7 Actions for End-of-Year Business Tax Savings

7 Actions for End-of-Year Business Tax Savings

With the end of the year approaching, small businesses should look at their current tax situation and possibly take action to minimize tax liability in this or next year. There is no need to send money to the government if you can make a few changes or change when you take income or pay expenses and reduce your tax liability. Here are seven things to consider in your end of year tax planning.

Tip #1: Give to Charity

If you have a tax liability, it is a great time to accomplish several good things. Save some on your taxes of course. Build good will in your market area with charitable contributions, especially going into the holiday season. Lastly, support worthy causes, especially those that help the less fortunate in your area.

Tip #2: Accelerate Expenses & Defer Income

This is a strategy for the business that wishes to reduce taxable income for the current year. When possible, pre-pay some expenses. Perhaps you can accelerate orders for materials or office supplies that you would be buying early in the next year anyway. If you have plans for a business trip or conference early next year, you may want to pay registration fees or other expenses early.

When it comes to income, perhaps you can defer some invoicing or billing of customers into the next year if it is not a problem for current cash flow. Especially for good repeat customers paying on terms, you may offer an end of year special deferral into next tax year of money owed. Another way to accomplish this is to delay the invoicing of good customers such that their normal payment terms would move payment into next year.

Tip #3: Accelerate Income & Defer Expenses

This is the flipside of tip number two. You are having a slower year, perhaps due to recent pandemic shutdowns or restrictions. You have low tax exposure, but things are beginning to improve. It looks like next year is going to be better.

Anticipating higher income next year, you may want to offer some early payment incentives to customers to accelerate their payments into this tax year. Moving that income into this year when your tax exposure is low will help with current cash flow while lowering taxable income next year.

Tip #4: Check Your Business Type and Tax Treatment

This is one that will require consulting with your tax professional. Notably, changing into or out of a pass-through business structure is one possibility. With special deductions, such as a possible deduction of 20% of qualified business income, changing to a pass-through business type may be a good decision.

On the other side of that, the Tax Cuts and Jobs Act cut the C Corporation tax rate to 21%. Owners in a pass-through structure may find that switching to a C Corporation, if possible, could save a lot in taxes as well as provide other benefits related to retained income.

Tip #5: Contribute to or Set Up a Retirement Plan

With the many options available for tax saving retirement plans, business owners often find that they have not contributed as much as they are allowed in the current year. Whether an IRA, 401(k), Roth, or other retirement account, the tax breaks can be quite generous, so ending the year short of your allowable maximum contribution could be a tax mistake. There may also be tax credits available, so consult your tax professional.

Tip #6: Take Advantage of Equipment Purchase Deductions

If you buy new or used equipment for your company and place it in service before the end of the year, you could be entitled to a federal tax deduction of up to $1.02 million. Businesses can also take a 100% depreciation deduction of the cost of qualifying new or used equipment. If you have been considering the purchase of new equipment, it may be a good decision to do it before the end of the year.

Tip#7: Create or Check Your Plan for Paying Taxes

The end of the year is a good time to consider those quarterly tax payments, look at how you plan to put away the money to make tax payments on time, and how you’ll work that into your cash flow planning.

Though just seven tips, these can result in some amazing tax savings and more cash you get to keep. Give them a run-through to see where you stand.



Sources:

https://www.ml.com/articles/5-end-of-year-tax-tips-for-small-business-owners.html

and my own experience.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

Running a Small Business as a Sole Operator

Running a Small Business as a Sole Operator

Freelancing, working as a sole proprietor, and often working from home are becoming more common every day. Post COVID-19, major corporations are beginning to look at moving more employees offsite permanently, while others are moving to more outsourcing.

Microsoft just announced that they are going to expand their work from home policies. They are going to allow employees to request permanent home-work situations and expect to approve many of them. They are also going to allow moving and operating remotely across the country. The company may even cover many or all the expenses involved in a home office environment. There are tremendous opportunities developing for business startups by the sole operator.

If you are a freelancer, consultant, or other professional who is the sole owner and operator of your business, have you analyzed where and how you spend your time? Perhaps you are considering spinning off into your own remote freelancing business. An analysis of what activities produce revenue while others, though necessary, are not revenue-producing. They are part of doing business but are clearly “expenses” of time and effort.

