Business Tax

Navigating the complexities of tax laws can be challenging for business owners and individuals alike. While it may be tempting to handle tax matters independently, hiring a professional tax advisor can offer significant advantages. Here’s a closer look at the benefits of working with tax professionals and when it’s essential to seek their expertise.

Advantages of Hiring a Professional Tax Advisor

• Expert Knowledge and Experience: Tax professionals possess specialized knowledge of current tax laws, regulations, and compliance requirements. They stay up-to-date with changes in legislation and can help you navigate complex tax issues effectively, ensuring you’re informed about the latest deductions and credits available.
• Maximizing Deductions and Credits: A tax advisor can identify potential deductions and credits that you may not be aware of, helping you reduce your tax liability. Their expertise ensures that you take full advantage of available opportunities, potentially saving you significant amounts of money.
• Personalized Tax Strategies: Every business and individual has unique financial situations. A tax advisor can create tailored tax strategies that align with your specific goals and circumstances. This personalized approach can enhance your overall financial planning and long-term success.
• Avoiding Mistakes and Penalties: Tax laws are intricate, and even minor errors in tax filings can lead to costly penalties and audits. Professional tax advisors are meticulous in their work, minimizing the risk of mistakes and ensuring compliance with all tax obligations, thus providing peace of mind.
• Time Savings: Preparing taxes can be time-consuming, especially for busy business owners. Hiring a tax advisor allows you to focus on running your business while they handle the complexities of tax preparation. This time savings can translate into improved productivity and efficiency.
• Audit Support: In the event of an audit, having a tax professional on your side can be invaluable. They can represent you, handle communications with tax authorities, and ensure that all necessary documentation is prepared, reducing stress during what can be a challenging process.
• Financial Planning Support: Beyond tax preparation, many tax advisors offer broader financial planning services. They can help you plan for future tax liabilities, retirement, investments, and estate planning, ensuring a holistic approach to your financial health.

When to Seek Professional Help

While it’s beneficial to have a tax advisor for most businesses and individuals, there are specific situations when their expertise is particularly crucial:

• Starting a New Business: Understanding the tax implications of different business structures and setting up proper accounting practices is vital for new business owners.
• Significant Life Changes: Events such as marriage, divorce, inheritance, or the birth of a child can impact your tax situation, making it essential to seek professional advice.
• Complex Financial Situations: If you have multiple income streams, investments, or assets, a tax advisor can help you manage these complexities effectively.
• Ownership of Rental Properties or Investments: Tax implications for real estate and investment income can be intricate; professional guidance can optimize your tax strategy.
• Preparing for an Audit: If you receive notice of an audit from the IRS, consulting a tax advisor immediately is crucial for navigating the process.
• Major Changes in Tax Law: Following significant tax law changes, seeking advice can ensure that you’re compliant and taking advantage of new opportunities.

Conclusion

Hiring a professional tax advisor offers numerous benefits, from maximizing deductions to providing personalized strategies tailored to your unique situation. While some may choose to handle their own taxes, the expertise and support of a tax professional can lead to substantial financial savings and peace of mind. If you find yourself facing complex tax issues or significant life changes, consider enlisting the help of a qualified tax advisor to ensure your financial success.

Small businesses can take advantage of dozens of tax deductions to reduce what they owe the IRS at tax time. In this article, we share seven top deductions that you may not know about but should.

1. Property rent

If you rent a location for conducting business, you can deduct your rent payments as a business expense. Remember, even if you run a business from a home office, that is not an eligible “property rent” expense for your business. Home office deductions should be made under that category.

2. Software subscriptions

If you purchase or subscribe to business-specific software, those purchases or subscriptions are deductible as miscellaneous deductions under “other business expenses.” 

3. Marketing

You can deduct expenses from marketing your business through promotions or paid advertising. Some examples of deductible marketing expenses are sending mailers to potential or current customers, running a paid social media campaign, buying signs or banners to display at your business, printing business cards or brochures, print advertising, website development, and logo design. There are many more, so consider anything you do to market your business 100 percent deductible.

4. Entertainment

If your business requires you to entertain clients or guests, the IRS allows you to deduct part of those expenses. Entertainment includes clubs, bars, sporting events, restaurants, hunting or fishing events, a hospitality suite or booth at a conference, and more. While you do not have to close a deal or make a sale to claim these entertainment expenses, you must ensure they are exclusively related to your business. 

5. Professional fees

Any professional fees that you pay directly related to your business are deductible. For example, a cleaning crew for your storefront business, an attorney that handles your legal paperwork, or the services of an accountant or CPA that manages your finances – those fees are all deductible. 

6. Employee gifts

You can gift your employees up to $25 per employee per year, which is 100 percent deductible. So, if you want to provide a holiday gift card, a bouquet of flowers for your personal assistant, or send a special birthday treat to those who work for you, it’s a win-win!

7. Taxes

While it may not seem logical, some taxes you pay for your business are fully deductible. This includes state and local income taxes. Employer taxes and state unemployment taxes are also fully deductible.

