Category Archives: Tax Coach

Overpaid Taxes

1

A whopping 97% of business owners overpay their taxes. Most business owners do not realize there are many tax strategies that would reduce their taxes…legally! Wonder where you would be if you had all the money you paid the IRS & the state in income taxes for the last 10 years? And check this out….

The IRS says there are hundreds of millionaires who pay $0 taxes every year! If they aren’t paying taxes…why should you? What’s the difference between millionaires who pay $0 tax and you? The millionaires have a tax plan. They know exactly how to handle their finances to maximize deductions and drop their taxes to $0! It’s time to stop letting that money leak out of your pockets. Do you think tax planning means “raising red flags”? Taking advantage of “gray areas”?

Being “aggressive” and hoping not to get audited? In fact, it means nothing of the sort. True tax planning means proactively scouring your business and finances for tax-saving opportunities. Asking questions before you make financial decisions to avoid unpleasant surprises. And taking advantage of every legal deduction, credit, and loophole the law allows. Our tax-planning strategies are all court-tested and IRS-approved. You’ll find that with true tax planning on your side, you don’t need to raise red flags, shade into gray areas, or be aggressive to keep more of what you earn.

Tax Planning

2

The first mistake is failing to plan. Planning is the key to beating the IRS, legally. I don’t care how good your accountant is with a stack of receipts on April 15. If you didn’t know you could set up a Section 105 plan and write off your kid’s braces as a business expense, there’s nothing you can do on April 15.

You lose that deduction forever! True tax planning gives you concepts and strategies you need to minimize your taxes. In plain English, not legalese. Without intimidating spreadsheets or endless “projections” that change every time Congress decides to change the law. What should you do? When should you do it? How should you do it? And tax planning gives you two more valuable benefits. First, it’s the key to your financial defenses. As a business owner, you have two ways to put cash in your pocket.

Financial offense is making more. Financial defense is spending less. Taxes are probably your biggest single expense. So it makes sense to focus your financial defense where you spend the most. And second, tax planning guarantees results. You can spend all sorts of time, effort, and money promoting your business. But that can’t guarantee results. Or you can set up a medical expense reimbursement plan, deduct your daughter’s braces, and guarantee savings. We like to start new client relationships with a comprehensive tax plan that lets us start saving you money right away, long before we prepare your first tax return.

Mistake Business Owners Make

1

Not Paying Yourself is the biggest Mistake Business Owners Make.

When you run a business, you must deposit ALL business income into your business bank account. (Please don’t stuff it under your mattress!) You should use this money to pay your business expenses. You should not take money out of the business account to use it as you please. You should not pay personal expenses with your business checks, debit cards, or ATM cash withdrawals. You must use the business income for paying business expenses. Since you work in the business, your salary is a valid business expense.

You must pay yourself a salary.

This doesn’t mean just transferring money from your business account to your personal account. Nor does it mean writing a company check to yourself and putting “salary” or “payroll” on the memo line. Doing this will subject you to the same “Self Employment Tax” contractors pay. This is an additional 15.3% tax on the money you paid yourself.

Technically, you do not “own” the business, it is an entity unto itself (like an artificial person). You are an employee of the business and must be paid as such.

The business should hire a payroll service that will issue you a W-2 at the end of the year and make all the Payroll Tax deposits that are required by law.

This is the best way to make sure you are compliant with IRS guidelines.

Delayed Refund

1

If your federal refund doesn’t arrive in your account on the anticipated date, you will need to contact the IRS to find out what happened.

If you filed your return electronically, your should expect your refund in 10-21 days and you must wait at least

72 hours to contact the IRS for information. If you mailed your return, it takes 4 weeks to receive information about the status. There could have been a number of reasons for the IRS to delay your refund. It’s important for you to contact the IRS to find out why.

You have two options: Internet or Phone

1. Go to http://www.irs.gov and click on “Where’s My Refund?”
or
2. Call 1-800-829-1040, Choose Option 1

For both methods you will need to know three (3) key pieces of information.

(a) Your Social Security Number

(b) Your Filing Status (1. .single, 2. married filing joint, 3. married filing separate, 4. head of household or 5. Qualifying Widow

(c) The amount of Your Refund

If you do not get any information on the whereabouts of your refund, you will need to speak personally with an IRS Representative.