Income and Expense Record-Keeping

The reality is that the burdens of government and taxation on small business, and particularly the sole operator, can be quite demanding. Every receipt, invoice, piece of paper, check, credit card receipt, and other documents must be saved, organized, and retrievable for tax filings and possible audits. Just pulling them together for your tax professional is a major time-consuming hassle. Business activities that create expenses and generate income are usually daily activities, and you may be spending far more time and effort than necessary to get the job done.

The busy freelancer or sole business operator should spend whatever time necessary to determine how to automate these activities as much as possible while maintaining accuracy, legality, and reliability. Every minute spent in dealing with these activities is a minute not spent in generating revenue and dealing with customers.

The Growth and Customer Side of the Business

The income side of the business involves marketing, invoicing/billing, collections, payment processing, customer relations, and more. Every one of these activities involves records, receipts, planning notes, communications, and other activities.

An analysis of the time spent in creating, maintaining, and monitoring the information involved in building a revenue stream that funds your lifestyle and grows the business is critical. It is important activity for business health, but it should not take so much of your time that you are sacrificing revenue generating activity or customer relations.

A System for Information Processes for Efficiency and Profits

Today’s business world is technology dominated, and that is a good thing when it comes to cutting the time involved in these management and oversight activities. Many business owners, especially sole operators, who use tools that are readily available to them in the digital world, find that they can save huge amounts of time and even improve their record-keeping.

Though there others, the two major players in capturing, organizing, and retrieving information on demand are Microsoft OneNote and Evernote. They have a great many features in common, a few pros for one and cons for the other, but both are extremely popular. Check here for a comparison review that may help you in deciding. Generally, the features that make them valuable, and check each for which are available with each, include:

  • Fast and easy capture of information into the system, including:

    • Images with smartphone sent directly with app.

    • Text in images indexed for later search and retrieval.

    • Forward emails into the system.

    • Web clipper to capture information from websites.

    • Audio notes from smartphone.

    • Handwriting notes for phones with a stylus, and recognition of handwriting for conversion to text.

    • Capture of hand drawings from smartphone.

    • Entry of notes on desktop, Android, iPhone, and tablets.

  • Organization and retrieval of information.

    • Notebooks or folders with the ability to organize data as it is captured by choosing notebook/folder for storage.

    • Tagging system to further organize information for fast search retrieval.

    • Search parameters to narrow searches for better results.

    • Merging of notebooks/folders.

    • Sharing of notes or whole notebooks/folders with assigned permissions.

  • Integration with other apps or systems for greater functionality.

    • Integration with third party email like Google and Outlook

    • Integrates with some sales applications like Salesforce

    • Using IFTTT or Zapier to move information from almost any other popular online system.

The key here is that there is a way to very quickly, and from anywhere, get information into one of these systems and file it in a way that works for your business. All your business receipts tagged by business use can be in a notebook and shared with your accountant with a couple of clicks. You can pull up any receipt, expense item, or income item with a fast and simple search.

The sharing feature is powerful when working with customers, clients, and vendors. Specific notes or folders can be set up with the information you want them to have and then shared for either viewing/download only or for editing for team input.

Whatever your small business, check these systems out to see how much of your time you can free up to grow your business while still getting the accuracy and reliability you need.



SOURCE(S)

https://www.geekwire.com/2020/microsofts-new-hybrid-workplace-policy-will-make-working-home-permanent-part-mix/

https://www.microsoft.com/en-us/microsoft-365/onenote/digital-note-taking-app?ms.url=onenotecom&rtc=1

https://usefyi.com/evernote-vs-onenote/

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

Does Audit Protection Matter?

Does Audit Protection Matter?

Before figuring out if audit protection matters, just what is it? If you search on “tax audit protection” in Google, you will see hundreds of .com sites offering it as a service, and your tax preparer probably does as well. It can be included in their services or added for an extra fee.

If you do the same search with “.gov tax audit protection,” you probably will not see any .gov pages in the top search results anywhere. So, you can safely assume that the IRS does not talk much about services that offer some or both of:

  • Professional assistance with preparation for an audit.

  • Legal and/or tax professional to work with you or on your behalf with the IRS during an audit.

