alike. What are Square and PayPal doing to help?

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CashApp open on phone one of payment apps susceptible to fraud.

More and more people are using peer-to-peer payment services, like Square’s Cash App and PayPal’s Venmo, to make purchases, handle their banking, or just to pitch in on the pizza you and your friends had delivered last night. These payment apps have been particularly useful for folks who may not be able to afford bank fees or have other barriers preventing them from accessing a bank account.

That’s because they are very easy to set up, requiring nothing more than an email address or phone number. Even folks with bank accounts are using these payment apps more as folks are trying to stay home and reduce their in-person contacts during the COVID-19 pandemic. The number of daily users on Venmo has grown 26% since last year.

While these apps bring a lot of convenience to our lives, they have also made running scams more convenient for cybercriminals. According to experts, the rate of fraud on Venmo and Cash App is three to four times higher than with credit or debit cards. While PayPal and Square don’t provide statistics about scams, there are some telling signs. The New York Times and Apptopia, a mobile services tracking firm, found that the number of users mentioning frauds or scams in Venmo customer reviews had increased by four times in the past year.

It seems that Cash App has the most fraudulent activity, with the Better Business Bureau reporting twice as many complaints about Cash App as Venmo, even though Venmo has more users. Zelle has a better track record when it comes to fraud, most likely because it requires a more thorough authentication process when setting up an account. It also has better legal protections for folks who have been scammed.

Some of the things that make these payment apps so quick and easy are exactly the reasons it’s so easy to scam users. The instantaneous payments mean that there’s not much of a vetting process, and not much time to catch a fraudulent transaction before it’s too late. Because you only need an email address or phone number to set up an account, it’s easy for criminals to set up dummy accounts for running scams.

Other scams have been facilitated by the marketing choices of the companies. For example, Cash App regularly runs a Cash App Friday promotion, in which users are rewarded for sharing their username, or $Cashtag, on social media. Unfortunately, this has essentially created a Rolodex of potential victims for criminals.

Square and PayPal are doing what they can to address the problem. Lena Anderson of Square says that they are “aware that there has been a recent rise in scammers trying to take advantage of customers using financial products, including Cash App. We’ve taken a number of proactive steps and made it our top priority.”

One “proactive step” Square has taken is to roll out a customer service phoneline, not only to make it faster and easier for customers to vet potentially fraudulent transactions or report scams, but also because scammers have been creating fake customer service phonelines to target users and collect their personal information. The phoneline is currently available to only some customers, but Square plans to scale it up to be available for all users over time.

Until these companies come up with more robust security systems, there are several things you can do to avoid scams. While you might get a cash bonus from Cash App, it’s probably not worth it to share your $Cashtag on social media. Only share your username with people you know. Never share your personal or banking information with strangers. Examine all transactions carefully. Some scammers are stealing money by making a payment request from an account that looks legitimate, but may have a slightly different spelling or one-letter change in the name.

No legitimate agents of these services should ever ask you for your sign-in code, or to download software, and you shouldn’t click on any links in messages promising cash prizes. Never send small payments in exchange for a promised reward – if it sounds too good to be true, it’s probably a scam. Don’t use digital payment apps to pay for or receive payment from sales on Craigslist, Offer Up, or Facebook Marketplace.

If you think you’ve been scammed, changed your PIN number immediately and contact the company and/or the FTC.

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Business Finance

6 questions to ask when considering a startup accelerator

(BUSINESS FINANCE) Accelerators can help change startups from unknowns to leaders in the industry, but does your startup need one? And if so, which one?

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When I’m advising startups, I often hear the question: “which accelerator is the best fit for me?” (Besides the obvious YC or Techstars.)

First off, I’ll ask if your company would benefit from an accelerator, or if you need to pursue something for early early stage companies before you achieve more market validation, like an incubator. (Side note: If you’re curious about incubators, here is a comparison of the two.)

If you’re new to these terms, here’s a brief recap on startup accelerators:

Startup accelerators are for companies with established co-founders and market validation – companies can be anywhere from pre-revenue/self-funded, or even have raised at least $1M.

Most programs can last anywhere from 10 weeks to 3-4 months. With many top accelerators like YC and Techstars, you’ll be expected to move to the city where it’s hosted and spend 40+ hours a week minimum in their dedicated coworking space, and several accelerators will often offer housing stipends to make the move easier. These programs typically conclude with a demo day to pitch your product to a variety of community leaders, angel, and institutional investors.

If your product has achieved market validation and is in a place where you’re ready to scale, congrats!

Before you commit to an accelerator, ask yourself and the program these six questions:

1. What kind of mentorship is available?

By and large, one of the most valuable portions of an accelerator is the networking with peers and mentors. Ask what kind of mentors are available to you as a part of a program, and ask their specific involvement and the opportunities to connect. These mentors will be crucial in guiding your company’s growth. Even if they aren’t in the same industry or have solved a similar problem that your company is trying to achieve, their advice and connections could prove to be invaluable.

2. What are the perks?

You’re giving up a lot of equity to be in a program, but it doesn’t come without its perks. Many programs offer not only a cash investment or stipend for housing or other growth costs, but programs like Techstars offer free services such as web hosting costs (an upwards of ~250k), legal and accounting services, and other credits and perks that can be worth 6-7 figures. Make sure you know what you’re getting before you say yes to a program.

3. Do I want an industry-specific or industry-agnostic program?

This one is important and is directly related to #2. If your company sells CPG products, web hosting credits may not be valuable to your business, but a CPG-specific accelerator like SKU or The Brandery with direct connections to Sephora, Target, and Whole Foods may make more sense.

4. How much equity am I willing to give up?

Try not to make this a guessing game and make as many data-driven decisions on this as you can. Create a revenue and valuation model and see how much your company would benefit from the networking, fundraising opportunities, and perks offered, and see what the ROI would potentially be.

5. What are the funding and exit numbers?

This is an objective way to view the success of an accelerator: # of funding raised and exits. Of course, younger accelerators will have smaller numbers, but it’s worth looking to see if a company has raised $ after. Seed-DB is a great resource to view these numbers for hundreds of accelerators globally.

6. What do alumni think?

All accelerators are going to tout the transformative experience that is their program, and program mentors will likely have a similar narrative.

The best resource to learn the real experience of an accelerator: ask its alumni, and they’ll give you the truth. Make sure to survey both recent and more experienced alumni, as they’ll be able to speak to both the short term and long term benefits.

Personal experience: the night before I was set to hear from an accelerator on my application status, two alumni stressed to me that the time and equity investment wasn’t worth it. I consider this providence!

Finally, two items to note:

Choosing an accelerator is all about finding the right fit between you and the organization. Sadly, not all accelerators are created equal, and try to view a potential relationship with an accelerator as an investor relationship, or better yet, dating. There’s a reason the phrase “no money is better than bad money” is prevalent in the startup community.

Make sure to do your due diligence and ask the right questions to make sure a specific program is worth the investment of time, energy, and equity.

And sometimes? That may not mean an accelerator is a right fit right now or at any point, and that’s okay.

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