Having our own business comes with many different challenges and responsibilities and making sure we overcome all of them while remaining compliant with all our requirements can be tough at first. However, if we took the time to work on a business plan, we might already have a clear idea of the steps we need to take. Part of these responsibilities includes paying our company’s taxes, whether we need to do this quarterly or annually. These are some of the taxes you need to be aware of when you start or own a business.  

Income taxes. To begin with, every business must pay taxes on the profit they generate, which corresponds to their total income minus deductible expenses. Small business owners, partners in corporations, and owners of S-Corps can pay these taxes through their personal income tax returns. However, sole proprietors and members of single-member LLC’s need to file a Schedule C and include it in their personal return.  

Sales tax. Depending on the state our business operates, our company might be subject to paying sales taxes on the products and services we sell, which may also vary from one state to another. Nonetheless, companies in most states are required to collect sales taxes and pay them to the department of revenue of each state. These taxes also include the items and services we offer online, which may be required for specific types of online stores.  

Property tax. if our company owns buildings, land, or any other type of real estate, we will be subject to property taxes, which are paid to our local taxing authorities, such as the city or the county our property is located at. These taxes are determined based on the assessed value of our property, and even when a portion of these can be deductible, we need to consult with the IRS before assuming our property expenses are eligible for a deduction.  

Self-employment taxes. These correspond to Social Security and Medicare, and sole proprietors and partners must pay them based on their business’s income. This is because business owners, proprietors, and partners do not qualify as employees of their companies, which means that they cannot withhold these taxes that way. The only ones who would be exempt from self-employment taxes are the owners of corporations who work as employees. 

Payroll taxes. Companies are also required to pay taxes on employment or payroll corresponding to the earnings of our employees. These taxes must be paid to both the IRS and the Social Security Administration. Employment and payroll taxes are used to cover different types of taxes, including FICA taxes, unemployment, and workers compensation taxes on both federal and state levels. 

Just as individuals do, businesses have to pay taxes on any property they own, including land and buildings, and it might be a bit tricky for small business owners who have just started operations. However, understanding how to pay and deduct property taxes as small business owners will help us keep our company compliant while making our accounting and legal responsibilities more manageable. This is what you should know regarding property taxes if you or your company have just purchased a property or any real estate assets. 

As we mentioned above, businesses that own property or real estate are required to pay tax on such properties to the IRS. These taxes are called ad valorem because they depend on the value of the property, which means that the value is determined by a property assessor. We must remember, though, that the assessed value for tax purposes is not the same as the fair market value, which would then be determined by a business appraiser.  

When it comes to property taxes, these are assessed by different local entities, like towns, cities, counties, or villages, and they are used for local purposes such as building and improving roads, schools, and any infrastructure that the community needs. Therefore, the corresponding tax authority will register the properties owned by your business and send a tax bill showing the amount of tax you should cover year by year.  

You should keep in mind that some property expenses can be deductible, but the IRS has set different limitations that you need to be aware of. TO begin with, you will be able to make a deduction based on the assessed value of your property. In order to deduct a portion of your property taxes, expenses must be made for local benefit, including maintenance, repair, or interest charges. However, you need to consult your local taxing authority to make sure your company’s expenses will qualify.  

If you are thinking about buying or selling business property, you also need to keep in mind that during the year of the transaction, the tax bill would then be shared between the buyer and the seller. This will be determined by the period of time during which a real estate asset was owned by the seller and the period of time during which the buyer became the new owner.  

Property taxes for small business owners might be a bit trickier than we think but having the right tax professional by your side giving you the guidance you need will make this process much easier. If you are a business owner who wants to buy or sell a property for your company, get in touch with us and we will give you the assistance you deserve.  

One of the biggest responsibilities for business and corporations, regardless, is ensuring compliance when filing their income tax report. Since failing to do so, either by mistake or intentionally, can have severe consequences on any company, we need to make sure we are submitting our information accurately and in a timely matter. This might feel more difficult for small businesses for many different reasons, as they may not have enough experience or an assigned tax advisor to guide them. That’s why we have summarized four simple steps for small businesses to file their federal income taxes in an easy and efficient way.  