The IRS does have a lot to say on their website about their procedures in an audit, such as requirements for you, documents they may require, and where and how they can conduct the audit. Basically, you are, from the moment you receive notice that you are “selected” for an audit, more of a “target” than a “selection.”

The IRS.gov website has thousands of pages of tax regulations, procedures, and audit information. To give you an idea of how an audit may impact your life, both business and personal, here are a few things for the site that show the complexities and how you may be required to respond.

  • Examples of records the IRS may request in an audit:

    • Receipts

    • Bills

    • Canceled checks

    • Legal papers (with four sub-categories)

    • Loan agreements (with nine sub-items)

    • Logs or diaries

    • Travel tickets

    • Medical and dental records (with five sub-items)

    • Theft or loss documents (five sub-items)

    • Employment documents

    • Schedule K-1

  • There is a section of the site that has different industries and business activities and the special audit procedures and requirements for each. An example would be the seemingly single-incident and not that complicated situation of a foreclosure and the forgiveness of the debt. There is a question of tax liability on the amount of debt forgiven and whether it should be declared as income on the tax return.

    The document is a .pdf on the site. It contains 70 pages and 31,000+ words. If the IRS can take a single incident of a foreclosure and whether the forgiven debt is taxable or not and need 31,000 words to explain how they’ll handle auditing the taxpayer, think of what they could require of you for your business.

All of this is to give you a snapshot of the hassles you will endure and the time, effort, and maybe money that will be involved in an audit. The question of this article is whether audit protection matters. It is a personal decision, though it could be a business decision as well if you have partners or shareholders.

However, if you are the ultimate “go-to” person for tax issues in the business, then it is you who may be sitting in front of a bureaucrat with nothing else on their plate than taking every minutia of your return and spending however long it takes to figure out if you did things right or if you owe taxes, penalties, and interest.

If you can sit there with a professional at your side, especially one who had a hand in preparing your return, you will probably feel a lot better and maybe for a much shorter and less painful period of time.



Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits#far-back

https://www.irs.gov/pub/irs-utl/real_estate_foreclosure_atg.pdf

https://www.irs.gov/businesses/small-businesses-self-employed/audits-records-request

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

Why the Tax Code was Written to Benefit Business Owners

Why the Tax Code was Written to Benefit Business Owners

To begin, a couple of presidential quotes about small business can set the stage for a discussion of the value of tax breaks for business:

To make our economy stronger and more competitive, America must reward, not punish, the efforts and dreams of entrepreneurs. Small business is the path of advancement, especially for women and minorities.” – George W. Bush, State of the Union Speech, February 2, 2005.

“The entrepreneurial spirit burns brightly as the creativity and productivity of America’s small businesses make our Nation’s business community the envy of the world.” – Bill Clinton, State of Small Business Report, May 5, 1998.

Impressive Small Business Statistics

Few would argue that the tax code is too complex, and some of the reasoning for that is the attempts by government to influence behavior. One behavior the government wants to encourage is the taking of risk in starting a business. There are many facts that support the importance of small business to the U.S. economy. These statistics come from Fundera.com:

Number of small businesses

There are approximately 30.2 small businesses in this country comprising over 99% of all businesses by count. This is according to the SBA Office of Advocacy, which defines a small business as a firm with fewer than 500 employees.

Number employed by small business

There are approximately 58.9 million people employed by small business in America. This comprises 47.5% of the entire U.S. workforce. These are tax paying employees, so it is clear that there is tax receipt leverage in giving tax breaks to help small business to create jobs.

6.04 million small businesses have employees, which means that 20% of all small businesses have at least one employee. Small businesses make up 99.7% of all firms with paid employees.

Number and percentage of new jobs from small business

At the end of the third quarter of 2016, there were 1.9 million new jobs created by small business in that quarter. New businesses account for nearly all new jobs created each year. New small businesses account for almost 20% of gross job creation.

These are impressive numbers, and they are why it has been the focus of Congress for generations to encourage small business startups and growth through tax advantages.

