Common Mistakes in Small Business Tax Preparation

Tax planning and preparation are major challenges for small business owners. While you might be an expert in your area of business, that doesn’t mean that you are also an expert in the intricacies of Internal Revenue Service (IRS) rules and tax laws. The U.S. Tax Code is highly complex, and there are many ways that small businesses can encounter problems with their taxes. Here are some of the most common mistakes made by small businesses and encountered by TMD Accounting that you should avoid.

1. Choosing the Wrong Business Entity Structure

There are several different types of legal entity structures that you can choose for your business. Each of these structures has advantages and disadvantages. When you choose the wrong one, your business structure can expose your company to potential liability and result in higher taxes. The following types of structures are the most common:

  • Sole proprietorship
  • Limited liability company (LLC)
  • S-corporation
  • C-corporation
  • Partnership
  • Limited liability partnership (LLP)
  • Nonprofit

Some businesses choose the wrong tax entity while others fail to choose a structure at all. Either of these errors can greatly impact the future of your business. For example, while a sole proprietorship is the simplest structure for a business to form, it doesn’t provide any personal liability protection. Choosing a C-corporation structure for your company comes with many reporting and documentation requirements and can double the taxes you might owe. When you prepare to open your business, getting small business accounting services from TMD Accounting can help you select the most advantageous structure for your company.

2. Failing to File Taxes Or Send Proper Payments

When you need to file different types of taxes and send payments to the IRS will vary based on your business’s structure, your industry, and whether you have employees. There are many different forms that might be required, and you might also need to file different forms with the state as well.

Certain taxes must be filed every quarter, including payroll, estimated income, and sales taxes. Others must be filed annually, and you must also send your employees and contractors other forms directly so that they can file their tax returns.

Failing to file the right forms and submit payments on time can get your business in trouble. You might face high penalties from the IRS that could cripple your business. In certain cases, failing to file business tax returns or remit tax payments when they are owed could also expose your business to criminal liability.

3. Classifying Workers Improperly

Many businesses improperly classify their workers. For example, you might decide to classify your workers as independent contractors to try to save money on your tax bills. However, if you improperly classify workers, it could result in significant penalties. Make sure you understand the classification rules and follow them to avoid serious tax problems.

4. Underestimating Taxes or Underreporting Income

If you file your taxes as an S-corporation, partnership, or sole proprietorship, you will likely have to make quarterly estimated tax payments to the IRS. While you aren’t expected to guess how much your business will owe exactly, you are expected to be reasonably close. If you fail to make quarterly estimated tax payments or greatly underpay them, you could face a stiff penalty. If you understate the amount you owe by a substantial amount, the IRS might believe you were negligent and force you to pay a 20% penalty. If the IRS believes you tried to intentionally defraud the government, you could face a fine of up to 75% of the amount owed as well as criminal charges.

5. Commingling of Personal and Business Expenses

A major mistake that many small business owners make is mixing their personal and business funds and expenses. The IRS has strict rules against commingling personal and business funds. You can only deduct business expenses from your income and not personal expenses. To prevent you from deducting the wrong expenses, you must ensure your personal and business finances are kept separate. This means having a separate bank account for your business and only using a business credit card for business purchases and not your own. If you do use personal assets to operate your business, including your vehicle or a home office, you must keep detailed documentation to support your deductions.

6. Poor Organization and Record-Keeping

Failing to keep good records throughout the year can make tax time difficult. If you leave everything until the last minute, you’ll likely miss out on business deductions you would otherwise have been able to claim. Disorganized records and poor documentation can also result in higher small business accounting services fees when it’s time to prepare your business tax returns.

To prevent these problems, make sure you have a system to track your expenses and income on a continuing basis throughout the year. Each month, your cash flow, credit card statements, and bank account statements should be reconciled. You can use software to help manage your bookkeeping so that tax time will be smoother for both you and your accountant.

7. Taking Improper Deductions

The deductions you can claim for your business are those that are involved in the ordinary process of operating your company. You can review IRS Publication 535 to learn what is deductible. If you claim deductions for things that are improper, you could face an audit and potentially severe penalties. Even if you claim legitimate deductions, you could be penalized if they are out of sync with your business’s income or the deductions claimed by similar businesses in your industry.

If you report a loss for your business several years in a row, the IRS could decide that your venture is a hobby instead of a business. If that occurs, your ability to claim deductions could be disallowed completely.

Find an Accountant for My Small Business

The best way to avoid potential tax issues is to be honest and remain organized. Working with TMD Accounting can also help you avoid potential mistakes in preparing your taxes and claim all of the deductions to which your business should be entitled. To learn more, contact us today at 1-856-228-2205.

Your Small Business Tax Preparation Checklist

Small business owners should ideally prepare for tax filing season year-round. Planning can help to simplify the tax filing process and help small business owners to take advantage of potential deductions and credits for which they might qualify. As the tax season draws near, it is important to ensure you understand the various deadlines that apply and the documents you should gather. At TMD Accounting, part of our small business accounting services includes helping our clients prepare and file their business tax returns. Here’s a checklist that can help you get a jump on the upcoming tax season.