Call 1-800-829-1040 and Choose Option 2.

Creating a Mileage Log

3

Protecting Your Mileage Deduction

If you are going to claim a deduction for mileage, you must keep track of the number of miles you drive for business. Most people don’t do this and try to figure it out at the end of the year. This is not a good idea. It’s inaccurate and ineffective. Please keep track of your mileage on a regular basis. Daily is best, but you will probably be okay if you do it weekly.

EASIEST WAY: Get a phone app that records the miles you drive and gives you a report at the end of the year. (There are many available.)

I recommend “Track My Trip”. All you do is tap at the start of your trip & tap when you return. You will also need to type in your business purpose.

OLD FASHIONED WAY: Either use pen & paper, or an Excel spreadsheet is ideal because it will calculate your results for you.

Record the following information about each of your trips:

  1. Date
  2. Where You Went
  3. Who You met With, If anyone or business purpose of the trip
  4. Number of miles traveled

10 Most Expensive Tax Mistakes That Cost You Thousands

2

Are you satisfied with the taxes you pay? Are you confident you’re taking advantage of every available break? Is your tax advisor giving you proactive advice to save on taxes? If you’re like most business owners and professionals, you’re not satisfied with the taxes you pay. You’re not taking advantage of every legal deduction, credit, loophole, and strategy. And you’re frustrated because your accountant isn’t giving you proactive strategies and concepts to save tax. The good news is you don’t have to feel that way. You just need a better plan. Read this report to discover tax mistakes that cost business owners and professionals thousands, year after year after year. Then call us at (470) 226-1442 to learn how to fix those mistakes.

  1. Failing to Plan

The first mistake is failing to plan. Planning is the key to beating the IRS, legally. I don’t care how good your accountant is with a stack of receipts on April 15. If you didn’t know you could set up a Section 105 plan and write off your kid’s braces as a business expense, there’s nothing you can do on April 15. You lose that deduction forever! True tax planning gives you concepts and strategies you need to minimize your taxes. In plain English, not legalese. Without intimidating spreadsheets or endless “projections” that change every time Congress decides to change the law. What should you do? When should you do it? How should you do it? And tax planning gives you two more valuable benefits. First, it’s the key to your financial defenses. As a business owner, you have two ways to put cash in your pocket. Financial offense is making more. Financial defense is spending less. Taxes are probably your biggest single expense. So it makes sense to focus your financial defense where you spend the most. And second, tax planning guarantees results. You can spend all sorts of time, effort, and money promoting your business. But that can’t guarantee results. Or you can set up a medical expense reimbursement plan, deduct your daughter’s braces, and guarantee savings. We like to start new client relationships with a comprehensive tax plan that lets us start saving you money right away, long before we prepare your first tax return.

  1. Overpaying Taxes

The second mistake is paying the federal and state governments too much in taxes year after year! A whopping 97% of business owners overpay their taxes. Most business owners do not realize there are many tax strategies that would reduce their taxes…legally! Wonder where you would be if you had all the money you paid the IRS & the state in income taxes for the last 10 years? And check this out….The IRS says there are hundreds of millionaires who pay $0 taxes eery year! If they aren’t paying taxes…why should you? What’s the difference between millionaires who pay $0 tax and you? The millionaires have a tax plan. They know exactly how to handle their finances to maximize deductions and drop their taxes to $0! It’s time to stop letting that money leak out of your pockets. Do you think tax planning means “raising red flags”? Taking advantage of “gray areas”? Being “aggressive” and hoping not to get audited? In fact, it means nothing of the sort. True tax planning means proactively scouring your business and finances for tax-saving opportunities. Asking questions before you make financial decisions to avoid unpleasant surprises. And taking advantage of every legal deduction, credit, and loophole the law allows. Our tax-planning strategies are all court-tested and IRS-approved. You’ll find that with true tax planning on your side, you don’t need to raise red flags, shade into gray areas, or be aggressive to keep more of what you earn.

