We all know that the IRS takes a bite out of our paychecks, and as a small business owner, there are so many taxes, fees and other financial regulations to consider – income tax (both federal and state); self-employment taxes; payroll taxes (and assuming you have employees to pay, all the more); property taxes; capital gains and dividend taxes (as applicable to any investments you may have made) – are all on your plate.
It can be overwhelming to deal with on your own.

Realistically, as a small business owner, you may have to count on setting aside 30-40 percent of your income to taxes: If you’re just starting out, it may be easier to do this as 30-40 percent of the total of each payment you receive. If you’ve recently begun turning a profit, you can set aside 30-40 percent of your monthly take. And if you’re fortunate enough to be consistently financially stable, take last year’s net income, divide it by four, and then take 30-40 percent of that number; plan on saving that amount quarterly.

These taxes vary both regionally and state-to-state, so it’s always a great idea to consult an expert.  Dunham Tax Professionals is available to help you navigate these IRS tax shark-infested waters.

It is still Summer and it’s important to consider a couple of things in the waning months regarding your seasonal employees:

• Seasonal Employees – Employers usually must withhold Social Security and Medicare taxes from pay for part-time and season workers even if the employees don’t earn enough to meet the federal income tax filing threshold. Self-employed workers or independent contractors need to pay their own Social Security and Medicare taxes, even if they have no income tax liability.
• Classification – Businesses must correctly determine whether summer workers are employees or independent contractors. Independent contractors are not subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes.

IRS posted on 7/30/2020

WASHINGTON — The Internal Revenue Service today issued proposed regulations (PDF) updating various tax accounting regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA).

For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply for taxpayers having inflation-adjusted average annual gross receipts of $26 million or less (known as the gross receipts test).

Taxpayers classified as tax shelters cannot use the simplified rules even if they would meet the gross receipts test.

Prior to the TCJA, certain taxpayers could determine whether they were eligible to figure taxable income under the cash method of accounting by meeting a different gross receipts test. That gross receipts test was met if the taxpayer’s average annual gross receipts for all prior taxable years did not exceed $5 million.

After the TCJA, a taxpayer meets the gross receipts test and can use the cash method if average annual gross receipts for the three-taxable year period ending immediately before the current taxable year are $25 million (adjusted for inflation) or less.

The TCJA also exempted taxpayers meeting the gross receipts test from the uniform capitalization rules. Tax reform also added an exception to the requirement to use an inventory method if their inventory is treated as non-incidental materials and supplies, or in accordance with the applicable financial statement (AFS). If they do not have an AFS, taxpayers can use their books and records. The proposed regulations issued today implement these statutory changes and provide clarifying definitions.

The proposed regulations issued today also provide guidance for small businesses with long-term construction contracts and the requirements for exemption from the percentage-of-completion method and the uniform capitalization rules. For taxpayers with income from long-term contracts reported under the percentage-of-completion method, guidance is provided for applying the look-back method after repeal of the corporate alternative minimum tax and enactment of the base erosion and anti-abuse tax (BEAT).

For more information about this and other TCJA provisions, visit the IRS Tax Reform website.

Attention Truckers/Professional Drivers: Anyone who has registered or is required to register a heavy highway motor vehicle with a taxable gross weight of 55,000 pounds or more in their name at the time of first use on the public highways during the reporting period must file Form 2290, Heavy Highway Vehicle Use Tax Return.

The filing season is July 1 through June 30. The filing deadline for Form 2290 is based on the month you first use the taxable vehicle on public highways during the reporting period.

• For vehicles you first use on a public highway in July, file Form 2290 between July 1 and August 31.
• The tax for the current filing season will be prorated for vehicles you first use on a public highway after July. File Form 2290 by the last day of the month following the month in which you first used the vehicle on a public highway.

Are you ready to file?  Here’s what you need to have at the ready:

1. Your Employer Identification Number (EIN). This is the only way you can successfully file a return. If you do not have one, you must first apply for one.
2. The Vehicle Identification Number (VIN). This applies to every vehicle you use professionally.
3. Taxable gross weight of each vehicle.

Be prepared that payment must be remitted in full with the completed Form 2290.