1. Know the Forms You Will File

The tax form your business will file depends on the legal entity structure you have chosen as follows:

  • Sole proprietorship – Schedule C with your individual Form 1040
  • Limited liability company (LLC) with one member- Schedule C filed with your individual Form 1040
  • LLC with more than one member – Form 1065
  • Partnership – Form 1065
  • S-corporation – Form 1120-S
  • C-corporation – Form 1120

Additional schedules and forms might also need to be attached based on the credits and deductions you claim and the types of income you need to report.

2. Information to Gather

Before it is time to file, you should gather the following information to make the process easier:

  • Employer identification number (EIN) or Social Security number
  • Business’s legal name
  • Business address
  • Business principal activity code from the chart in the instructions for
  • Schedule C
  • Income information from your business, including from sales, property sales, collected rent, dividends, interest, canceled debt, allowances, returns, and other income
  • Cost of goods sold for a deduction if your business sells products with a beginning and ending inventory by using the worksheet in IRS Publication 334, Chapter 6 to calculate it
  • Business expenses, including utilities, advertising, vehicle expenses, mileage, fees and commissions, contractor labor, depreciation, insurance, employee benefits, professional fees, legal fees, office expenses, employee wages, license, taxes, and others
  • Information broken down by location if you have locations in several states

Gathering this information can be simple if you use small business accounting software. If you haven’t kept good records, you might need to recreate them by using your bank statements, credit card statements, receipts, and other types of documentation.

3. Issue 1099s if Necessary

If you hired independent contractors or freelancers and paid them $600 or more during the tax year, you need to issue Form 1099-MISC to each one. This is a form used to report payments for work performed by non-employees and independent contractors. You aren’t required to issue a Form 1099-MISC if you paid a contractor through a third-party payment network such as PayPal. In that case, the payments will be reported by the payment processor on Form 1099-K. You can either print Form 1099-MISC through your accounting software or purchase blank forms from a local office supply store. Your accounting firm can also supply these forms for your business.

4. Know Your Other Small Business Tax Obligations

Small businesses also need to be aware of their other tax obligations and returns beyond the federal income tax, including the following:

  • Employment tax withholdings – Must be filed with the IRS along with quarterly payroll tax reports
  • Unemployment taxes – Paid by the employer without deduction from employees’ wages
  • Self-employment taxes – Covers the Medicare and Social Security taxes for self-employed people and must be paid quarterly together with estimated taxes
  • Excise taxes – Must be paid on certain types of activities or goods
  • Sales taxes – Might be required to collect and remit sales taxes to the state or local government
  • Property taxes – Local and state property taxes for your business property if you own it

5. Know the Filing Deadline

The filing deadline depends on the form you file. S-corporations, partnerships, and LLCs with more than one member that file Forms 1120-S or 1065 have a tax filing deadline of March 15. If this date falls on a weekend or holiday, your return must be filed by the next business day.

If you operate as a single-person LLC or a sole proprietor, you report your business income on Schedule C of your individual tax return. In that case, file Form 1040 and Schedule C by April 15. If it falls on a weekend or holiday, your return must be filed by the following business day.

6. Request an Extension if Necessary

If you can’t file your return on time, ask for an automatic extension. Single-member LLCs and sole proprietors can request an extension on Form 4868. Other business types use Form 7004 to request extensions.

An extension will give you an additional six months to file your return. However, if you owe money, your deadline for paying what you owe doesn’t change. Try to estimate what you owe and pay it by the original deadline so that you won’t be assessed penalties and interest.

Find an Accountant for My Small Business

While this tax preparation checklist can help you prepare for filing your taxes, working with an experienced accounting professional at TMD Accounting can make the tax process much more manageable. Contact us today to request a consultation at 1-856-228-2205.

Small Business Tax Planning Strategies

The end of the year is approaching and that means you will realize that “the accountant for my small business is going to need my tax information soon.” For some small business owners, that can send them into a panic as they realize they have not thought about taxes since they were filed earlier in the year. These tips from TMD Accounting can help you begin to prepare for tax season and help you stay prepared all throughout the year.

Review Your Income

This is the time to review your income over the past year, according to small business accounting services. During the pandemic, you may have seen your company income drop but now that things are getting back to normal, your bottom line may have improved substantially. For some businesses, however, the inflation has kept their profits lower than expected. If you have seen an increase in net revenue this year, now is the time to look for additional tax deductions to lower your tax burden after the first of the year. By the same token, if your income is lower than you expected, you may find yourself eligible for additional deductions you were not eligible to use in the past.

Check Your Business Entity

This is the perfect time to review whether you are using the right business entity, whether you are a sole proprietor, S-Corp, LLC, partnership or C-Corp. Even though you may have had the same entity for years, your income level can have an impact on which option is best for you. If your company is bringing in $50,000 or less, it is likely that you will not want to go through the process of becoming an S- or C-Corp. If this is your current business entity, you may want to talk to a small business accountant to see if it is time to change. If your company has done exceptionally well this year, you are reaching six figures in net revenue, but are still a sole proprietorship or partnership, you may want to ask, “can the accountant for my small business help me change my business entity?”

Review Retirement Plans

If it looks like you will owe a significant amount to the IRS this year, consider reviewing your retirement plans. This is the perfect time to invest in retirement plans such as an SEP IRA or a Solo 401(k), depending on your business. You could even combine a 401(k) with a Cash Balance Pension Plan. Although you will still be writing a check, it is much preferable to write that check to yourself in order to use it in retirement than it is to write it to the IRS. At TMD Accounting, we can help you create a retirement account that will not only prepare you for your golden years, but also reduce your tax burden.