These seven small business deductions are just the tip of the iceberg regarding some not-so-obvious deductions that may be eluding you! Check with your accountant or CPA to ensure you are reaping all the benefits of your small business.

Tax season doesn’t have to be a nightmare for small business owners. If you own a small business, note the following tips to help you survive the upcoming tax season.

1. Prepare in advance!

Even if you’re not as prepared as you’d like for the current tax season, you can always resolve to be prepared for next time. Start now by making sure you read the remaining points listed here. For starters, you can begin today by keeping meticulous records, accurately taking inventory, and familiarizing yourself with all the deductions that apply to your business.

2. Separate business and personal finances.

Business and personal financial records do not mix. This is one of the most common stumbling blocks for small business owners. The best advice to ensure no discrepancies is to open separate business and personal accounts. That means checking, savings, and credit card accounts. Keep one set for business and one established for personal use. This approach prevents having to sift through every transaction for the year when tax time rolls around.

3. Keep meticulous records.

No matter what records they are, make sure to keep them meticulously. Store them in a physical file or use a digital receipt tracker for expenses. Keep a well-organized invoicing system, either paper or electronic. Keep track of all charitable contributions, gifts or bonuses given to employees, and quarterly tax payments made. At tax time, you will have all the information you need right at your fingertips.

4. Prepare for payroll taxes.

If you are an employer with staff, you must report, withhold, and pay employee taxes. For each employee you are required to pay social security, Medicare, and federal income taxes. Your accountant or bookkeeper should keep up with this, or the payroll agency you use to calculate payroll should handle it. Either way, these are required by law and must be paid.

5. If you have inventory, track it.

If your business has a physical product (i.e., inventory), you must know how much you have on hand come tax time. You must report your business’ inventory value, which is the dollar amount that you have tied up in unsold merchandise that you are holding. Some companies use inventory management software or a POS system to manage this, as it can be tedious and time-consuming if performed manually.

6. Understand your deductions.

To correctly evaluate your expenses as deductible, you must familiarize yourself with the IRS’s deductible guidelines for small businesses. If you travel as part of your business, there’s a guide, too. Deductions can get tedious. It is often best to have a reliable accountant familiar with your business to help you navigate those rocky areas.

7. Make retirement contributions.

If you’re looking for end-of-year deductions, why not fill your coffers and plan for retirement? Add to your IRA or 401(k), as any contributions you make are tax deductible. The same goes for contributions made to employee retirement accounts.

8. Donate to charity.

Another great way to garner additional deductions is through your business’s charitable contributions. It’s a win for you on taxes, and it’s a win for the charity, too!

9. Give year-end bonuses.

Rewarding employees with end-of-year bonuses can benefit you at tax time. Bonuses and employee gifts (there are limits, so check those with the IRS guidelines) are tax deductible. Again, this is another way to do some good and save on taxes.

10. Hire a qualified accountant or CPA.

The best way to know you are saving as much as possible on taxes is to hire a qualified tax accountant or CPA. They are up to date on tax laws and deductions and can easily guide you through the seemingly endless numbers when tax time comes. The price you pay them is also another deduction!

When interest rates rise, many small businesses feel the pain. Here’s a look at the potential impact on small businesses and some steps they may need to take to ensure their viability.

Prepare for a Decline in Sales
Paying more interest to lenders can leave customers with less disposable income, forcing them to cut back on their spending. This, in turn, will reduce sales and earnings for many businesses. Businesses that sell luxury goods and services may be hit particularly hard since consumers typically cut back on these items first.

Anticipate Paying More for Business Loans
As rates rise, it will become more expensive for your company to borrow money. A review of your company’s current debt payment schedule and future borrowing needs can help you analyze the potential impact of higher rates on your company’s finances.

Reevaluate Expansion Plans
If you had plans for expanding your physical or online footprint, you may have to reconsider. The additional expenses involved in financing the expansion combined with a decline in consumer spending could make any plans for expansion less feasible.

Focus on Cash Flow
Although the direction of the economy is difficult to predict, it may be smart to look for areas where your business can reduce expenses to conserve money and build up its cash reserves. Your business could also see if it can renegotiate some loans, especially those with variable interest rates.

Tighten Accounts Receivable
Some of your customers may respond to rising interest rates by waiting longer to settle outstanding bills. If you experience an uptick in customer payment delays, you may need to tighten your payment systems so that customers are billed immediately after receiving goods or services and are then contacted every 10 days or so with a new bill. Consider adding late charges after nonpayment beyond 30 days.

A period of rising interest rates is uncharted territory for many small businesses. It can help to have the input of an experienced financial professional as you try to navigate challenging times.

It isn’t easy deciding whether a worker should be treated as an employee or an independent contractor. But the IRS looks at the distinction closely.

Tax Obligations

For an employee, a business generally must withhold income and FICA (Social Security and Medicare) taxes from the employee’s pay and remit those taxes to the government. Additionally, the employer must pay FICA taxes for the employee (currently 7.65% of earnings up to $147,000).

