Tag Archives: business tax preparation

Small Business Tax Preparation: Now is the time to do your year-end Tax Planning


There are less than two months left in 2022. If you are a small business owner, it’s more than likely, you are looking forward to 2023. With the holiday season in full swing, it’s easy to want to wind down, but now may be the best time to plan for taxes in the new year. There are many ways to optimize your taxes, but one of the most impactful things you can do is to consider changing your business’s legal structure.

There are 5 main types of tax entities in the United States:

  1. Sole proprietorship
  2. Partnership
  3. Limited Liability Company
  4. C Corporation
  5. S Corporation

Depending on the stage your business is in, one structure may make more sense than the other.

The IRS defines a sole proprietor as someone who owns an unincorporated business by himself or herself.

A partnership is when two or more people engage in a trade or business where each contributes money, property, labor, or skill and shares in profits and losses.

A Limited Liability Corporation or LLC is a slightly more complex structure than a proprietorship and partnership. It protects members’ personal assets from the organization’s debts and liabilities.

A C Corporation has shareholders exchange money or property for ownership of the organization.

Lastly, an S corporation elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Each structure has its advantages and disadvantages. So, it’s important to consider the following when deciding to change your business structure:

If you are a sole proprietorship

    1. Benefits include:
      1. Pass-through entity status (passing income straight to the owners)
      2. Fewer reporting requirements
      3. No corporate business taxes
    2. Disadvantages include:
      1. Lack of protection for personal assets separate from business
      2. No perpetual existence (Owners, for legal and tax purposes, are directly linked to their business)

If you are a partnership

    1. Benefits include:
      1. Pass-through entity status
      2. No corporate business taxes
    2. Disadvantages are:
      1. Lack of protection for personal assets separate from the business
      2. No perpetual existence

If you are a Limited Liability Corporation

    1. Benefits include:
      1. Protection for personal assets separate from the business
      2. No corporate business taxes
      3. Flexibility to be taxed like a corporation, partnership, or sole proprietorship
    2. Disadvantages are:
      1. No perpetual existence
      2. Subject to state laws 

If you are a C Corporation:

    1. Benefits include:
      1. Protection for personal assets separate from the business
      2. Perpetual existence
    2. Disadvantages are:
      1. Double taxation (Taxes are paid for corporate income and an owner’s income)
      2. More reporting requirements

If you are an S Corporation

    1. Benefits include:
      1. Protection for personal assets separate from the business
      2. Pass-through entity status
      3. Perpetual existence
      4. No corporate business taxes
    2. Disadvantages are:
      1. Not available in all states
      2. Strict standards to qualify

Depending on your situation, it’s worth considering changing your business structure to maximize tax benefits.

While there are many other areas to ponder when doing year-end tax planning including estimating your net income, analyzing possible deductions for this and next year, and many more, determining whether to keep or change your business structure can make a significant difference.

Before making this decision, it’s best to consult an accountant for proper guidance.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you get the ball rolling with yearend tax planning for your small business. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

Sources:

  1. https://www.forbes.com/sites/davidrae/2022/11/03/7-smart-year-end-tax-planning-moves-for-small-business-owners/?sh=6b5bc47d47f3
  2. https://www.irs.gov/businesses/small-businesses-self-employed/business-structures
  3. https://www.netsuite.com/portal/resource/articles/business-strategy/business-structure.shtml 

Tax Preparation: Estimated tax payments due and 990 extended deadlines

Being tax-exempt doesn’t mean your organization is exempt from filing an annual tax return. 

For most tax-exempt organizations, the deadline to file Form 990 would’ve been May 15. If you’ve filed an extension, you’re extended filing date may be fast approaching next month.

Not sure where to start? 

Step 1 – Collect all your information 

While each organization is different and may require different things, it’s best to have the following information on hand

  • IRS tax-exempt status and type
  • EIN
  • Estimated tax payments made (amounts and dates)
  • Organization’s mission and why it is exempt
  • List of program accomplishments
  • Information for each officer current and former (name, address, title, compensation, benefits, hours worked per week, etc.)
  • Financial Records (unrelated business income, revenue, balance sheets, fundraising reports, supporting organizations, records of contributions, records of grants, audited financial statements, 1099s, W2s, and more)
  • Assets (depreciation schedules, asset purchase dates, cost, proceeds, mileage on business vehicles, and more)

Step 2 – Select and fill out the right form

There are multiple versions of Form 990 and what form you choose largely depends on factors such as your organization’s gross income and assets.

Here are different 990 variations that you may need to file:

  1. Form 990-N
  2. Form 990-EZ
  3. Form 990
  4. Form 990-PF
  5. Form 990-T

If you have a tax-exempt organization and haven’t filed yet, it’s best to file now.

Still, lost? A.K. Burton, PC is here to assist in all your tax preparation needs. Please contact our office with your tax documentation organized and we can help you file your tax return based on your organization’s needs. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

Sources:

https://www.nonprofitexpert.com/nonprofit-questions-answers/unrelated-business-income-tax-return/ 

https://www.taxact.com/tax-information/tax-planning-and-checklists/990

https://www.expresstaxexempt.com/form-990-due-date/#:~:text=If%20your%20organization%27s%20accounting%20tax,deadline%20is%20October%2017%2C%202022.

Extended business tax deadline 1065, 1120S: What information do you send your tax preparer?

If you are reading this, chances are you are a business owner, who filed an extension, getting ready to file, but you need guidance on what to do next.

Also, you may be worried because the extension deadline is approaching, and want to be prepared.

You’ve come to the right place. 