  1. Wrong Entity

The next mistake is choosing the wrong business entity. Most business owners and professionals start out as sole proprietors, then go on to establish a corporation or limited liability company. But which corporation? A “C” corporation for employee benefits or an “S” corporation for minimizing employment tax? Limited liability companies can be even more complicated. That’s because you can choose whether to pay tax as a sole proprietor, a partnership, a C-corporation, or an S-corporation. Choosing the wrong entity can waste thousands in tax, year after year, for as long as you operate your business. If you’re operating as a sole proprietor when you could take advantage of an S-corporation, for example, you’ll pay thousands more into a Social Security system that you probably aren’t counting on to finance your retirement. If you’re operating as an S-corporation, you might be losing thousands in employee benefits you could deduct if you were a C-corporation. You might even do best with more than one entity, like an S-corporation to minimize employment taxes and a C-corporation to maximize employee benefits. Complicated? You bet! We’ll evaluate your business to see which entity makes the most sense for you now. And we’ll keep evaluating your business as we work together to make sure you have the best possible structure going forward.

  1. Wrong Retirement Plan

Choosing the right retirement plan can be just as challenging as choosing the right business entity. How much do you want to contribute for yourself? How much can you afford to contribute for your employees? If you’re looking to save more than the $5,500 limit for IRAs, you have four main choices: Simplified Employee Pensions (“SEPs”), SIMPLE IRAs, 401ks, and defined benefit plans.

  • SEPs are easy to set up and administer. But will a SEP be enough for your needs?
  • SIMPLE IRAs are also easy to set up and administer. But will a SIMPLE let you contribute as much as you’d like? What about employee contributions?
  • 401ks aren’t just for “big business” anymore. Should you consider an “individual 401k” for yourself and your spouse? How much will a 401k cost if you have employees?
  • Defined benefit pension plans let you guarantee up to $175,000 in annual retirement income. But defined benefit plans have required annual contributions, and they’re harder to manage. Will the benefits make sense for you?

We can guide you through the retirement plan jungle to choose the best plan for your needs.

  1. Missing Family Employment

The fifth big mistake for many business owners is missing family employment. Hiring your children or even your grandchildren can be a great way to cut taxes on your income by shifting it to someone who pays less. Then you can use those wages to pay for their private or parochial school tuition, summer camp, college tuition, or anything else. The minimum age for hiring a child is just seven years old. That lets you get started saving early, and even help give them good work habits. Their first $6,200 of earned income is taxed at zero. (That’s because $6,200 is the 2014 standard deduction for a single taxpayer – even if you claim them as your dependent.) We can help you determine how to pay your child, how to document it, and even where to put the money once you’ve paid them.

  1. Missing Health Care Strategies

Now let’s talk about health-care costs. Surveys used to show that taxes used to be small business owners’ biggest concern. Now it’s rising health care costs. If you pay for your own health insurance, you can deduct it as an “adjustment to income” on Page 1 of Form 1040. If you itemize deductions, you can deduct unreimbursed medical and dental expenses on Schedule A, if they total more than 10% of your adjusted gross income. But most of us don’t spend that much on healthcare, so we don’t get full deductions for what we spend. What if there were a way to write off medical bills as business expenses? There is, and it’s called a Section 105 plan, or Medical Expense Reimbursement Plan. If you qualify, you can write off just about any legitimate medical expense. Health insurance, long-term care coverage, Medicare, and “Medigap” insurance. Co-pays, deductibles, and prescriptions. Dental, vision, and chiropractic care. Big-ticket expenses like braces for your kids’ teeth, fertility treatments, and LASIK surgery. Even nonprescription medications and medical supplies, like aspirin and cold remedies. The best part is, this is money you’d spend anyway, whether you get a deduction or not. You’re just moving it from a nondeductible place on your return, to a deductible place. You’ll save income tax on whatever you deduct. You may even save self-employment tax too. If a Section 105 plan won’t work, we can discuss Health Savings Accounts. These arrangements combine a high-deductible health plan with a tax-free savings account to cover unreimbursed costs. They give you much the same benefit as the 105 plan, without quite the flexibility.

