Business Strategies Archives - Page 2 of 6 - Think Outside the Tax Box

Business Strategies

By Dan Chodan, CPA

COVID Relief Money Is Still Hiding in Plain Sight: The Employee Retention Credit

Business COVID relief funds have been plentiful. We have seen it all from state and local grant programs to the Restaurant Revitalization Fund and Paycheck Protection Program (PPP). The dollars have flowed freely during the past two years although some programs were certainly simpler than others. The Employee Retention Credit (ERC), unfortunately, has been the most complex and misunderstood relief program. It deserves serious consideration along with a second and third look. ERC has suffered from a branding problem, from repeated changes, and because the PPP overshadowed it. The CARES Act brought both programs to life in March 2020 , but small businesses quickly ignored the ERC in favor of the forgivable PPP loans. A taxpayer could only choose one of these programs until the December 2020 COVID relief law retroactively allowed them to coexist in the same business. But once again a second round of PPP loans overshadowed the ERC. Perhaps now with the grants awarded and PPP funds issued, the ERC can finally get the attention it deserves. The benefits are tremendous at up to $5,000 per employee in 2020 and $28,000 per employee in 2021. Opportunities abound for businesses and advisers to be on the hunt for ERC eligibility both obvious and obscure. Today, let’s review the program and cover some of the unusual ways to qualify.


Benefit Plans Without Breaking the Bank: Save Tax by Being Unfair

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.

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Be More Aggressive in Claiming “Hobby Losses”

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.

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Placed in Service: Ready, Set, Deduct, or Depreciate

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.

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Extra Taxes on S Corporation Distribution?

Question: My client plans to take about $15,000 in distributions in excess of his basis from his S corporation construction business. I know this generates tax for him. He’s in the 32 percent tax bracket and single. Does he also have to pay the 3.8 percent net investment income tax and the 0.9 percent additional Medicare tax on this amount? Is there a way for him to avoid taxes on this amount? Answer: Without planning, yes, the taxpayer has to pay tax on this excess distribution amount. There is a completely legal way to either avoid or substantially reduce this tax, though. Read on to learn how.

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On the Road Again – Tax Savings for the Recreational Vehicle

There is no better time than a multi-year worldwide pandemic to reevaluate the 9 to 5 office grind. Many people are realizing it was never actually necessary to work from a fixed location as long as they have a laptop and an internet connection. So why not take the show on the road? Hop in an RV and head out to see the country and work from wherever you like that day. It’s a great plan, but what does it mean for your taxes? Is your RV a business vehicle or is it a lodging that happens to be on wheels? Buckle up and let’s find out which is best to save you the most money.

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How to Claim the Emergency Relief Credit Fast

Question: How are you pricing Employee Retention Credit claims? Answer: The Employee Retention Credit (ERC) has seemed more confusing than some of the other tax credits simply because it was mostly ignored by the tax community early in the pandemic. While small businesses happily pocketed PPP funds rather than claim the credit, the choice between the two benefits was clear. As we now know, business owners can have both PPP loan forgiveness as well as access to the ERC tax credits. But many smaller firms and payroll processors felt overwhelmed by the demand, and with refunds taking months to process, some businesses are often looking for help on their own. So many new players have entered the game selling access to these credits, up to $33,000 in cash per employee. Firms selling R&D studies and cost segregation are advertising – hard. Most are charging a percentage of the total credit amount. You don’t want to miss out on this valuable service for your client to capture this free cash, yet many advisors are passing on this work due to the time, research, and education requirements for something that has such a short shelf life. Is it worth losing income to meet everyone’s needs? Continue reading to check out the results of a short survey asking tax pros how they are charging for this type of work.

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How Are You Determining Reasonable Compensation – Legal Fact or Convenient Fiction?

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?

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Taking Cash from Your C Corporation: Which Tactic is Best for You?

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.

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