As the year draws to a close, now is the time many businesses focus on a variety of important yearly business assessments such as performance reviews, internal audits, and yearly projections.
But one of the most important, and unavoidable, evaluations every business and business owner will make during the year is their taxes. While there are tons of business tax resources available online that can help businesses make better tax filing decisions, that doesn’t make tax season much less stressful, especially for small business owners who like to remain informed and in control of their taxes.
As a company that specializes in helping small businesses reach their financial goals, Direct Capital was interested in learning more about small business tax strategy, More specifically, we wanted to know what steps small business owners should take before and during tax season to set them up for the best outcome with their taxes. To do that, we asked 26 tax experts the following question:
“What’s your single best tax tip for small business owners to get even bigger tax breaks or avoid scrutiny from the IRS?”
We’ve collected and compiled their expert advice into this comprehensive guide to expert tax tips for small businesses. See what our experts said below:
Meet Our Panel of Small Business Tax Experts:
Alan Clopine, CPA is the Chief Financial Officer and Director of Tax Planning for Pure Financial Advisors, Inc. with over 30 years of tax planning experience. He is co-host of financial radio and television talk show, “Your Money, Your Wealth” where he offers tax planning and other financial planning strategies to viewers and listeners across southern California. Clopine‘s goal is to help others create tax-efficient income streams that are sustainable in retirement. He teaches tax planning courses throughout San Diego County and is member of the American Institute of Certified Public Accountants.
Small business owners can obtain a significant break on taxes by…
Setting up a business retirement plan, whereby each contributed dollar is tax deductible. The two main plan choices are a defined contribution plan or a defined benefit plan.
In 2014, a small business owner can contribute $52,000 to a defined contribution plan, for their own benefit. These types of plans include a SEP IRA, 401(k) and profit sharing plan. Each plan has pros and cons. Most importantly, a 2014 solo-401(k) or profit sharing plan must be established by December 31, 2014. A SEP IRA can be established in 2015 before your tax return is filed.
A defined benefit plan allows for a much larger deduction because it’s based upon a participant’s age, compensation and future desired pension benefit. We’ve seen allowable contributions of over $200,000 with such plans.
Here are some things to consider when setting up any of these plans;
- You must include all eligible employees,
- While most retirement plans must be established by December 31, 2014, they can generally be funded by the extended due date of your return (October 15, 2015 for sole-proprietors), and
- Some plans are fairly expensive to operate while others have almost no costs.
Acting by December 31, 2014 is critical to maximize this powerful tax deduction.
Gail Rosen has been a practicing CPA for over 35 years and is well known and respected in the accounting and business communities. She established her firm, Gail Rosen CPA, in 1983 at the age of 25, after a fast paced initiation into the field at prestigious New York City accounting firms. Today, Gail leads the firm with the expertise and experience that has distinguished her as one of the area’s leading accountants and tax advisors for new business start-ups and expanding businesses. With her trademark energy and enthusiasm, Gail is a popular speaker for business and trade organizations and is frequently called upon to share her expertise and opinions with the media.
Here are my top tax tips for small business owners:
Tax Tip to avoid IRS scrutiny
Start Up Costs.
Small businesses are often not aware that any expenses that are incurred before the first sale are called “start-up costs”. These costs cannot be deducted until the first sale. Then they are deducted over 15 years and you can elect to deduct the first $5,000 in the first year of business. Careful tax planning is needed in this area. Many small businesses assume they can deduct all of their costs in starting a new business but they cannot until they have their first sale. Then costs are deductible based on the laws for that deduction.
Tax Tip to get bigger tax break
Home Office Deduction.
The home office is a great tax deduction for small businesses. Starting in 2013 the IRS simplified the deduction and is giving you the option of using the “safe harbor” rules to calculate your home office deduction. I recommend comparting the “safe harbor” method to the “actual” method to see which ones generates a better tax deduction for you. The actual method is more paper work but many times it is worth the effort.
