Should you elect S corporation status?
Operating a business as an S corporation may provide advantages, including limited liability and no double taxation (at least at the federal level). Self-employed people may also be able to lower their exposure to Social Security and Medicare taxes. But not all businesses are eligible and, with tax law changes, S corps may not be as appealing as they once were. Double taxation may be less of a concern due to the 21% flat income tax rate that now applies to C corporations, while the top individual rate is 37%. On the other hand, S corp owners may benefit from the new qualified business income (QBI) deduction, which can equal as much as 20% of QBI. Contact us for more information.
Is it time to hire a CFO or controller?
Many business owners reach a point where managing the financial side of the enterprise becomes overwhelming. In such instances, it may be time to add a CFO or controller. This executive looks beyond day-to-day financial management to do more holistic, big-picture planning. A CFO or controller also serves as the primary liaison between your company and its bank. The hire should be able to implement improved cash management practices to boost cash flow and improve budgeting, too. Making this hire, however, represents a major commitment in both time to the hiring process and dollars to your payroll. You may want to outsource the position. We can help you further assess the idea.
The tax implications of being a winner
If you’re lucky enough to be a winner at gambling or the lottery, congratulations! But be aware there are tax consequences. You must report 100% of your winnings as taxable income. If you itemize deductions, you can deduct losses but only up to the amount of winnings. You report lottery winnings as income in the year you actually receive them. In the case of noncash prizes (such as a car), this would be the year the prize is received. With cash, if you take the winnings in annual installments, you only report each year’s installment as income for that year. These are just the basic rules. Contact us with questions. We can help you minimize taxes and stay in compliance with all requirements.
The IRS is targeting business transactions in bitcoin and other virtual currencies
More businesses are accepting bitcoin and other virtual currency payments, and the IRS is taking notice. The agency just announced it is sending letters to taxpayers who potentially failed to report income and pay tax on virtual currency transactions or didn’t report them properly. The letters urge taxpayers to review their tax filings and, if appropriate, amend past returns to pay back taxes, interest and penalties. By the end of August, more than 10,000 taxpayers will receive these letters. The names of the taxpayers were obtained through IRS compliance efforts. Contact us if you have questions about virtual currency or if you receive a letter from the IRS about possible noncompliance.
Taking a long-term approach to certain insurance documentation
After insurance policies expire, many businesses throw away the documents related to them. But you may need evidence of certain kinds of insurance even after the coverage has expired. For this reason, it’s best to take a long-term approach to “occurrence-based” policies such as general liability, umbrella liability, commercial auto, and commercial crime and theft. Retain documents permanently (or as long as your business is operating). Also consider employment practices liability insurance (EPLI), which protects companies from employee claims of legal rights violations. Keep EPLI documentation permanently, too. Our firm can provide further info.
The “kiddie tax” hurts families more than ever
Congress created the “kiddie tax” to discourage parents from putting investments in their children’s names to save tax. Over the years, it has gradually affected more families because the age at which it generally applies was raised to children under age 19 and full-time students under age 24 (unless the children provide more than half of their own support). Now, under the Tax Cuts and Jobs Act, the kiddie tax hits even harder. For 2019, an affected child’s unearned income above $2,200 generally will be taxed at rates paid by trusts and estates, up to 37%. That means children’s unearned income could be taxed at higher rates than their parents’ income. Contact us for details.
Take a closer look at home office deductions
Working from home has its perks. You can skip the commute and you might be eligible to deduct home office expenses on your tax return. But you must meet the tax law qualifications. Under current law, employees can no longer claim home office deductions. But if you’re self-employed and run a business from your home, deductions may still be available. You might qualify if part of your home is used exclusively and regularly for administrative or management activities and you don’t have another fixed location where you conduct the activities. You also might qualify if you physically meet with clients/customers there or you use a storage area in your home for business. Contact us for details.
The “nanny tax” must be paid for more than just nannies
You may have heard of the “nanny tax.” But even if you don’t employ a nanny, it may apply to you. Hiring a housekeeper or other household employee (who isn’t an independent contractor) may make you liable for federal income tax, Social Security and Medicare (FICA) tax and federal unemployment tax. You may also have state tax obligations. In 2019, you must withhold and pay FICA taxes if your worker earns cash wages of $2,100 or more. You pay household worker obligations by increasing your quarterly estimated tax payments or increasing withholding from wages, rather than making a lump-sum payment. Employment taxes are then reported on your tax return. Contact us for assistance.
Businesses can utilize the same information IRS auditors use to examine tax returns
The IRS uses Audit Techniques Guides (ATGs) to help IRS examiners get ready for audits. Your business can use the same guides to gain insight into what the IRS is looking for in terms of compliance with tax laws and regulations. Many ATGs target specific industries, such as construction, aerospace, art galleries, child care providers and veterinary medicine. Others address issues that frequently arise in audits, such as executive compensation and passive activity losses. ATGs allow auditors to uncover unique industry issues, common areas of noncompliance, customary business practices and terminology. For a complete list of ATGs, visit the IRS website here: https://bit.ly/2rh7umD
Run your strategic-planning meetings like they really matter
Many businesses struggle to turn abstract strategic planning ideas into concrete, actionable plans. One reason is simple: ineffective meetings. A good way to get started running better ones is to involve everyone in the agenda-setting process. Also, encourage meeting leaders to speak with conviction and express positivity (if not passion) for the subject matter. To prevent “meeting fatigue,” keep gatherings short and consider having participants break out into smaller groups. One final idea: Tell a story that will grab attendees’ attention and inspire them to come up with creative, feasible ideas.