Business Strategies

Accountants are facts and figures folk. Accountants rely on data and analysis, not myths and tales. Well, not always. In 2020, we asked 4,671 tax advisors whether the IRS recognized rules of thumb such as a 50/50 split between distributions and reasonable compensation. Thirty-three percent said yes. The IRS “rule of thumb” is a myth. But it’s a fact that we found 1,555 professional accountants who relied on this myth. It’s not that they didn’t have the facts. All of those surveyed had just attended a continuing education class on reasonable compensation that walked them through, step by step, recent court cases, the IRS’s definition, rules, guidelines, and criteria for determining reasonable compensation. Nowhere in the class were they taught that the IRS accepts “rule of thumb” or “safe harbor” calculations based on percentage of distributions, sales, or revenue. So, what gives? Why do so many accountants believe these rules of thumb are actually “rules”? And more importantly, does the IRS follow the same?

Being a shareholder owner of a C corporation comes with certain benefits, including the ability to take cash from your business. How to do so depends on your short- and long-term goals and consideration of the tax trade-offs. This article will discuss the options available to shareholder owners, other than borrowing, to realize cash from a corporation that is expected to continue.

The Employee Retention Credit (ERC) was probably the ugly step-child of the CARES Act. It received very little attention from tax practitioners, because participation in the Paycheck Protection Program (PPP) precluded ERC. The Taxpayer Certainty and Disaster Tax Relief Act changed all that. This good news to you as a business owner threatens to overwhelm smaller tax firms, some of which might leave a valuable service to be performed probably less than ideally by the sorts of firms that sell R&D studies and cost segregation. They are already advertising. To avoid missing out on this valuable service for your client or to capture this free cash for yourself as a small business owner, keep reading.

One bright side to losing money in your business is your ability to at least use those losses as a tax deduction against other income you may have. Unfortunately due to tax reform it shredded your ability to claim NOLs after 2017 to 80% of taxable income - it all eliminated the opportunity to carry back these losses to get refunds. We’ve still been reeling from both of these changes. The CARES Act changed net operating losses (NOLs) in a major way to make usage of an NOL more taxpayer friendly … for a limited time. Because the changes are retroactive to 2018, this gives you the opportunity for 3 years of losses to provide much needed relief. The Treasury even provided a fast track to cash - keep reading to find out how.

Management companies exist in a variety of fields for sound reasons. Real estate owners, for example, will hire a management company to collect the rent and deal with maintenance of their properties. Professional practices may use management companies to allow non-professional owners a stake in the practice. Sometimes, though, management companies are not for a real business purpose but rather as a device to shift income. It often does not end well as we will see.

Starting a business is hard. Running a business is hard. And often, it isn’t profitable either – at least not right away. As if losing your money isn’t enough torture, it can get worse. If your business is not profitable and remains that way for a while the IRS can reclassify it as a hobby. This is really bad because while you still have to pay tax on your hobby income, you can’t deduct any of the expenses. Ouch! One strategy around this is to reorganize as a C corporation (since code section 183 doesn’t apply to them). However, if you’re thinking about using this to deduct expenses from your hobby, be careful! A taxpayer, a courtroom, and a whole lotta cats (explanation later) might change your mind. Click here to continue reading.

On Wednesday, March 11, President Biden signed into law the American Rescue Plan Act (ARPA) of 2021, a $1.9 trillion COVID stimulus package. The ARPA contains a mix of retroactive and prospective tax breaks in the form of credits, exclusions from income, and even new tax-free grant programs. Let’s take a look at the most tax significant items in the bill.

Question: Can my business still take a deduction for my car if the title is in my name? Answer: If you want to get all the business deductions you are entitled to for your car, it’s better to have the vehicle titled in your business’s name. Most taxpayers continue to use their vehicles for both personal use and business purposes, as a result, most car titles show just the individual’s name as the owner. This can present a big problem and potential lost deductions, especially due to the Tax Cuts and Jobs Act (TCJA). It is important to review the rules since they have changed recently. You may have deducted expenses on past tax returns as an unreimbursed employee vehicle expense. But under tax reform, the miscellaneous itemized deductions were repealed until 2026, and this is an important rule change. Read on to learn how to still benefit after tax reform and why it can help you go the extra tax mile to title the car in your business’s name.