Bob Wheeler, CPA is the CEO of RWWCPA and Author of “The Money Nerve: Navigating the Emotions of Money.” Bob has worked with small businesses for tax planning, tax strategies and business consulting for over 25 years.
The single biggest tax tip I have for small businesses is…
For sole proprietor (sch C) tax filers to consider switching to an Scorporation.
The net profit/k-1 distribution is currently not subject to self-employment taxes. And although as a corporation the shareholder has to take some salary, they have the ability to eliminate at least half of the self-employment taxes. For me, my clients need to be netting at least $50,000 for it to make sense. There is more paper work but for many of my clients, we save $4000-$15,000 in taxes.
The other side benefit of incorporating is that we see less corporate audits than personal audits. According to a couple of different reports I have seen, Schedule C (sole prop) is the most highly audited schedule when folks get audited. The S corporation seems to take people off the radar. So for clients that might be aggressive with their deductions, this is a way take the Sch C off the tax return and off the audit radar.
The other tax tip that many people miss is the section 179 depreciation on capital assets. Most assets are depreciated over a period of years, determined by the IRS. Section 179 allows you to take an immediate deduction of the capital assets. The amount allowable has varied each year but even with the current reduced amount, it can have immediate tax benefits to take the full deduction in the current tax year.
Venar Ayar, attorney-at-law, is the Principal and Founder of the Ayar Law Group and has more than a decade of experience as a tax and accounting professional, including 5 years as an IRS defense lawyer. Ayar focuses his legal practice on IRS tax resolution and Michigan tax resolution. Ayar has developed his practice through extensive experience in representing clients before the IRS, along with numerous state taxation authorities, including the Michigan Department of Treasury.
As a seasoned tax attorney, I have learned the ins and outs of the small business market. In my professional experience I have seen two common characteristics amongst businesses that are consistently compliant and steering clear of potential IRS audits:
Accurate records and proper due diligence.
Small business owners often become overwhelmed with all of the paperwork and resort to taking shortcuts. Cloud-storage technology offers a large range of easy to use techniques for business owners to keep track of their financials. Having an efficient electronic organization system allows you easily and securely file your financial records. The filing of your financial records should be based off the filing requirements by the IRS. Your financial records and reporting numbers should parallel what you are reporting on your tax records.
If an auditor were to ask you about numbers regarding advertising, you should have documents organized under an ‘advertising’ folder to support them. Keeping accurate records is much easier when you separate your business and personal expenses. Having a separate bank accounts will produce the documents that will show the IRS you are doing your part in differentiating between your personal and business expenses.
Practicing the proper due diligence as a small business owner reflects throughout your whole company. It’s essential that every claim and number reported has a substantiating document to back up the numbers. Due diligence requires that you not only file the proper documents but that you do so in a timely fashion. Operating your business around the tax filing deadlines is a common and recommended practice to avoid penalty fees from untimely filings.
These tips will put you in the right position to handle any and all IRS inquiries and audits.
Mike Slack is a Senior Tax Research Analyst with The Tax Institute at H&R Block, where he co-leads the business and investment tax group. He holds a Juris Doctor degree from the University of Kansas and a Bachelor’s degree in Accounting from Pittsburg State University. He also is an Enrolled Agent licensed to practice before the IRS.
The single biggest tax tip I would give small businesses is to pay attention to…
Tangible Property Regulations.
In 2013, the IRS began issuing regulations regarding whether businesses should currently deduct or must capitalize and depreciate amounts spent on the acquisition or improvement of tangible property. Justifiably overshadowed by the IRS’ upcoming implementation Affordable Care Act, these regulations impact the vast majority of businesses, big or small.
These new regulations provide a one-time opportunity for businesses to clean up their depreciation schedules with their 2014 tax returns. The new regulations also provide elections allowing small businesses to deduct property costing up to $500 per item, to expense repairs to eligible buildings when certain requirements are met, and to write off portions of assets disposed of when improvements are made. With these regulations the IRS has eliminated one grey area faced by many businesses.
