Thinking of Starting a New Business?

Thinking of Starting a New Business?

 Last week was National Small Business Week. Because small businesses play a pivotal role in the nation’s economy, the Small Business Administration and the IRS teamed up to highlight the tax benefits and resources available to entrepreneurs. Here are some of the highlights you need to know.

 

Selecting a Business Structure

When opening a new business, you need to decide what form of business entity to establish. Talk with us and your attorney to determine which of these common business structures is best for you:

  • Sole Proprietorship — When you own an unincorporated business by yourself.
  • Partnership — When you form a business with one or more other people.
  • Corporation — When prospective shareholders exchange money, property or both for the corporation’s capital stock.
  • S Corporation — When the corporation elects to pass corporate income, losses, deductions and credits through to its shareholders for federal tax purposes.
  • Limited Liability Company (LLC) — When a business is formed by state statute and is treated as a either a Sole Proprietorship, Partnership or Corporation (depending on elections made) for tax purposes.

Understanding Business Taxes

The form of business you set up determines the type of income tax return you’ll file next year. what taxes you’ll owe and how you’ll pay them. Generally, there are four types of business taxes. Note, however, that you’ll probably need to pay taxes on income by making regular estimated tax payments throughout the year.

  • Income Tax — Your new business must file an annual income tax return, unless you establish a Partnership, which is required to file an information return.
  • Self-Employment Tax — This is a Social Security and Medicare tax paid if you work for yourself. Payments contribute to your Social Security coverage.
  • Employment Tax — If you hire employees, you will have to pay employment tax and file additional forms.
  • Excise Tax — This tax is imposed on various goods, services and activities. Such taxes may be imposed on the manufacturer, retailer or consumer, depending on the specific tax.

Get an Employer Identification Number (EIN)

An EIN, also known as a Federal Tax Identification Number, is used to identify your business entity. You can apply for an EIN from the IRS online and receive it immediately.

 

Choose Your Business Year

Your new small business must use a “tax year,” which is an annual accounting period for reporting your income and expenses. Tax years you can use are:

  • Calendar Year — 12 consecutive months beginning January 1 and ending December 31.
  • Fiscal Year — 12 consecutive months ending on the last day of any month except December. A typical fiscal year runs October 1-September 30.

Keep Good Records

Maintaining adequate records will help you monitor your progress, prepare financial statements, identify sources of income, keep track of deductible expenses, keep track of your property basis, prepare your tax returns, and support items reported on your tax returns. You should keep detailed records for at least three years.

When you’re ready to get started, we can help you make the best choices for your new business. We also recommend you talk with your attorney to help set up the legal paperwork. Then you can get busy on your new endeavor!

FREE Workshop for Small Business Owners

The IRS has created a FREE online workshop of eight lessons to help new business owners understand federal tax obligations. The first four lessons are relevant no matter what kind of business you have. The remaining four lessons apply if you have or are thinking about hiring employees.

You can watch any or all of the lessons free of charge at any time. The topics include:

  • Federal taxes and your new business
  • Schedule C and other small business taxes
  • Filing and paying taxes electronically
  • Business use of your home
  • Federal taxes when hiring employees or independent contractors
  • Managing payroll to withhold the correct amount of taxes
  • Tax deposits and filing a return to report payroll taxes
  • Hiring people who live in the U.S. who aren’t citizens

Tax-exempt? Your Information Return is Due May 16, 2022

If you run a nonprofit, charity or foundation, you need to file a 2021 Information Return by Monday, May 16, 2022. The form you use will depend on the size and type of the organization:

  • Form 990: Return of Organization Exempt from Income Tax
  • Form 990-EZ: Short Form Return of Organization Exempt from Income Tax
  • Form 990-PF: Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation
  • Form 990-N: Electronic Notice, e-Postcard, for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
  • Form 990-T: Exempt Organization Business Income Tax Return
  • Form 4720: Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code

Note that tax-exempt organizations must file their forms electronically, and that the IRS will reject incomplete or incorrect returns. We can help make sure that you’re using the right return, have fully completed it and don’t have missing schedules. If you need additional time, we can help you request an automatic six-month extension by filing Form 8868.

Common Tax Deductions to Know for Your New Business

Common Tax Deductions to Know for Your New Business

When you first start a business, you don’t know what you don’t know. This can be especially true when it comes to taxes. As a new business owner, you may not be aware of the many tax deductions available that can help take the sting out of starting up.

The IRS defines a business expense as a cost of carrying on a trade or business. “Ordinary and necessary” expenses are usually deductible if you are operating the business to make a profit. When you deduct an expense on your tax return, you lower your taxable income — and reduce your tax liability. When you reduce the amount you owe the IRS, you have more money to re-invest back into your business.

Which Expenses Are Deductible?

With tax laws always changing, it’s often hard to keep up. Below is a general guide, but be sure to check with us to verify that these deductions are still current — and how they may apply to you and your situation.

1. Startup Costs — You may not realize that you can claim business expenses that hit prior to your business’ launch. There are conditions, of course, but most small businesses can deduct up to $5,000 on the first year’s return.

