Tag Archives: tax preparation

How to Beat a Small Business Tax Audit

The Internal Revenue Service IRS) has ratcheted up its small business audits this year. *** These audits include the mom-and-pop retail stores, tech startups, and investment funds such as cryptocurrency.

The infrequent checks from the IRS for small businesses are over for now. So, you as a small business owner, need to be ready when the tax-man cometh. Here are several tips on how you can beat the small business tax audit:

  1. Keep good records: The main question we accountants get is, “How far back do they go to do the audit?” Typically, you will need to keep copies of filed returns and documents for at least three years from the filing date or the return’s due date, whichever is later. This is the period of time that the IRS has to audit most returns. This process can go out as long as six years if the income was misreported by 25 percent or more. (There is no statute of limitations on fraudulent tax returns.)
  2. Make a case for unsubstantiated income: The IRS has an aggregate or algorithm of the typical income/expense ratio for any type of business. If they see a higher-than-average expense list, extremely low income, or a major loss, it may trigger an audit. If you have truthful and legitimate reasons for that data, such as insurance claims that show losses after a natural disaster (such as the floods in the Southern US) or advertising promoting more services, you may be able to survive the audit. You must have detailed records of it. This would include travel expenses, receipts, calendars, and mileage logs. 
  3. Investigate your records for possible audit red flags. You must do your due diligence to protect yourself from an audit. It’s actually pretty simple to do. Review your income records. Did you write the correct amount? (No transposed numbers.) The IRS cross-references your wages with other tax records. Also, be sure you have reported all of your income. Lastly, double-check your business deductions, particularly meal and entertainment expenses, a major bugaboo with the IRS. 
  4. Don’t lose your head. An IRS Audit does not mean you are going to prison, your home will be seized and your business(es) closed.  Actually, field audits are rare. If an IRS agent visits your location, then it would have to be an audit substantial enough to pay for the audit. In fact, most IRS audits are done online or with mail correspondence. The IRS, once it reviews the documents that you have sent, may only recalculate the return and bill you for the corrected amount. So, you can be calm about it and no need to look for agents in dark suits hopping out of SUVs with briefcases, showing you their IDs, and bargaining into your home. It makes for interesting television, but it is quite rare in real life.
  5. Bring in a professional accountant. Your tax records may be much more complicated than just transposed digits. When that is the case, you should consult with a professional, licensed, accountant. They can review and check all your numbers and documents to see if there are any discrepancies. Additionally, they can represent you to the IRS and make sure you are not unfairly or inaccurately audited. 

Audit. It is not a pleasant process but there is no need to hyperventilate and lock yourself in your basement. But, before tax season begins on January 1, 2022, do the necessary tasks to best protect yourself from a letter from the IRS requesting a small business tax audit. It can be done and you can survive it. Millions do every year. 

A.K. Burton, PC, can do all your income tax preparation. We have experienced staff who can prepare and file your tax return and represent you before the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. We serve the Bethesda, Rockville, and Montgomery County, MD area.  

*** For more information on IRS Tax Audits see this website

2021 Child Tax Credit and Advanced Child Tax Credits

As the season’s change, so do the tax laws. Congress and the Internal Revenue Service make adjustments yearly though they usually give taxpayers a year to get ready for the changes. Most of them are minor, however, there are a few laws, especially following the COVID-19 crisis, that affect millions of Americans.  

The pandemic spurred lawmakers to sign into law the American Rescue Plan. It includes an important change to the Child Tax Credit (CTC)***, which will become effective July 15, 2021. The changes to the CTC include:

  • amount increased for many taxpayers
  • fully refundable
  • includes children who turn 17 in 2021
  • monthly advance payments of half the estimated annual CTC from July through December

Here are some details about the CTC:

  1.  Your child must be under eighteen (18) years of age
  1.  For tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to:
    1. $3,600 for children ages 5 and under at the end of 2021; and
    2. $3,000 for children ages 6 through 17 at the end of 2021. 
  2. Depending on your tax bracket and filing status, you may be phased out from receiving the refundable credit:
    1. A single filer with children under 17 making up to $75,000 will receive the full payment for each child, while those earning up to $90,000 will get a reduced amount. 
    2. Joint filers with children who make up to $150,000 will get the full credit, while those earning up to $170,000 will receive a smaller amount.
  1. Unlike the economic impact payments which did not need to be paid back if they were issued in error, the CTC must be paid back if issued to an ineligible recipient. To unenroll in the advance CTC payments go to: www.irs.gov/childtaxcredit2021 .

