Reducing Tax Liabilities for High Income EarnersPosted on November 29th, 2018
Preparing for end-of-the-year taxes can be daunting, but understanding good tax-planning practices can help to increase your chances of receiving higher returns on your investments. Income from investments can be one of the best places to look when searching for places to cut costs and increase your revenue. Creating a proactive tax-plan can prevent you from paying thousands of dollars in unnecessary taxes.
While high-income tax payers are required to pay the most income tax, there are a few practices these individuals can engage in to lower the amount they pay at the end of the year. Purchasing stock for at least one year prevents you from paying additional costs from unnecessary taxes. Allowing your stock to become eligible for long-term treatment helps to reduce the amount you pay in taxes. Failing to hold stock for at least a year causes you to pay short-term capital gains on investments rather than just the 15 to 20 percent of normal capital gains tax, in short paying more.
Regular reviews of your taxable assets makes sure you’re aware of all the areas that may be costing you extra money. Routine checks develop good practices and habits that help to reduce what you pay. Reduce the amount of taxable interest, which means reducing amount of money stored in low-profit areas. Banks give their clients close to nothing, while clients are still required to pay at least half of that interest in taxes. Utilizing high-profitable places to store you money will not only increase your dividends, but also reduce the amount of taxes you pay.
Give away assets, that is, giving or donating assets to charities and family members using appreciated stock, may reduce the amount of taxable income you own. Neither party associated in the exchange is required to pay capital-gains taxes when the stock is transferred. Additionally, family members may be qualify for a different tax bracket that are lower than your costs, in turn reducing the overall amount of gains lost through the process. Since the New Year is just around the corner, it’s best to engage in proper tax-planning practices to best increase your chances for reducing the amount of money you pay and increase the amount of profit you actually keep.
How to make the most of your 401(k)Posted on August 3rd, 2018
If investing in your future is something that rests entirely on your shoulders, know that there are options. If you have employer-sponsored plans like 401(k)s, it’s imperative to that you properly optimize that plan to its fullest. But saving for retirement is a process, and its best to understand your avenues even if you’re just starting out. So here are some tips on how to start preparing for retirement.
– Consider maximizing your contribution which is matched by your employer in the 401(k) program at your company. In some cases you could get a 50 percent return on your investment. By having the money taken directly out of your paycheck, you have an easier time saving money without really thinking about it. If you match your contribution and had a direct deposit set up to add more, you will be on a good path towards affording retirement.
– Consider opening a Roth IRA or Roth 401(k) account with an investment firm. There are tax differences between the two, so it is important to discuss the pay taxes now vs. late discussion with an advisor or tax accountant
– Look into a myRA – A singular investment option by use of U.S. Treasury retirement savings bond. This is a great option for those who do not have a 401(k) account at work, but have dispensable income. The myRA is convenient in that it accept smaller contributions, with low-balance fees and a higher interest rate than a savings account. Contribute your next tax refund, payroll deduction, or a deposit from a checking or savings account. You have options in size, just know with this plan that once you save $15,000, the money must be rolled into a private Roth IRA. Start saving and keep saving! Whether you’re saving for retirement or for another goal – don’t give up. If you’re just starting to save, start small and try to increase the amount each month, know you’re options as you get into more opportunities to save more money for that end goal.
Do You Need to Fill out Schedules C & EPosted on May 5th, 2018
Even though we are barely beginning the holiday season, it is already time to start preparing for April 15th. You most likely are focusing on filling out the 1040 and related forms, the general information the IRS asks for. However, what if you rent out a guest room to a tenant, or you make decent money through gardening work on the weekends? If so, income from these might not simply be written down on a box within the 1040. Instead, you might have to fill out a Schedule C or Schedule E.
Schedule C is a form that reports income for any self-employed individual. If you are the sole proprietor of your business (even if it is a single-member LLC) or an independent contractor, you need to fill this form out. Sadly, since you won’t have a boss that writes your own checks, you don’t have the opportunity to have taxes taken out for you; you have to pay the full taxes of your income. That being said, claiming any and all genuine business expenses on your Schedule C will reduce the amount of income that is taxable. Make sure that you gather as many receipts for your business expenses as you can.