For example, previously if a business had been depreciating a building and had to replace the roof, it would end up having to depreciate the new roof over the life of the building, plus continue to depreciate the now non-existent old roof. Under the new regulations, the same business would still depreciate the new roof, but can now deduct the portion of the old roof that wasn’t already been depreciated.
However, greater clarity brings potential for headaches, as any business with property affected by the regulations must comply with them even though it was complying with the old rules. Essentially this means any business with depreciable assets will likely have to file IRS Form 3115 (Application for Change of Accounting Method) to effectively change prior treatment of affected property to comply with the new rules. That being said, properly implementing the regulations may allow businesses to fully deduct items sitting on their books, thus vastly reducing their tax liability on their 2014 tax return.
Aubrey Lynch specializes in International Tax, Estates and Trusts, and the Healthcare Industry. She joined CS&L CPAs in 2006 and became a principal in 2010. She has previously worked with a Big Four firm in Atlanta and has extensive experience in Estate and Succession Planning. Her private accounting experience has been in the healthcare, professional services and real estate industries, which gives her insight on the unique challenges these industries face today. Aubrey offers full service tax consulting and compliance in all areas of taxation, and her clients find it especially helpful that she is skilled in International Taxation. Her knowledge of this subject provides valuable advice in the highly complex and increasingly regulated area of taxation for foreign entities. Aubreyis the past President of the Manatee County Estate Planning Council and is a member of the Southwest Florida Estate Planning Council.
The single most important tip for small business owners is…
Not to neglect your accounting and recordkeeping.
There are many state, local and federal reporting requirements and regulations, proper accounting and record keeping is vital to ensure you are in compliance and do not endanger your small business with penalties or liens. Many people overlook this essential function, which can be a costly mistake, especially for a small business.
Tom Wheelwright, CPA and CEO of ProVision, is a leading tax and wealth expert, published author (“Tax-Free Wealth”) on partnerships and corporation tax strategies, and a Rich Dad Advisor/Speaker for Robert Kiyosaki, who wrote Rich Dad Poor Dad. Tom is best known for making taxes “fun, easy and understandable,” and specializes in helping entrepreneurs and investors build wealth through practical and strategic ways that permanently reduce taxes. He has been on the Real Estate Guys Radio Show, Money Radio 1510 Business for Breakfast and frequently speaks at Rich Dad conferences worldwide. Learn more about Tom and his work at www.taxfreewealthadvisor.com.
There are literally thousands of tax benefits in the Internal Revenue Code for small business owners. Most important thing I would advise small business owners to do is…
To recognize that the tax law in this and every other developed country on earth is merely a serious of incentives for business owners and investors. Once you (and your accountant) get focused on that singular fact, you are on your way to massive tax reduction.
The tax law IS NOT there to penalize you. If you and your accountant take the time to understand the tax law (e.g., by reading my book, Tax Free Wealth), then you can create a tax strategy (plan of action) to permanently reduce your taxes by thousands of dollars without raising any red flags to the IRS. Here are three simple things you can do right away to reduce your taxes:
- Hire the right tax advisor and tax preparer. This should be the same person. Don’t ever hire tax preparer who is different than your primary tax advisor.People make the mistake of thinking that tax preparation is merely paperwork. While there is a lot of paperwork involved, your tax return can function as the final step of your tax planning. At ProVision CPA’s, we have found 67 specific ways we can reduce a client’s taxes during the tax return preparation process. In addition, a good tax preparer will significantly reduce your chances (and potential cost) of an IRS audit.
- Remember that every dollar you spend could be a tax deduction under the right facts and circumstances. So, if you want to change your tax, simply change your facts. Your tax advisor can tell you which facts to change and how to change your facts so that more of your expenses are deductible. For example, you can deduct more of your car expenses simply by having a home office. Why? Because a home office eliminates the portion of your travel that has to be attributed to nondeductible commuting.
- Take advantage of the lower tax brackets that are around you and aren’t being used. These could include tax brackets of your children, your elderly parents, or your corporation. Shifting income from your tax bracket to a lower tax bracket can save you a lot of money and you don’t have to give up control of the money to do it.