If you have any questions about child tax credits, consult your income tax advisor or accountant. A.K. Burton, PC, can do all your income tax preparation. We have experienced staff who can prepare and file your federal and state tax return and represent you before the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. At this time we are not providing in-person services because of the pandemic. We serve the Bethesda, Rockville, and Montgomery County, MD area.

***Find out more about the Child Care Tax Credit from the IRS website.  

Business Tax Preparation Tips: Why You Should Do Estimated Tax Payments Now!

By the time you read this, Tax Day 2021 is over. Millions of Americans have filed their tax returns to the Internal Revenue Service and to the state or to the District where they live. 

For many people, Tax Day meant they wrote large checks or filed extensions so they could pay off the 2020 tax bill. It was a very difficult and stressful day for millions of filers. 

You can save yourself a lot of pain, stress and fees by doing one thing differently: Make estimated tax payments as soon as possible! 

Estimated Tax Payments *** are for those whose federal and/or state withholding is under withheld during the year. Estimated tax payments are used to fill in the gap in withholding and proactively pay your predicted tax liability for the current year as you earn the money. Paying quarterly estimated payments is a strategy to avoid having to pay a huge bill on tax day along with penalty and interest that may be charged by the IRS or the state. Payments are made incrementally, on the following quarterly tax dates:

Payment Period                         Due Date 

January 1 to March 31 April 15
 April 1 to May 31  June 15
 June 1 to Aug. 31  Sept. 15
September 1 to December 31  Jan. 15 of the following year
2021 Estimated Tax Payments Schedule

Traditionally estimated payments are made quarterly. Had a big tax bill this year and want to avoid it next year with similar earnings predicted for this year? Have your accountant or bookkeeper calculate estimated payments. At A.K. Burton PC, we calculate estimated payments for our clients regularly. Has your income changed significantly this year? Contact your accountant and have them recalculate your estimates.

How do you pay your estimated payments? Methods of payment include scheduling an online payment or by check. If you’re interested in paying your estimated payments online: find the correct links by going to your state’s department of taxation’s website or to the IRS website and have them withdraw the funds.  Don’t have the full amount to send in that your accountant recommended? Send in the amount you can. 

A.K. Burton, PC, can do all your income tax preparation. We have experienced staff who can prepare and file your tax return and represent you before the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. At this time we are not providing in-person services because of the pandemic. We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** You can find out more about Estimated Tax Payments at the IRS website.   

Income Tax Preparation: How You Can Get Your Tax Refund ASAP

The good news is that the IRS gave us an extra month to file our tax returns for 2020. It is May 17, 2021, and not April 15, 2021. ***

The bad news is that it may take a while to receive your tax refund.

It is frustrating, especially if you need the refund to catch up on bills you may have accumulated during the COVID crisis. Here are several ways you can get your tax refund quicker:

  1. E-File: Submit your tax returns electronically versus mailing your tax return in.
  2. Confirm that you have all your income documents before you file. You should have all of your 2020 income documents by now, but if you don’t, get them before you file. If you don’t have them and file your return, then you might have to amend your return(s). 
  3. Double-check your mailing address. This one is crucial! The IRS contacts you by mail for required updates on your tax return. Make sure your mailing address is correct so that you will receive all correspondence, (including a refund check), from the IRS. 
  4. Double-check your bank information on your return. If you choose direct deposit to speed up receiving your refund but fail to provide the correct bank account information, then you won’t receive your refund by direct deposit. 
  5. Check all your ID numbers. IRS has every citizen’s name and address on file. Each name has a unique ID number that is tied to the name, birthdate, income amount, and social security number. 
  6. Confirm that you are the only one claiming your dependent(s). If you know someone who could also claim your dependent on their tax return, then verify who will be claiming the dependent(s). If a dependent is claimed by more than one person, then the second tax return to claim them will be rejected by the IRS. 

Have a Certified Public Accountant file your tax returns for you. Tax laws are notoriously complicated and change year to year. So, save yourself the stress and fees by hiring a CPA to file your taxes for you. They can file them and represent you before the IRS. What’s not to like?!

As of this blog posting, there are still a few weeks left before the May 17, 2021 posting. Have you done all of the above?

A.K. Burton, PC, can do all your income tax preparation. We have experienced staff who can prepare and file your tax return and represent you before the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. At this time we are not providing in-person services because of the pandemic. We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** See the IRS website for updates on the new tax return due date for 2021.