The business must also pay unemployment taxes for the worker. In contrast, for an independent contractor, a business is not required to withhold income or FICA taxes. The contractor is fully liable for his or her own self-employment taxes, and FICA and federal unemployment taxes do not apply.

Employees Versus Independent Contractors

To determine whether a worker is an independent contractor or employee, the IRS examines factors in three categories:

• Behavioral control — the extent to which the business controls how the work is done, whether through instructions, training, or otherwise.
• Financial control — the extent to which the worker has the ability to control the economic aspects of the job. Factors considered include the worker’s investment and whether he or she may realize a profit or loss.
• Type of relationship — whether the worker’s services are essential to the business, the expected length of the relationship, and whether the business provides the worker with employee-type benefits, such as insurance, vacation pay, or sick pay, etc.

In certain cases where a taxpayer has a reasonable basis for treating an individual as a non-employee (such as a prior IRS ruling), non-employee treatment may be allowed regardless of the three-prong test.

If the proper classification is unclear, the business or the worker may obtain an official IRS determination by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Year-End Statements

Generally, if a business has made payments of $600 or more to an independent contractor, it must file an information return (Form 1099-MISC) with the IRS and send a corresponding statement to the independent contractor.

Consequences of Misclassification

Where the employer misclassifies the employee as an independent contractor, the IRS may impose penalties for failure to deduct and withhold the employee’s income and/or FICA taxes. Penalties may be doubled if the employer also failed to file a Form 1099-MISC, though the lower penalty will apply if the failure was due to reasonable cause and not willful neglect.

Correcting Mistakes

Employers with misclassified workers may be able to correct their mistakes through the IRS’s Voluntary Classification Settlement Program (VCSP). For employers that meet the program’s eligibility requirements, the VCSP provides the following benefits:

• Workers improperly classified as independent contractors are treated as employees going forward.
• The employer pays 10% of the most recent tax year’s employment tax liability for the identified workers, determined under reduced rates (but no interest or penalties).
• The government agrees not to raise the issue of the workers’ classification for prior years in an employment-tax audit.

Your tax professional can help you sort through the IRS rules and fulfill your tax reporting obligations.

Running a small business is a demanding task that requires careful attention to various aspects, including finances. One of the most critical financial practices is separating business and personal expenses. While it may seem like a minor detail, this separation is essential for the financial health and legal integrity of your business. Here’s why keeping these expenses distinct is important.

Accurate Financial Tracking

When you mix business and personal expenses, it becomes challenging to track the true financial performance of your business. Accurate financial tracking is crucial for understanding how your business is doing, making informed decisions, and planning for the future. Without clear records, you may struggle to see where your money is going, which can lead to poor financial decisions that could harm your business.

Simplified Tax Filing

Tax season can be stressful for any business owner, but it’s even more challenging when business and personal expenses are intertwined. The IRS requires that you report your business income and expenses accurately. If your records are muddled, you might miss out on valuable deductions or, worse, inadvertently claim personal expenses as business ones. This can result in penalties or even an audit. Keeping expenses separate simplifies tax preparation and ensures that you are compliant with tax laws.

Legal Protection

For businesses structured as limited liability companies (LLCs) or corporations, maintaining a clear distinction between personal and business finances is vital for protecting personal assets. This separation helps uphold the “corporate veil,” which is the legal barrier that protects your personal assets from being used to satisfy business liabilities. If you don’t keep your finances separate, a court could rule that your business is not truly separate from you, putting your personal assets at risk.

Professionalism and Credibility

Maintaining separate finances also boosts your business’s credibility. Whether you’re dealing with lenders, investors, or clients, having clear and organized financial records shows that you run your business professionally. This can build trust and open doors to opportunities that might not be available if your finances were disorganized.

Better Financial Management

When you separate business and personal expenses, it’s easier to manage your cash flow, create budgets, and forecast future financial needs. This clarity allows you to make better decisions about when to reinvest in your business, when to cut costs, and how to plan for growth.

How to Keep Business and Personal Finances Separate

• Open a Business Bank Account: Use a dedicated bank account for all business transactions. This makes it easier to track income and expenses and simplifies record-keeping.
• Get a Business Credit Card: Charge all business-related expenses to a business credit card. This keeps personal spending separate and helps build business credit.
• Pay Yourself a Salary: Instead of dipping into business funds for personal use, establish a regular salary or owner’s draw. This ensures that business income and personal income remain distinct.
• Keep Detailed Records: Maintain thorough records of all business transactions. Save receipts, invoices, and bank statements to ensure you have a clear trail for tax purposes and financial management.
• Consult a Professional: Consider working with an accountant or financial advisor who can help you establish and maintain good financial practices.

Separating business and personal expenses is more than just a good habit—it’s a necessity for the long-term success of your business. By keeping these expenses distinct, you can ensure accurate financial tracking, simplify tax filing, protect your personal assets, and present a professional image to the world. In the end, this practice will save you time, reduce stress, and help your business thrive.