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7 Tax Tips to Avoid an IRS Audit with Your Small Business

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tax filing, tax accounting, tax accountantBeing subject to an IRS audit can be a monumental challenge for your small business. In fact, the IRS has been getting more vigilant in their approach toward such businesses in recent years. However, there are ways to avoid an audit.

As you file your small business tax return this year, here are seven tax tips you can use to protect yourself against an IRS audit:

1. Use a good record-keeping system

A reliable record-keeping system is the key to not only save money but also maintain adequate tax documentation. Research what kind of documentation you need to gather and maintain for your tax needs. Ensure that you have processes in place to keep this support at tax time.

2. Decide on the best accounting method for your business

Businesses use one of two tax accounting methods: cash and accrual. Depending on the nature of your small business, its legal structure, and its credit situation, you may consider one of these accounting methods. Even if you happen to pick one not suited for your business at first, there are ways to resolve any discrepancy.

3.  Stay current on tax filing and file any past due returns

If there is an issue, and you’re current, your tax professional has a lot more options to help you resolve it. If you happen to have any past due tax returns related to your business, make sure to file them as soon as possible. This will help you avoid any penalties and interest and get on the right track with your taxes.

4. Clarify any unusual circumstances

If you or your business encounter any unusual circumstance (such as an inheritance) discuss it with your tax professional. They will likely ask all sorts of clarifying questions to determine whether or not you A) owe taxes on it and B) it is a reportable event.

5. Report all your business income

One of the things the IRS looks at in determining their audit cases is whether all income is reported. Make sure to obtain and maintain records of all your business income. Ensure that you have matched all your records and reported the right amount.

6. Review your tax return

There are many details that can fly under the radar during the tax review process. Make sure to carefully go over your tax return before submitting it. Even if you’re using a tax professional to help you file, ensure that you also review and understand your return before final submission.

7. When in doubt, use a tax professional

Filing your business’s tax return can be a complex process. If you have doubts as to how to undertake this process, consider consulting with a tax professional. They can help you better navigate the filing process and submit a more accurate return.

Are you wondering how to survive an IRS tax audit?

Contact us for a free consultation at (561) 842-1304.

Sources:

  • “Avoiding Problems.” Internal Revenue Service. Accessed January 08, 2018. https://www.irs.gov/businesses/small-businesses-self-employed/avoiding-problems.
  • “Six Tips to Avoid an IRS Audit.” Six Tips to Avoid an IRS Audit | NAEA. February 12, 2013. Accessed January 08, 2018. https://www.naea.org/newsroom/press-releases/six-tips-avoid-irs-audit.
  • “Visit the IRS Small Business Tax Center for All Your Tax Needs2 | Internal Revenue Service.” 2 | Internal Revenue Service. Accessed January 08, 2018. https://www.irs.gov/newsroom/visit-the-irs-small-business-tax-center-for-all-your-tax-needs2.

 

 

 

5 Tax Planning Strategies for Professional Service Providers | The Balance Sheet Inc

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tax services, tax consultant, tax preparation servicesAs a professional service provider, applying effective tax strategies can help you meet your financial goals. While you may feel too busy with the demands of your practice, it’s crucial that you take the time to plan your tax strategy.

Here are 5 top tax planning strategies that will help you accomplish your business and financial goals this year:

1. Maximize your deductions

If you’re claiming itemized deductions, you may be able to take advantage of the Net Operating Loss Carryover, if available. Keep in mind that the Net Operating Loss Carryover must be clearly shown on prior income tax returns and financial statements. You can claim your Net Operating Loss Carryover within three years of from the year in which the loss was incurred.

2.Leverage your tax credits

Tax credits are for things like energy, offering medical insurance, and more.  To fully leverage your tax credits, you need a knowledgeable tax professional to let you know what credits apply to your business. Feel free to contact us, we’re eager to help.

Corporate income losses from prior years may be used as credits against your income tax due. Losses can either carry back 2 prior years or carry forward for 20 years. Consult with your tax professional on the best strategy for you.

3.Get Charitable

If you’ve made charitable contributions to accredited institutions, you may be able to deduct these fully. However, in order to claim your charitable contributions, you may have to provide a Certificate of Donation. Any time a donation is over $250 a statement is required.

4.Mind your excess income tax payments

If you’ve overpaid your income tax, you may be able to apply that tax credit to the following year or receive a refund. Keep in mind the option to carry over is irrevocable.

5.Track your unappropriated retained earnings

Unappropriated retained earnings refer to the net income that has not been allocated as income to its shareholders or officers. They are usually distributed as dividends and taxable at that time. Timing of distribution can affect your tax bill.

Are you wondering about the best planning tax strategies for professional service providers? Contact us for a free consultation at (561) 842-1304.

