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Important Considerations Before You File Your Taxes

Author: Keith Huggett

The IRS grants ministers and other clergy a number of tax deductions. While many of them are also available to the laity, a few are specific to a minister's practice, with others of general application but particularly noteworthy for the clergy. Here are the top seven:

1. Parsonage: The parsonage deduction allows clergy members to earn a "housing allowance" that is not subject to any taxes. This can apply to free rent in a church- or synagogue-owned home, or to a cash allowance that you can use for a mortgage payment or rent on your own residence.
2. Charitable donations: If you itemize on Schedule A, you can deduct your charitable donations, including your tithes.
3. Ministry-related travel expenses: As long as these expenses exceed 2 percent of your adjusted-gross income along with other work-related expenses, ministry-related travel expenses are tax deductible if they are not already paid for by the church.
4. Home office expenses: If you maintain a home office either to supplement your office at the church building, or if you work out of your home, you may be eligible to deduct a number of the expenses that you incur in maintaining that work space.
5. IRA and 403(b) contributions: You can exclude the money that you set aside for retirement from liability for taxes.
6. Student loan interest: If you are still paying off your time at the seminary, the IRS will allow you to write off up to $2,500 of interest per year as long as your income is below their limits.
7. SE tax exclusion: If you are self-employed and a member of a religious organization that has a faith-based objection to public insurance, you can opt out of Social Security and Medicare systems as well as opt out of having to pay self-employment tax by filing IRS Form 4361.

These tax deductions for ministers and other clergy can be a godsend. However, if they are claimed improperly, the resulting audit can be a hellacious experience. The professionals at The Tax Office, Inc. can help you to maximize your deductions and stay within the law.

When is the Right Time?

Author: Keith Huggett

There are two key things that business buyers think about, and keeping them in mind will help you make money when you are selling a business: If they see that they can make money buying your business and that they will have to do less work do it, they will pay more. 

Making more money

Most businesses sell at a multiple of their sales or a multiple of their profits. Increasing either will give you a higher selling price. One way to improve profitability is to focus on your expenses. Most businesses have room to cut expenses through great efficiency, rebidding vendor and supplier contracts and the like. If you do not have the time or perspective to do this, consider bringing in an outsider to help you.

While lowering expenses is the low hanging fruit of boosting values, you really need to increase sales when you are selling a business. First of all, increasing sales increases income, which boosts profit. If you do it in conjunction with lowering expenses, you will get a double push. Even more important than generating more income is the ability to show that your business is growing. When buyers look at a business and see growth, they will usually pay a slightly higher multiple since they know that an investment will pay off that much more quickly.

Making ownership easier

While selling a business is hard work, buying one is equally challenging. While preparing for the sale, get your business affairs in order so that the buyer can easily step in and have access to what they need to manage it. At the same time, find ways that you can step away from running the organization. When a buyer sees a business that runs without the seller's active involvement, they know that they can own it without needing to put in an inordinate amount of work. 

The Tax Office Inc. is ready to help if you are selling a business. Our team can help you find efficiencies, organize your books and prepare for a sale. Contact us to get started.

Having a Plan in Place Can Alleviate Stress in the Future

Author: Keith Huggett

Many small businesses lack any sort of strategy for succession. While planning who will take over your business is important, having a tax strategy in place to ensure that your business can continue after your death is even more crucial. 

When you die, your estate will be subject to taxes. The amount of taxes is in flux because of the constant gyrations of the tax code since the expiration of the Bush tax cuts in 2010. The general situation, however, is that any business worth more than a few million dollars may be subject to anywhere between 35 percent to more than 50 percent in federal and state taxes.

The key to a successful tax strategy for succession is to reduce the value of your business that could be subject to estate taxes. This type of planning is complicated, but here are some of the things that you can do as a business owner:

• Gift a small portion of your ownership in the business to your heirs every year, and take advantage of the annual tax-free gifting provisions of the tax code.
• Sell off assets to reduce the total size of the business that would be subject to estate tax. Sale leasebacks of company-owned real estate is an especially good strategy to accomplish this goal.
• Purchase and transfer to your heirs life insurance that will pay the estate tax liability due on your business when you die.
• Sell shares in your business to your children at attractive prices. You can even lend them the money to purchase the shares at a low interest rate.
• Give shares of your business to your heirs, even if you have to pay gift tax, now while the business is smaller.