Tax Season 2021: Get Your Tax Returns Done on Time!

The good news is that Congress moved the date your tax returns are due to May 17, 2021! ***

The bad news is that you are still sorting out your tax return documents and haven’t filed yet or even sent the documents to your accountant! 

2020 was a year. You may be wondering, are there any special documents and information that I need to provide to my accountant to prepare my taxes? Here are a few reminders of documents and information you need to gather for your accountant:

  1. Home office deduction: Did you change jobs during the pandemic? Are you now a self-employed or an independent contractor working from home? If so, while gathering your tax preparation documents, include your expenses for your business use of home as well as any improvements made to your home.
  2. Estimated Payments:. If your income did not include federal and state withholding, you may have scheduled monthly or quarterly estimated tax payments. When submitting documents to your accountant, make sure to include the jurisdiction, amount, and date the estimated payment was made.
  3. Interest Income: 2019 tax filers who had a refund on their tax returns may have also received interest income from the IRS. (Due to delaying Tax Day from April 15 to July 15 due to the COVID-19 pandemic.) Interest payments are taxable and interest must be reported on the 2020 federal income tax return. (Minimum $10.)
  4. Charitable donation deduction:. The CARES Act allows taxpayers who file using the standard deduction to claim a limited deduction for cash contributions to qualifying organizations. The deduction cannot exceed $300. (Donated property cannot be deducted.)
  5. Economic impact payment(s): Include the amount of economic impact payment (EIP) provided by the COVID-related tax relief act of 2020 in your tax preparation documents. 
  6. Paycheck Protection Program loans (PPPL): Make sure to let your accountant know if you received a first and if applicable second round PPPL.

2020 was an extraordinary, and confusing, year for American taxpayers. We recommend that individuals and business owners consult an accountant for their tax preparation so they get all they deserve for the year most of us want to forget.

A.K. Burton, PC, can do all your individual and business tax preparation. We have experienced accountants who can prepare and file your tax return and represent you before the IRS.   Call us at (301) 365-1974 for a consultation. Our office is open. At this time we are not providing in-person services because of the pandemic. We serve the Bethesda, Rockville, and Montgomery County, MD area.    

*** See the IRS website for updates on the new tax return due date for 2021.

Small Business Tax Preparation: The Five Biggest Mistakes People Make

We have finally reached the fourth quarter of 2020.

2020 has been a year like no other, especially for small businesses. Tax deadline changes, COVID restrictions, added tax laws…it’s hard to keep up with it all.

AK Burton, PC specializes in helping our small business clients keep up with their taxes. Is October the time to think about taxes? Yes. Now is the time to get in touch with your CPA if you have had an abnormal business year and plan how to close out 2020.

As you and your accountant begin the tax taking a look at your small business taxes, keep in mind these five biggest mistakes people make in small business tax preparation:

  1. Misclassifying employees and independent contractors: Misidentifying a person as a contractor and not as an employee will lead to penalties and interest for non-payment of the employer share of employment taxes. The business must give every employee a W-2, and every contractor that was paid more than $600 gets a Form 1099-Misc.  
  1. Failure to pay “reasonable wages” to shareholders of an S-Corporation: The IRS states that for the 1120S income tax return that “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” The shareholder plays an active, day-to-day role in the business, so, they are an employee and have to be paid a market-based salary for that position.
  1. Missing valid deductions or overstating business expenses: If your business expenses exceed its income, you may get the unwanted attention of the IRS. All of your business expenses need to be considered. IRS rules are quite strict on home office expenses as whatever is used for business should not be used for any other purposes than business. The IRS is “generous” when it comes to some Schedule C expenses. Be sure to use the depreciation schedule that the IRS has for deducting business equipment, business vehicles, and buildings. ***
  1. Improperly mixing business and personal expenses: This is one of the most common business tax filing mistakes of all. Many business clients co-mingle their personal and business banking accounts. “Co-mingling” your personal and business checking accounts makes it hard to distinguish which expenses are tax-deductible. Please keep personal income and expenses out of business bank accounts.
  1. Failure to plan: Tax laws can be complex. Most business owners are too busy running their company to understand all of the tax law nuances. A CPA or tax attorney is experienced in these matters and can help the business properly manage their accounting and business processes. Tax advice can help businesses take advantage of their resources and avoid unwanted consequences that may unknowingly occur due to the complexity of the tax laws. If you are about to incur an unusual financial transaction such as a large asset purchase or sale that is not an ordinary part of your business activity, contact your CPA to discuss the tax implications of the transaction. There may be unforeseen and unexpected tax consequences.  