Congressional Research Service Report to Congress Titled Current Tax Law and Arguments for and Against Them

This is an exhaustive study of the economic value of small business balanced with the cost to the government for tax breaks given to business. In the report is this chart of the tax benefits for business and their cost to the government:

 

Small Business Tax Preference Federal Tax Code Section Nature of the Benefit Eligible Firms Current Status Revenue Cost in FY2018 Under Current Lawa ($ billions)
Limited Expensing Allowance 179 Allows firms to deduct as a current expense up to $1 million of their expenditures on qualified depreciable assets placed in service in 2018; begins to phase out when total amount exceeds $2.5 million No size limit Permanent $9.9
Nonagricultural Cash-Basis Accounting 446 Allows eligible partnerships and C corporations (including certain farms) to use the cash method of accounting C corporations and partnerships with average annual gross receipts of $25 million or less in the previous three tax years Permanent 5.0
Full Exclusion for Gains from the Sale of Qualified Small Business Stock 1202 Allows noncorporate investors to exclude between 50% and 100% of any gains on the disposition of qualified small business stock held for five or more years Stock must be issued by C corporations in a qualified business that have $50 million or less in gross assets when the stock is issued Permanent 1.3
Tax Credit for Employee Health Insurance Costs 45R Allows eligible small employers to take a nonrefundable tax credit for nonelective contributions that cover 50% or more of the cost of health plans for participating employees Employers with 25 or fewer employees whose average annual compensation does not exceed $50,000 Permanent 0.6
Simplified Dollar-Value LIFO Accounting Method 474 Allows qualified small firms to use a simpler LIFO method in estimating the base-year value of their inventories Business taxpayers with average annual gross receipts of $5 million or less in the three previous tax years Permanent 0.2
Deduction and Amortization of Eligible Business Start-Up Expenses 195 Allows start-up businesses to deduct up to $5,000 of eligible start-up expenses in the year they begin to operate, and to amortize the remaining expenses over 180 months; the deduction phases out, dollar for dollar, when total qualified expenses exceed $50,000 Firms in their first year of business Permanent 0.1
Tax Credit for Expenses Incurred in Improving the Accessibility of a Business for Disabled Individuals 44 Allows qualified small firms to claim a nonrefundable tax credit for qualified expenses they incur in making their facilities more accessible for disabled persons Employers with gross receipts of $1 million or less in the previous tax year, or with 30 or fewer full-time employees during that year Permanent Less than $50 million
Ordinary Income Treatment of Losses on Sales of Certain Small Business Stock 1244 Allows taxpayers to deduct any loss from the sale, exchange, or worthlessness of qualified small business stock as an ordinary loss and not a capital loss Individuals and partnerships Permanent NA
Treating Losses on the Sale of Small Business Investment Company (SBIC) Stock as Ordinary Losses 1242 Allows individual taxpayers who invest in SBICs to deduct from ordinary income all losses from the sale or exchange or worthlessness of SBIC stock Any individual investing in an operating SBIC Permanent NA
Exemption from the Uniform Capitalization Rule 263A Exempts qualified small firms from the requirement that firms acquiring real or tangible property for resale capitalize or include in the estimated value of their inventory the direct cost of the property included in it, as well as the indirect costs that can be allocated to the property Business taxpayers with average annual gross receipts of $25 million or less in the three previous tax years Permanent NA
Use of Section 41 research tax credit against payroll tax 41(h) and 3111(f) Allows qualified firms to claim a payroll tax credit of up to $250,000, using all or a portion of their unused research tax credit for the current tax year Business taxpayers that have less than $5 million in gross receipts in the current tax year and had no gross receipts in a tax year preceding the previous five years Permanent NA
Tax Credit for Pension Plan Start-Up Expenses 45E Allows qualified small firms to take a nonrefundable tax credit for a portion of the costs they incur in establishing new qualified pension plans for employees Employers with fewer than 100 employees, each of whom received $5,000 or more in compensation in the previous calendar year, and with one or more highly paid employee participating in the plan Permanent NA
Exemption for Qualified Small Firms from the Limitation on the Deduction for Business Interest Section 163(j) Allows eligible small firms to deduct business interest without the limits set by P.L. 115-97. C corporations and passthrough entities with $25 million or less in average annual gross receipts in the three previous tax years. Permanent NA

The report does not present a conclusion other than there are questions as to whether the costs are worth the benefits of small business tax breaks. If there are the large numbers of them and their employees voting, it is likely that Congress will not be killing these breaks in any large-scale way.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

Why a Every Business Owner Should Have a Qualified Retirement Plan

Why a Every Business Owner Should Have a Qualified Retirement Plan

Unlike a non-qualified plan, a QRP, Qualified Retirement Plan, under Section 401(a) of the Internal Revenue Code, is eligible for certain specified tax benefits. The plan is established for and on behalf of the business’s employees.