The wealthy know that it doesn’t matter how much you own, it only matters how much you control. Talk to your tax advisor about how to make the most use of available low tax brackets.
Dan Franks is a Certified Public Accountant who specializes in tax consulting, tax planning and tax compliance for small business owners and entrepreneurs. His primary focus is on assisting entrepreneurs with their passions by providing accounting solutions, an area which most business owners are not concerned. Dan is also a leader in the podcast community and helped to create PodMov University, which provides guidance and education to those looking to create their own podcasts. Dan is also a member of Neatology, The Neat Company’s program, comprised of small business owners who are experts in their field. They’ll set you on the right path with proven organization tactics that go hand in hand with streamlining your digital workflow.
The number one thing any small business owner can do to avoid IRS scrutiny (and come out victorious in the event the scrutinization happens) is to…
Keep personal expenses and business expenses separate!
Many times as small business owners, we find ourselves at the store needing to make an unplanned purchase, and not having our business credit card or checkbook handy. It is easy to just say that we will pay for it personally, and reimburse ourselves some other time. On the flip side, sometimes we accidentally (or purposefully) charge personal expenses on the business card, and try to remember to pay the company back at a later date.
These seem innocent enough, but if the IRS comes calling on your business, and they see even one personal expense charged on that business account, it gives them reason to try and dig through every business and personal account you have. It also calls into question the accuracy of everything else you’ve presented to them in current and past years.
The less ammunition we can give the IRS, the better, so do your best to never mix personal expenses with business expenses.
What’s the easiest way to do this? First is, if you don’t already have a separate business bank account, GET ONE! It is a must for all of my clients, regardless of their entity structure or tax type, to open and maintain a bank account that is used exclusively for business. And second, they are to run all possible business expenses through it, and nothing else.
This will make life easier on your bookkeeper (and cheaper for you), optimize your systems to minimize IRS exposure and scrutiny, and give you more than a fighting chance if you end up being audited.
Paul Ferreira, CPA is President of Export Tax Management, with offices in New York, Philadelphia and Boston. Export Tax Management is an international tax advisory firm specializing in the IC-DISC. ETM’s staff of CPA’s supports clients from a variety of industries. Export Tax Management has helped companies nationwide realize hundreds of millions of dollars in tax savings.
Here is my top tax advice for small businesses…
If you’re a U.S. company that exports products or services you may be eligible for a little-known but powerful federal tax savings program called the Interest Charge-Domestic International Sales Corporation (IC-DISC).
You also are eligible if you create a product that is sold to a distributor within the US and then exported. You must be a privately-owned S Corp, C Corp, partnership, sole proprietor or LLC.
Once you’ve determined you’re eligible, the best way to set up an IC-DISC is to hire a CPA with extensive international tax experience that specializes in the IC-DISC. The IC-DISC was introduced by the Nixon administration in 1971 to encourage companies to remain in the U.S. and to discourage them from relocating overseas where labor is cheaper.
In early 2013, President Obama signed the American Taxpayer Relief Act of 2012. This landmark legislation provided permanence for the IC-DISC, allowing companies that have products delivered outside of the U.S. to significantly reduce their federal income taxes related to their export sales. The IC-DISC is a separate corporation from the exporting company; however, the IC-DISC does not pay any federal income tax. It is a domestic corporation that elects to be an IC-DISC, and therefore is not taxed on its income.
Steve Brown is CFO of Capital Stack, LLC, and brings over 20 years of financial executive experience to the team. Steve was the CFO of the IDT Corporation from 1995-2009, where he oversaw the financial aspects of its IPO, and served on the Board of Directors. He is a managing partner with the McGuffin Financial Group, a consulting firm that advises early stage companies; a partner in Brown, Brown and Associates, a tax and accounting firm; and a member of the Academy of Television Arts & Sciences.