The very first step of the process must be gathering all our records, making sure we have every paper and every receipt that we need in order to accurately document our business expenses and earnings. In order to make this step even easier, we should consider using an expense-tracking software or keeping the record on a spreadsheet. This would allow us to have a digital backup of our receipts in case we need one, and we might also be able to import our information directly to our income tax report.  

Once we have put together all our expense and earnings information, we need to find the right form for our business, which will change depending on how we are operating our businesses. Many small businesses are run as a sole proprietorship, so they are able to report their income taxes by attaching a Schedule C form to their personal taxes. The IRS would also allow you to use Schedule C if you run your business as an LLC and you are the only owner. In the case that you ran your business as a corporation or you treated your LLC as one, then you would also need to file your taxes filling a separate Form 1120. 

After finding the right form for our business, we can move onto filling out the information required. If we are going to be filing Schedule C, we shouldn’t worry much, as it is a two-pages long form which lists all the possible expenses and deductions our business can claim. Form 1120 is quite similar, but this form requires more detailed information that might not always apply to small businesses. Besides, this form must be separate from your personal taxes, unlike Schedule C. 

Every business owner must pay a lot of attention to the different tax deadlines that might apply for their companies, depending on the organization structure and the tax form they will be submitting. Since Schedule C is part of the regular Form 1040 for personal taxes, the April deadline would not change. C-Corporations filling Form 1120 need to file their taxes on the 15th of the fourth month after the tax year closes, which would be April. S-Corporations filing Form 1120S need to submit their taxes on the 15th of the third month after the tax year closes, which would be March.  

If you want to know more about the different steps for small businesses to file their federal income, don’t hesitate and get in touch with us. We will be glad to give you all the assistance and guidance you and your company need.  

As many of us are aware of, there are many business expenses that can be deducted from our taxes, whether we are self-employed, or we are owners of our own company. However, there are so many different types of expenses that business of any size make as part of their daily operations, that missing some deductions can happen at any time. Therefore, we are bringing an extensive list with plenty of deductible business expenses so that you can take advantage of them and use this to make your business grow and become more successful.  

To begin with, we need to keep in mind that we will come across two different types of business expenses, ordinary and necessary expenses. Ordinary expenses refer to all the expenses that other companies working on your field will make on a regular basis. Necessary expenses refer to all the payments we make that are needed in order to keep our operations going. This is a list of the most common fully deductible business expenses, including both ordinary and necessary expenses:

• Accounting fees        • Advertising      • Bank charges         • Commissions         • Consultation fees       
• Professional education          • Credit and collections        • Delivery charges      • Employee benefits 
• Equipment rental        • Insurance        • Interests         • Internet services          • Legal fees 
• Licenses        • Maintenance         • Office supplies       • Training fees       • Rent        • Salaries 
• Security         • Software         • Travel          • Utilities 

 Other deductible expenses that we might not be aware of include gifts to customers or clients. Sometimes, a small detail to show appreciation can go a long way, helping us secure a long-lasting relationship with our clients or business partners. However, we need to keep in mind that gift expenses are only deductible for up to $25 per person. So, if you are buying $100 gifts, the remaining $75 will be out of your pocket, but if you buy $20 gifts, these would be fully deductible. Also, gifts you give to your employees also fall under this category with the same $25 limit still applying.  

Another commonly forgot business expense that can be deductible is that of meals and entertainment. These costs are usually deductible up to 50% of what you spend, as long as the meal or entertainment cost was business related. So, taking a client or our employees to dinner and paying for their meals qualify for a business expense deduction, and you can even add the tip.  

Car and transportation expenses are also deductible, and these consist in the costs of gas and fees, for example, when we are going to our business or when we are meeting a client. The best way to make sure we are keeping track of our daily expenses is by having a log, whether on paper or using a smartphone app. This way, we will be able to have an accurate record that will come quite handy when it is time to file our taxes.  

In order to deduct your business expenses, you need to complete and file either Schedule C or Schedule C-EZ so that you can itemize your expenses and calculate how much income will be left after you have taken care of the deductions. If you want to get more information on business expenses and how to deduct them, get in touch with us and you will get all the assistance you need.  