Sources:

“Tax planning strategies.” BusinessWorld. Accessed August 26, 2017. http://www.bworldonline.com/content.php?section=Economy&title=tax-planning-strategies&id= 127590.

Hananel, Eric. “Tax Planning Strategies for Individuals in 2017.” Investopedia. January 10, 2017. Accessed August 26, 2017. http://www.investopedia.com/articles/taxes/011017/top-tax-planning-strategies-2017.asp.

PricewaterhouseCoopers. “Personal financial services.” PwC. Accessed August 26, 2017. https://www.pwc.com/us/en/private-company-services/personal-financial-services.html.

 

 

5 Tax Accounting Tips To Prepare Your Business for Success

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Did you just start your own business? Are you wondering what the essentials are to prepare it for success? A large part of ensuring that your business thrives, is making sure that your business funds are properly tracked. This is also known as “tax accounting”, and constitutes the backbone of businesses of any size.

Here are five tax accounting tips to prepare your business:

1.Understand your business entity

As a business owner, you’re liable for a certain amount of tax, depending on your business structure. While you may not have to understand the ins and outs of your particular tax situation, you should have a basic understanding of it.

For instance, you may qualify for substantial tax savings as an S corporation. However, it may be harder to operate than a single member LLC, for example. As an LLC, you may have the option to change the way your business is taxed. Options like being taxed as a regular corporation or an S-corp. Knowing your business entity and the different tax breaks each can provide, has the potential to save you money. Always consult with a tax professional, which leads to our next item.

 2.Consider hiring a professional

 Preparing your business for taxes is a complex task. Consider hiring a professional to help you through this process. The point is not just to get your taxes filed or checking every deduction box.  You want to maximize your tax benefits for your type of business.

A tax professional can help you structure your business for the best tax advantages. He/she can also help you understand the specific IRS requirements for your type of business, so as to better manage your prospective tax liability. While a bookkeeper can help you set up a good record-keeping system, an accountant can handle your year-end tax planning.

3.Get familiar with the various methods of accounting

As a business owner, you must select the accounting method best suited to your type of business. The two methods that are generally used and accepted consist of accrual accounting and cash accounting.

While the accrual method depicts your current, real-time financial situation, the cash method reflects the actual money inflows and outflows occurring in your business. Be mindful of these as you set your business, and consider letting a professional help you determine the best choice.

Cash and accrual are your basic methods of accounting. There are other accounting methods depending on your industry.

 4. Understand what’s deductible in your business

It’s important to understand what is deductible and what is not in your business. This knowledge will help you substantially save on your tax liability.

You can deduct a number of other costs and expenses in your business, including startup costs, education expenses, auto deductions. Equipment, entertainment, travel, and software expenses are also deductible.

5. Track your expenses accurately

Having a complete and accurate record of your expenses is crucial in order to take advantage of any tax deductions. This also means keeping a detailed record of your business transactions, including your mileage log as well as expense receipts. You’ll also need to carefully separate your personal from your business expenses.

It is best to get good bookkeeping software and enlist a professional to set it up for you. That way, using it is user-friendly and built around your needs.

Are you wondering how to apply these bookkeeping tips to your business?

Contact us for a free consultation at (561) 842-1304.

 Sources:

  1. Anon, (2017). [online] Available at: http://www.jelfsmallbusiness.co.uk/media/178275/Tax-Guides-for-Small-Businesses-V04.pdf [Accessed 10 Aug. 2017].
  2. Anon, (2017). [online] Available at: https://www.irs.gov/pub/irs-pdf/p334.pdf [Accessed 10 Aug. 2017].
  3. Staff, I. (2017). Tax Accounting. [online] Investopedia. Available at: http://www.investopedia.com/terms/t/tax-accounting.asp [Accessed 10 Aug. 2017].
  4. co.uk. (2017). Small business tax and accounting guides. [online] Available at: http://www.bytestart.co.uk/section/tax [Accessed 10 Aug. 2017].
  5. Google Books. (2017). K. Lasser’s Small Business Taxes 2017. [online] Available at: https://books.google.com.ph/books?id=o3kxDQAAQBAJ&printsec=frontcover&source=gbs_at b#v=onepage&q&f=false [Accessed 10 Aug. 2017].

The IRS Responds to Those Affected by Hurricane Irma

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Upcoming Deadlines Extended for Those Affected by Hurricane Irma

The upcoming deadlines for tax returns and tax payments have been extended until January 31, 2018. This includes the September 15, 2017 deadlines for tax payments and tax returns that are on extension; as well as, the October 15, 2017 individual extensions and November 15, 2017 non-profit extensions.

“WASHINGTON –– Hurricane Irma victims in parts of Florida and elsewhere have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.