2. Taxes, Interest, Fees & Charitable Contributions — If your business pays tax to a state or local jurisdiction, you may be able to deduct those taxes as a business expense. If you pay for business expenses with credit cards, you can deduct interest and late fees. You can also deduct bank fees, credit card processing fees, payment fees, and other fees incurred on your business banking accounts (i.e., QuickBooks fees). Money you borrowed to start the business can be recorded as a business liability and any interest can be expensed accordingly. Also, charitable contributions may be deductible as well.

3. Wages and Payroll Taxes — Employee wages and payroll taxes are deductions for your business. But being an employee in your own business has benefits, too. When you pay yourself a wage or salary rather than a distribution or dividend, you avoid paying self-employment tax on your personal return. And that allows you to pass the payroll tax deduction onto the business.

4. Retirement Plan Contributions — The benefits are two-fold here: Contributing to a retirement plan will not only give you a deduction now, but it will increase your retirement savings for the future. As a small business, you can establish an inexpensive 401(k) plan or other retirement account option for both you and your employees.

5. Bad Debt — Whether it’s loans to clients or suppliers, goods sold but not paid for, or the sale of a mortgaged property, bad debts are just one cost of doing business. You can claim bad debt as a deduction if the amount owed is included in your gross income or lent out as cash. You’ll just need proof that the debt is worthless.

6. Home Office — Do you run your business out of your home? There are plenty of home-related expenses that can be deducted, including insurance, utilities, property taxes, repairs & maintenance, basic office supplies and more. You do need to have a dedicated space for running your business, and it needs to be your principal place of operation.

7. Health Insurance — Depending on the type of business, you may be eligible for a self-employed health insurance deduction. Given the costs of health insurance, this could be a pretty significant deduction.

8. Education & Training — Investing in education — whether your own or your employees’ — is always a smart move. That’s especially true when you can deduct fees and costs for attending workshops, conferences, tradeshows and other types of classes that will improve your business knowledge.

9. Marketing — Marketing your business through advertising and promotion is not only necessary to succeed, but a deductible expense, too! Some of the expenses that qualify include print materials (e.g., business cards and brochures), print and web ads, website development, email marketing and more.

10. Travel & Entertainment — Some business travel and entertaining expenses have been curtailed over the past few years. The Taxpayer Certainty and Disaster Relief Act of 2020, however, temporarily allows a 100% business expense deduction for meals as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred through December 31, 2022. Some other expenses are still deductible up to certain limits.

Keep Track of Your Expenses

Whether you’re just starting a new business or have been running one for 25 years, you know how important it is to take advantage of every possible tax deduction. The money you save not only affects your bottom line, but can be re-invested to help grow the business. We can help you identify which deductions you may qualify for and help you make the most of them — now and at tax time. Call us today at 706-632-7850 to make an appointment with Jackie or Donna.

Source: Score.org 

Do You Need an Extension?

If you have not yet filed your federal income tax return, we can file an extension for you. The deadline to file your taxes or file an extension is Monday, May 17. This will give you until October 15 to file your tax return. Keep in mind, however, that an extension to file is NOT an extension to pay. Any tax due must still be paid by May 17 to avoid penalties and interest. To help you prepare your files, please download a copy of our 2020 Personal Tax Preparation Checklist.

Tax Credits Available for Vaccine-Related Leave

Are you providing paid leave for your employees to receive COVID-19 vaccinations? If so, you may receive a tax credit, available as part of the American Rescue Plan. This also applies to self-employed individuals, who can claim comparable credits.

Eligible employers can receive a tax credit for providing paid time off for each employee to receive the vaccine and for any time needed to recover from it. If you offer your employees a paid day off to get vaccinated, you can receive a tax credit equal to the wages paid to employees for that day. The tax credits are available for leave from April 1, 2021, through September 30, 2021.

The credits are claimed on Form 941, Employer’s Quarterly Federal Tax Return. You’ll keep the federal employment taxes that you otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of Social Security and Medicare taxes, and your share of Social Security and Medicare taxes.

Let us know if you need assistance filing for the vaccine credit. You can contact us here.

Is Your “Side Hustle” a Hobby or a Business?

Is Your “Side Hustle” a Hobby or a Business?

With a little extra time at home on your hands this year, you may have taken up a new hobby — maybe selling photographs, creating skin-care products or trading antiques — whether for fun or to make a few extra bucks. But is it just a hobby? Maybe you’re thinking it could turn into a new business venture. What’s the difference? And how does it affect your taxes?

The general thinking is that a business is operated to make a profit. A hobby, on the other hand, is engaged in for sport or recreation — it’s not intended to make a profit.

Whatever you consider your “side hustle” to be, keep in mind that you must report income earned on your annual federal tax return. How it’s reported depends on whether it’s a business or a hobby.