Two Types of QRP

Qualified retirement plans come in two types, defined benefit and defined contribution. They have different rules and procedures, and employers make the decision on which to offer. The key differences of the two types are as follows:

Defined Benefit

  • Benefits are paid based on length of employment and salary history.

  • They are often referred to as pension plans.

  • Employees can withdraw their benefits as monthly payments or as a fixed lump sum.

  • The employer is responsible for all the investment risk and planning.

  • If the employee dies, the spouse is often entitled to benefits.

Defined Contribution

  • Employees can invest their pre-tax money in approved capital markets such as stock exchanges, and their gains will grow free of income taxes until withdrawal.

  • The two most popular defined contribution plans are the 401(k) and the 403(b).

  • Unlike the guaranteed income of the defined benefit plans, the defined contribution plans allow the employees to make the decisions and there are no guarantees as to growth or eventual value. Employee participation is both voluntary and self-directed.

Now that the differences are clear, why should every business have a QRP in their business plan?

Benefits of QRP Plans

In general, a Qualified Retirement Plan allows the employer to deduct the contributions they make on behalf of employees. Employees may be able to defer a portion of their compensation, reducing their current income tax liability. Other possible benefits depending on the plan type chosen the allowed and adopted rules include:

  • The QRP has fewer limitations on what can be done, as the non-qualified plans have more limitations built into the plans, what you can invest in, and how and when the money can be accessed.

  • Contribution limits are much higher than for an IRA. Rather than a $6,000 to $7,000 limit for an IRA, contributions to a QRP can be as much as $56,500 in the tax year.

  • QRPs can allow alternative investments other than just stocks, mutual funds, and bonds. If structured for it, investors may be able to invest in alternative assets including:

    • Precious metals

    • Real estate

    • Commodities and futures

    • Commercial property

    • Tax lien certificates

    • Contracts of sale

    • Leases

    • Other assets

  • The plan can be structured to allow borrowing against its value.

  • There is more flexibility to adjust the amount of contributions.

  • The business owner of the plan can assign anyone as trustee, including themselves. The trustee has checkbook control of the plan assets, as well as control over what assets in which to invest.

  • The ability to roll over other types of retirement accounts into a QRP allows the business owner to consolidate their retirement plans to reduce time and money spent in plan management.

  • The employer owner of a QRP can leave the plan to an heir with the same tax benefits, allowing the growth of assets tax free for a lifetime.

Every business owner should plan for a QRP as their business grows and prospers. It is smart taxwise and for employee good will.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

When Should I Call My CPA for Advice?

When Should I Call My CPA for Advice?

When starting a business, it is considered critical to work with a CPA to set it up properly. You also want to consult with the CPA on how to set up your bookkeeping to facilitate accuracy, submission for tax computation, and timely reporting. Too often though, the small business owner considers their time with the CPA over after that until tax time rolls around. The problem with that approach is that tax time rolling around can roll over you financially if you have made decisions during the year you should have made differently.

In operating a small business, there are decisions you make about purchases, payment methods, long-term obligations, and even customer billing that may create tax liabilities you could have avoided with a different approach. The only way to know is to consult with your CPA before the decision to discuss options that can have a financial impact. Some of these decisions may include:

  • Buy or Lease Equipment, Vehicles, or Facilities – The purchase of equipment, real estate, or vehicles for business use involve depreciation. In some cases, depending on income and the need for write-offs, you may want to accelerate depreciation. Or you may find that leasing is a better tax decision that tax year. Before the acquisition of the item, discuss it with your CPA to make the best tax-wise decision.

  • Which Type of Depreciation is Best – Even if you know that you want to purchase and depreciate an asset, there are different ways and timelines for depreciation, and your CPA keeps up with current tax law to advise you of how each will impact your deductions and taxation in the current and future years.