Are You Working from Home More Often?

One of the things that came out of the pandemic was a realization that working from home can be an option for many people, even business owners. If you have moved some of your operations to a home office, you may be eligible for the home office deduction, even if you were not eligible in previous years. The answer to the question “can the accountant for my small business tell me if I can take the home office deduction” is absolutely yes, but there are a few things you need to know. In order to take the deduction, you must meet certain criteria, so talking to your accountant is the best way to determine if this is an option. If you can take the deduction, you could save hundreds if not thousands on your taxes.

Take the Time to Get Organized

December is the time to get all your business finances organized. Pull out the shoebox of receipts and begin organizing them. The best way to do this is to sort them into piles related to your deductions. For instance, create a pile for office supplies, one for meals and entertainment, one for vehicle costs related to business and so on. Even if you use an electronic financial system, organizing your backup documentation can be beneficial should the IRS flag one of your deductions. The best way to do this, however, is to do it all year so that it does not feel so overwhelming at the end of the year.

Consider Deferring or Accelerating Income

Did you do a large project for a client that could be billed in December? Consider delaying the invoice until January which allows you to defer the income, so it is taxable in the next tax year. However, if you believe your tax rate will increase next year due to higher net revenue, you may want to accelerate the income by issuing the invoice as soon as possible and trying to get payment from the client before the year ends. You can do the same with your expenses. If you expect your tax bracket to be higher next year, you may want to delay paying any expenses you can until after January 1. However, if your tax bracket is higher this year than it will be next year, try to pay as many expenses as possible before the end of the year. A small business accounting service can help you understand if accelerating or deferring income and expenses would benefit your tax situation.

If you are in need of an accounting services, we here at TMD Accounting are ready to help you. We have over 40 years’ experience in the tax industry, are family-owned and operated, working under the motto that “numbers matter and people count.” Arrange for a no obligation consultation by calling 1-856-228-2205 or fill out the easy online form today.

Child and Dependent Tax Credit for Married Filing Separately

There are several reasons why some married couples opt to file taxes as married filing separately. However, this tax filing status can prevent individuals from claiming certain types of tax credits and deductions they might otherwise be entitled to if they filed their taxes jointly. Here is some information to understand about this filing status and its impact on the child tax credit (CTC) and the child and dependent care tax credit (CDCTC) from the accounting professionals at TMD Accounting.

Why Would People Choose to File Taxes as Married Filing Separately?

When couples file tax returns as married filing separately, they can’t claim many credits to which they would otherwise be entitled. Before the passage of the Tax Cuts and Jobs Act (TCJA) in 2018, there was somewhat of a “penalty” for married couples who filed jointly because the standard deduction for joint filers was not twice that of single filers. However, the TCJA changed the tax brackets to make the standard deduction for joint filers double that of single filers, eliminating this so-called penalty.

Even though filing as married filing separately might make some people ineligible for certain tax credits, it might be advantageous for people in the following types of situations:

  • When a spouse has unpaid student loan or tax debt to avoid a refund being seized to pay for it
  • When one spouse believes the other is inflating deductions or otherwise being dishonest on their tax return and does not want to be liable by signing a joint return
  • When one spouse is applying for income-contingent student loan repayment plans
  • When one spouse’s income is substantially lower than the other spouse’s, and the lower-earning spouse does not want to be liable for the higher-earning spouse’s tax bill
  • When one spouse is unwilling or unable to sign a joint tax return
  • When the spouses are planning to separate or divorce
  • When the taxes owed on the separate returns equal the taxes owed on a joint return to avoid liability for each other’s tax bills

If you do have a good reason for choosing the filing status as married filing separately, here’s how that might impact your ability to claim the child tax credit and the child and dependent care tax credit.

Understanding the Child Tax Credit vs. the Child and Dependent Care Tax Credit

The child tax credit (CTC) is a tax credit parents can claim for each qualifying child they have up to age 17. This credit can be used for any type of expense and is provided in recognition of the fact that parents who have children have less disposable income and more expenses than others who make the same levels of income.

By contrast, the child and dependent care tax credit (CDCTC) is a tax credit a parent can claim to offset the cost of the child or dependent care so the parent can work. The CDCTC is available only to parents who have to pay for child care or adult dependent care so that they can work. On the other hand, the CTC is available to parents who have children younger than age 17 regardless of whether they have to pay for care to work.

Effect of Married Filing Separately Filing Status on the Child Tax Credit

The American Rescue Plan Act of 2021 temporarily expanded the child tax credit during that year, increasing the CTC of $2,000 for children younger than age 17 to $3,600 for children under age six and $3,000 for children ages six to 17. Eligible parents also could receive advanced payments of one-half of the child tax credit each month while receiving the remainder when they filed their 2021 income tax returns.

However, the enhanced CTC was allowed to expire at the end of 2021 and has not yet been renewed. While some people believe the expanded child tax credit might be renewed, it hasn’t been thus far. This means that the existing child tax credit of $2,000 for children ages 17 and younger is currently what might be available to tax filers when they file their 2022 returns.

People who file their tax returns as married filing separately can only claim a reduced child tax credit. The amount that someone with this filing status can claim is one-half of the available credit, and only one parent can claim it.

