It’s only mid-way through the fall but it’s not too early to be thinking about your tax returns for next year.
In fact, now is the time to be thinking about your personal and business tax returns especially if you have had issues in the past and want to do it right or better this time. Your tax records and tax filings are too important to be done just by anyone, including yourself, who is unfamiliar with tax laws, deadlines and forms. It could be a serious financial and legal mistake to do it on your own without any advice.
So as the holidays draw closer, begin the search for a tax advisor. Here are Five Things to Consider When Choosing a Tax Advisor:
- Relevant Industry Experience: No tax advisor can know everything about every industry. Make sure you are comfortable with the amount of experience the tax advisor has with your industry. Don’t be afraid to ask the advisor if he has other clients in your industry and how long he has been doing work for them. The accounting firm partners should be able to tell you if they have enough experience to handle your case. If not, ask them to send you to a firm that can do it.
- Five-year Minimum experience: The senior member should have at least five to ten years of experience in completing business tax returns. Also, better to find a larger accounting firm with a variety of tax advisors. This means that the accountants have had diverse experiences with a variety of industries.
- Certified Public Accountant (“CPA”) Designation: As a business owner, your tax advisor should be a CPA at a minimum. You can also choose an Atty/CPA as your tax advisor. An Atty/CPA is a dually designated individual who is both an Attorney and a CPA and is generally more knowledgeable than an advisor who is just a CPA. Either way make sure you have one or the other. As a business owner you cannot afford not to.
- Audit Representation: IRS audits are a fact of life. Even though IRS audits are down recently, you never know and cannot control whether they will audit you next. Even the most honest among us have had to go through the stress and endure the headache of having an IRS auditor reviewing our tax returns. It is, then, crucial for your tax advisor to agree to represent you during any and all audits. They can answer questions, find documents and, most importantly, advise you on any issues druing the audit. You do not want to go through an audit alone. Make sure your tax advisor is there every plodding step of the way.
- Fees and Fee Structure: Before you sign up with any tax advisor, find out what they charge for their services. Make sure that you are comfortable with how and what they charge. Being organized with your business records can help prevent your Accounting Bill from getting out of control. Quicken, Quickbooks, Mint or other accounting programs can help maintain your records in reasonable workable shape. Any paper documents should be organized by type and date. Avoid the “shoebox style of organization” which forces advisors to spend hours (and your money) trying to put it all together. You will save a lot on time and fees (and bad will) by organizing your documents.
- Location: With the advent of the internet and the 21st century, your tax advisor does not have to be a few blocks down the road, though being local saves on expenses, especially if you are audited. They can be in another city or state. However, if you have multiple businesses that require a lot of attention from professionals, then you will probably be better served by having someone local who can drop by and advise you on a more frequent basis and keep abreast of your local issues as well.
Yes, it seems too early to be talking about tax advisors, but you may already be rethinking that after reading this blog. That’s good because the next quarterly filing is coming up in January. Don’t go it alone. Find a licensed and experienced tax advisor today.
A.K. Burton, PC has experienced and licensed tax advisors on staff. If you need more advice on business and individual tax planning, contact us at (301) 365-1974 for more information or email us at firstname.lastname@example.org.
“Buy low, sell high.”
It’s a tried and true investment philosophy. Every stockbroker and financial advisor proclaims it.
Unfortunately, investing in the stock market also means losing money-real money. Every honest stockbroker and financial advisor also tells their clients to be prepared for it, no matter what the insiders say or who is in the presidency or congress. Losses happen.
So, how can you handle investment losses? Does it spell financial ruin? Sell it all to recoup your losses? Stop investing entirely and move to Costa Rica?
No, that is desperate and rarely smart. Here are Five Tips to Handle Investment Losses that Could Hurt Your Finances:
- Accept that investment is a risk: Your stockbroker or financial advisor does not control the market. It is completely out of their hands and quite unpredictable. So, accept that any investment you make is a risk. You will win and lose. If you cannot accept that truth, don’t get involved in it as it will only bring disappointment.