Every year, I am approached by my small business clients around tax time, looking for the best way to avoid IRS scrutiny while getting the breaks they legitimately deserve. While I understand the sentiment, I believe that most business owners have an irrational fear of being audited, and that by taking the right steps during the year, they can put themselves in a favorable position when it comes time to file. To accomplish this…
Documentation is the key.
You need to keep a proper diary and travel log documenting your business travel and meetings. The use of a business only credit card is also an excellent method of tracking business purchases and maintaining receipts. If you are eligible for taking a home office deduction, I strongly advise retaining a tax professional who can guide you with IRS regulations to maximize your deductions.
Don’t be afraid to take a deduction you feel is legitimate because you’re afraid of being audited. The IRS will never come back and tell you about deductions you should have or could have taken, and if you have properly documented everything and kept all of your receipts, there is really nothing to fear.
In short, my best advice would be to use the tax codes to your advantage, but remember-the bulls and the bears make money, and the pigs get slaughtered.
Patricia Rivera is a CPA who formerly owned an international transportation company for twenty years before activating her CPA license, and starting 123 Accounting Services, LLC. Patricia uses her experiences in running a small business to help small business owners set up and run their finances properly. Patricia understands the need to ‘audit’ proof your books.
My single best tax tip for small business owners is…
Separate your business and personal accounts.
Too many small business owners see their business as an extension of themselves and they do not segregate their business accounts, checking and credit cards.
A small business whether Sole Proprietor, S Corporation, C Corporation, Partnership, LLC is a separate entity and needs to be treated as such.
The IRS does not respond kindly to personal activities and business activities being mixed into one bank account. The IRS often will recognize the income and disregard the expenses.
Be in a position to provide the IRS with your business accounts for them to substantiate proper income and expenses.
To take advantage of Tax Breaks, Hire an Accountant; have a relationship with an Accountant; do not do your own taxes! The small business owner is in business to do something they love and are good at, Carpenters, Electricians, Plumbers, they are not good at keeping track of deductible business expenses and they are not accountants. Proper Bookkeeping and Accounting is part of the cost of being in business. Do it right from the beginning with the help and assistance of a Professional and avoid the hassles and additional expenses of fixing what you most probably did erroneously.
Seth Deitchman is a Financial Advisor and Portfolio Manager at The Mercury Group at Morgan Stanley.
My best advice to small businesses who are looking to find better tax breaks is to…
Look into local tax credits.
Many states have tax credits available for individuals and business to procure and lessen their local tax burden. For instance, Georgia offers Film and Low Income Housing tax credits. If the owner owes $100,000 for GA taxes, they can buy $100,000 of tax credits for around $.85 on the $1.00. In this case the business owner would only be paying $85,000 instead of $100,000..
If the business is large enough, they entity may benefit from owning their own captive insurance company. This is where the business would be able to do some self-insuring for the business. This is a great way to manage overall risk for the business, buy reinsurance for the business traditionally at a lower cost than traditional retail insurance and potential tax savings as the premiums are funded pre-tax along with other tax benefits.
Vincenzo Villamena is Managing Partner of the CPA firm, Online Taxman, a boutique CPA firm specializing in tax preparation for entreprenuers, US expats and other folks in special situations.
This is my top tax advice for small business owners…
For better tax breaks, small business owners can set up a Solo 401k to contribute to their retirement and receive a huge deduction (up to 52k) depending on their income level.
To decrease risk of an audit (if you are a sole owner LLC), you can give a small amount (1%) to a trusted friend or family member to decrease your risk of audit. Why? The chances of someone being audited on a personal tax return (with a schedule C) are much higher than a partnership return.
Justin C. Lowenthal is a business attorney and is the sole shareholder and CEO of Lowenthal, APC in Davis, California. Justin has represented companies and entrepreneurs at every stage of development, from early-stage start-ups to global corporations, as well as the investors that finance and advise them. With a focus on serving Northern California – one of the largest technology hubs in the world – Justin primarily represents emerging companies as outside general counsel in Yolo, Solano, and Sacramento Counties, as well as the Bay Area.
The single best tax tip I have to offer small business owners to avoid scrutiny from the IRS is to…
Organize their business as a limited liability company or a corporation.