Differentiating Between a Hobby and a Business

The IRS usually considers your activity a business if you’ve made a profit for three of the past five years. Otherwise, you have to establish a profit motive. Consider how you would answer the following questions to help determine whether your hobby is really a business:

  • Is the activity carried out in a businesslike manner, where you maintain complete and accurate books and records?
  • Does the time and effort you put into the activity show that you intend to make it profitable?
  • Do you depend on income from the activity?
  • Are any losses due to circumstances beyond your control — or are they normal for the startup phase of your business?
  • Have you change your methods of operation to improve profitability?
  • Do you have the knowledge needed to carry out the activity as a successful business?
  • Were you successful in making a profit from similar activities in the past?
  • Do you expect to make a future profit from the appreciation of any assets used in the activity?

Tax Consequences of Hobbies vs. Businesses

If you make money from a hobby, you must report that income on your tax return (Schedule 1, Form 1040). The income will not be subject to self-employment tax. However, because of tax law changes made via the Tax Cuts and Jobs Act, you cannot deduct expenses for that hobby. Previously, you may have been able to add them to your miscellaneous itemized deductions, but these can no longer be deducted.

If your activity is considered a business, however, you will report your income on Schedule C. And you’ll pay self-employment tax on your earnings. However, you will also be able to deduct your expenses, including any qualifying home office expenses. These deductions can help reduce the amount of tax due on any income you made.

The rules regarding income and expenses for hobbies and businesses can be confusing. If you’re not sure the best way to handle your new “side hustle,” contact us. We’ll be happy to help you sort out the specifics of your situation.

Lodging Tax Increase Coming

If you’re a cabin rental owner, please note that BOTH Fannin County AND City of Blue Ridge Lodging Tax Rates are going up!

The county’s tax rate will rise from 5% to 6% beginning January 1, 2021. For rentals within the city limits, the City of Blue Ridge’s Hotel/Motel Excise Tax will increase from 5% to 8%, effective November 1, 2020.

This is in addition to the 7% that goes to the State of Georgia.

Let us know if you need help updating your systems for the new tax rates. We’ll be glad to help you with the process.

MONEY BRIEF #1

If you filed your 2019 return by this year’s extended July 15 deadline and either received a refund in the past three months or will receive a refund, you may also receive an interest payment from the IRS. The IRS is sending interest payments — averaging about $18 each — to about 13.9 million individual taxpayers who are receiving refunds. If you received your refund by direct deposit, you will also receive your interest payment by direct deposit. Otherwise, you will receive a check. Note that any interest payment you receive from the IRS of $10 or more is taxable — you will receive a Form 1099-INT and must report it on your 2020 federal income tax return you file in 2021.

MONEY BRIEF #2

Did you know unemployment compensation is taxable? Any UI benefits you receive this year will be considered taxable on your 2020 tax return next spring. This is especially important to keep in mind if you chose not to have tax withheld from your benefits when you applied. Taxable benefits include regular UI plus any additional unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act. If you did not choose withholding, or if the amount withheld is not enough, you can make quarterly estimated tax payments instead. Payment for the first two quarters of 2020 was due on July 15. Third and fourth quarter payments are due on September 15, 2020, and January 15, 2021, respectively. If you’re unsure of your situation, contact us today and we’ll help you work it out.

Know Your Payroll Tax Due Dates

Know Your Payroll Tax Due Dates

I your small business has employees, you need to withhold and pay Georgia AND Federal income tax on a regular basis. There are five possible payment schedules for withholding taxes in Georgia:

  • Next-business-day
  • Semi-weekly
  • Monthly
  • Quarterly
  • Annually

Your payment schedule depends on the average amount you withhold from employee wages over time. The more you withhold, the more frequently you need to make withholding tax payments. (Note: The IRS requires three deposit schedules: semi-weekly, monthly, or quarterly if your overall liability is $2,500 or less.)

Threshold dollar amounts for the different payment schedules may change over time, so check with us (or the Georgia Department of Revenue) at least once a year for the latest information. Due dates for payments are:

  • Semi-weekly: Payments are due by Wednesday for amounts withheld on the preceding Wednesday, Thursday or Friday — or by Friday for amounts withheld on the preceding Saturday, Sunday, Monday or Tuesday.
  • Monthly: Payments are due by the 15th day of the month following the month in which the tax was withheld.
  • Quarterly: Payments are due by the last day of the month following the end of the quarter.
  • Annually: Payment is due by January 31st.
Businesses making semi-weekly or monthly payments must also file quarterly withholding tax returns. (Quarterly and annual filers only need to file the correct version of Form G-7.) G-7 returns are due on or before the last day of the month following the end of the quarter:
  • April 30 for 1Q (Jan–Mar)
  • July 31 for 2Q (Apr–Jun)
  • October 31 for 3Q (July–Sep)
  • January 31 for 4Q (Oct–Dec)

For specific dates and forms, please refer to the Georgia Department of Revenue website.

We Can Handle Your Payroll

Speaking of payroll, did you know that Premier CPA Services can handle your payroll processing? We can also take some of the pain out of your business reporting chores by taking care of Quarterly Payroll Reporting (Federal and State), as well as state and/or local sales tax reports on a monthly, quarterly or annual basis. Give us a call today to find out more about our small business services.

The information provided here by Premier CPA Services PC is for general information only. It does not constitute legal, accounting, tax or other professional advice or services, and is presented without any representation or warranty as to the accuracy or completeness of the information. Please contact us for information as it relates to your circumstances.