Michelle Roberts

Tax Planning in the Face and Aftermath of COVID-19

by Michelle Roberts | Nov 1, 2020 | Tax Planning

The coronavirus has affected us all: Many of us have been downsized, furloughed, reassigned, redistributed or forced to work remotely. Some of us have started new businesses in the face of this; still others – existing business owners who were previously successful, have been forced to shutter themselves. With safety concerns and financial uncertainty still looming, the only thing we do know is that COVID-19 has affected us all, changing the ways we approach everything; and its impact will be felt for years – and that definitely includes tax planning issues resulting from new legislation.

There will be an unprecedented number of bankruptcies and offers in compromise, accompanied by loss of homes and home sales. People with current and future tax and debt problems may be forced to sell their home, depending on the bankruptcy exemptions and specific rules in their state and it’s important to note that the last three years of federal tax assessments are not forgivable in bankruptcy.

With these kinds of things in mind, it’s now more important than ever to consult with a tax professional to help you navigate through the sweeping changes that have either already begun or are on the horizon. For instance, this may be a great time to consider submitting an offer in compromise for those who qualify and have IRS tax liabilities, given the unknown current economic circumstances.

Offer in Compromise is approved based on current status and circumstance and with no guarantees that a business will recover or you will return to work in a timely fashion, the chances of an offer being accepted by the IRS increases.

It is also a statistical likelihood that the individual states will raise taxes across the board to compensate for reduced tax income from state income and sales tax respectively.

End of year tax planning is already affected by legislative changes such as the reality that that most of the coronavirus-related provisions are for one year, and with this being an election year, a potential new administration may bring with it new changes in the foreseeable future. As such, in the current landscape, tax professionals are left with a reality that everything we know may be temporary.

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4 Critical Tax Considerations for the Year End

by Michelle Roberts | Oct 29, 2020 | Taxes

Each year, small business owners overpay their taxes because they miss out on certain deductions and tax planning strategies that can reduce their taxable income. Often, it’s because they just don’t understand the tax saving strategies available to them. But you don’t need to make tax planning your full-time job to save money at tax time. As we’re very near the end of October, this is a critical time to perhaps consider a number of strategies to potentially maximize your tax savings as a business owner.

Plan – Paying taxes is arguably one of the least enticing aspects of small business ownership. For that reason, some small business owners put it off. They skip making their required quarterly estimated payments, figuring they’ll catch up at tax time – but that can be a costly mistake. Federal tax code requires that taxes be paid on income as it is earned. For the individual as an employee, these taxes are withheld. As a small business owner, you need to make estimated quarterly payments. If you don’t make estimated payments or pay too little throughout the year, the IRS will charge penalties and interest.

Consider a Change in Tax Status – As a small business owner, you have several options when it comes to structuring your business. You can operate as a sole proprietor, partnership, LLC, S corporation or C corporation. Each business structure has different pros and cons and changes the way that your business is taxed. If you outgrow one type of business structure, you can usually change it to one that’s a better fit. For example, LLCs can elect to have their business treated like a S corporation. As always, it is important to note that a tax professional – such as Dunham Tax Professionals – will be able to properly advise and generate a cost benefit analysis to see if a change is appropriate for your business needs.

Income: Defer or Accelerate? – Many small businesses use the cash method of accounting on their books and tax return. Under the cash method, a company recognizes income when it’s received and expenses when they are paid. If you expect to be in a lower tax bracket next year, you might want to defer income to next year, when you’ll pay taxes at a lower rate. On the other hand, it may be appropriate to accelerate income, such as potentially lucrative contracts on the horizon are likely to really increase your business income, as well as changing your tax bracket. You may elect to collect those monies, report that and pay on that rate currently.

Expenses: Accelerate or Wait? – If you’re in a higher tax bracket now but expect to be in a lower tax bracket next year. If you were planning on purchasing office supplies and equipment next year, you might want to accelerate those deductions, and take them this year to reduce your taxable income for the current year. Conversely, if you expect to be in a higher tax bracket next year, you might put off paying some bills and purchasing equipment and supplies until the next year, when you’ll need all of the tax deductions you can get.