Doing business as a sole proprietorship or general partnership tends to raise more red flags than a formal business entity.
Now, there’s no way to determine exactly what brings about an audit, but it is clear that if your Schedule C shows more than $1 million in sales, the odds of being audited are about 12%. You can arguably reduce those odds and take advantage of potentially lower tax rates, as well as the benefits of limited liability protection, by properly structuring your business as a formal entity.
Peter C. Brehm is a partner with Business Law Center, PLC, in Bloomington Minnesota. Peter advises small business owners on business tax issues, succession planning, buying and selling businesses, and other matters specific to small business owners. He is also an adjunct professor at William Mitchell College of Law in St. Paul, Minnesota.
The simplest thing small business owners can do to address both issues is to…
Document all of their financial transactions.
Small business owners tend to spend first, and document later. This leads them to forget significant deductible expenses like mileage, and (if they used personal funds or a credit card for a purchase) they may have no record at all of the purchase.
Similarly, if the business owner has a record of a payment, but no contemporaneous documentation for the expense, they often attempt to back-fill by guessing at the nature of the expense, which can result in increased scrutiny from the IRS. In particular, business owners should document all monies loaned to their company at the time the money is loaned, so that there is a record to provide the Service establishing that repayments of loans are not considered distributions.
Roy I. Levine is a Senior Member of Levine, Jacobs & Company certified public accounting firm, and brings more than thirty-five years of proven experience and knowledge to the company. He derives great satisfaction from assisting people with their business and personal accounting issues. Roy‘s expertise is in taxation and the servicing of closely held businesses. Through his many years in dealing with closely held businesses, he understands the nuances and the psychology of coping with complex tax and accounting issues.He is a Member and Past President, Chairman of the Board of the Greater Metropolitan Furnishings Association and was the 1997 Recipient of the prestigious Howard Liveright Award For Lifetime Achievement In Serving The Furniture Industry.
My#1 tax tips for small business are…
- Follow through with the proper backup for business expenses.
- Keep organized.
- Keep proper time logs and corroborative evidence, such as daily diaries.
- Annotate business and entertainment receipts with proper notations, as to who you met, the time and date and what was discussed (business purpose).
Robert Blackwell is a Senior Member of the certified public accounting firm of Levine, Jacobs & Company, LLC. He provides accounting, tax and consulting services for a diverse client base of individuals and closely held or family-owned businesses. Robert is also an active participant at the firm’s wealth planning provider, Cetera Advisor Networks LLC.He is a member of the Professional Group Advisory Council at Valley National Bank.
My #1 tip for small businesses wanting to take advantage of tax breaks would be to…
Consider a pension type savings plan like a 401K or a SIMPLE-IRA.
Irina Bobrova is an Enrolled Agent, Certifying Acceptance Agent and NTPI Fellow. Her company, IBA Tax Group, provides tax and accounting services to businesses and individuals nationwide. Irina is specialized in tax debt negotiation and resolution, representing distressed taxpayers before the IRS.
My top tax advice for small business owners is…
To keep very detailed records, and not necessarily in receipts.
Many small business owners overlook deduction of expenses when they cannot find a receipt or paid bill. Unfortunately not everyone knows that documentary evidence is not required for transportation, entertainment, gift or travel expenses, other than lodging, of less than $75, as stipulated in Treasury Regulation §1.274-5.
Business owners still need to have records noting the date, amount, and place and business purpose of the expense to make a deduction. If you add up all such small expenses, you can come up with several thousands in legitimate deductions you would otherwise overlook. So keep your records straight and don’t worry if you lose a receipt.
Noel Dalmacio, CPA, CFP, MS Tax has over 22 years of public and private experience in the areas of tax compliance, tax planning/strategies, accounting and financial planning. He is the president of Dalmacio Accountancy Corp in Irvine, CA. He is also the president of our affiliate firm, Lower My Tax Now, an educational tax company that provides various tax information programs and products.
