At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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WORLD NEWS
Oakland-area small business owners rally in support of the suspended police chief… after accusations of favoritism in doling out discipline to officers. Chief LeRonne Armstrong was praised by local entrepreneurs for his response to an increase in assaults, robberies, and thefts aimed at Asian Americans during the pandemic. LeRonne added to the number of police officers on foot and in vehicles, as well as offering his support to a citizen patrol group called the Blue Angels. A series of recent break-ins have exacerbated the community’s desire to resolve the question of who will head up Oakland’s police force.
The National Federation of Independent Business released its new numbers… for the monthly optimism index. In January, the index rose 0.5 to 90.3, up from 89.8 in December. These readings are still both below average for the past 49 years. Analysts found that small business owners have remained cynical about labor and inflation—26% of owners count inflation as the number one obstacle to managing their business, and 91% of owners looking to fill an open role reported dealing with unqualified applicants.
U.S. NEWS
Amazon’s average cut of small business sales surpasses 50%
Marketplace Pulse conducted a study of seller transactions dating back to 2016 to calculate the total cost of selling goods on Amazon. Almost 2 million small businesses sell their wares on Amazon.com. Researchers totaled the commission on each sale, fees for warehouse storage, packing and delivery, and advertising for better positioning on such a popular platform.
Last year, as Amazon saw its slowest sales growth in history, the company also took its largest cut of sales, rising to over 50% in 2022. For the past six years, sellers have seen increases in the amount paid to Amazon, but before the pandemic, this was offset by a steady stream of new customers and booming sales. After lockdown regulations were lifted, online shopping saw a decline, consumers became more thrifty as inflation rose, and therefore merchants became hesitant to raise prices.
Given the lower sales and increased fees, many sellers are now struggling to make a profit. Amazon also benefits from the number of small businesses that rely on its logistics services, which cost an average of 30% less than other shipping companies. The same is true for Amazon’s advertising services, which are optional but considered by many to be essential for drawing in customers.
Last year, Amazon’s profits were owed thanks to their cloud computing business, Amazon Web Services—without this income, Amazon would have posted a $10-billion operating loss. In an attempt to improve business, Amazon cut 18,000 corporate jobs, raised the price of Prime subscriptions, and plans to charge a fee for online grocery orders of less than $150.
Still, increasing costs to merchants—who may make 90% of their income through Amazon—is less risky than charging customers more. Costs of Amazon logistics are expected to go up by as much as 8% due to a new fee structure and other upcoming changes. While sellers cannot scale back on all costs, they can reduce their advertising spend, reflected in the lower numbers this year. Amazon has opted to set aside more space for advertising, which conversely also makes each spot less valuable.
As the cost of doing business rises, business owners will find it especially valuable to reduce their tax liability. For expert assistance in increasing your tax savings, reach out to a Certified Tax Planner.
STATE NEWS
Iowa small business owners join the Small Business Voices to petition Congress… and demand that legislators reauthorize the Small Business Administration (SBA). Fifty local businesses joined a coalition of 3,000 businesses nationwide seeking greater government support and updated tools and programs. Congress has not reauthorized the SBA fully since 2000, according to a record by the Bipartisan Policy Center.
A survey conducted by the Goldman Sachs 10,000 Small Businesses Voices found that 96% of small business owners believe that federal government programs do not yet sufficiently reflect and serve small businesses’ needs. Of the businesses surveyed, 68% were financially optimistic in 2023 and 60% expect profits to increase this year. At the same time, 72% of business owners have felt an increase in pressure due to inflation over the past three months. 61% report a negative impact from higher interest rates, and 35% cite finding and retaining qualified employees as their top business challenge. Iowa’s labor force has decreased by 35,000 people since spring of 2022.
The Connecticut Community Outreach Revitalization Program celebrated $1 million in funding for small business owners… to boost the local economy. Known as ConnCORP, the program provides grants to small, minority-owned businesses. The grant will be meted out over five years. The incubator focuses on uplifting those within the Newhallville neighborhood in New Haven, one of the most poverty stricken areas in Connecticut. By supporting entrepreneurship, the program hopes to create opportunities for low and moderate-income underserved populations.
The incubator currently engages with 9 Black-owned businesses, out of 11 businesses total. The program supports entrepreneurs as they turn their ideas into businesses and navigate basic logistics like paperwork. ConnCORP’s aim is to strengthen the businesses already in the community and avoid contributing to gentrification.
ConnCAT, a job training and educational program for youth, is also planning to erect the Dixwell development, which will include 184 housing units, a supermarket, restaurants, retail spaces, a Performing Arts Center, an office tower, townhouses, greenhouses, and a community plaza. ConnCAT anticipates that the property will bring $1 billion to New Haven, in addition to 600 jobs and 700 construction jobs.