With the extension deadline quickly approaching, it’s best to file our return as soon as possible.

The original deadline passed (March 15, 2022) for partnerships, S corporations, or LLCs taxed as partnerships. If you filed an automatic six-month extension, your deadline is September 15, 2022.

When you do meet with your tax preparer, here’s a list of items to get you started as to what you need to bring:

If you have it:

  • a copy of your books (for example accountant’s copy of QuickBooks)
  • applicable spreadsheets

Income documents including:

  • Receipts from sales and services (example: forms 1099-k, 1099)
  • Accounts receivable records
  • Business checking/savings accounts interest (forms 1099-INT)
  • Investment income documents (including form 1099-DIV)
  • Additional income (including rental income, tax credits, etc.)

Forms related to Costs of Goods Sold (if applicable)

Expenses documents include:

  • Advertising
  • Phones (landline, fax, or cell phones related to business)
  • Computer & internet expenses
  • Transportation and travel expenses (include taxi fares, tax, tips, food, gas, and all expenses incurred to facilitate any business trips)
  • Commission and fees
  • Labor expenses paid to subcontractors and independent contractors
  • Depreciation
    • Cost and first date of business use of assets
    • Any records for using assets for personal activities
    • Documentation of prior year depreciation
    • Sales price and disposition date of any assets sold
  • Intangible assets (copyrights, etc.)
  • Business insurances
  • Interest expense (can include mortgage, business loan, or any investment expense)
  • Professional fees (lawyers, accountants, consultants, tax preparers, etc.)
  • Office supplies expenses
  • Rent expenses (if applicable)
  • In-home Office expenses (if applicable)
  • Payroll including wages, benefits, and other employee expenses
  • Repairs, maintenance of office facility, etc.
  • Total mileage 
  • Business mileage
  • Estimated taxes paid
  • Other business-related expenses

Every business is different, so it’s best to contact a tax preparer to know if there are any items not listed you may need.

Of course, if you don’t file by the extended deadline, there is a Failure to File penalty. The basic penalty is 5% of the unpaid taxes for each month a filing is late. The maximum penalty is 25%. If the return is more than 60 days late, the minimum penalty is the lesser of $435 or 100% https://cpa-maryland.com/services/tax-preparation/of the tax required to be shown on the return.

Late filings can also be charged interest. Visit the IRS website to get an exact calculation https://www.irs.gov/payments/interest

Be prepared. File today.

AK Burton, PC serves small businesses with all of their tax needs. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. 

We serve the Bethesda, Rockville, and Montgomery County, MD area.

Sources:

https://www.irs.gov/payments/failure-to-file-penalty 

https://www.blockadvisors.com/tax-preparation-checklist/ 

https://www.irs.gov/payments/interest 

https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/important-tax-deadlines-dates/L7Rn92V1d 

The Expectations for the 2022 Tax Preparation Season


The holiday season has come and gone but “tax season” is always with us. This tax season may be as complicated as ever due to the pandemic and a flurry of new tax laws that came down from Congress. 

Your expectations for your personal and business tax preparation may have to be adjusted, particularly with working with the IRS (always a challenge) and the child and dependent tax credit. Here are some facts to keep in mind as you get your documents in order to file for 2021:

  1. The Internal Revenue Service (IRS): Delayed and behind 
  2. E-filing begins January 24, 2022: The IRS is already way behind in preparing for this tax season and is still working on 2019 and 2020 tax filings. These disruptions are blamed on the ongoing pandemic along with budget cuts, a shrinking workforce, and outdated technologies at the IRS.
  3. Delayed refund for returns claiming Additional Child Tax Credit (ACTC). The IRS cannot issue refunds before mid-February 2022 for returns that properly claim ACTC. This time frame applies to the entire refund, not just the portion associated with ACTC.
  4. The Child and Dependent Care Credit: 
    • Differences in credits for qualifying children and other dependents tax year 2021
    • Enhanced child tax credit. For 2021, the child tax credit applies to qualifying children who have not attained age 18 by the end of 2021. Also, the initial amount of the child tax credit is increased to $3,600 for each qualifying child who has not attained age 6 by the end of 2021 and $3,000 for each other qualifying child who has not attained age 18 by the end of 2021. The credit for other dependents has not been enhanced. 
    • In the know. Important abbreviations: ACTC means additional child tax credit.  ATIN means adoption taxpayer identification number.  ITIN means individual taxpayer identification number.  NCTC means nonrefundable child tax credit.  ODC means credit for other dependents.  RCTC means refundable child tax credit.
    • Delayed refund for returns claiming ACTC. The IRS cannot issue refunds before mid-February 2022 for returns that properly claim ACTC. This time frame applies to the entire refund, not just the portion associated with ACTC.
    • 2021 Child and dependent care credit information: The American Rescue Plan Act of 2021, was enacted on March 11, 2021, making the Child and Dependent Care credit substantially more generous and potentially refundable (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) only for the tax year 2021, This means an eligible taxpayer can receive this credit even if they owe no federal income tax. Your federal income tax may be reduced by claiming the Credit for Child and Dependent Care expenses on your tax return. ***

If you have been frustrated the past filing your individual and/or business in the past, this year will not be any different. We are constantly hearing from clients who are having difficulty contacting the IRS to get important information or a consultation on a previously filed tax return. 

AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS.  Call us at (301) 365-1974 for a consultation. Our office is open. Covid protocols if requested. We serve the Bethesda, Rockville, and Montgomery County, MD area. 

*** For more information on Child and Dependent Care Tax Credit, visit the IRS website.