- Claim your investment loss as a “Realized Loss”: This happens when you sell an investment at a lower price than you paid for it. For instance, you may make $1,000 in capital gains but lose $4,000. You may not pay taxes on the $1,000 but your net loss may be used to offset income and you may be able to claim it this year and future years as a loss. (See your licensed financial or tax advisor for more details.)
- Avoid making a “Wash Sale”: If you sell a stock at a loss, only to buy that exact stock back during a 30-day period, it is considered a “wash sale”. If you do that, you may lose the tax benefits of it. Badly-performing stocks you’d like to sell for tax purposes but own again later, you should wait until the wash-sale period ends before buying them back. Bottom line: Cut your losses and move on. Your losses will lower your tax burden and can be carried forward for gains and income in the future.
- Investment in Bankrupt Companies: This one is easy-well, sort of. If you invested in a company that has filed for bankruptcy and closed its doors, you can claim a total capital loss on your tax returns. However, the IRS will need documentation from you on why the stock is now considered worthless. So, make sure you have documents on when it became worthless and that it is of zero value.
- Be efficient in taking losses: Do your best to document and take your investment losses in the most efficient and ethical way possible. The IRS knows and accepts tax losses as a part of doing business in the fickle world of tax investments. Your tax bracket also is a factor in taking losses. For instance, if you are in the 10% or 15% tax bracket, you are not liable for any losses. The main point here is this: keep accurate documentation of all losses so you and your tax advisor have all the information they need to take advantage of all tax benefits coming to you when your risk goes awry. (Please refer to www.irs.gov)
Investment losses can be painful and heartbreaking. However, it does not mean bankruptcy nor does it mean that you depart the investment world. A smart investment loss strategy that you can develop with your financial and tax advisors makes all the difference and will help in the short- and long-term.
Tax and investment advice is one of the many services we offer our clients at A.K. Burton, PC. (http://cpa-maryland.com/services/accounting-services/) Our experienced and licensed staff can help you, your family and your business make smart tax and investment decisions. Call us at (301) 365-1974 for more information or email us at email@example.com
There is a “Seinfeld” episode where Kramer kept advising Jerry that he can use his personal expenses as “write-offs”. Finally Jerry, after hearing Kramer talk off the top of his head about taxes and obviously not actually understanding the topic, says credulously, “You don’t even know what write-offs are, do you Kramer?” Kramer then looks down, sheepishly, and nods his head “no”.
Kramer’s reaction is actually pretty typical. Most people, even though well meaning, have no idea what is a “tax write-off” and what isn’t. They may think something, such as a business meal or an office equipment purchase, are tax write-offs and thus it means they will pay less in business income taxes. But, that may a mistake…a very costly mistake.
So, to keep expectations down, help you to make better small business buying choices and to keep the IRS off your back, here are Five Tax Write-Offs that Require More Scrutiny:
- Business Clothing: Generally, to be deductible, clothing must be required for work and not appropriate for every day wear. Uniforms required for work and protective clothing are obvious examples. Less obvious are items such as polo branded shirts with the Company Logo which may be considered company “uniforms” and deductible as such. Clothing such as blue jeans even though functional as work clothes are not deductible since they are not part of a uniform and are appropriate for every day wear.
- Business Meals & Entertainment with Clients: This one is the most-abused and most misunderstood. Business meals or an entertainment event are tax-deductible if – (i) you are meeting with a client or potential client and (ii) business is discussed before, during or after the meal or entertainment event. More over only 50% of the expense is allowable as a deduction.
- Cell Phone Expense: This one seems to be a definite tax write-off to many small business owners. How can it not be, right? Well, the IRS considers cell phones to be both business and personal use. Only the business part of the expense can be written off, so you have to calculate the percentage of business calls and deduct only that cost. There is also an alternative view – if a cell phone is an absolute necessity to your business – then having the phone could be considered an ordinary and necessary business expense for your business – and the deminimus personal use considered an inconsequential working fringe.