Effect of Married Filing Separately on the Child and Dependent Care Credit

In general, married couples can only claim the child and dependent care credit if they file joint returns. However, there are a couple of exceptions under which one spouse might be able to claim the credit even when their tax filing status is married filing separately.

According to the Internal Revenue Service (IRS), someone who is living apart from their spouse or who is legally separated might still be able to claim the child and dependent care credit. If you are legally separated from your spouse, the IRS does not consider you to be married and allows you to take the CDCTC if you file as head of household instead of married filing separately. To file as head of household, your child must primarily live with you, and you must pay at least 50% of the costs of supporting them during the year. You will also need to pay for care so that you can work.

If you are married and living apart from your spouse, you can claim the

CDCTC if the following criteria apply:

  • You file a separate tax return from your spouse
  • You maintain a separate household for you and the qualifying dependent for more than half of the year.
  • Your spouse does not live with you during the last six months of the tax year.
  • You pay more than 50% of the costs of maintaining your home.
  • You pay for child or dependent care during the year for the qualifying dependent so that you can work.

Get Help from TMD Accounting

Understanding the best filing status to choose for your situation and the potential impact on your available credits is important. To learn more about optimizing your taxes, contact TMD Accounting today at 1-856-228-2205.

Are GoFundMe Donations Tax Deductible?

Many people and organizations have turned to crowdfunding to raise money for various needs and causes. One of the most popular crowdfunding platforms available is GoFundMe. While many of the entities raising funds on GoFundMe are charitable, some people worry about whether donations they might make via the platform can be deducted from their taxes.

Whether or not donations made on GoFundMe can be deducted from your taxes depends on whether the donee is a qualified 501(c) organization. If the recipient of your donation is a qualified 501(c) organization, then you can claim your donation as a deduction on your tax return. If the recipient is not a 501(c) organization, your donation is considered personal and can’t be deducted. Here is some more information about crowdfunding donations and when they can be deducted from the tax professionals at TMD Accounting.

When Are GoFundMe Donations Tax Deductible?

Originally starting as CreateA Fund in 2008, GoFundMe changed its name in 2010 and is a crowdfunding platform that can be used to raise money for nearly anything. Donations made on the platform are considered to be personal unless they are given to a qualified 501(c) organization.

If you give money to a non-501(c) organization on the site such as an individual who is trying to raise money for any purpose, your donation will be considered to be a gift and not a tax-deductible charitable donation. Even if you make a gift for a charitable purpose, it won’t automatically qualify you for a deduction.

Another thing to watch for is how much money you donate to an individual on GoFundMe. Since these types of gifts are not considered to be charitable by the Internal Revenue Service (IRS), if you give more than the annual exclusion amount for gifts, you might have to report what you gave and file a Form 709. The recipient will not be taxed on the amount they received.

How GoFundMe Works

Individuals, groups, or organizations can all raise funds on the GoFundMe platform. The site distinguishes between types of fundraisers, including standard campaigns and certified charity campaigns. Many organizers of standard campaigns are people who are raising money for any number of reasons and who can deposit any money they raise into their bank accounts.

While many standard campaigns are for worthy causes, the gifts that are made are given to individuals instead of registered charities. Donations to them are generally not tax deductible.

By contrast, certified charity campaigns are established by registered 501(c)(3) organizations. The organizers don’t handle the funds. Instead, the money is sent directly to the charitable organization through the PayPal Giving Fund. This is a fund that was created by GoFundMe to help registered charities receive donations. When you donate GoFundMe to a registered charity, you will receive a receipt from the giving fund so that you can claim a deduction on your tax return.

When GoFundMe Donations Are Tax Deductible

There are two exceptions under which a donation on GoFundMe could be tax deductible. First, if you give money to a qualified 501(c) organization on the platform, your gift will be tax deductible. Second, GoFundMe has established a program called “GoFundMe Causes”. Through this program, qualified organizations are grouped by their causes. You can make a tax-deductible contribution to the cause you choose, and the donation will be sent directly to the group of verified charities grouped by that cause.

Understanding Gift Taxes

The annual gift tax exclusion for 2022 is $16,000. If you give more than this annual amount to non-501(c) organizations, you could be required to file a gift tax return. While there are exceptions for donations given for educational or medical expenses, the exceptions require the funds to be sent directly to the institutions instead of an intermediary. Funds given on GoFundMe rarely are sent directly to institutions through standard campaigns.

Deductions for Charitable Giving

When you give money to a nonprofit organization, your donation will normally be deductible. You can deduct up to half of your adjusted gross income for cash donations, but there are limits set at 20% or 30% that might apply. Giving money to registered 501(c) organizations on GoFundMe could be a way to reduce your tax burden, but you will need to make sure to save your receipt. To claim a deduction, you will need to itemize your deductions instead of taking the standard deduction using Schedule A. A charitable deduction might be eligible as long as it is given to one of the following:

  • Nonprofit hospitals and schools
  • Some veterans’ groups
  • Local, state, and federal governments
  • Religious organizations

Donations to the following types of organizations generally cannot be deducted:

  • Political action committees (PACs) or political parties
  • Foreign organizations or governments
  • Individuals
  • For-profit hospitals or schools
  • Labor unions
  • Sports or social clubs
  • Homeowners’ associations (HOAs)
  • Responsibilities of Donees

Gifts are generally not considered to be taxable income. However, organizers should keep records to avoid problems.