Today’s relief parallels that granted last month to victims of Hurricane Harvey. This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.

“This has been a devastating storm for the Southeastern part of the country, and the IRS will move quickly to provide tax relief for victims, just as we did following Hurricane Harvey,” said IRS Commissioner John Koskinen. “The IRS will continue to closely monitor the storm’s aftermath, and we anticipate providing additional relief for other affected areas in the near future.”

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Parts of Florida, Puerto Rico and the Virgin Islands are currently eligible, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 4, 2017 in Florida and Sept. 5, 2017 in Puerto Rico and the Virgin Islands. As a result, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were originally due during this period.

This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

A variety of business tax deadlines are also affected including the Oct. 31 deadline for quarterly payroll and excise tax returns. Businesses with extensions also have the additional time including, among others, calendar-year partnerships whose 2016 extensions run out on Sept. 15, 2017 and calendar-year tax-exempt organizations   whose 2016 extensions run out on Nov. 15, 2017. The disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.”

For Those Who Need Immediate Monetary Relief.

The IRS has announced that those in affected disaster areas have the option to amend their 2016 tax return and claim the damages on that return to get funds now instead of waiting for the 2017 return.

“Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

For information on government-wide efforts related to Hurricane Irma, visit www.USA.gov/hurricane-irma.”

 

Quoted items are direct copy/paste from emails received by the IRS.

8 IRS Audit RED FLAGS you MUST avoid when preparing your taxes

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8 IRS Audit RED FLAGS you MUST avoid when preparing your taxes
Filing an income tax report is like walking on egg shells, do not be swayed by audit baits that will send the IRS knocking straight on your door. While the agency is reportedly having cuts in their budget, which would likely translate to fewer audits, that does not mean they are letting their guard down. 

Now let’s walk through standard IRS tax filing errors and find out how you can steer away from committing the same mistakes.

1. Declare ALL of your income.

IRS does not rely on your honesty, according to the National Association of Enrolled Agents (NAEA), it uses an automated form-matching program that detects discrepancies between what you report and what is in their database.

Copies of form W-2 for the wages, as well as 1099s for interest, dividends and capital gains filed by independent contractors and freelancers,  are also sent to the IRS. Always reflect these figures on your federal tax return or any discrepancies will trigger correspondence audit.


2. Don’t declare losses for extended periods, unless you can prove it.

Nobody is running a business for charity. It is understandable that new ventures need to recover the operation costs for a year or so before beginning to generate projected profits, and the IRS acknowledges this, but over declaring losses for an extended period will often sound the alarm for an IRS audit.

IRS tax attorney Garrett Gregory of Addison, Texas said: “report losses for three or more years and the agency will start to suspect ‘hobby lost’ cases” he said: “often calls for field audits which are in-person and more onerous than a correspondence audit.”

Be ready and keep records of your business expenses, document everything to prove you have a real business.

“You want to prove that you ‘breathed it, ate it, slept it, and drank it,’” Gregory added.


3. Anything Weird – Explain it.

Anything that looks off and questionable is among the IRS first red flags. Be the best judge, anticipate which of the entries would likely call for extra clarification, and provide it.

NAEA said insufficient net income, for example, warrants explanation and would require disclosure statement detailing how you managed to pull yourself off, either through savings, loans or credit cards.


4. Home Office Deduction Triggers.

Never report deductions for both office and home rental. Typically, your office is in one place, if not then explain it.

NAEA suggests that if your rental expense is for a business storage unit or equipment, it should be labeled property as ‘storage rental’ or ‘equipment rental.’

 

5. Report ALL Sales Incurred.

Bear in mind, the IRS has complete access to all necessary files and has programs that ultimately leave you no room to hide, either intentional or not, don’t leave anything out.

When you sell your home, the title company will send the IRS a 1099-S form, recording the proceeds from the sale. Even if the capital gains on the sale fall below the tax-exempt limits, it is still recommended to report the information on your return.

The same applies to the sale of mutual funds. Enrolled Agent Stephen DeFilippis of Wheaton, III said: “that in particular cases like selling a mutual fund bought before 2011 outside of tax-advantaged retirement account and reinvesting this in another mutual fund, must be reported or the IRS will assume the total proceeds from the sale are all taxable gains.”


6. Include Your Overseas Money.

If you think the IRS audit cannot sniff this, you are wrong. Under the new Foreign Account Tax Compliance Act (FATCA) foreign institutions will soon be sending this information to the IRS like any other bank or brokerage would in the United States.

If you fail to declare this income, penalties and back taxes will soon be crawling on your back.