TAX PLANNING
Intuit purchases $1 million in goods from local small businesses to be donated to nonprofits. The financial technology company took this step in honor of its first “Small Business Big Impact Day.” Intuit QuickBooks and Mailchimp are leading the charge in applying their parent company’s core value of “We Care & Give Back” which encourages employees to invest in improving their local communities.
Over 10,000 employees from 17 different Intuit sites participated in this initiative from offices across the Americas, Australia, Europe, and Asia. More than 200 small businesses benefited, and 40 nonprofits received donations of items like hygiene kits, pantry food bags, and blankets. Employees also contributed an estimated 10,000 volunteer hours to sort, package, and deliver these products. Intuit will also offer a virtual experience for remote workers to participate in Small Business Big Impact Day.
The U.S.-based small businesses and nonprofits involved are located in Atlanta, Georgia; Boise, Idaho; Fredericksburg, Virginia; Los Angeles, California; New York, New York; Plano, Texas; Reno, Nevada; San Diego, California; the San Francisco Bay area; and Tucson, Arizona.
59% of small businesses are struggling with income due to late payments, according to a survey by market research and data analytics firm YouGov. Additionally, almost one-third of small businesses say that receiving payments 20 to 30 days after their due date is putting them at risk for closure.
Experts recommend taking these four steps for dealing with late payments. First, optimize your cash flow by collecting a deposit before a job, invoicing in advance, drafting a contract that stipulates terms of payment, doing a credit check of the business or individual paying you, and digitally tracking your invoices. Second, be prompt with following up on late payments. Reach out to the customer via email, attach a copy of the invoice, and remind them of their options for payment method. Next, if a month has passed with no email response, call the customer. Identify the correct person to speak with about payment and focus on the agreement made.
Lastly, if the customer fails to take steps toward payment, you have three final courses of action. You can refuse to complete further work and restrict access to any shared documents or brand assets. You can also go to a collection agency that will follow up with the customer in exchange for 20% to 35% of the payment collected. If necessary, you can take legal action if the damage is substantial and worth the investment of time and money.
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CURRENT EDITION
How Should a Disregarded Single Member LLC File a W-9?
Although Form W-9 has some other purposes, a company will usually ask you to fill it out if you are a business-to-business service provider . If you don’t provide a TIN to your customer, they may have to subject you to backup withholding . If it is my company that asks you for the W-9, I am not going to do backup withholding if you don’t send me the W-9. I’m just not going to pay you until you cough it up.
I believe in learning from experience. But it is better if the experience you learn from is other people’s experience. That is why a very large percentage of my tax writing is from court opinions, most often the United States Tax Court. This piece is my own experience.
IRS Installment Agreements: A Potential Cure for Forosophobia
Taxpayers who seek tax planning strategies fall into two categories. We have taxpayers who plan well and want to keep their tax liability manageable and low as possible. Then, we have the taxpayers the IRS hits with a tax bill bigger than they were expecting. Both taxpayers are dealing with a case of forosophobia.
When the latter happens the taxpayer often goes into a panic or at least a small sweat. Whether they have the money sitting in a bank account or not, they weren’t intending to spend it on taxes. So, it changes their financial planning. This is when the forosophobia really starts to set in.
Forosophobia is the fear of the IRS and taxes. Have you experienced this with your clients? When tax season rolls around, they are anxious to see whether they owe taxes or not. Clients who haven’t made their estimated tax payments and don’t have anything to show for their income hold their breath. They wonder things such as:
What happens if I can’t pay?
Will I go to jail?
The IRS is going to empty out my bank account.
Once a taxpayer’s mind starts on this emotional rollercoaster it can be difficult to get them off. But as their trusted tax advisor you are in a very powerful position. Not only can you help them calm down and breathe again, but you can also get their lives back from this fear. As a licensed professional you can step in their shoes and handle their IRS problems for them.
If you aren’t familiar with this process, don’t worry, I’ll give you a breakdown of a potential cure for their forosophobia. Let’s look at who can help the taxpayer and how.
Some Easily Overlooked Items for Form 1040
A 113-page set of instructions accompanies the 2022 Form 1040, U.S. Individual Income Tax Return. Commonly used Form 1040 Schedules A, B, C, D, and E comprise an aggregate of 69 pages of instructions. Instructions are non-binding information but certainly necessary for getting tax information correctly placed on the tax return. With hundreds of Internal Revenue Code (IRC) sections, thousands of pages of regulations, thousands of IRS rulings and judicial opinions, on top of more than 200 pages of instructions relevant to many complex Forms 1040, some tax pros might easily overlook these items.
This article travels top to bottom through the two-page 2022 Form 1040, highlighting a few items not to overlook. No promises that the list hits all items, but what follows might bring to mind a few more items you can add to the list.