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Tax Planning, Tax Avoidance and Tax Evasion: It Pays to Know the Difference

by Michelle Roberts | Oct 27, 2020 | Tax Planning, Taxes

In the past couple of weeks and considering the president’s actions – or inactions as the case may be – in regard to his taxes, may still be leaving some individuals and business-owners alike, confused about the legality of things. Or especially if it would be considered tax evasion.

There are some key features and distinctions that are important to note, here.

Tax planning is the process of elaborating the company’s financial related matters to maximize the tax benefits under eligible provisions of the tax framework. The planning assists taxpayers to lessen their tax liability through a variety of means, namely deductions, credits, rebates and exemptions provided under the corresponding tax laws.

A key feature of tax planning is its relation to the future. An efficient tax planner of the company with a good tax planning in hand may facilitate the tax minimization in either short term or long term. To bring the best possible outcome for the tax perspective, effective tax planning should bring below some essential elements into consideration:

Choice of business entity
Timing of Income
Business Size
Planning for Expenditures and Purchases
The Residency Status of the Business Owner and Where the Business Operates
Capital Structure of the Business

Tax avoidance is where some individuals and business owners may have some issues or feel especially concerned. As legal citizens and permanent residents of the United States, it is a duty and requirement to pay taxes, but naturally taxpayers want to save as much as – legally – possible. Tax avoidance may seem dubious or questionable, but it is all still part of effective tax planning.

Tax avoidance is the act of minimizing tax liability within the limits of the law or without breaking the law. In other words, taxpayers can use legitimate methods to reduce the amount of tax payable in association with their financial activities. Such methods to allow taxpayers to avoid paying tax to the government may include the followings:

Using tax deductions for decreasing business expenses and business tax bill
Delaying the payment of tax until a later date with an appropriate tax deferral plan
Taking advantage of tax credits for legal purposes like business purchases, benefiting the company’s employees for sick leave and family leave.
Sheltering revenue from tax liability through the establishment of employee retirement plans.

The key takeaway here is that what makes these things – tax planning as well as tax avoidance – legal is always going to be to ask yourself the purpose doing it, which should always be to maximize your savings in an efficient way, and not merely to try and “get over” on the government. Some taxpayers may consider loopholes a convenient form of getting away with something that everyone does, but, here, it becomes important to consider the nature and timing of everything as well: If you – or preferably a tax professional search for and apply tax loopholes that are legal, and do so before the tax liability becomes due – and you can prove everything as legitimate, you’ll most likely be audit-proof.
Anything else is tax evasion.

Tax evasion is any illegal method or unlawful attempt to reduce tax liability of taxpayers. It is highly attached to techniques or illicit practices which results in showing fewer profits to minimize the individual or company’s tax burden.

Examples of tax evasion usually include the following:

Making false statements and information
Inflating deductions without legal proof
Hiding related documents to prove the earned business profits like records of transactions or report of cash income
Concealing or transferring assets illegally
Magnifying tax credit
Claiming excessive expenditure

Tax evasion is a form of tax fraud which indicates illegitimate and deliberate actions for not paying taxes. Since employing such unfair means is fraudulent, any taxpayers regardless of individual or business committing tax evasion behaviors would be subject to statutory punishment such as a heavy fine or imprisonment.

Contact Dunham Tax Professionals if you have any questions about this or any other tax concerns.

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5 Common Mistakes in Starting a New Business

by Michelle Roberts | Sep 24, 2020 | Business Entity, Business Formation, Taxes

Starting a business is a bit more than having a great idea for a product or service. There are other important – legal – decisions to be undertaken. The truth is a large percentage of new businesses fail within the first 18-20 months; however, arming yourself with a bit of knowledge can make all the difference.

