Tag Archives: small business tax returns

Financial Advisor: Small Business Tax Planning for Fall 2019

Fall is only weeks away. Summer is basically done

So, what does that mean for you, the small business owner? Well, you can begin making moves that will positively affect your 2019 IRS tax bill. The IRS has made many changes recently that many small business owners may not be aware of or use.  

Here are some ways you can start your small business tax planning that most financial advisors would endorse as we move into the fall season:

  1. Start your 401 (k) now: In 2019, small business owners can deduct up to $51,000 with matching. In other words, you can use $18,000 as a deferral before matching and $5,500 for employees 50 years and older. (Check with your payroll officer or business accountant before taking this measure.)
  2. Buy a business vehicle: Small businesses can purchase a truck or any vehicle weighing 6,000 pounds or more. This year, businesses can deduct up to $25,000 depending on the business use percentage and cost of the vehicle. 
  3. Convert your IRA to a Roth IRA: Your traditional IRA is not giving you all the benefits. Instead, convert your IRA to Roth. You will pay taxes at a lower rate and avoid paying takes on future withdrawals. Check with your accountant or financial advisor before changing over. You must do it by December 31, 2019. 
  4. Add your children and spouse to the payroll: A forgotten-sometimes abused-way of saving money is by bringing your spouse and children onto the payroll for doing real work for the business. Pay them through a sole-proprietorship or single-member LLC. If children are under 18 years old, the business is not required to withhold FICA or payroll taxes. Additionally, the child can use a standard deduction of $6,300 against any income you pay, as its earned income and so no income taxes! However, if it’s an S-/C-corporation, the IRS requires that you withhold FICA from all employees on the payroll. (Again, check with your small business accountant for details and guidelines.) Office cleaning, filing, shredding, driving to errands, etc., are jobs both children and spouse can do for you. 
  5. Set your payroll amount: By December 31, all S-Corporation owners or newly elected LLC S-Corps must complete their payroll. The fourth quarter is coming and it may draw an IRS audit but you may want to lower it or increase it based on the net business income. 
  6. Close on the rental property: Your rental property may be costing you write-offs now as laws have changed. Check with your accountant to see if the real estate professional classification has changed. 
  7. Make your LLC an S-election: Done in December, if you’ve paid a high amount of self-employment tax and had an LLC, you can elect to be taxed as an S-corporation, retroactively, to January 1, 2019. The application is easy and does not cost a lot. Be sure to do the payroll and take some payroll for yourself. 

There are a number of other tax strategy steps you can take. Please consult an experienced small business tax accountant before you do. 

A.K. Burton, PC, has experienced small business financial advisors who can assist you and represent you before the IRS and even do your payroll. Call us at (301) 365-1974 or email info@cpa-maryland.com. A.K. Burton, PC serves the Bethesda, Rockville, and Montgomery County areas.

Small Business Accounting Advice: Avoid Red Flags That May Lead to an Audit (Continued for 2019)

It’s not a pleasant topic. Business owners hate them. Accountants despise them.

We are speaking of small business accounting audits, of course. We blogged about this topic in 2016. It can be one of the most agonizing experiences of your life. Certainly, and we are being candid here, it is not enjoyable or without its stresses.

The good news is this: According to the IRS, just over 1 million individual income tax returns were audited in 2016. That is only a 0.7% tax audit rate which is the lowest in more than ten years.

There are three types of IRS audits:

  1. Correspondence (letter): information requested through the mail
  2. Office audit: visit the IRS office for the audit
  3. Field: IRS agent comes to your business to perform the audit.

So, no matter how you are audited, the likelihood of you or your company being audited are pretty slim.

However, if your tax returns have some “questionable” records, you may see the IRS auditor looking at you through the peephole early on a Saturday morning. Here are some red flags to avoid so you won’t be audited:

  1. File late consistently: If there is any tax filing behavior that will get you in trouble, it’s filing late, year after year. The IRS begins to wonder why it takes you so long to file even though you know it is due in April every year. Be smart: start working on your tax documents and records in January. File them by April 15 or, better yet, before that date.
  2. A large number of deductions: Tax deductions allowed by law are fine. However, a large number of deductions for a small business may draw some suspicion. Instead, be consistent on your deductions. Do the same ones each year, if appropriate, for your returns. The IRS has a rule for deductions: They must be ordinary and necessary in your type of business.
  3. Excessive business vehicle use: Claiming 100% business use of a vehicle will bring the magnifying glass from the IRS. Instead, use the IRS standard mileage rate. Don’t deduct both the business use and mileage. Don’t claim 100% business use unless you can prove that by showing every single business trip you made.
  4. Failing to report taxable income: HUGE MISTAKE. Small business owners are required to report all of their income. Don’t ever hold back on income reporting.
  5. Schedule C Filings: A schedule C Form 1040 allows sole proprietors to take deductions. You can deduct items like monthly cell phone bills, home office space, website subscriptions, and other items. It may get you audited if your items are questionable.
  6. Donations in large sums for charity: We all appreciate businesses which donate to charities. It is a noble practice. However, a large sum that is given to non-profits might appear suspicious to the IRS. A common practice of some businesses is to give lots of money to charity to avoid paying taxes on it.
  7. Unusually high salaries for employees: Be careful that you pay reasonable salaries. High-income earners who are also shareholders may bring questions from the IRS.

No one wants to be audited. The IRS probably doesn’t like to do it either, as they are costly and require extra labor. It’s not a positive experience for anyone involved. So, avoid these filing red flags and do your best to file your taxes. It will decrease stress and costs, for sure.

If you need small business accounting help and guidance, contact our experienced tax advisor team at A.K. Burton, PC. We provide the services that you need. We can advise you, talk to the IRS for you, handle your IRS tax correspondence, and help you file your taxes accurately and efficiently. Taxes can be overwhelming, let us make it manageable. We serve the Bethesda, Maryland and Washington, D.C. area. Call for an appointment at (301) 365-1974 or email us at info@cpamaryland.com.  

Tax Write-offs that Require More Scrutiny

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.

Kramer and Seinfeld

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.)
  5. 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 a professional tax advisor at A. K. Burton, PC, at (301) 365-1974 for more information or email us at info@cpa-maryland.com.

What to Do If You Can’t Pay Your Taxes

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.Can't pay taxes ak burton

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:

  1. 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.
  2. 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,
  3. 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.
  4. 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…
  5. 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 not 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 small business tax preparation and accounting needs. Visit our website at www.cpa-maryland.com or call us at (301) 365-1974 for more information.