  1. Missing Home Office Expenses

Home office expenses are probably the most misunderstood deduction in the entire tax code. For years, taxpayers feared it raised an automatic audit flag. But Congress has relaxed the rules, so now home offices attract far less attention. Your home office qualifies as your principal place of business if: 1) you use it “exclusively and regularly for administrative or management activities of your trade or business”; and 2) “you have no other fixed location where you conduct substantial administrative or management activities of your trade or business.” This is true even if you have another office, so long as you don’t use it more than occasionally for administrative or management activities. Claiming a home office lets you deduct the “business use percentage” of your mortgage interest or rent, property taxes, utilities, repairs, insurance, garbage pickup, and security. You’ll get to depreciate part of your purchase price. And claiming a home office even boosts your car and truck deductions. That’s because it eliminates nondeductible commuting miles for that business. We’ll help you determine if you qualify for home office deduction – and if so, how to make the most of it.

  1. Missing Car and Truck Expenses

Car and truck expenses are easy to overlook. That’s because you can take a standard mileage allowance (currently 56 cents/mile). But that allowance is the same for all vehicles, no matter how big they are, how much they cost, or how much gas they guzzle. Do you think every car on the road costs 56 cents per mile to drive? It might surprise you to see how much it really costs to operate your car. And it’s likely to be more than 56 cents per mile! If you’re taking the standard deduction for a car that costs more than 56 cents/mile, you’re losing money every time you drive for business. Every year, the American Automobile Association (“AAA”) publishes a driving cost survey. For 2008, they found small sedans like the Honda Civic cost 35.7 to 55.1 cents/mile. Medium-sized sedans like the Toyota Camry cost 46.9 to 71.9 cents/mile. Large sedans like the Chrysler 300 cost 54.8 to 85.8 cents/mile. SUVs like the Ford Explorer cost 59.1 to 91.0 cents/mile. Minivans cost from 49.1 to 74.9 cents/mile. And that was with gas priced at just $2.94 per gallon! If you’re taking the standard deduction now, you may be throwing away savings you could take with the “actual expense” method. We can walk you through both methods to see which saves you the most now, as well as help make the right decision when it comes to buying or leasing a new car for business.

  1. Missing Meals and Entertainment Expenses

Let’s finish up with some fun deductions for meals and entertainment. The basic rule is that you can deduct meals where you conduct a “bona fide” business discussion. This means clients or patients, prospective clients or patients, referral sources, and business or professional colleagues. So let me ask you – when do you ever eat with someone who’s not a client, prospect, referral source, or business colleague? If you’re in a business like real estate, insurance, or investments, where you’re constantly marketing yourself, the answer might be “never.” Be sure you deduct every meal where you legitimately advance your business! You don’t even need receipts for expenses under $75. You just need to record the cost of the meal, the date of the meal, the place where it takes place, the business purpose of your discussion, and your business relationship with your guest. Do you ever entertain at home? Ever discuss business when you do it? Are you deducting those meals, too? There’s no requirement that you eat out. So don’t forget to deduct home entertainment expenses too! You can even deduct entertainment expenses if they take place directly before or after substantial, bona fide discussion directly related to the active conduct of your business. You can deduct the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes, and tips. We’ll help you make the most of your deductible meals and entertainment so you don’t miss a deductible dollar!

  1. The Biggest Mistake of All

Now that you see how business owners miss out on tax breaks, let’s talk about the biggest mistake of all. What mistake is that? The biggest mistake of all is missing our tax planning service. Have you all heard the saying “if you fail to plan, you plan to fail”? It’s a cliché because it’s true. Fortunately, our planning service avoids the problem. We offer true tax planning. We tell you what to do, when to do it, and how to do it. Call us at 770-451-6330 for your “1040 Analysis.” We’ll find the mistakes and missed opportunities that can cost you thousands – then give you a plan for rescuing those lost dollars. We guarantee it will be the best hour you ever spend on your taxes, or we’ll donate $50 in your name to your favorite charity. You have nothing to lose but opportunity. So call us at 770-451-6330 and schedule your analysis today!

Using Your Business Bank Account

The following information is based on IRS guidelines.

Your business must have its own bank account.

The IRS requires proof of payment so Pay All Business Expenses using Business Accounts (Check, Credit or Debit card, Bill pay, Auto Draft, ACH)

Don’t Pay for business expenses with cash, cashier’s checks or money orders (These are almost impossible trace!)

Do not use the business account for personal expenses (This is co-mingling funds!)

Do not use your personal account for business expenses (This is co-mingling funds!)

Do not Co-Mingle funds….If you mix your business & personal expenses, the IRS will consider all of your expenses personal and make you pay taxes on all of your income!