Ensuring the business that you built can continue after you have died requires a sound tax strategy, and that strategy can take years or decades to implement. It is never too soon to contact us to begin formulating your plan.

Start-up Ventures Need Preparation for All Possibilities

Author: Keith Huggett

Starting a business is exciting. But even though you’re eager to get the doors open and make that first sale, taking the time now to start off smartly will do more to ensure your success than nearly anything else you do -- especially if you’re entering into a business partnership.

Unclear expectations cause the downfall of many partnerships. It’s great if you like and respect one another, but it takes more than friendship to manage and lead a business.

Make sure you know your prospective partner’s values, priorities and goals -- both personal and for the business. Work together on a specific project. Or interview each other to discuss “what if …” questions and see how you like each others answers.

If you’re planning a business partnership with relatives, be extra careful. You don’t want to end up straining or damaging family relationships.

Get It In Writing

A business partnership is much like a marriage, and a well-considered “prenuptial” agreement will help smooth your future together. Your partnership agreement should define:

• Ownership: Who is investing what resources and how each partner will recoup that investment, including compensation.
• Roles and responsibilities: You’ll need compatible working styles and complimentary talents, skills and experience.
• Exit strategy: Agree now on what will constitute “the end,” but also identify what will happen if your lives or your goals change.

Plan to be flexible, but don’t mistake vagueness for flexibility.

Create A Communications Plan

You must be entirely comfortable openly discussing how you’ll begin and run your business. Decide in advance how you’ll handle day-to-day communication as well as regularly scheduled status and planning meetings.

Like life itself, change happens -- and sometimes things don’t go the way you want or expect. You simply can’t predict the future. So consult an attorney and contact us here or give us a call to ensure you’re asking the right questions and not overlooking important details. We’ll give you impartial, knowledgeable advice.

By planning for better or worse, right from the start, you can ensure your business partnership is harmonious and profitable for everyone concerned. 

What You Need to Know if You Get Laid Off

Author: Keith Huggett

When you get laid off from your job, considering the tax implications involved is the last thing on your mind. Being laid off is stressful enough on its own, but finding out that you owe taxes can double the amount of stress you are feeling.  Here are some tips to help you through as you manage your time between jobs.

Paying Taxes on Unemployment - According to the IRS all unemployment benefits are taxable. By opting for the voluntary income tax withholding of 10% can help you be certain that your tax liability is covered.

Your most pressing issue following a layoff is making sure you have enough funds to pay your necessary expenses. Once you know where you stand financially, you can start planning your taxes for retirement and other important phases of your life.

Using your IRA Account - If you find yourself coming up short of funds you may consider using your Roth IRA account as a backup.  This can cause some issues with your taxes in the future. In most cases, you'll have to pay a 10 percent penalty on any retirement distribution  you take before the age of 59 1/2. If your retirement contributions were tax-deferred, which means that they were not taxed at the time of the contribution, you may also have to pay backup tax withholding of 20 percent.

Starting a New Business - If you are considering becoming your own boss, there are tax implications there as well.  While you are able to write off your startup business expenses, you are now required to pay self employment tax on your net earnings. By putting some money away during the year or by making estimated tax payments each quarter you can stay ahead of your self employment taxes.

Managing your budget following a layoff can be very stressful. Start organizing your tax information early and always seek out professional tax assistance if you need guidance. With the proper planning, you can get through your layoff without adding to your tax burden.

How to Get Current with the IRS

Author: Keith Huggett

Are you up to date on filing your taxes? Failing to file your tax returns in a timely manner can happen to anyone.  How do you fix the situation? How do get back into the system and make things right with the IRS:

Gather your Tax Information - For the years of non-filing it is important to gather together as much information as possible.  This will include W2s, 1099s, receipts, financial records, mortgage interest you paid,  interest, dividends and stock sales, among others.  If you are missing information it is okay.  This is your jumping off point.

Order Transcripts - IRS transcripts show what has been reported to the IRS – this will be a comprehensive listing of the 1099s and W2s that were sent to you. You can compare this information with your records, filling in any missing information.

Self Employed? If you are self employed you will need to determine your income and expenses. Working backwards, using your bank records to determine what you spent to live (food, housing, utilities, etc.,) can help you cross-check your income and expenses.