  • Employee Compensation Changes – One of the changes many businesses found forced upon them in 2020 was sending some employees home to work. Some businesses found that they were not experiencing negative effects from this new situation, so they considered changing the way employees were compensated or moving them from employee to independent contractor or freelance status. Consulting with your CPA about the differences is important, especially when it comes to the tests used by the IRS to determine if an independent contractor is really an employee. Penalties are tough.

  • Changing or Adding Employee Benefits – From health insurance to retirement plans, any change in benefits or adding new ones should be made only after talking to your CPA about the taxation results and options.

  • Growth or Expansion Plans – When things are going great it is easy to make decisions about growth or expansion on the fly. The money is there, cash flow is great, and you are ready to add people, space, product or service lines, or inventory. A talk with your CPA will not kill the buzz, but it could change the way you were about to do things to put even more money in your pocket at the end of the year.

  • Major Lifestyle Changes – Small business owners, especially those who are sole proprietors or partners, should meet with their accountant to discuss upcoming lifestyle changes. Whether it is buying a home or getting married, there could be business tax consequences or opportunities you do not want to miss. An example would be the opportunity to put your spouse on the payroll and take advantage of some special IRS considerations for doing so.

The takeaway is that the small business owner is constantly making decisions that affect their financial future. They could impact that year’s taxes, or they could have an impact years into the future. When in doubt, give your CPA a call.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

Forward Tax Planning vs Viewing Taxes in the Rear-View Mirror

Forward Tax Planning vs Viewing Taxes in the Rear-View Mirror

Anyone who has driven a vehicle understands that a quick check in the rear-view mirror regularly is a good thing but driving with your focus on that mirror will almost surely result in calamity. Taxation for the small business is a lot like that. Looking back at the year, the decisions you as a business owner made, and the many business transactions, is leaving you wide open to a collision with the IRS; and you will almost always come away with significant financial damage.

Today’s new automobiles are leaving the assembly line with forward collision avoidance systems. They either sound a warning when something is too close in front of the vehicle for the speed, slow or stop the vehicle, or both. These systems add some to the cost of the vehicle, but not nearly as much as the financial damage from over-taxation or a collision with the IRS. There is an equivalent in the business world; it is your CPA.

If you find yourself viewing your end-of-year income tax due and saying to your accountant “You mean I could have…,” it is too late. The thing about tax planning is that it is looking forward both short and long-term. And even then, changes in your business can and should result in changes in the tax plan.

One example could be changing the method of depreciation of an asset. There can be a valid business reason for doing so, but the IRS has some tight rules about it listed here. The page starts out with:

Generally, you must get IRS approval to change your method of accounting. You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation.

Then there follows a long list of bullet points; nothing simple about the IRS. Perhaps the entire situation could have been avoided with a quick consult with your CPA before the original depreciation decision. It gets a lot more complicated in the rear-view mirror.

Another example of the importance of planning in a business is when it is growing or expanding. The goal of almost every entrepreneur who starts a business is to grow it into something bigger than themselves. They may want to run it as long as they can, or they may have a plan to grow it to a point where they can sell it and retire with financial security. It is the growth itself that creates either challenges or opportunities when it comes to taxation.

In growing, the business will likely be hiring employees or using independent contractors, either decision becoming a consideration in planning ahead for the tax consequences or opportunities. Decisions like whether to hire family, what benefits the business can afford to offer and how to package them, and retirement plans for ownership are all things you want to be looking forward at, not in the rear-view mirror.

The best way to think about driving your business is to focus major decisions forward and only review how well they worked in the rear-view mirror. To do that, rely upon your CPA’s advice, as they are on top of not only recent IRS rule changes, but coming changes and their effective dates and consequences.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

How to Build a Proper Tax Plan

How to Build a Proper Tax Plan

Business owners have a lot on their plate, what with managing income, expenses, employees, product or service delivery, and customer satisfaction. Dropping the ball in any one of these areas can create negative cash flow or other problems for your business. However, when it comes to taxes, negative cash flow can come with penalties and interest, and possibly some legal expenses.

The smart small business owner has a production or service delivery plan, management guidelines, and customer satisfaction measurement processes. At least as important is a tax plan for the business, as it also can affect the personal taxes of the owner(s). As governments levy taxes, a good place to look for tax planning information is the SBA, Small Business Administration. They help small businesses to survive and thrive. Here are some of the suggestions from the SBA.gov website for Tax Obligation Management:

Know the types of taxes your business will be paying

The first thing to pop into most business owners’ minds when it comes to taxes is “income tax.” However, there can be, and usually are, a number of tax entities and liabilities that impact small businesses.

