The Simpler Tax System—is it Right for You?
Many people are frustrated with the complexity of the Tax Code and want it to be simpler. Their reasoning goes something like this: “I am a business owner, not a junior accountant, why do I have to keep all of these records. Why can’t it be simpler?”
Well, the government understands your frustration and is here to help. The IRS allows you to elect the Simple Method of accounting. The Simple Method is low-stress and doesn’t require you to keep those pesky records. It allows you more time to watch television or follow your favorite celebrity tweets.
When electing the Simple Method, you don’t need to keep records AT ALL. It’s like doing a short form tax return, instead of itemizing. You pay more in taxes, but you save money on tax preparation by not hiring a professional. And being low-stress, you won’t need to pay for massages to help you relax—saving you even more money.
How the Simple Method works
- You don’t need to track income. In exchange, you agree that every dollar you receive is taxed as ordinary income (the highest tax rate)—but it’s simple.
- You don’t need to keep records. Just imagine: no requirement to keep receipts or an auto mileage log or a calendar. In exchange, you agree not to deduct any of your business expenses.
The Simple Method though doesn’t allow you to pay less in taxes. If you want to pay less taxes and optimize tax-free benefits, you must comply with the complex tax system, which grants tax-favored benefits ONLY if you meet required compliance standards.
To pay LESS in taxes, the IRS requires proof (record keeping) to show that:
- The gifts you received shouldn’t be taxed; or
- The payments you received weren’t from business and aren’t subject to self-employment or payroll taxes; or
- The money you deposited was a tax-free inheritance; or
- A deposit you made was from a loan and not taxable; or
- The sale proceeds you received should be taxed at a lower capital gains rate; or
- The money you transferred from another account was already taxed and shouldn’t be again.
Which method do you prefer? The Simple Method is easy, but expensive. The complex system can save you thousands of dollars—but requires compliance and good records.
At Incompass, we can help with BOTH by structuring your business in a manner that can save you thousands of dollars AND reducing your stress by doing much of the compliance for you.