The biggest tax breaks small business owners can take advantage of is…
Funding their retirement.
If they are a small business, the maximum contribution for a defined contribution plan is $52K. That means, by combining different plans, i.e. 401-K, 401-K matching and SEP-IRAs, they can maximize their retirement contributions up to $52K. If they want to put more, then, they can explore the defined benefit plans for more tax savings.
And how to avoid scrutiny from the IRS?
One of the audit red flags is running a sole proprietorship in your personal return. The audit rate is higher compared with a corporation or LLC. If the business is viable, I usually recommend client to incorporate for the following reasons:
1) Lower IRS audit rate compared to sole proprietorship/Schedule C
2) Asset protection vs the unlimited exposure of a sole proprietor
3) Take advantage of the additional tax strategies that can be implemented for corporations/LLC.
James Toto is a Partner at WeiserMazars LLP, and has over 22 years of experience providing accounting, and tax preparation and planning services to high net worth individuals and families. His experience includes time at a Big 4 firm and regional and boutique firms, giving him a unique perspective on clients from a wide variety of backgrounds ranging from entrepreneurs to corporate executives, from family owned middle-market companies to larger, more complex multi-national organizations. He is a member of the American Institute for Certified Public Accountants, and a Past-President of the Middlesex/Somerset Chapter of the New Jersey Society of Certified Public Accountants.
Here is my top tax advice to small business owners:
The best way to avoid unwanted scrutiny from the IRS is to file a complete and accurate tax return.
Small business owners can take other steps to avoid trouble at tax time, the most important of which is making sure the business files its own return as opposed to a Schedule C on Form 1040. Self Employed persons are more likely to face an IRS Examination than if the business files as a separate tax entity (Partnership or S Corporation).
A great tax break for small business owners is to contribute to their own retirement plan. There are a multitude of retirement plans available offering deductions from as low as a few thousand dollars to six figure amounts by using defined benefit plans. The best part is that you get a deduction and it is still your money!
Kevin Hopson, CPA is the CEO of tax preparation software company, TaxPoint.
My two best tips for small business owners to get a bigger tax break:
A) Maximize your 401K or SEP contribution. This will allow you to defer income that will not be taxed until you retire and hopefully at a lower tax rate.
B) Avoid scrutiny. If you report your income and expense on Sch C of Form 1040 and revenue is in excess of $500,000, I would recommend you form an S corporation to report your business activity. This will be reported on a separate corporate tax return Form 1120S. You will need to pay yourself reasonable W2 wages as the business owner, the rest of the income will flow through to your personal 1040, and will not be subject to self-employment tax, versus all of your net profit on a Sch C Form 1040 is subject to self-employment tax.
Nicole Davis is a Certified Public Accountant in the state of Georgia and she specializes in helping individuals and businesses pay only what they owe to the IRS through tax planning and tax representation. Learn more about Nicole and her work at Butler-Davis Tax & Accounting, LLC.
A great way to reduce taxable income and/or pay less taxes is…
Deducting business mileage.
Usually, mileage does not require any expenditure of cash except for gas and/or routine maintenance. Yet, the deduction can be substantial against a company’s bottom line.
The deduction for 2014 is fifty-six cents per mile. If you have 10,000 qualified business miles, then the deduction to business income will be about $5,600. That is $5,600 that you may not have to pay taxes on. The record keeping is what keeps business owners from claiming this beneficial deduction. However, with proper tax planning and guidance, many business owners will find that the record keeping really isn’t burdensome.
Each small business owner should talk with a tax professional to learn how to record mileage and take every legal deduction applicable to their business. Every dollar saved is a dollar earned.
Kary Bartmasser is a Certified Public Accountant and Registered Investment Advisor (RIA), based in Beverly Hills, Ca. Mr. Bartmasser is dedicated to providing premier financial services and holds numerous titles, including licensed real estate broker, Realtor and owner of InSite Properties real estate firm, registered investment advisor (RIA) and life insurance agent. As a sought-after financial expert, Mr. Bartmasser is often interviewed by leading media. His quotes have appeared in the Los Angeles Times, The Daily News as well as being featured on drive-time radio with superstar personality Ryan Seacrest. Learn more about Mr. Bartmasser and his work at Bartmasser & Co., CPAS.