  • Federal income tax – with volumes of rules, regulations, deductions, rates, and more, federal income taxes for business are complicated, but always necessary if you’re making a profit. How businesses are taxed varies by business structure:

    • sole proprietorship

    • partnership

    • s-corporation

    • limited liability company

    • c-corporation

  • State income tax – not all states levy income taxes, but many do. The small business owner must know if they are liable for state income taxes, how they are levied, paid, and accounting processes required.

  • Self employment taxes – if you are in business for yourself, either as a sole proprietor or independent contractor, you are liable for self employment taxes that include Social Security and Medicare taxes. Currently, the combination of the two is 15.3% of taxable income. As you have no employer to split this with, you pay the entire amount.

  • Employment taxes – when a business has employees:

    • Employers withhold federal and state income tax from employees’ wages.

    • Employers withhold part of Social Security and Medicare (FICA) taxes from employees’ wages and pay a matching amount.

    • Employers generally pay federal and state unemployment insurance (FUTA) tax. You report and pay it separately from other taxes.

    • Employers may be required to pay into state disability programs.

  • Sales taxes – if your business is selling products, and in some states services, you will have state and local sales taxes to charge on purchases and then remit those amounts to the taxing entities.

  • Excise taxes – You may pay excise taxes if you manufacture or sell certain products, operate certain kinds of businesses, or use certain kinds of equipment.

  • Local taxes – the city, or county may tax businesses as well.

Identifying and quantifying the taxes your business must pay is the first step in building a tax plan.

Tax records, forms, and reporting

An important part of planning is to know which forms you will need to report to taxing entities, how often you must report, and the type of records you must keep. The record-keeping aspect is important for your own management of tax liability, but also for proving your income, expenses, and other information required by taxing jurisdictions.

Your plan should have frequency, due dates, and forms for all tax reporting so that you avoid penalties and interest charges due to late reporting or payments.

Put in place money management for taxes

Taxes come due with different frequency and at different times of the year depending on the taxing jurisdiction and type of tax. It is one thing to know how you are taxed and the tax rates, but it is another to have the money ready when it is due.

The smart business owner will keep track of tax liabilities and segregate the money necessary to pay them when they are due. A separate tax account is a popular approach, with the estimated percentages of amounts deposited in the tax account as the income is received and recorded.

Have an accounting system and advice.

It is critical to have systems in place to capture all income and expenses, record them, report them, and use the records for tax calculations. Current technology has made capturing expenses easier and more timely for the small business owner. Setting up systems to capture information easily and accurately, the small business owner will have an easier task to calculate and remit taxes due when they are due.

An experienced CPA, Certified Public Accountant, is of great value to the small business owner. Regular consultation with an accountant helps in tax planning as well as legally reducing taxes owed.

Take these tips in consideration when setting up a tax plan for the business to avoid headaches and possible financial penalties.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

COVID-19 to Kickstart the Gig Economy

COVID-19 to Kickstart the Gig Economy

Businesses of all types, both products and services, have had to either temporarily close or make major adjustments to their production or delivery of services due to the Coronavirus pandemic. The question now is how this pandemic and the ways in which we’ve responded will influence businesses in the future. There are expected to be major changes that could be permanent, especially for businesses that have had large areas filled with employees in cubicles or semi-private open offices.

Work-From-Home Growing

The work-from-home crush due to the virus is already morphing into a more permanent situation for many employees, and for the most part they like their new situations. The next step according to some business efficiency experts is for both the business and the employee to assess their situations comparing employment to sub-contracted status.

Businesses and Employees Seeing Opportunities

The business is finding that they can sustain and even increase productivity for some jobs by allowing their employees to work from home. Facilities costs will be reduced, adding to profitability and lower insurance costs as well. How much more can they save if they move from fulltime employees to independent sub-contracted workers? There can be more savings in the cost of insurance and employee benefits.

The employees who have aspirations for self-employment and more control of their time and lifestyle see the gig status allowing more freedom, as well as the potential of higher income. They’re studying all of the pieces of owning a business, tax consequences, and potential problems. It could be the perfect opportunity to spin off on their own and start a new business. The opportunity may lie in who initiates the process; will it be the business or the employee?