If a donee receives donations in exchange for services or goods, the IRS might consider the donations to be taxable business income. Be clear in your campaigns that donors will not receive anything of value in exchange for making donations.

If you raise more than $600, the third-party payment processor will send you and the IRS a Form 1099. While the money you raise should not be considered taxable, you will have the burden to show that it was not income. Report the funds you receive on your tax return and then show a reduction of the same amount while including an explanation.

Talk to TMD Accounting

If you are unsure about whether your donations might qualify for deductions, you should talk to the professionals at TMD Accounting. Call us today at 1-856-228-2205.

Everything You Need to Know About the Business Travel Tax Deduction

Self-employed people and small business owners are generally allowed to deduct business travel expenses when they are required to travel away from home for business purposes. However, you need to ensure that you understand the definition of home from the Internal Revenue Service (IRS) and what ordinary and necessary expenses are to ensure you deduct your business travel expenses accurately. Here is what to know about the business travel tax deduction from TMD Accounting.

What Are Ordinary and Necessary Expenses?

The first thing you should understand is how the IRS defines ordinary and necessary expenses. Ordinary expenses are those that are accepted and common within your industry. Necessary expenses are those that are appropriate and helpful for your company.

How the IRS Defines Home

Your business travel expenses can be claimed when you are away from your business home, which is not necessarily where you live. The city in which your business is located is your business’s tax home, which might not be the same place where your family lives.

For example, imagine that you live in Colorado Springs, Colorado and have a permanent business location in Denver. Just because you might stay during the workweek in hotels in Denver and eat out, you won’t be able to deduct those expenses from your taxes or the costs of your transportation when you drive back to Colorado Springs on the weekends. This is because Denver will be your business’s tax home, so you can’t take deductions for your ordinary and necessary expenses during your time there.

Deductible Transportation Expenses

If you have to travel for business by bus, train, or plane, you can deduct the cost of your ticket and baggage fees. If you have to pay for a last-minute ticket, you can claim the higher price as an expense. However, if you pay for the ticket using your frequent-flyer miles, you won’t be able to deduct it.

Transportation expenses can be deducted when you have to travel away from your business’s location for business reasons. For example, if you have to fly from Denver to Los Angeles for a work conference, you can deduct the cost of your airfare to and from Los Angeles. You can also deduct the cost of renting a car in LA while you are there. The IRS allows you to deduct the actual costs or the standard mileage rate. During the first half of 2022, the standard rate was 58.5 cents per mile. For the second half, the mileage standard rate was increased to 62.5 cents per mile. You can also deduct parking fees and tolls you might have to pay during your business trip.

Deductible Taxi Fares

While you are away on business, you can also deduct the fares you pay for taxis or shuttles. The following types of fares you pay can be deducted:

  • Fares paid to get to and from the airport, train station, and your hotel
  • Fares paid to and from your hotel and your work location
  • Fares paid to and from clients in the city

For car rentals, you can deduct the expense as long as you exclusively use the vehicle for business. if you also use it for personal reasons, only deduct the portion of the rental costs that you used for business. For example, if you are in LA and drive to the conference and then back and forth to a few client locations, you can deduct the mileage and rental car expenses for those trips. However, if you later decide to go out to dinner or a movie from your hotel, you can’t deduct the expenses involved with that.

Deductible Incidental Expenses

You can also deduct the costs of your hotel, business meals, and tips as long as they are reasonable under the circumstances. Your meal deduction is limited to half of the actual cost of your meal or the standard meal allowance. The meal allowance is based on the federal per diem rate based on when and where you travel.

In general, business travelers can only deduct 50% of their meals. However, in 2022, the IRS is allowing business travelers to deduct the full cost of business-related meals and beverages that they purchase at a restaurant. If you decide to take the standard meal allowance, the deductible amount for incidental expenses is $5 per day for tips given to staff at your hotel, baggage carriers, or porters. It is still a good idea to keep receipts and track of the actual costs you pay.

What Qualifies as a Business Trip?

To qualify as a business trip and qualify for the business travel tax deduction, your trip must meet each of the following criteria:

  • Your trip caused you to leave your business’s tax home for more than a normal work day
  • Your trip must primarily consist of business
  • Your trip should qualify as an ordinary and necessary expense
  • Your trip should be planned in advance

Speak to an Accounting Professional

If you are unsure which expenses you can deduct under the business travel deduction, you should speak to the accounting and tax professionals at TMD Accounting. We can review your receipts and the purpose of your trip and explain what can and can’t be included. To learn more, call us today at 1-856-228-2205.

How to Find the Right Small-Business Tax Advisor for Your Business

Having a small-business tax advisor can help your business save money on taxes by working with you year-round. This is a certified professional who prepares and files business tax returns, provides financial and tax advice, and represents businesses when they are audited by the Internal Revenue Service (IRS). Certified tax advisors also perform record-keeping duties and help with tax planning to maximize your business’s returns. The tax advisor you choose should be experienced, qualified, and have specific knowledge about business taxes. Here is some information from TMD Accounting about how to find the right tax advisor for your small business.

What Are Tax Advisors for Small Businesses?