Self-employment taxes tend to be one of the biggest challenges for freelancers, startups, and anybody working from home or on a business of their own and are usually subject to higher Social Security and Medicare taxes. However, one great way to deal with these taxes and make them more manageable is by setting your business as an S Corporation. This way, the IRS will look at your taxes from a different perspective, which could result in lowering the amount of taxes you would pay as self-employed.  

One of the most relevant advantages of filing as an S Corporation is that it can help us reduce the amount of FICA taxes that we pay, which include Social Security and Medicare taxes. When we file our taxes as self-employed, we must cover the entire amount of FICA taxes, yet when we are employees, our employers cover a part of that. When we file as S Corp, though, we can report a part of our annual gross revenue as a net profit as long as we take a portion of the AGR to cover our salary. This way, instead of paying the 15.3% of FICA taxes from our profits, only the part of our salary is subject to taxes, and the rest net profit will be taken as a distribution from the business.  

Working as an S Corp allows us to classify a portion of our income as our salary, and another portion as a distribution. As we mentioned above, the portion that is meant to cover our salary will still be subject to self-employment taxes, while the portion that qualifies under distribution will be subject to ordinary income tax. Therefore, this is a great way to lower our FICA taxes balance, which could end up representing a significant reduction.  

On the other hand, we must be cautious when we are filing as an S Corporation since this type of incorporation will make the IRS take a closer look at our income tax return. S Corps structures have been used to abuse the system and avoid self-employment tax, which will result in a more careful review. Therefore, we need to make sure we are designating a reasonable amount of our company’s income as our salary so that we don’t end up being subject to an IRS audit. For example, if our business is making an annual gross revenue of $50,000, a reasonable salary would be around $25,000 to $30,000. 

It is important to do our corresponding research before deciding to turn our company into an S Corporation, since there may be some additional costs we might not be aware of. For example, S Corps will require legal and accounting costs, both for the start-up and once we have our operations running. Also, some states require S Corps to cover additional taxes and fees, just like the case of California, where S Corps are required to cover tax of 1.5% on its income, with a minimal annual amount of $800.  

Being a business corporation comes with many advantages, including several tax deductions that the IRS allows for expenses that are needed to keep our operations going. There are different types of expenses that can be deductible, including current expenses and capital expenses. Current expenses are the expenses needed to keep our corporation fully operational, while capital expenses refer to investments made in order to generate income for our business. So, if your business is a corporation, or you were thinking about incorporating your business, these are some of the tax deductions you can take advantage of.  

For every business and corporation that is looking for tax-deductible expenses, operating expenses are customary. These expenses include all those on which businesses rely on to make sure their day to day operations are not interrupted. Some of the most common operating expenses corporations must cover include payroll, office supplies, rent, accounting services, insurance policies, legal fees, and utility costs.  

Corporations are also allowed to deduct all the employee-related expenses they need to cover, which turns out to be a great benefit for both employers and staff members. This is because such deductions can allow businesses to give more perks and benefits to their employees. Some of the most common employee expenses include health benefits, salaries, performance bonuses, sick leave, and vacations. Also, any work-related travel expenses for employees like travel or use of their personal vehicle for business matters are deductible as well.  

When we are in charge of a business, we must make sure we take care of everything and everyone and having an insurance policy that offers the protection we need is essential. However, covering insurance premiums can become one of the biggest expenses for corporations. Luckily, insurance expenses can be tax deductible, which works as a great incentive for businesses to purchase comprehensible and extensive coverage. Insurance premiums for theft and fire damage, liability and worker’s compensation, even malpractice or errors and omissions insurance premiums can qualify for tax deductions.  

Every corporation is different, but many need to cover travel expenses whenever they are visiting a client, looking to expand their business, or attending conferences and trade shows. Regardless of our travels being local or long distance, the expenses generated also qualify for corporate tax deductions. Whether we are traveling by air, by train, or land, we can deduct these expenses. Also, meals and gratitude expenses qualify for these deductions, too.  

If you have any questions regarding tax-deductible corporate expenses, don’t hesitate and get in touch with us. We’ll be more than happy to give you the guidance and assistance that you need for your business.  

