How could HR management services improve your business accounting outcomes? Check out these 3 examples. Wondering if HR management services could make a difference for your business? Let’s face it, business accounting is one of the most time-consuming parts of running a business. It’s why hiring the best possible accounting personnel is so important. Your accounting department does more than send bills and collect money. They have to process payroll, pay the company’s bills, and create reports all the time.…
If you are self-employed and report a low amount of profit from your business—you could be ripe for an IRS audit. The IRS has a trick up its sleeve to catch “tax cheats” by attempting to match their lifestyle to the amount of taxable income reported on their tax returns. Don't be surprised it the IRS invites you in for an audit if you live in a $1 million house with reported income of $30,000 per year! The “lifestyle audit”…
Beware of promoters who claim that you can take tax deductions for personal expenses by setting up a home-based business. These promoters aggressively market and sell “tax reduction packages” which consist of a mangled interpretation of the Tax Code having no merit. The promoters may sound legit by advising you to maintain detailed records of the expenses. However, detailed records won’t convert personal expenses into deductible business expenses, nor does forming a trust or a corporation, nor the existence of…
“Sham trusts” are names given to certain trusts that the IRS claims are illegal. They can be either domestic or foreign trusts or both. The promoters of these trusts claim that they reduce or eliminate income taxes, but the IRS and the courts disagree and are aggressively pursuing taxpayers who own them and their promoters. The promoters charge high fees to set them up, but the structure doesn’t seem to have an actual business purpose other than evading taxes. The…
Why the IRS Audits more Small Businesses than Big Corporations Many small business owners believe that they are too small for the IRS to audit. After all, wouldn’t the IRS collect more money for the government by auditing larger businesses? The answer is: no. The IRS brings in more dollars per hour auditing small mom and pop businesses, than they do auditing medium and large companies. Why is that the case? Because the larger companies keep impeccable records…
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…
If your business paid someone (who was not your employee) a total of $600 or more during the year, you must issue a 1099 to them (unless it is a corporation). For attorneys, 1099s are required even if incorporated or regardless of their entity type. In addition 1099s must be filed with the Internal Revenue Service. The 1099 filing requirement applies for payments made by your company to people who provided services (including parts and materials), to independent contractors, vendors,…
To help hold onto what you’ve worked hard to accumulate and to manage risk (especially for business owners) it’s important to segregate assets and activities into separate legal buckets. The separate buckets should be put into place BEFORE the threat of legal action or the court may rule that a fraudulent conveyance occurred. The number of buckets needed will depend on the type of activities and the amount of assets you own. For example, if you operate a business AND…
The IRS has declared war on the underreporting of income and is taking the most aggressive approach ever in their ability to enforce compliance with new 1099 regulations. Many IRS auditors are now denying deductions for payments by businesses that fail to issue required 1099s, even if unintentional. The IRS penalty trap Since 2012 business tax returns have two questions that all businesses must answer, or risk an audit. They are: Did your business make any payments that would require…
California law requires that business owners act responsibly in managing the risks common to their industry and to protect against other areas of vulnerability. Businesses should consider transferring a large part of its risk to an insurer (which has deeper pockets) to protect against the full impact of an uninsured loss, which could threaten its viability. Home-based businesses If you operate your business from home, don't expect your homeowner's policy to cover you in case of a mishap without an…
Small business owners are often very good at what they do. As entrepreneurs, they run their businesses like the great offensive coaches in professional sports. A great offense is a good thing, but offense alone will not win the big games. A truly great team or business must develop a great defense as well. An effective defense comes into play as a company puts the right components into place to manage risk. Managing risk helps to protect a business from…
Whether a worker is an employee or independent contractor depends on the right or ability of a company to exercise control over the worker. An employee is subject to the will and control of the employer not only as to WHAT shall be done but HOW it shall be done. In contrast an independent contractor (contractor) is engaged to provide a finished project or job. The way in which it’s completed is left to the discretion of the contractor. Common…
You must report income to the IRS from almost all sources including hobbies. If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity. In contrast, if you’re conducting a trade or business you may deduct your ordinary and necessary expenses even if it generates a loss. Your business could be ripe for an IRS audit if: Your “business” has large expenses with little or no income. The loss from your “business”…
Starting a business can create tax benefits by converting some personal expenses into tax deductions. What was formerly non-deductible may become deductible when you operate a business, thereby increasing your personal benefit significantly. For example, when you buy something for $100 (as an employee) using after-tax dollars, you must actually earn about $150 to net the $100 bring-home pay in order to buy the item (due to income taxes and payroll taxes). In contrast, when business owners purchase a $100…
Business owners need to demonstrate good business practices in order to reduce their company’s liability and to prevent personal liability themselves. Operating a business through an LLC or corporation won’t protect your home and personal property from business lawsuits and creditors if you don’t also demonstrate good business practices. The following are some of our recommendations: Maintain the corporate or LLC veil of protection. Even corporations and LLCs that were properly formed could end up losing their asset protection quality…
The vast majority of small business LLCs and corporations in California may lack legal standing due to being improperly formed. To be properly formed under California law: LLCs must file articles of organization with the Secretary of State. These articles must be formally adopted by its members along with a signed operating agreement during its initial organizational meeting and recorded in the first minutes and retained in the LLC legal book. This includes LLCs that elect to be taxed as…
Proper formation of your LLC or corporation is mandatory to have legal standing in California. LLCs that lack operating agreements and corporations without approved bylaws may not be protected in California. Without legal standing your home and personal assets could be exposed to business lawsuits, liens and creditors. (See our article: “Does your LLC or Corporation have Legal Standing?” for details). Not only are operating agreements or bylaws necessary to establish legal standing under California law, they are also important…
You may have formed an LLC or a corporation with the understanding that your business structure would save you money in taxes and protect you from lawsuits and creditors. But for most small and micro businesses in California that is a myth. Only about two percent are in compliance and most are violating some regulation daily. Warning: Forming a corporation or LLC will not automatically provide you with any tax benefits or protect your assets. Having approved Articles from the…
You may be eligible for a Premium Tax Credit (PTC) to subsidize the cost of your health insurance premiums. The only plans that qualify for the PTC are those acquired through a qualified health insurance exchange (exchange). The exchanges can determine eligibility and the amount of your PTC (if any) based on your family size and projected household income (including spouse and dependents’ income) for the year. People not eligible for the PTC Very low income individuals who are eligible…
The Rules for operating an LLC or corporation are complex and NOT COMPLYING with them can cost you thousands of dollars. We can take the burden off of you in keeping your LLC or corporation in compliance with the law to protect your tax benefits and protect your home and personal property from business liability. We have created an on-going year-round compliance and tax planning program for the protection and success of your business. Our Biz Tax & Compliance Coaching…
Under California law if your LLC lacks an operating agreement or your corporation bylaws, your home and personal assets could be exposed to business lawsuits and creditors. Your corporation or LLC could also be subject to unnecessary legal actions and be barred from defending itself or bringing suit for damages against another. Also, its contracts could be deemed invalid by the courts, allowing others to get out of their obligation to your company. Well written operating agreements and bylaws lend…
Several new laws took effect on July 1, 2014, the most notable being a raise in the minimum wage to $9 per hour for most wage earners. This raise results in several payroll issues that business owners should be aware of, including overtime rate of pay, exempt/nonexempt classification, and commission draws. Your employment law posters may now be out of date. Make sure you have posted the Minimum Wage Order (MW-2014) and any Industry Wage Orders that apply to your…