Taking the Gig Leap

If you’re in a situation of working from home due to the pandemic and thinking about this status change from employee to freelancer, make it a fully informed decision. Moving from employer provided insurance, steady income, and other benefits to responsibility for all of it on your own is a big step. Consider all of the pieces:

  • Where you’ll office.
  • Liability and other business insurance.
  • How you’ll find clients other than your current employer.
  • Do you have the funds to carry you through startup until income is flowing?
  • Do you understand how income and self-employment taxes work?
  • Have you discussed the transition with close family who will be affected?

Even though you may be the one who wants to be in business for yourself, you should understand the IRS rules are for classification as an independent contractor versus an employee. It is the job of the business to make sure these rules are followed or risk having you reclassified as an employee later. Though it will have a greater impact on the employer, it will disrupt your new business and possibly your income stream as well.

As bad as the effects of the virus have been on the economy, this could be an opportunity for many to take the self-employment or freelancing leap that wasn’t in their thoughts just a few months ago.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!

What You Should be Discussing with Your Accountant Each Quarter

What You Should be Discussing with Your Accountant Each Quarter

 

A business accountant’s value is not in just filing your taxes each year. Their greatest value is in tax planning and helping you to legally pay the smallest tax bill possible each year. Many of the decisions you make in business involve income, expenses, and taxes, and planning in advance can mean a lower tax bill.

Meeting with your accountant each quarter may seem like overkill to some small business owners, but there are valid reasons to do so that can put more money into your pocket at tax time.

 

Are your quarterly payments accurate and sufficient?

Most small business owners pay quarterly estimated tax payments based on estimated taxable income and the previous year’s tax bill. If the current year’s income and expenses change significantly, it is possible that an adjustment should be made to the quarterly payments. This could mean paying more or paying less, but can help to avoid surprises at tax time or penalties and interest.

 

Get current information on tax law changes.

One thing you can count on when it comes to government and taxes is that changes happen. They could be immediate, but often changes are announced in advance. If announced coming changes affect your business and tax bill, discussing them with your accountant when they’re first announced gives you time to make adjustments in your spending or other areas that can save tax dollars or avoid surprises at tax time. At this quarterly meeting, you can work out a plan if needed for adjustments to avoid tax surprises or penalties.

 

Discuss possible or planned business operations changes.

Small business operations involve constant decisions involving employees, staffing, purchases, products/services changes, overhead expenses, and more. Perhaps you are thinking of hiring or shrinking staff. You may be considering changes in insurance coverages or other overhead items. The quarterly meeting with your accountant gives you the opportunity to discuss them in the context of your tax bill.

 

Discuss large expenses involving depreciation.

Depreciation is a deduction that can be managed for maximum tax savings or cash flow reasons. If you are considering the purchase of real estate, vehicles, production, or business equipment, discussing the timing and method of depreciation with your accountant will assure that you are timing the purchase well and depreciating the asset properly.

 

Check your bookkeeping and recording procedures.

The quarterly meeting provides an opportunity to check your processes with the accountant. Are you recording expenses properly? Will your records, especially related to high risk audit items like home office or vehicle expenses stand up to an audit? This is a validation of the old saying that “an ounce of prevention is worth a pound of cure.”

 

Do some long-range planning for growth.

You want to grow your business, increase profits, and possibly expand facilities in the future. Throwing out these ideas at the meeting with your accountant can help you to plan for how to fund growth, when to make changes, and how to document them for tax purposes.

The bottom line is that you are making decisions almost daily that can impact the health of your business, income, expenses, and your tax bill. You know your business, and your accountant knows theirs. Meet with your accountant quarterly to take advantage of their expertise.

With Tax Hive’s years of experience in tax and business services, we use our expertise to make your life easier so you can focus on building your business. Ever changing rules require a team who knows you, your business and the tax implications. Our tax professionals meet your needs while helping you manage tax risk, control costs and reap maximum benefit. If you’re ready to get started, CLICK HERE to see if you qualify for a FREE strategy session with one of our specialists today.

Get more out of your money, contact Tax Hive today at 1-833-919-19921-833-919-1992!