Before You File - Do you know if you owe back taxes? If so, can you pay them? Having a complete financial profile of your current situation can make things progress easier with the IRS.  You may qualify for IRS hardship status. If you are need of an Offer In Compromise, payment plan, or filing for "non-collectible status" the IRS will work with you.

Estimated Returns - Sometimes, when you don’t file a return, the IRS files one for you.  Most times, an IRS substitute for return gets it wrong, charging you for income that was reported on W2s and 1099s but not giving you any deductions or exemptions.  You may already have a bill from the IRS from a Substitute for Return.  These estimated returns can be corrected – and the tax lowered – by filing an original return.

Once you've filed the returns, be aware that it can take the IRS several months to actually process them.  If you owe taxes, the IRS will start to send you billing notices once the returns have been processed.   If you owe money, the next step is finding solutions to the balances due. This usually consists of filing for an Offer in compromise, installment agreement, uncollectible status and/or bankruptcy.

For a no obligation, no cost consultation of your tax situation, contact the tax representation specialists at The Tax Office, Inc.

What Do All the Different Notices Mean?

Author: Keith Huggett

Once tax season is over, the IRS spends its time contacting those taxpayers and business owners who failed to pay their taxes. Throughout the collection process, several notices will be mailed to delinquent taxpayers from the IRS.  Please be aware that the IRS communicates SOLELY through the U.S. Postal Service.  If you receive emails or telephone calls from someone claiming to be from the IRS you should report this contact to the Treasury Inspector General for Tax Administration at 1.800.366.4484.  You can file a complaint using the FTC Complaint Assistant; choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

However, if you receive a communication from the IRS it is critically important to open the correspondence as soon as you receive it and determine what the IRS is contacting you about.  While the majority of communications are regarding an error with your tax return, if you owe back taxes the IRS issues collection letters in this order:

CP 14 - Balance Due, No Math Error

The CP 14 shows the underpaid tax according to IRS records. The notice shows the tax reported on the return, the payments the IRS applied to your account, and the remaining underpayment they have calculated.  Additional interest and penalties may accrue if the balance is not paid in full by the due date. If you do not agree with the additional tax due, a response should be made to the IRS as soon as possible to settle the issue with your account.  An example of a CP 14 can be found here.

IRS Notice CP 501/CP 502 - Balance Due Reminder Notice

The CP 501 is the first reminder notice that you have a balance due on a tax account. The IRS has previously sent a notice about a balance due on a tax account. This reminder notice alerts you that there is an outstanding balance and, if not paid within 10 days, the possible actions the IRS may take. If you don’t pay or arrange an installment agreement the IRS may file a Notice of Federal Tax Lien.

CP 503: IRS Second Notice of Balance Due - Meaning & Actions Needed

The CP 503 is a reminder and a means to collect on a balance that the tax payer still owes. This letter is a final notice and follows previous attempts to receive payment. When you receive this letter it is important for you to read it carefully and to reply immediately because if you don’t, the IRS could take action against.

IRS Notice CP 504 - Final Notice - Balance Due

This is the final notice that you will receive from the IRS prior to the IRS fulfilling their intention to levy or take your state tax refunds. The CP 504 will clearly state the IRS's intention to levy your refund or other property.  The notice will also have a coupon at the bottom or end of the notice to include with your payment. 

CP 297 - Notice Of Intent To Levy And Notice Of Your Right To A Hearing & CP 90 - Final Notice - Notice Of Intent To Levy And Notice Of Your Right To A Hearing

The IRS will send out CP 297 before CP 90. The IRS sends CP 297 to notify you of their intent to levy your accounts and property.  There is a balance due on your tax account and several notifications of the balance due have been sent.

The IRS sends a CP 90 to inform the recipient that the amount is still due, that the IRS intends to levy on certain assets, and what steps you need to take within 30 days to prevent the IRS from taking this action.

CP 91 - Final Notice Before Levy on Social Security Benefits

The IRS sends CP 91 to inform the recipient of our intent to levy on their Social Security Benefits. If payment has not been made, or a payment plan arranged, the IRS will take up to 15% of your Social Security Benefits to pay it, and what steps you need to take within 30 days to prevent this action. 