Schedule E is the form for certain types of supplemental income: income from rental properties you own, any royalties you earn, and income reported on a Schedule K-1 (from partnerships or S corporations) are some of the more common examples. If, however, income from multiple rental properties is your primary form of income, you may have to use a Schedule C for your sole proprietorship instead. In addition to income, a Schedule E is also used to report business losses (paying for an apartment’s carpet replacement, for example) and helps prevent you from paying too much in taxes. This only applies to “at risk” situations, which is not necessarily the same thing as the total money lost.
When it comes to taxes, honesty is always the best policy; if you run your own business or rent a room to someone, and that income is at least the minimum taxable amount, you will need to fill out a Schedule C or E, respectively. Filling out these forms do not necessarily mean that you will be paying too much in taxes, nor does that mean that you won’t be able to make up for these taxes either. If you see yourself filling out either Schedule, feel free to contact your trusted tax preparer or accountant to discuss these forms. When tax day comes, being prepared for Schedules C and E can save you time and, possibly, money.
How International Taxes Impact Your Global BusinessPosted on April 30th, 2018
As a company owner, it’s an exciting time when your business operations start to expand beyond your local community. However, it is important to stay mindful of the proper tax filing method when sales and purchases start to happen internationally.
Knowing the correct forms to file, when to file, and exactly what to report keeps your business in compliance. The expert assistance of a certified public accountant can help those running a company that conducts business globally ensure timely and accurate reporting to the Internal Revenue Service.
FATCA and FBAR Requirements
The Foreign Account Tax Compliance Act (FATCA) is a legislation that requires entities operating domestically to report foreign assets. When resources and sources of revenue are housed offshore, the company owner and the financial institutions they use are required to report any relevant information to the IRS. This important set of regulations requires that you file Form 1042 to avoid any unwarranted claims of tax evasion.
FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. This form is designed for taxpayers with over $10,000, or holdings of equal value, in foreign financial accounts. This report is separate from the standard IRS filing and is filed directly to the Financial Crimes Enforcement Network (FinCEN).
International Tax Treaties and Double Taxation
If you are a resident of a country that has a tax agreement with the United States and you earn income in the U.S., certain items might be exempt or taxed at a reduced rate. Certification may be required by the IRS or the foreign tax authority.
Regardless of whether you have a brick-and-mortar location in another country or routinely work with clients outside the US, it’s important to know what your tax obligations are. It is equally valuable to know if there are deduction opportunities that will benefit your bottom line. A dedicated CPA helps you decipher exactly how much in income tax you owe to each country that you’ve conducted business with during the fiscal year.
In some circumstances, a business owner may face being taxed by the country where income is earned, then again by their home country. Many of the international tax treaties were started specifically to help entrepreneurs avoid these issues.
Have Questions About International Tax? Contact Us Today!
At Corporate Accounting Services, Inc., Bruce Berndt and his dedicated team of accounting professionals help clients understand the impact of international taxes. We serve global business ventures with headquarters in Farmington Hills or any of the surrounding Metro-Detroit communities. To learn more, call today and set up a consultation.
Why Startups Should Look for CPA AssistancePosted on April 16th, 2018
Starting a new business is exciting, but it also introduces many challenges. For one, you will have to choose a business entity, a defining feature that impacts taxes owed and the responsibility of each partner. Doing the research and filing the right paperwork on your own can make this process difficult, but you don’t have to pursue your venture without assistance.
CPAs are uniquely positioned to assist new business owners with setting up their company and providing the expertise necessary to avoid the many pitfalls that can occur early on. If you are an aspiring owner or are going through the steps to start a business, consider the benefits of working with a CPA firm:
Simplifying the Entity Selection Process
Forming an entity is necessary for your business to be officially recognized and taxed, but selecting the appropriate structure is not an easy task. Individuals or partners need one that supports their enterprise properly and distributes liability accordingly. The right entity will suit the industry the business operates and allow it to grow without limiting profits.
