Business Strategies

It’s every tax professional’s favorite answer to the question “How is your business organized?” “I have an LLC.” It’s the non-answer answer. Unfortunately for many clients and practitioners, clients often decide to form an LLC for no reason other than “they said I should” and more often cannot provide a good answer when the practitioner asks, “Who is ‘they?” Ideally, small business clients should consult both an attorney and a tax professional when deciding to form a business entity under state law. Because while state law governs entity formation and many aspects of entity administrative compliance, federal and state tax law determines which tax returns you need to file and which tax laws apply to the entity. It is just good business to make a mindful, proactive choice when choosing a type of business entity. Making a conscientious choice means asking the right questions. And when choosing a business entity, asking the right questions means asking questions about matters other than simply tax considerations.

Your optimal choice of entity depends on many factors, including which tax breaks and loopholes are available for that entity type. The C corporation leaps to the top of entity choices if your C corporation stock will qualify as small business stock (QSBS). The tax law gives two huge tax breaks to QSBS: 1. Up to $10 million of gain exclusion upon sale or the stock’s liquidation; or 2. Tax-deferred rollover of gains if the taxpayer purchases additional QSBS. But beware: There are two issues that are ambiguous under the law that could cause you to not qualify for either of these tax benefits. Read on to learn more!

The tax hikes on wealthy Americans included in President Biden’s economic recovery plan last spring have been a battleground for bipartisan debate for most of 2021. Now, the Senate Republicans have pushed aside the administration's proposal to increase funding for the Internal Revenue Service, for the moment. We will take a closer look at the proposed IRS funding, the reasons it is necessary, and how the same wealthy Americans could end up the most impacted by the proposal.

One of the most common non-tax questions clients ask tax professionals is “How long should I keep this?” “This” could mean bank records, copies of tax returns, or virtually any other piece of business information. This reasonably comprehensive overview focuses on keeping business records for tax compliance, specifically, what to keep and how long to keep it in case a taxing authority ever decides to examine (audit) a business return. Records management is an entire field unto itself! Hiring an in-house records manager is beyond the needs or the budget of most small businesses, but it’s important to understand that proper records management is serious business.

Lawmakers have moved even closer to voting on a bipartisan infrastructure bill to build bridges, roads, and national broadband internet as party leaders announced an agreement recently. While Biden’s tax hikes are unpopular, the Senate will need to determine how to pay for the increase in spending. The President’s original $3.5 trillion spending plan calls for higher taxes for those making more than $400,000 per year as well as higher corporate tax rates and changes to capital gains and estate tax. This leaves those benefiting from the current “sale prices” on tax considering their next move. In our previous coverage on this topic, I listed 5 Ways to Avoid Biden’s Capital Gain Increase, but let’s focus here on how to beat the increases to corporate and individual tax rates. The answer might surprise you.

Let’s face it, many small businesses would love to offer retirement and healthcare benefits to their employees, especially owner employees. In addition to the obvious benefits (healthcare coverage and tax-deferred retirement savings), providing healthcare and retirement benefits to owner employees through a business can shift non- or partially deductible personal expenses to fully tax-deductible business expenses. Even for non-owner employees, these types of benefits are a great way to provide additional compensation without incurring additional payroll taxes. As with everything tax and business related, however, there are rules and employers must be careful to follow them, especially when it comes to what types of benefit plans are offered and to whom. Providing healthcare and retirement benefits is expensive which is why many small business owners would like to be able to limit who receives them. But if you think providing benefits is expensive not paying attention to the rules for providing them can be even more expensive. To ensure your clients’ benefits plans remain tax deductible, it is important to understand the federal, state, and local labor and tax laws that affect the plans. This article provides an overview of what small employers and their advisors need to consider when evaluating potential benefits options and takes a more in-depth look at the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA) non-discrimination provisions that are most likely to affect small employers.

Imagine your clients, a couple, tell you they are going to start a business. They will breed horses, start a band, get into car racing, or write a book about beekeeping. Of course, there will be losses starting out, but they have plenty of income to shelter and in the long run, they figure they can make money. If you are as I used to be, you may discourage them from deducting the losses, particularly if there are other complications on their return. You figure the Schedule C or Schedule F will be a red flag, and they will likely lose on audit. I’d like to suggest that you rethink that attitude. It is fine if you want to talk your physician client out of going into horse breeding or raising cattle, but if they are going to do it anyway, you should not try to talk them out of claiming the losses. Rather, you should talk to them about what they need to do to beef up their chances of winning an audit of their cattle ranch. And the great thing is that you are the one who can help them more than anybody. Read on to find out how.

Why wait to deduct your depreciation over time? You can speed up your deductions with new increased depreciation rules making it possible to get your benefits up front. Here are four ways to deduct your business assets faster and save more tax now.