You should also be aware that you have the right to retain an authorized representative of your choice to represent you in your dealings with the IRS. You do not have to face the IRS alone.  When you receive a notice from the IRS, it is in your best interest to contact a qualified tax professional to represent you in front of the IRS. Either your or your tax representative have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position. Lastly, you are also entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. To see a complete list of your rights, the IRS has provided a "Taxpayer Bill of Rights."

For questions relating to back taxes, collection notices, or any other tax matter, Contact the Tax Office, Inc., for a free, no obligation evaluation of your tax situation.

 

 

Miscalculations can be Costly

Author: Keith Huggett

Income and expenses - the monthly life of your business.  How do you keep straight which portion of your income is actually yours?  With the many different portions of your business whittling away at your proceeds, are you keeping your funds straight?  It's very easy to get bogged down, confused, or to let your bookkeeping go when it is not your favorite thing to do.  Here are some tips to help you keep your business accounts up to par:

1. Outsource! Don't try and do everything by yourself.  Hire a qualified tax professional to handle the in's and out's of your business bookkeeping and taxes.  If accounting isn't your field, then find someone whose field it is and hire them.  A tax professional is well versed in accounting practices, is aware of the available credits and deductions, the annual changes in tax law that affect your business, and when and how to make your estimated payments and other regular tax deposits. Missing a payment will cost you penalties and interest.  The cost for missing a deduction or credit or worse, claiming a deduction or credit you don't qualify for, can be high. 
2. Payroll Taxes! You want to be sure you are making your payroll tax payments on time. You are required to withhold the employee's share of Social Security and Medicare taxes, as well as any requested income taxes, from their wages each payday. You must deposit the income tax withholding, your portion as an employer and the employee's share of Social Security taxes at least monthly using the Electronic Federal Tax Payment System (EFTPS). Failure to make accurate, prompt, payments will result in penalties of up to 100% of the payment due each pay period.
   
   Pay the taxes you are responsible for, all of them, on time every time, and don't get caught in the trap of filing late and paying the additional penalties and interest that can result if you get behind.  Hiring a professional payroll company can alleviate some of the stress involved with payroll taxes.
3. Tax Day! April 15 always arrives far too quickly for most business owners.  No one wants to deal with filing and paying your taxes. If you are a small business you are required to file a Schedule C or Form 1065 (Partnership) prior to April 15. If you are a corporation (either a subchapter S or a regular C), you must file Form 1120S or Form 1120 by March 15. The IRS charges a penalty of 5% per month, up to a maximum of 25%, of the taxes due until you file your tax return. In addition, the IRS charges a 0.5% late payment penalty, up to a maximum penalty of 25%, each month you owe taxes, even when you are paying your taxes.  Hiring a qualified tax professional can ease the burden and complexities of filing your business or individual return.  And don't forget that if you file an extension, you only get an extension in "time to file" not "time to pay."
4. Record Keeping! What can I say here except keep good records.  Use your smartphone, scanner, and computer sytem to keep track of your receipts, mileage, etc., so that you have the information handy should it become necessary.  Just to note, in addition to keeping receipts for all the items you purchase for your business you must provide additional documentation for many of your deductions. Additional documentation includes information such as who a gift was purchased for, who joined you for a business meal and what the nature of the business was during the meal, keeping a daily mileage log that shows where you were going when you traveled and the number of miles for each trip. Being prepared can save your deductions.
5. Employee vs. Independent Contractor! Are you classifying your employees correctly? An error here can cause disqualification of deductions and cost you 100% of the unpaid employment tax deposits you should have made and your state may also have stiff fines and penalties based on unemployment compensation and worker's compensation insurance requirements. Both the IRS and the EDD have distinct definitions of the difference between an employee and an independent contractor.

When considering the cost of handling your taxes on your own or if it's better to hire a professional you should take into account all of the additional costs that may accrue from mistakes being made. The money you save having a professional find more and better tax deductions, avoid penalties and interest from missing or late returns, and keeping employee classifications straight, is money you get to keep.

Tax Planning, Myths, & Conjecture

Author: Keith Huggett

Year after year changes occur to our tax code, making it more complex and often incomprehensible to most people.  Sadly, an auditor will not accept the excuse of ignorance as a viable defense against penalties, interest, and/or additional taxes.  While your goal, and that of your qualified tax professional, is to save as much as possible, it gets more difficult to do so every year.