The IRS allows anyone to serve as a small-business tax consultant as long as they get a preparer tax identification number (PTIN) from the agency. However, you should look for a professional firm that offers both small business account services and business tax advice. The professional you choose should also be certified as a tax advisor by the IRS. Certified tax advisors have additional education, skill, and expertise requirements and can also represent you in case of an audit.

Enrolled agents are licensed tax professionals who must pass a specialized exam showing their tax proficiency and/or have worked for the IRS for at least five years.

Certified public accountants (CPAs) must pass the CPA exam and follow the requirements for CPAs. They are accounting professionals offering multiple services, including tax advice, preparation, and filing.

Finally, attorneys must pass the bar exam to obtain a license to practice law in their state. While all lawyers are included in this category, a business owner should look for an attorney who focuses on tax law and business taxes.

If you are searching for a tax advisor for your business, you should choose someone who falls into one of the three categories listed above. Make sure the professional you choose has experience with business taxes instead of personal taxes. Finding a certified tax advisor who is also familiar with your industry and with small businesses is even better.

How a Tax Advisor Can Benefit Your Small Business

A good business tax advisor can help your business in numerous ways throughout the year instead of just at tax time. Your tax advisor should provide you with all of the following benefits:

• Providing important information and advice to aid you in tax decisions
• Setting up a record-keeping system tailored to your business and its needs
• Preparing business tax forms and helping your business claim all of the deductions to which it should be entitled and highlighting red flags that could get your business in trouble with the IRS
• Providing advice and guidance when you are dealing with the IRS
• Representing you before the IRS during audits and investigations

Finding a Tax Advisor for Your Small Business

The first place to start is to ask your business’s accountant or bookkeeper for referrals and recommendations. If you are already working with a CPA for small business accounting services, they might also have the necessary experience to provide you with business tax advising services. You can also ask other business owners that you know and trust for their recommendations for business tax advisors in your area.

You can also ask your friends, banker, family, or attorney for recommendations and referrals to qualified business tax advisors in your area. Get several names. Look for listings in newspapers, directories, trade journals, referral panels, and professional associations. Look for CPA societies in your area or check online at www.cpadirectory.com for a CPA. If you want to find an enrolled agent, you can ask for help from the National Association of Enrolled Agents at www.naea.org. However, if you check an organization, you should consider referrals as the organization’s certification that it recommends the CPAs or EAs or that the names provided to you are competent professionals.

Once you have a small list of names, interview a minimum of three firms or individuals. Treat the consultation like an interview. You want to both test the prospective advisor’s knowledge and ensure that they are a good fit for your company. Ask them about their experience, certification, and their knowledge of your industry and of working with small businesses. Ask about the types of tax issues small businesses might face and how they address them. Ask if the prospective advisor represents clients during audits before the IRS.

Ask the tax advisor about any success stories they can share and the types of strategies they employ when dealing with tax problems. You want to make sure the advisor you choose doesn’t use overly aggressive strategies that could potentially get your business in trouble.

Once you have completed your consultations, don’t rush to make a decision. Consider which prospective advisor made you feel confident in their knowledge and ability to help your business with its taxes. Make sure you choose an advisor with whom you feel comfortable since you will have an ongoing professional relationship. Finally, search for a tax advisor in the fall or summer instead of trying to find someone during tax season.

Find an Accountant for My Small Business

If you are searching for a full-service accounting firm to handle all of your business’s accounting and tax needs, you should consider TMD accounting. We provide a full range of accounting services for small businesses, including tax advice and preparation. Call us today for a consultation at 1-856-228-2205.

The Importance of Financial Planning for Small Businesses

One of the driving factors in ensuring your business is successful is whether you have a strong financial plan. The plan you create should control how you operate your business over a set period that depends on its projections. Financial planning is a process through which you assess the competitive environment, the goals you have for your business, the resources you need, your budget, and the risks that could arise. In other words, your financial plan helps to prepare you for the future. Regardless of the industry in which your business operates, financial planning is essential. The accounting team at TMD Accounting is prepared to assist you with the process no matter your business type.

How a Financial Plan Can Benefit Your Business

There are multiple benefits of financial planning for small businesses. Below are some of the key advantages planning can offer.

1. Helps to Define Your Goals

Having clearly defined goals can help you understand what your business wants to achieve over the next year or more. For example, if you are trying to create a product to fill a market need, you use your plan to create benchmarks to ensure you are on target. No matter what the goals for your business might be, having them clearly defined in your financial plan can help to provide a roadmap to guide your actions.

2. Helps to Manage Cash Flow

In your financial plan, you will include information about your business’s expected cash flow. While you’ll likely initially spend more than you have coming in, you will have to determine the expense level that is acceptable and establish ways to keep your business on track by easily measuring its cash flow.

3. Assist You With Setting Your Budget

During the financial planning process, you will set your business’s budget. Starting with your overall budget for the quarter or year, you will then break it down into specific, smaller budgets for different areas of your business while ensuring that how much you allocate to each is ordered in importance. A budget helps each team to understand its constraints and the resources it has available to meet its goals. Setting individual budgets for different teams can also help you to track the progress of your company and its spending overall.

4. Identifying Areas for Cost Reduction

Financial planning helps you identify areas in which you can save money. If you’ve been in business for a while, you can first review what you’ve spent and how quickly your business is growing. Identify unnecessary expenses and those that are over-inflated, and trim them accordingly in your budget for the upcoming year.