Here are some things you need to know:

Always Get Advice from A Professional – Forming your business can be very complicated if not unique. There are those who go forth as a sole proprietor and its fine for them, and there are those who require a level of legal protection not afforded by a sole proprietorship, and that’s smooth sailing too. Still, there are those who look at an LLC filing as adding real status or credibility to a business – and in truth it is very easy to obtain an LLC even online – however, not understanding what your business entity is, will cost you more in the long run, especially since there are tax requirements and compliance fees to be aware of, and very few states will permit a company to change business structures once that structure is decided upon, so it’s important upfront to choose your entity wisely. Consulting a professional such as Dunham Tax Professionals is so important moving forward.
Knowing What You Don’t Know – Even if you ensure liability protection, it doesn’t extend that protection to criminal acts, fraudulent practices or using the corporation to further your own personal interests, such as raiding corporate coffers for personal expenses.
Getting the Proper Local Business Licenses – Too often, owners discover they are not in compliance with local business ordinances – even if they are properly incorporated – and end up paying thousands in fines or back taxes, or worse, a combination of both with loads of additional penalties.
Get Compliant and Stay Compliant – Once you do create a business entity – either an LLC or corporation – there are several responsibilities you have to maintain legal compliance, e.g., fees, licensing renewals; reporting timely and accurate changes in ownership or agents; tax liabilities. Failure to file current paperwork or taxes can result in both late fees and other fines and penalties for you and your business.
Having Sufficient Capital – This may not seem necessary to point out, but it takes money to start a business: owners need to be mindful that there will always be liabilities to cover. And if you don’t have enough revenues, assets, capital or insurance to cover your liabilities, you’re going to be subject to some potentially aggressive penalties.

The advice of an accountant or financial professional is crucial to determine what you need to start your business in the right way in your state or municipality. Dunham Tax Professionals are always available to assist you. Schedule an appointment today.

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Why You Might Choose S Corp Taxation for Your LLC

by Michelle Roberts | Sep 22, 2020 | Business Entity, Business Formation, Taxes

A limited liability company – or LLC – is a legal entity formed under state law to run a business. It provides many of the advantages of a corporation but is easier to form and operate. The way that business is subsequently taxed may need some explanation.

A multi-owner LLC is automatically taxed as a partnership by default, while LLCs with one owner are taxed like sole proprietorships. However, LLCs may choose to be taxed as a C corporation or S corporation. This is easily accomplished by filing a document called an election with the IRS. Once this is done, as far as the IRS is concerned, the LLC is the same as a corporation and it files the tax forms for that type of entity.

Choosing to be taxed as an S Corp can have distinct tax advantages

An S corporation is a pass-through entity, meaning that income and losses passes through the corporation to its owners’ personal tax returns. S corporations also report their income and deductions much like partnerships. An S corporation files an information return reporting the corporation’s income, deductions, profits, losses, and tax credits for the year.

Under an S Corp entity, the LLC would then need to set up a monthly payroll where the owner would need to be established as a legal employee and be paid separately from the LLC and require payroll taxes be submitted.

However, it is noteworthy that S Corp strategy does not apply if the business is categorized as a personal service business, such as accounting, law, health, consulting, athletics, financial services, and brokerage services. The pass-through deduction is not available for such businesses where the owner’s taxable income is over $415,000 for married or $207,500 for singles.

Is filing as an S Corp right for your business? Dunham Tax Professionals will help you sort it all out. Feel free schedule an appointment with us today.

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What is a DBA – And Do I Need One?

by Michelle Roberts | Sep 20, 2020 | Business Entity, Business Formation

DBA simply means “doing business as.” And is any registered name that a business operates under that isn’t its legal business name. A DBA is sometimes called a trade name, fictitious name, or assumed name. Registration of a DBA requires a fee and yearly renewal for as long as the business exists and or operates under the registered name.

You may decide that you want to register a DBA if:

You have a registered formal business entity looking to branch out into new products, services or brands, or to rebrand in general.
You have an unregistered business such as a sole proprietorship or partnership and would like to operate under a name other than your personal name.

It’s important to note that first-time business owners often confuse DBAs with a type of business structure. They assume that when they register a DBA, they are creating a formal business structure with liability protection, but this is not the case: starting a business and registering a DBA only changes the legal name of the business. The DBA name helps with banking and branding the business, but the business owner’s personal assets are still completely the same as the sole proprietorship or partnership structures.

DBAs are not restricted to sole proprietors or partnerships. If you’ve formed an LLC and your LLC wishes to do business under a name other than its legal name (the name it was created with), you’ll be required to register a DBA in order to do so.

We’re here to help. If you have any questions on registering a DBA, schedule an appointment with Dunham Tax Professionals.

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