Experienced CPAs understand how to match your business with a structure that will support your immediate and long-term aspirations. With this assistance, you will understand how the legal framework impacts daily operation and how to file the right paperwork properly. Many small businesses never achieve success because they don’t have access to professional wisdom and fiscal advice, both of which CPAs can provide.
Making Easy Work of Your Accounts
Accounting is crucial to your success. Without detailed charts of accounts, owners cannot track cash flow or make any financial analysis. Every penny will count during your business’ first few years, and tracking how your fiscal resources are allocated will mean the difference between making profits and taking losses. Owners are often bogged down by accounting work, which they may not have a knack for, distracting them from actually operating the business. Outsourcing your accounting may make some owners nervous, but will be freeing in both time and pressure. CPAs can handle all your accounting needs, balancing your books so that you gain a clear view of your financial standing.
Tax Support When You Need It
To protect profits, owners need to minimize their taxes owed. As professional tax strategists, CPAs will organize business expenses, catalog depreciating assets, and develop a plan that ethically reduces the amount owed. CPAs are also an essential ally when businesses receive audit notices or face complex tax situations, using their expertise to clarify the situation.
Contact Us Today if You’re Starting a New Business!
Our firm is here to help establish your business and increase your chances of achieving success. From selecting an entity to managing accounts, our team is available for advice and consulting. Call or visit Corporate Accounting Services in Farmington Hills for personal and precise services.
What is Nexus and How Does it Affect Sales Tax?Posted on March 31st, 2018
If you are a business owner interested in selling products or providing services outside of your local community, a growing global marketplace has made it easier to receive payment reliably and satisfy orders for these customers. However, as with any transaction, it is important to know how to remain in compliance, particularly as it relates to sales tax.
Different states have varying sales tax rates to take into consideration, which is not the only factor that comes into play. You must also be aware of your company’s physical presence in another state. If this constitutes nexus, you are responsible for collecting and filing the right amount of sales tax to stay right with the IRS.
Defining Your Physical Presence in a Given State
While the bulk of your operations may take place solely at the site of your business, you have to consider other outlets when calculating sales tax. If you have warehouses, satellite offices, or even a booth set up at a trade show in another state, you likely have nexus established there. This means that you must apply all relevant state and local sales taxes to your client’s transaction to remain compliant. For instance, if your Detroit-based IT company sells and installs a new server for a client in Beverly Hills, sales tax rates for California, Los Angeles County, and Beverly Hills would apply.
The Value of Professional Assistance with Out-of-State Transactions
Even in straightforward circumstances, determining the amount of sales tax to collect can be complex. When nexus is involved, the amount of due diligence to perform is much higher, with more than the normal rates you adhere to factoring into the cost of providing a product or service. To properly navigate these types of situations, you should establish a working relationship with a CPA that has experience identifying sales tax nexus and guiding clients through the additional steps needed.
It is common for business owners to unknowingly neglect their sales tax obligations when they are unfamiliar with out-of-state tax regulations. Potential complications and penalties can be easily avoided by relying on professionals who routinely help clients conduct complex transactions. When in doubt about a unique tax situation and its implications for your business, it’s worth your while to turn to a trusted expert for advice.
Need Help Calculating Sales and Use Tax? Call Corporate Accounting Services, Inc. Today!
At Corporate Accounting Services, Inc., Bruce Berndt works with business owners who need help collecting the appropriate sales tax from out-of-state buyers. Mr. Berndt and his team have extensive experience working with cases involving sales tax nexus, advising clients on ways to stay compliant as they do business across state lines. Call our office in Farmington Hills today to schedule your consultation!
Common Payroll Tax MistakesPosted on March 22nd, 2018
Proper reporting to the Internal Revenue Service should be of obvious importance. When running a business, having a working system in place for accurate and timely tax filing is even more imperative.
The company owner, CFO, or designated bookkeeper must be responsible for withholding federal income taxes, and when necessary, state income taxes for all personnel. Failure to do so can result in costly penalties, and a negative impact on a company’s reputation as well.