5. Mitigating Risks

A great aspect of financial planning is that it helps you to identify and mitigate risks that your company could face. You should include controls for inefficiencies, losses that can be covered with insurance, and protection against internal theft or fraud. A part of financial planning involves identifying the risks that apply to your particular type of business, ordering them in their order of priority, and determining strategies to implement to mitigate risks to help to reduce your chance of losses.

6. Managing Crises

Having a plan in place can be helpful whenever your company faces a crisis. During a crisis, you should review and rework your financial plan accordingly to include your response and which strategies to employ.

7. Easier Fundraising

If you need capital funding from an investor or bank, one of the first things you will be asked for is a copy of your business plan. Investors want to know what your plan is for growing your business, the risks you face, and how you will use your money wisely.

Your financial plan should provide all of these types of information to prospective investors so that they can get a clear idea of your business goals and the projections you have about the future. Even if you are not currently looking for funds, having a plan can come in handy if and when you are.

8. Serving as a Roadmap for Growth

Your financial plan helps you assess your business’s current situation and project where you see your business going in the future. Your larger business plan will accomplish these goals on a broad level and discuss information about your target markets, how many employees you need, and the services or products you plan to offer.

The financial section of your plan should include data showing how you will work to reach your goals and what you will need to invest to get there. Determine how much you expect your business to grow, the expenses you’ll have, and how much revenue you project to come in.

9. Building Trust Through Transparency

The financial planning process can help your company to build trust with both investors and your staff. When you are transparent with your employees, it helps to build their trust in you and your business. Employees want to know that the company they work for is managed effectively and working to be successful. You can share your financial plan with your employees in meetings so that they can also offer input from their experiences.

Talk to a South Jersey Accountant for My Small Business

If you are searching for small business accounting services and help with your financial planning, speak to the professionals at TMD Accounting. We are a full-service accounting firm that serves companies in many industries. Call us today to schedule an appointment at 1-856-228-2205.

Tax Deductions for Small Business Owners Working From Home

Many small business owners have a space inside their homes where they work. These business owners can make certain deductions on their taxes. Remember, there are a few rules from the IRS concerning these write-offs. If you want to know what tax deductions you can take, here are a few points to consider.

The “Exclusive Test”

While you may work out of your home, not all spaces can be claimed as a home office. According to the IRS, you must be able to show that a portion of your home is a principal place of business. You must exclusively use that space to work. If you don’t have a dedicated space in your home, you cannot take the home office deduction. This is known as the “exclusive test” by the IRS.

For example, a spare room in your home can be claimed as a business office and deducted from your taxes. However, you cannot claim a living room or bedroom because those areas are used for personal purposes. There are a few exceptions, such as individuals using their home as a daycare or businesses storing inventory in the home.

You must also be an independent contractor or registered business owner to take the home office deduction. Anyone working from home as a business employee is not eligible for the deduction. The IRS rules about this deduction can be confusing. If you have questions, our small business accounting services can help to address your concerns.

Will These Deductions Cause an Audit?

Some people worry whether taking the home office deduction will cause the IRS to audit their returns. Yes, the IRS does have strict rules, but you will not get an automatic audit with these deductions. There are ways to reduce your chances of an audit.

First, you will want to ensure you qualify for all those deductions. Maintain accurate records of your purchases and expenses. You will want to keep those personal and business expenses separate. The IRS has a system that can detect any red flags. For example, the system will compare your situation with others in your industry. Making higher claims than the average person in the industry could signal a problem with the IRS. Remember that IRS audits are rare, but you should always be prepared with the proper paperwork and documentation for your deductions.

Tax Deduction for a Home-Based Business

Those home office-related deductions are based on the percentage of space that you use for the business. You will need to divide your office’s square footage by your home’s total square footage. With that number, you can deduct the right percentage of each home expense. Sometimes, you can deduct your office’s homeowner’s insurance and association fees, mortgage insurance, and cleaning service. Utilities can also be deducted from your business taxes, including electricity, water, phone, and internet.

If you make upgrades or repairs to the space, then you can write those expenses off. However, the amount of the write-offs will depend on whether the repairs benefitted your office or the entire home. While you may want to deduct every expense for your home office, you really need to hire a professional to look over your business taxes.

Over the years, the IRS has been cracking down on fraudulent deductions. You want to make sure that these deductions are appropriate for your situation.

Other Business Expenses

What else can you deduct from your taxes? There are plenty of standard deductions for other business expenses. For something to be qualified as deductible, that expense must be considered “ordinary and necessary.” What does that mean? The expense must be common and also helpful for your industry. For example, you cannot take a lavish vacation and deduct the expenses, claiming it was a necessary part of your business.

There are some common business expenses for your taxes.

If your business manufactures products or purchases items for resale, then you can deduct the cost of goods sold. You may write off direct labor costs, factory overhead, storage fees, and the cost of the raw products on your taxes.

Capital expenses are the costs that are required to operate your business. There are three types of capital expenses: business assets, improvements, and startup costs.

You may deduct certain car expenses if you use the vehicle as a part of the business. Like the home office write-off, you can deduct a certain percentage of the car’s usage. For example, business owners can calculate the miles driven for business purposes to receive a deduction.