With the summer being so close, one of the last things on our minds would be tax season, since most of us took care of our income tax report a couple of months ago, and don’t plan to start working on next year’s later this year. However, scammers are not known for taking vacation breaks, and they are still active, trying to surprise unsuspecting taxpayers. This is why we must remain alert and be on the lookout for any suspicious email, letter, or phone call we might receive.  

One of the scams the IRS is warning taxpayers is what they have called the SSN hustle, a new variation of already known scam practices. This refers to situations on which scammers call taxpayers and tell them their Social Security Number will be suspended, deactivated, or deleted because of a number of reasons. Fraudsters try to catch taxpayers off guard, having them give out personally identifiable information like SSN or bank account numbers.  

In some cases, these calls are performed by automated systems that will make taxpayers call a particular number and provide their Social Security Number and other information in order to avoid severe consequences. The message taxpayers may hear will state that their SSN has been “suspended for suspicion of illegal activity”, urging them to get in touch in order to avoid having their assets or benefits frozen or deleted.  

According to the IRS, phone call tax scams are a real threat to taxpayers, so you should remember that SSNs do not expire or need to be confirmed or reactivated. Besides, when we have an outstanding tax balance, this wouldn’t affect your SSN. If you happen to receive a phone call that sounds like a scam, remember you can report the number to the IRS on their website.  

Another common scam we need to be aware of is one known as the Fax Tax Agency Scam. During the last couple of years, many taxpayers have become more informed regarding phone call tax scams, and now know that the IRS will never demand an immediate payment over the phone. Scammers know this, and they have developed other ways to trick taxpayers into sharing personal and sensitive information.  

Now, scammers will first mail or fax a tax bill signed by the “Bureau of Tax Enforcement”, which is a completely fake agency. They will say there is a balanced owed to the IRS, and that immediate payment is required before legal action is taken against the taxpayer. These documents may use the IRS logos and emulate their formats in order to look more convincing. Therefore, you shouldn’t engage or provide any kind of information, and contact the IRS directly instead.  

Tax season ended a couple of months ago, and many of us have started to think ahead and prepare for next year’s taxes instead. However, we might want to go back to our tax return and make sure we submitted everything properly and without errors. Even when the IRS processes and corrects and math error they might come across, we shouldn’t wait for them to make their adjustments and double check our income tax report. This is what you need to do in order to submit an amended tax return.  

First of all, we need to understand which scenarios would require us to submit an amended tax return to the IRS. The most common scenarios that require amending our tax return include filing our taxes using the wrong filing status, claiming credits or deductions that we were not eligible for, and forgetting to claim a credit or deduction to which we were actually entitled. If we find ourselves in any of these situations, we need to submit an amended tax return.  

We shouldn’t have to worry about this too much, though, since the process of submitting an amended tax return is quite simple. The IRS has made available a specific form we need to fill especially in these situations. This is Form 1040X Amended U.S. Individual Income Tax Return, which you can find in the IRS website. You will find the instructions to follow, and in most cases, supporting information might be needed from you. So, make sure you have every paper and document you need before proceeding.  

One of the most common concerns for taxpayers who submitted their income tax return with an error is being subject to an IRS audit. However, we need to remember that they use software that is designed to spot any red flags on tax returns but amended tax returns are reviewed by IRS agents personally. Therefore, the chances of being subject to an audit might be slightly higher.  

Nonetheless, when we submit an amended tax return because of an accuracy situation, we shouldn’t really worry about being audited. Say you forgot to report investment income as part of your original income tax return, and then submit an amendment to correct this error. The IRS would see this but wouldn’t really subject you to an audit. On the other hand, if we didn’t include taxable income and didn’t submit an amended tax return, the IRS might flag you and an audit would happen.  

Whichever the case may be, we recommend going over your income tax return and making sure everything is correct and complete. If you have any questions about it, contact your tax advisor and go over the report together. Otherwise, we might find out we had a pending balance once the IRS notifies us, which would make us subject to penalty fees and interest charges.  