At A.K. Burton, PC, our specialty is assisting small business clients with their taxes. We are familiar with the tax laws and can advise our clients on being proactive in their tax planning for now and the future. Call us at (301) 365-1974 for a consultation. Our office is open! We serve Bethesda, Rockville, and Montgomery County. MD area.

*** You can find the IRS Depreciation Form 4562 here.

Tax Preparation Alert: Individual Taxes Are Due July 15, 2020

As you read this blog, the day is getting closer. Which day?

That day is July 15, 2020, and it is the extended filing deadline for all individual tax returns this year.

The federal government changed it to July 15 because, of course, the Coronavirus pandemic put millions out of work and set back deadlines. Now, States are reopening, and as people are returning to their job (if it is still available); it’s important not to forget this tax return filing date.

The later filing date has been a relief to many people who were laid off when the pandemic closings began. Millions were thrown out of work and have been unemployed or finding work where they can. This spring will be one for the books as it has stressed us all. Your individual Federal tax return is due July 15th. Check with your tax preparer for when your state tax return is due. Here, at A.K. Burton, PC we have been monitoring the everchanging Federal & State guidance striving to give our clients the best service possible during a period of such unprecedented legislative turbulence.  

While the three-month extension to file Federal individual taxes has given taxpayers 3 extra months to pay any tax due on the deadline, it has also given people a chance to procrastinate. Before we know it, July 15 will arrive and many taxpayers will not be ready. Let’s fix that. First, you need to send all of your tax documents to your tax preparer.

Don’t remember what documents to provide your tax preparer? Here are some tips on what to bring them:

1.    Wages and salary income (W2)

2.    State tax refunds and unemployment compensation  (1099-G)

3.    Dividend & Interest statements

4.    Stocks, bonds and other investments

5.    Rental income & Expenses

6.    Forms K-1 from Partnerships and S Corp

7. Forms 1099 (MISC) 

8. Schedule C- Business Income & expenses

9. Forms 1099-R for Pensions & IRAs

10.Property tax bills

11. Medical Expenses

12. Mortgage interest (form 1098)

13. Charitable donations

14. Moving expenses

15. Child care expenses

16. Tuition Paid (Form 1098-T)

17. Student Loan Interest Paid (Form 1098-E)   

Organize these documents. That will help your accountant or tax preparer get your tax returns completed more efficiently. Then, upload the documents to a secure link your tax preparer sent you or bring them to your accountants’ office ASAP as time is running out.

Late filings beyond July 15, 2020, may incur interest and penalties, so you may have to file an extension. Any tax you owe is due by the filing deadline. This is done by filing Form 4868. If you don’t have all your tax documents gathered, give your tax preparer all the documents you have and ask for an extension to be filed.

The main thing to remember if you have not filed your 2019 income tax returns is: See your tax preparer now! You don’t want to get any late fees or correspondence letters from the IRS.

A.K. Burton, PC, is open for business and we can prepare and file your taxes for you and your business. We are working extended hours to prepare our client’s returns.  Call us at (301) 365-1974 for a phone consultation. We serve the Bethesda, Rockville, and Montgomery County. MD area.        

*** For more information on the forms and other IRS documents, click here.  

March 16 is Coming: Taxes for S Corps and Partnerships

By the time you read this blog, Monday, March 16, 2020, will be even closer! No, this is isn’t “Mr. Obvious” talking here. It’s your business tax advisor sending you a notice to get on it to avoid IRS fees and penalties. 

Why is this date so important? If you own an S Corp or a Partnership, your taxes are due at that time. (Normally it is March 15 but that is a Sunday so it was moved to Monday.)  

Here are the business tax returns and their due dates: 

  1. S corporation returns must be filed on Form 1120S with Schedule K-1 for each member: March 16, 2020. 
  2. Partnership returns file a partnership tax return on Form 1065 with Schedule K-1 for each partner: March 16, 2020.
  3. Multiple-member LLC returns filing as partnerships file on Form 1065 for the partnership and give Schedule K-1 to each member: March 16, 2020.