You might be able to deduct rental expenses if you do not own the business property. In some situations, the interest could be deducted if an owner borrowed money for the business. You can also deduct state, local, federal, and foreign taxes from your taxes.

Travel expenses are also eligible, but you can only claim them if you reimburse those costs under an accountable plan. Once again, travel expenses must be related to the business and not for personal use.

Any supplies or materials are deductible from your taxes. Plus, professional services are also considered a business expense. You can write off those fees from a lawyer, bookkeeper, or an accounting firm.

Finally, all of your business development and marketing expenses are eligible for a write-off. These business expenses are used to find and keep clients. With that, you can deduct them from your yearly taxes.

Many people are hesitant to take some deductions off their taxes. The IRS provides detailed explanations of these expenses on their website, which can help you determine what is eligible for a deduction. Completing your taxes can be challenging, especially for small business owners working from home. You may want to find an experienced accountant for your small business to help make the correct deductions on your taxes.

Need a South Jersey Accountant for Your Small Business?

At TMD Accounting, we have over 40 years of helping small businesses in the Gloucester County area. Our team can assist with your taxes, payroll, and bookkeeping needs. When you need a flexible and affordable option, we are here to help. Schedule a consultation by calling us at 856-228-2205.

What Is Financial Planning Why It Is Important In Business?

Do you need a financial plan for your small business? Creating these types of plans is a crucial step for any business owner. Financial planning can help you to make daily decisions for your business. By comparing numbers to actual results, you can make those crucial decisions regarding your financial future. Even with a one-person company, you should have a financial plan in place. Why are financial plans so important? Keep reading to learn more.

Financial Planning for Your Business

Financial planning is very vital to the success of your business. This planning usually allocates funds to specific areas of your business. Also, financial planning will determine how a company can achieve different objectives and goals. While you might think establishing a business is hard, creating a financial plan can be just as challenging without the right help. Businesses in all industries need to focus on financial planning. However, many small businesses will not use a financial planner because they think those services are too costly.

Financial planning is essential to the overall business operations. Small businesses can’t be financially stable and operate without confidence in their financial plans. Unfortunately, many companies will fail. In some situations, those failures are tied to a lack of financial planning.

What Can Financial Planning Do for Your Business?

There are many ways that a financial plan can affect your business. Small business accounting services can help implement a plan for you. Here is a look at a few of these benefits to financial planning.

Cash Management and Budget

When you have a financial plan in place, you can help organize your short-term budget. Many small businesses will experience variations in revenue on a monthly or seasonal basis. In simple terms, that can translate to a period when there is strong cash flow or a time when a shortage occurs.

Budgeting is a critical task for any business. When you plan out a budget, you can make those financial decisions and allocate funds for different projects. A smart budget will help generate profits while cutting losses and costs. Creating a reasonable budget without a financial plan can be challenging.

Financial plans can assist those struggling small businesses in getting a handle on their budget. Additionally, that financial plan gives companies deeper insight into funds, making it easier to see the bigger picture. You can even break down a complicated budget into more manageable, smaller steps.

Small business owners can consider these cycles by building a solid financial plan. During those slow times, these businesses can monitor those expenditures for low revenue periods. In many cases, poor cash management results in negative consequences, such as not making payroll for your employees.

You should structure your financial plan to have a cash cushion in case of downtimes. With a cash cushion, your small business can take advantage of special opportunities, including purchasing reduced-priced inventory from suppliers.

Long-Range View

On a daily basis, your small business may have to deal with issues or crises. It can be easy to focus on those problems, but that leaves you not thinking about any long-term goals. Unfortunately, that can take away from planning for the future, preventing businesses from growing. A financial plan allows a small business owner to see what expenditures are needed to keep the company on track and stay ahead of the competition. Think of a financial plan as a blueprint to implement the company’s performance for both short- and long-term goals.

Spot Trends

Over the course of a month, a business owner must make critical decisions. Often, it can be hard to tell if those decisions were successful. When you prepare your financial plan, you can set those quantifiable targets to compare with actual results throughout the year. For example, the owner can see if their increase in advertising expenditures led to more sales for the business. These sales trends for individual products can help the owner make decisions about allocating money for marketing.

Prioritizing Expenditures

When you allocate your capital and conserve those financial resources, it can lead to a successful business. These benefits of financial planning can help owners identify their most important expenditures, which can help improve efficiency, productivity, and marketability. Those decisions are often only made when cash is plentiful for the business. Even those well-capitalized corporations will prioritize their expenditures.

Measure Progress

During those early stages of the business, many owners will deal with numerous changes and have to work long hours. Sometimes, it can be difficult to tell whether any progress is being made or if serious problems are on the horizon. Seeing those actual results help small business owners to feel more confident in their decisions. On the other hand, if there is an issue, the owner can take the appropriate steps to correct it. A chart displaying steady revenue growth for each month is a great motivating factor for both new and experienced business owners.

Talk To an Experienced Accountant

If you need help with your financial planning, turn to TMD Accounting. We are a family-owned and -operated business that focuses on helping companies in all industries plan for the future. We offer a flexible, affordable, and convenient way to handle those financial responsibilities. You need to focus on growing your business, and we are the ones to help you.

Need a South Jersey accountant for my small business? Our accounting team is ready to help. Schedule your consultation by calling 1-856-228-2205.

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