 

7. Watch out for Mortgage Interest Deductions.

DeFilipis said: “when you co-own a house with your spouse, the lender sends you and IRS Form 1098, which records your mortgage interest during the year. However, often, this record also shows the social security numbers, should the person die, and the surviving partner tries to claim the mortgage interest deduction, it is already flagged.”

These tax audit red flags may come in handy; the key is to go over this carefully and declare everything, or better yet hire professional accountants in West Palm Beach to do the job for you.

For more information, please contact us.

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A Basic Tax Guide for Freelancers

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IRS tax return, tax services, tax accounting

Independent contractors or freelancers are solely responsible for filing their Income Tax returns as well as ensuring that the Internal Revenue Service (IRS) receives the right information, regardless of the amount you earn. This is a serious matter, and you have to handle accordingly.

If you are a newbie, here’s some old hand advice on how you can effectively manage your tax account.

1. Keep Your Own Record.

As an independent player, you will be issued a Form 1099 at the end of the year, keep your record using spreadsheets, or better yet get small business accounting software like QuickBooks to make it easier to track.

Bear in mind the expert advice, that relying solely on 1099s to tell you how much money you have earned is too risky. Some clients miss payments and make mistakes in calculations, filing your record is the smartest way to avoid errors.

2. Don’t Attempt to Hide Anything.

Trying to make cuts on Freelancers Taxes is a no-no. Everybody sends copies of his or her 1099 to the IRS, so if you drop one out, the IRS system will undoubtedly detect the discrepancy. Although we know some clients do fail in record keeping, it is too risky, always be on the safe side.

3. Use Separate Business Accounts.

To quickly glean through independent contractors’ tax deductions, especially the newbies, simplify your records by starting off with a separate business bank account. This way, all of your personal spending will not get mixed up, and having different bank statements for your business makes it easier to backup the information on your tax return.

4. Expect Mandatory Self-Employment Tax.

On top of the regular income tax rate, independent contractors should expect mandatory self-employment tax designed to cover social security and Medicare concerns that would normally be withheld by a traditional employer.

5. Identify Your Deductible Expenses.

When it comes to IRS rules on deductions, it must be both reasonable and necessary.  Take for example the equipment you need and travel expenses; as long as they are incurred as an indirect result of your freelance work.

One good thing with independent contractors’ tax deductions is it be can used to save for the future. Consult with a financial planner or a retirement specialist to find out how you can fund your retirement without the 401k or pension benefits a regular job might provide. There are many options: IRAs, Roth IRAs, investments, etc.

Get Professional Help.

Filing your taxes can be a daunting experience, especially if you have not been keeping records, there’s a lot to look into, and management is an entirely different thing to accounting. Why not get some professional help from The Balance Sheet Accountants? They not only take charge of your tax concerns but can help you analyze your financial standing with the tools that they use and experience they bring to your company.

Call us at (561) 842-1304 for more information on how we can help.

 

2017 Standard Mileage Rates for Business, Medical and Moving Announced

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The Internal Revenue Service issued the 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

New Due Date for Form 1099-MISC Box 7 Use

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According to the 2016 General Instructions for Certain Information Returns:

  • New Due Date for Forms 1099-MISC Using Box 7 — January 31, 2017 is now the due date for filing Forms 1099-MISC when reporting nonemployee compensation payments in box 7. Otherwise, file on paper by February 28, 2017, or file electronically by March 31, 2017. (The due dates for furnishing payee statements remain the same.)
  • Electronic Filers must use the FIRE System. The IRS has included a “First Time Filers Quick Reference Guide” in Publication 1220 (page 2).
  • Extensions — A 30-day extension must be requested by the due date of the return. Under certain hardship conditions, an additional 30-day extension can be requested. For more information, go to https://www.irs.gov/pub/irs-pdf/i1099gi.pdf (page 6).

More detailed information is available at https://www.irs.gov/pub/irs-pdf/p1220.pdf.

IRS Announces New Due Date, Filing Extensions, & Penalties for Form W-2

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According to the 2016 General Instructions for Forms W-2 and W-3 published by the IRS:

  • New Due Date for Forms W-2 — January 31, 2017 is now the due date for filing 2016 Forms W-2 and W-3 with the SSA, whether filing using paper forms or electronically. (Forms W-2AS, W-2CM, W-2GU, W-2VI, and W-3SS are also included.)
  • Extensions Not Automatic — Extensions of time to file Form W-2 with the SSA are no longer automatic. For filings due on or after January 1, 2017, one 30-day extension may be requested. However, the IRS will only grant the extension in extraordinary circumstances or catastrophe.
  • Higher Penalty Amounts — Higher penalty amounts apply to returns required to be filed after December 31, 2015 and are indexed for inflation.

More detailed information is available at https://www.irs.gov/pub/irs-pdf/iw2w3.pdf.