So, be proactive and take action now. Here are six things you need to send to your tax advisor so they can file it on time for you:

  1. Year-end bank/credit card statements: Compile all of your bank and credit card statements. These should show all of your purchases and monthly statements.  
  2. Payroll tax reports: IRS Form 941 is used to report the federal income tax, Medicare and Social Security amounts you withheld from your employees’ paychecks. Also, report your portion of Medicare and Social Security on this form. Employers are responsible for making federal unemployment tax contributions. You will pay taxes on the first $7,000 earned by each employee. Employees are not allowed to contribute to your unemployment tax liability, so you cannot deduct the tax from their wages. It is filed on Form 940. 
  3. QuickBooks (or other copy of your books) copy if you have one: A copy of all your business bookkeeping. If it is Quickbooks, you send a copy of the bookkeeping records to your small business accountant.  
  4. Last year’s business return (new preparer only): If you have a new accountant, you need to include a copy of last year’s tax return. This will save, and your bookkeeper, a lot of time. You may be spared phone calls and emails from them as they can use it as a template for this year’s return.  
  5. Vehicle mileage (total & business): Submit all of your vehicle business mileage. Include business mileage and total mileage. (You may want to use an app to record all of your business mileage.)***   
  6. Details on large business purchases: Did you purchase a vehicle for your business? (truck, car, motorcycle, etc.) You may have purchased smartphones, copiers, printers, computers, cameras, etc. Any large business purchases need to be reported.   

You have enough time to get these records to your tax advisor for them to complete the forms and file them with the IRS. Please don’t delay. It will save you time, money and a phone call from the IRS, which nobody wants. 

A.K. Burton, PC, has experienced tax advisors who can advise, complete and file all of your business tax returns by March 16. Call us at (301) 365-1974 for a consultation. We serve the Bethesda, Rockville and Montgomery County. MD area.

***A list of business mileage apps can be found here

Tax Preparation Time: Getting Ready to File Your 2019 Tax Returns

We are only a few weeks into 2020. You haven’t even had time to pack away the Christmas tree, yet. 

January seems too early to be thinking about anything other than just trying to get into the routine of work again. 

However, now is the time to get ready to file your 2019 tax returns. As those tax documents start showing up, pop them into your 2019 tax return file to send to your preparer. You haven’t seen anything yet, and still thinking it’s too soon? Well, the IRS has announced that they are going to open filing for individual 2019 tax returns on January 27, 2020!***  

Here are some ways you can prepare to file your 2019 tax returns now:

  1. Electric Organizers: Instead of filling out your organizer by hand, your tax preparer has probably sent you an electronic organizer. Do your best to fill it in. The organizer will give you a good idea of what documents you need to send to your tax preparer. Still not sure what to do? Use the notes space in the organizer to alert your tax preparer to any questions or concerns you have. If there’s not enough space, send a quick email or call your preparer to get your questions answered. 
  2. EDocuments: Remember the old days of bringing all your tax documents to your accountant in a thick Manila folder? Those went out with floppy discs and ripped-knee jeans. Now, you can scan all your documents then upload them using a secure link that your accountant has sent you. Make sure to keep a copy of your scanned documents for your file. It will save you time and make filing easier. Not sure which documents to send? Send your W2,1099, and 1098 forms to start. 
  3. Remember to send form 1095 – showing 2019 health insurance coverage: This tax form declares the type of health insurance coverage that you have, the period covered and the number of dependents that are covered. (If it is a health plan paid by your employer, it would have the company name and name of the employee.)
  4. Mileage expenses: If you used your vehicle for business and have recorded the miles used for work, submit the total mileage and your business mileage for the year. 
  5. Business use of the home: If you have a home office, with square footage exclusively used for your business, disclose the total amount of square feet in your home and the square footage of your home office. Be sure to disclose to your preparer expenses used to run your home such as utilities, insurance, security, and/or repairs and maintenance items. 
  6. Charitable contributions: Include an itemized schedule of all your donations to deductible charitable organizations. Any donation of $250+ must have a receipt from the receiving charity to be deductible. 
  7. Your 2018 Tax Return: If this is the first time you have worked with this tax preparer, bring or electronically send last year’s tax return. Your tax preparer will use it when completing this year’s tax return. 

Now is the time to prepare for your 2019 taxes. As you receive your tax documents, put them aside. Fill in your electronic organizer. When you’re ready, send your completed organizer and scanned documents to your tax preparer. Please remember to keep copies of your 2019 documents for your records.

A.K. Burton, PC, has experienced tax preparers who prepare and file personal and business tax returns. Our friendly and efficient tax preparation staff can file your taxes and represent you to the IRS, District or state. Call (301) 365-1974 for an appointment. ***See the IRS 2019 Tax Filing information here.