My top tax advice for small business owners is…
If possible, hire your children, pay them a fair wages, and then contribute to a ROTH IRA for them.
Making 40 annual contributions in the amount of $5,500.00 , earning 7.0% per year, the ROTH would be worth $2,392,423.00 Then have your kids pay for your retirement home/and/or care. You deserve it.
Michael Raanan, MBA, EA is President of Landmark Tax Group and a former IRS Agent who specializes in resolving IRS problems for taxpayers nationwide.
The best way business owners can stay off the IRS radar is to…
Ensure all of their tax filings reconcile.
This includes all tax returns, documents, and other tax-related records sent to the IRS, Social Security Administration, and their State. In addition to personal tax returns, all quarterly filings for their business should reconcile perfectly with the annual tax return.
Bonus Tip: File on time. Filing late, or even worse, filing multiple tax returns late, may trigger an IRS tax audit. Small business owners who file multiple tax returns at the same time may be setting themselves up for review by the IRS. The IRS makes it easy for taxpayers to timely file their return using e-file. Timely filing a tax return, even if their is a balance due, will help minimize any potential problems with Uncle Sam.
Jayson Mullin is a Tax Expert in Houston, TX and co-host of the hit radio show “Tax Time,” which airs every Saturday from 2-3 pm on 950 AM. He is an experienced property tax consultant and the co-owner of Republic Property Tax and Top Tax Defenders, helping taxpayers avoid tax scams.
Here is my top tax advice to small business owners…
Many business owners overlook the need for tax planning. One example of planning is determining which type of entity to be (Sole proprietor, single member LLC, S Corp, C Corp, etc.). This is especially important when money gets tight and payroll tax deposits are used to fund the business. A single member LLC, S Corp, and C Corp are treated the same; some of the tax liability stays with the entity when it closes. The example below illustrates the tax benefits of incorporating:
Company A Company B
Sole proprietor Single Member LLC, S Corp, C Corp
Fixed Assets $100,000 $100,000 (leased from related party)
Payroll Tax Liability $150,000 $150,000
Company A stands to lose the fixed assets to the IRS. If seized the amount realized will be less than book value, possibly substantially less. The $150,000 payroll tax liability will remain with the owner, even if the business goes out of existence. Potential loss to Company A if closed:
Fixed Assets $100,000
Payroll Tax Liability $150,000
Total loss, not including penalty and interest $250,000
Company B does not stand to lose the fixed assets. These were leased from a related party and the IRS has no claim to them. The payroll tax liability, in the form of the Trust Fund Recovery Penalty, will be assessed to those responsible for paying the IRS. The TFRP is only the amount withheld from employee paychecks. From experience this will be 55% to 65% of the actual liability ($82,500 to $97,500). Potential loss to business if closed:
Fixed Assets $ -0-
Payroll Tax Liability $82,500 to $97,500
Total, not including penalty and interest $82,500 to $97,500
Had Company A planned ahead of time the owners might have been able to reorganize under a new name and structure.
Michael W. Merna Jr., CPA, CVA has been with Schiffman Grow & Co since November 1992. He is a graduate of The Ohio State University with a degree in Accounting and Business Administration, and became a Certified Public Accountant in 1993. In 2012, Mike earned the Certified Valuation Analyst (CVA) designation. On most days he can be found working with small business owners, helping them better understand their financial situation, as well as working on their accounting and tax needs. He has over twenty years of experience in auditing, tax preparation and planning, both for the businesses as well as the owners and their families.
My single tip for a small business owner is to…
Get help from qualified professionals up front.
The clients with the biggest IRS problems are almost always from situations where they tried to save some money by doing their own payroll and/or tax returns. There are probably a few that have the background and knowledge to do it but most do not. This single mistake can cost a business owner thousands of dollars in the long run.
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