- Business Vehicle Use: Many small business owners use their personal vehicle for meeting clients, traveling to job sites and attending company meetings. A vehicle can be used for thousands of miles in a fiscal year. However, only the business mileage can be deducted. If you have your office outside of your home, commuting to work is considered personal mileage and not deductible. It is a good idea to keep a mileage log for every business trip so you can be accurate in your business expense records. (There are several apps that can be used for just such record keeping.)
- Charitable Organizations: Unfortunately, not all non-profits are equal. That is, they have not been designated by the IRS as a “tax-exempt organization”. (We covered how an organization can become tax-exempt in a previous blog.) There are some social and civic charities which are not 501 c (3), for whatever reason, so any donation to them is only out of your generosity and cannot be counted as a tax write-off. Be sure to check that the organization is tax-exempt before donating to them. Most national charities are known by their brands and are tax-exempt (i.e. The Salvation Army, March of Dimes, etc.) but you can find out on their website or by checking at charitycheck101.org.
There are even more supposed “tax write-offs” we can cover in another blog. Just be sure to call a licensed tax professional or do your own research before assuming your small business expense is going to save you money on your next year’s tax returns. You may be making a serious and expensive mistake.
For more information and experienced business and personal tax advice, contact our professionals at A. K. Burton, PC, at (301) 365-1974 for more information or email us at firstname.lastname@example.org.
We are almost halfway into 2017. Your small business is doing well and may even be doing better than you had expected. Customers are buying your products, you’re making payroll, you’ve purchased new equipment and you may even be hiring a new employee soon. Business is looking good.
Then, comes the letter in the mail from the IRS.
You owe on your business income taxes! And, it is much more than you thought. You cannot even pay for it right now, even if you put the new equipment and employee on hold.
Now, what do you do?
Don’t panic. It is not the end of your business. There are procedures you can take to resolve it.
Here are Five Steps to Take When You Can’t Pay Your Small Business Taxes:
- Contact the IRS Immediately: Once you get that letter, don’t file it away or stick it in your laptop bag pocket. You may forget it or put it off. The IRS matter never goes away by itself, it just continues to intensify. Even though you can’t pay it now, call the number on the letter and let the IRS know you cannot pay it all by the deadline date. Be honest and open with the IRS official. Document your conversation and create a file where you can put all the documents in, both hard file and computer memory file.
- Pay Whatever You Can: You’ve heard the old saying “Just do what you can.” That works with the IRS, too. Send them a payment of whatever you can, even if it is small amount. That will cut what you do owe down and reduce any fees applicable to the amount you pay. It’s always better to pay something than nothing. The IRS also sees that as a “good faith effort” to pay what you owe,
- Pay in Installments: The IRS may allow you to set up an “Installation Agreement”. This is where you can pay in installments for a certain period of time. Interest and fees may apply but at least you can budget these payments and get it paid off. If you owe 50,000 or less the IRS has a lot of flexibility and will give you up to 36 months. This is a popular way to resolve it, especially for cash-strapped businesses.
- Negotiation in circumstances is Possible: Yes, you read that right. Just because the IRS sent this bill, doesn’t mean you will end up in “debtor’s prison” and life as you know it will end. You may be able to persuade the IRS official to agree to a lower tax debt amount. Believe it or not, the IRS wants this off their books, too. The formal name for this program is the Offer In Compromise. There are set procedures that you have to comply with and you basically have to be insolvent with your financial situation in shambles to qualify. Unfortunately, if you are looking at this option – your business is on the downslide, with the future not looking that bright. That being said you don’t want to be here. The next step down from here is…
- Last Resort: Bankruptcy: Your business is dissolving and you can’t pay the outstanding tax burden. Filing for bankruptcy may be the smartest way to resolve it. This is only for businesses that are closing anyway. Consult a good bankruptcy attorney before taking this action.
The letter from the IRS is no the death knell to your small business. It can cause stress, however, so please don’t panic. You and the IRS want to do the same thing: get it paid off and move on. It can be done! Just take the right steps and keep doing what you and your business do best!
If you need tax advice, both personal and business, please contact our experienced tax and business advisory team at A. K. Burton, PC, for all your personal and business tax and accounting needs. Visit our website at www.cpa-maryland.com or call us at (301) 365-1974 for more information.