Consulting a professional tax preparer can benefit you in several ways.  Not only are you able to get your taxes prepared, you also have the opportunity to invest in tax planning, outsourced back office support systems, and possibly CFO or other business services.  The qualified tax professional has years of experience with tax preparation, attends many different tax seminars each year, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

Taking an active roll in your tax planning can often provide new insights into the complexity of our tax code and how it can be used strategically for your benefit.  However, the tax code and its myriad changes from year to year can often generate a lot of folklore and misinformation that also leads to costly mistakes.  Here are 5 common business tax misconceptions:

1. All Start-Up Costs Are Immediately Deductible
   
   Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business.
   
   Starting in tax year 2011, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.
2. Overpayment of Taxes Will Lower Your Chance of Audit
   The IRS doesn't care if you overpay your taxes. They are only interested in you if underpay your taxes. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to lower your chance of being audited is to properly document your expenses and make sure you are getting good advice from your tax accountant.
3. Your Business Structure Can Allow Additional Deductions
   Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do. Choosing the right business structure has more applications than just affecting your tax deductions.  Choosing the wrong structure can be a costly expense.
4. Taking the Home Office Deduction will Result in Audit
   As long as you keep excellent records that satisfy IRS requirements, audit is not an automatic result from claiming the home office deduction. Due to the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. There are always other red flags to be concerned about which may lead to an audit.
   
   
5. Filing for an Extension Grants an Extention to Pay
   Extensions enable you to extend your filing date only.  If you do not pay your taxes on time, you will be assessed penalties and interest from the date your taxes are due.

A tax headache is only one mistake away, whether it's a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and gaining understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor. Working with a professional tax consultant can catch these errors and many more.  Don't get caught unaware, prepare now. The tax planning professionals at The Tax Office, Inc., can assist you with any tax questions that you may have. Contact us today.

Keeping Proper Books is a Must

Author: Keith Huggett

When you are just starting out with a new business or building up a new purchase it pays to have a good set of books.  The problem is not everyone is good at, or likes doing the bookkeeping.  This can be a problem in many ways.  Sometimes it's just a factor of being too busy doing other things to get to the books or sometimes it's dreading the task, but either way the bookkeeping gets sidelined until it become a huge undertaking that is often more problematic than doing it regularly would have been.  Here are some reasons why keeping your bookkeeping on track is a good idea.

1. Legal Issues. If you need or want to bring in investors having a good set of books is a must.  It is illegal to have a set of books that provides different information from what is actually your true financial situation. You should be aware that most operating agreements contain ironclad consequences for bad bookkeeping, including dissolving or liquidating the company or handing over majority shares to a business partner or shareholders.
2. Audit. Being able to prove your income and expenses is a must when it comes to surviving an audit intact.  Without this proof, you are easy prey for IRS auditors.  If you cannot prove your income, you may find that you will be paying out fees, penalties, and interest in the future.
3. Cash Flow. Without knowing how much money you have available to you at any given time, it is impossible to know how much you can use to promote or invest in your business.  You are unable to purchase items that may need repair or replacement.  You are unable to hire employees that you may need and you may be forced to layoff necessary employees due to overspending. With a concise picture you will be able to decide where to allocate your resources for the biggest ROI.
4. Relationships. By not keeping control of your books, it can be difficult to keep control of your office relationships.  When you do not know if you can make payroll this month, you put a strain on the relations with your staff. Hiring the right people can be difficult enough without causing unecessary stress and strain. It is key to make sure that your staff is being paid on time and that the proper payroll tax withholdings are being accounted for.
5. Recovery. When you have a bad set of books, recovering from them is a timely task.  Why is this? As you try and correct your bookkeeping errors, more and more transactions accumulate, compounding the problem.  You end up with a monster bookkeeping project.  The best solution at this point may be to outsource your bookkeeping to a qualified bookkeeper.

By accepting that you may not be the person best suited for the job of "bookkeeper" for your business is a valuable asset as an entrepreneur. If you are in need of someone to take a look, evaluate your books, just to see if you may have a problem, the professional bookkeepers at The Tax Office, Inc. would be happy to do so.  Contact us today for a no obligation, no cost consultation.  It may be time to look into outsourcing your bookkeeping to a full service tax preparation company designed to help your business grow.