When the time for retirement comes, we must be prepared to cover our everyday expenses but without the same income as we used to have. One of the biggest challenges that we face during retirement is covering our health care expenses. According to the Center for Retirement Research, the average retiree spends around $4,000 a year on health care costs. Besides, one in five retirees ends up spending half of their Social Security income on health care expenses, too. However, thanks to Health Savings Accounts, or HSAs, we can prepare to cover medical expenses when we retire while we lower our tax bill at the same time. Here’s how an HSA works. 

To begin with, we need to understand what exactly an HSA is, how it works, and how we can benefit from one in order to decide whether we should open one or not. A Health Savings Account is basically a retirement fund account that is designed to help you cover healthcare expenses. Just like traditional IRA and 401(k) accounts, contributions made to an HSA are tax deductible. Yet, one of the most convenient characteristics of HSA accounts is that the withdrawals we make that go toward medical expenses are tax deductible too.  

There are some requirements we need to meet first in order to be eligible for a Health Savings Account, and we should be aware of them, too. For example, we cannot open an HSA unless we are enrolled in a high-deductible healthcare plan. This means that, as of 2019, we need a deductible of at least $1,350 for individuals and $2,700 for families. Also, we need a maximum out-of-pocket limit of $6,750 for individuals or $13,500 for families. In addition, HSAs come with a yearly contribution limit; $3,500 for individuals or $7,000 for families. Keep in mind that you can contribute an additional $1,000 per year as long as you are age 55 or older.  

As we mentioned above, one of the advantages that come from having a Health Savings Account is that, whenever we use the funds to cover medical expenses, such costs can be tax deductible, just as our contributions. Since the vast majority of retirees will need to cover health care expenses at some point during retirement, it makes sense to have separate savings account specifically for those expenses. Yet, it is important to mention that we are not obliged to use these savings on health care only. However, if we use our withdrawals for another purpose, such withdrawals might be subject to income tax, and we would have to cover a 20% penalty fee.  

Therefore, we need to carefully consider whether an HSA would be the best option for us and take it from there. If we think this kind of retirement account will outweigh the benefits of a traditional IRA or 401(k), we should open one and start saving as soon as possible. But if we are not sure this is the best way to go, maybe a Health Savings Account isn’t the right choice for us.  

At this time of the year, forgetting about our income tax report might be tempting, leaving the stress for either the end of the year or for when the due date to file gets closer. However, we should always keep in mind our tax duties, as it will help us have a much simpler and easier tax season. One of the most common questions we get is whether taxpayers should opt for the standard or the itemized deduction, which often cause a bit of confusion among our clients. Here are some aspects to consider regarding each type of deduction and some of the advantages and disadvantages they bring.  

To begin with, we should understand what the standard deduction is and how it works. To put it simply, the standard deduction is a reduction in your adjusted gross income for a fixed amount, and without any kind of proof required. This means that, if we opt for this deduction, the only aspect that will determine the amount is the filing status we choose: 

• Single:                                    $12,000  
• Married, filing jointly:         $24,000 
• Married, filing separately:  $12,000 
• Head of household:             $18,000 

When we decide on the standard deduction, it might help us make the tax preparation process quite fast and easy, and this is why many taxpayers decide to request this deduction instead of the itemized deduction. Besides, another advantage of choosing the standard deduction is that it tends to get bigger every year or every two years, so we might want to compare the standard and the itemized deduction before we choose one.  

On the other hand, opting for an itemized deduction might be more beneficial for some people, which is why we should always calculate both, and see which one is higher. Itemized deductions are expenses that the IRS allows to be decreased from your taxable income. There are many different deductions we can add, including medical expenses, education expenses, home office expenses, and the list goes on and on. Even when not all of them might be eligible for you, we recommend consulting with your tax professional in order to understand which may be useful for you.   

One of the greatest advantages of opting to apply for the itemized deduction is that it might add up to an amount much higher than that of the standard deduction, since the more you can deduct, the less you would end up paying in taxes. Another advantage is that, as we mentioned above, there are many different deductions you can take advantage of, and with a bit of planning, you could make the majority of your expenses deductible, reducing your taxable income even more. 

If you are not sure of which deduction would work better for you, remember that a tax advisor can offer the guidance that you need in order to make the best decision.