Accurate and Timely Withholding Claims
Accurately reporting income is an essential part of an effective payroll process. Your employee may be left owing more than they expected to the IRS if you withhold an amount less than they had elected. Having too much withheld can have equally damaging effects, as your employees may have been counting on having access to that income.
Poor record keeping complicates matters with the IRS as well. Penalties accumulate for errors such as misspelling names, inputting incorrect social security numbers, or miscalculating overtime pay. If your company implements an organized and structured payroll system, these penalties may be avoided. In some cases, it may be beneficial to update or replace the system that led to the inaccuracies or complications.
Perhaps the only thing worse than filing inaccurately is failing to file. Steep penalties and possible prosecution are potential outcomes for you and your company when a payroll tax deposit is late or missed.
Misclassification of Employees
The IRS has clear distinctions between an employee and an independent contractor. Employees receive set schedules and salaries. Companies hire independent contractors for project-based, temporary work. The independent contractor is responsible for the cost of their equipment, must pay the entirety of their insurance premiums and, most importantly, all their own taxes. Employees can rely on the company they work for to supplement these costs.
Hiring independent contractors allow businesses to save money by avoiding these extra costs. They do, however, run the risk of owing back taxes or paying penalties for misclassifying an employee as an independent contractor. Our CPA helps your company determine the appropriate designation for your workers so you can avoid trouble with the IRS.
Consider Outside Help for Handling Your Payroll Taxes
Bruce Berndt, CPA, and the dedicated support staff at Corporate Accounting Services Inc have the insight and expertise to effectively process your business’ payroll taxes in Farmington Hills and the Metro-Detroit area. If you have questions about mistakes to avoid when filing payroll taxes, call us today to set up an appointment.
What is Pass-Through Taxation?Posted on March 1st, 2018
Especially in the early stages of entrepreneurship, business owners typically view their tax obligations only as they relate to payroll and yearly returns. Often, once these industrious individuals have determined an initial structure for their entity, they believe their situation is set in stone. This is rarely the case and knowing about the various ways corporate income is taxed presents many opportunities to reduce liabilities.
Of these methods, pass-through taxation is the most common for small businesses. The majority of companies are eligible for this status, benefitting primarily from the ability to avoid double taxation. Whether you are in the entity formation process or have run your organization for years, understanding pass-through taxes can help make your long-term objectives more attainable.
How Pass-Through Taxation Works
While the term may be unfamiliar, the concept behind pass-through taxes is something many small business owners deal with on a regular basis. When a business receives income, either as the result of a sales transaction or return on an investment, a tax obligation is created. In some situations, the responsibility for fulfilling this obligation shifts from the business to another entity, “passing through,” so to speak.
A common example of this is sales tax. Though rates differ depending on individual state and local regulations, if sales tax applies to the products and services provided, these need to be paid to the appropriate government agency. While business owners are responsible ensuring these payments are made on time, the cost is covered by their customers, not drawn from their own income.
Pass-Through Tax Entities
Business income is where the majority of owners gain value from the pass-through taxation method. As mentioned earlier, nearly every source of revenue a company receives is subject to tax. In larger entity structures, owners and shareholders are considered as distinct from the corporation. As a result, any income earned by the business must be reported on both corporate and personal tax returns. While the tax rates for each level of taxation may be nominal, together, this double taxation is far from an incentive for forming a corporation.
Pass-through entities are predominantly smaller organizations wherein corporate tax is not levied on income. Instead, individual owners and shareholders report business earnings on their personal returns and that income is taxed only once. Examples of these companies include sole proprietorships, partnerships and limited liability partnerships, limited liability companies (LLCs), and S-corporations. It is also important to note that while these structures face a smaller tax burden, there are risks to personal assets and wealth that may occur in the more closely-held of these entities.
Have Questions? Contact Corporate Accounting Services, Inc. Today!
CPA Bruce Berndt and his team provide small business owners with actionable insight and expert tax support. If you have questions about the right structure for your business or how to ethically minimize your corporate tax liability, give us a call and schedule your free initial consultation. Our firm offers comprehensive tax planning and accounting services in Farmington Hills, Novi, and throughout the Metro-Detroit area.
How Successful Businesses Plan for Tax SeasonPosted on February 20th, 2018
Company owners tend to look for the next way to improve their corporate success. One step towards achieving this objective is to prepare their entity for tax season better. Successful businesses take several steps to make sure they are ready to file and get the most out of their income taxes.
One obstacle to preparing a business return is making sure the information provided is completely accurate. Having incomplete or disorganized records of the flow of liquid assets can result in discrepancies across your accounts. If your books and records are not consistent at the start of tax season, then you will not be able to guarantee the accuracy of your company’s return.
Your entire chart of accounts needs to be balanced throughout the whole year. Ensuring the accuracy of your records and reporting allows you to have easy access to the accurate information you need to streamline the tax preparation process.
Keeping Track of Key Information
There are several credits and deductions that can help you keep your business income tax obligations at a minimum. Each year, IRS regulations have certain criteria that must be met by a deadline for these benefits to be claimed during a given tax season. Successful businesses keep track of the tax break opportunities they want to claim and how well they are meeting their requirements.
A tax plan does more than just keep track of desired deductions for the upcoming tax year. Your strategy needs to accommodate the various ideas you have for your business’ next few years of operation. Those ideas should include growth opportunities, expansion goals, and whether changing your entity structure will both support these development aspirations and ethically reduce your tax liability.
Drafting and committing to this multi-year tax plan is critical to maintaining your business’ success. The preparatory work your company does the current tax year will make next season easier, a trend that will continue as long as you follow an effective strategy.
Having a CPA’s Help
Organized bookkeeping, deduction tracking, and tax planning all make a positive tax year easier to experience, but complications can still arise. As such, one of the best ways to make sure your business files an accurate return successfully is to hire a CPA firm. These experts will not only help you stick to your tax plan and organize your bookkeeping, but they can also correct mistakes on a return promptly.
Contact Us for Tax Support
Corporate Accounting Services Inc. offers business tax services in Farmington and the Metro-Detroit area. For more information about how we help companies stay successful by being prepared for tax season, contact our firm and schedule a consultation today.
Helpful Tips for Any Small Business OwnerPosted on February 4th, 2018
People looking to start small businesses face a daunting task. With the dominance of larger companies, global competition provided by the internet, and the increasing number of competitors within other small businesses, you may feel overwhelmed. However, these simple yet effective tips should help keep you ahead of the curve and competitive in the modern market.
1) Make Yourself Known: A great way to get your name out is through community outreach efforts, or even sponsorships of local sports teams. These efforts go beyond regular marketing efforts in that they allow local communities to know you, as well as your business, and make purchasing your goods and services personal.
2) Have a Plan: Before even starting your business, have a strong business plan that acknowledges your company’s niche, market potential, and values your current assets. This can help you in deciding a direction for your venture, and can cut back on unnecessary expenditures in the future.
3) Quality over Price: With the constant presence of corporations like Walmart and Amazon, trying to price match competitors can lead to a loss of profit, as well as confidence. Instead of trying to compete fiscally, focus on honing your service in a way that these companies cannot. Not only will your product benefit from your drive for excellence, but patrons will overlook price differences for superior quality products and service.
4) Acknowledge Missteps: Nobody likes to be wrong, but being able to accept flaws in your business’ model or your product are essential in setting yourself apart from your competitor. Accept criticisms as opportunities to improve. Adaptability is essential in the modern marketplace.
5) Use Technology: With the internet and technologies focused on the management of small businesses, the barrier for marketing and sales in greater regions has more or less been lifted. Be sure to use all of the resources at your disposal, whether this means creating a web-based storefront, or managing your accounts with programs like QuickBooks. While these strategies are just the tip of the iceberg in terms of establishing a successful business, they are helpful in getting your business a leg up over the competition.