Category Archives: Tax

2018 YEAR END TIP: Break Out Meals From Entertainment

Many businesses historically have lumped “Meals & Entertainment” into one account because they were both subject to the 50% limitation.  In fact, until 2018 they actually went on the same line of most business tax returns.
We finally have some clarity from the IRS on the TCJA changes (see our post from October 3) so it’s time to get those two split apart if you haven’t already. Make sure your bookkeeper has categorized these separately before you hand your 2018 data to your tax preparer.
 
  • Business Meals are now 50% deductible 
    • Examples include: meals, coffee, drinks with prospective clients, existing clients, suppliers, etc.  (more detail here)
  • Business Entertainment is now non-deductible
    • Examples include:  sporting event tickets, sporting event boxes,  concerts, go-karting, laser tag, etc.

S-Corporation – The Real Risk: Reasonable Compensation

Google it or talk to your friend and you’ll hear all kinds of stories about how I saving $xx,xxx by switching to an S-Corp.  I get inquiries from clients or potential clients regularly asking about this.  But as with anything there are pros and cons to every choice and the face value tax savings aren’t always what they are cracked up to be.  Often, for smaller business the additional paperwork and tax filings eat up any tax savings and just open the door to more potential errors.  So there is a time when this makes sense and this article does a pretty good jobs summarizing the most relevant pros & cons.  The big pro?  Potential tax savings.  The big con?  A lot more paperwork.

The article mentions “reasonable compensation” and this is where things get tricky.  The tax saving so many tout with this structure, even for relatively low business incomes (I just saw an article from a client referencing business income of less than $60,000 per year), are predicated on justifying a reasonable compensation for a corporate officer (let’s say you, the owner) level even lower than that.  The IRS has been chasing down the taxpayers on this issue for quite some time and the real risk business owners need to be educated on is that if you can’t justify your “low” salary with good data, that could mean that your tax return is wrong, your business tax return is wrong, and all your employment tax returns along the way are also wrong.  That means penalties and interest, and while the personal tax side of the equation will typically wash out (trading business income for wage income), the additional employment taxes will wipe out any tax savings you thought you had and the related employment tax error and remittance penalties can quickly exceed 50% of the additional employment taxes assessed.

So when someone says, “S-corp is the way to go!  It saved me so much money!”  Check with your CPA about your specific situation, carefully weigh the pros and cons, determine if you have the time, energy and funds to comply with the additional burdens, and only then can you decide if this choice is right for you.

 

Favorite Tools For Businesses (Currently)

I get asked a lot about products I suggest for businesses so here are some of my top choices.   Selecting a software solution(s) isn’t one size fits all, so I’d suggest chatting with a CPA who can help you determine if these solutions will handle exactly what you need before diving into implementation.

Taking Credit Car Payments:  Square 

It’s easy to setup, works easily and can accommodate appointments, point-of-sale, invoicing, customer installment plans, a simple online storefront, and appointment booking.  Fees are competitive and the deposit schedule is great.

Cloud Accounting Software:  Xero

All the features most people need with pricing comparable to QuickBooks, but it includes payroll if you need it without additional fees (looks like this is changing beginning in 2019, a partnership with Gusto for a full service offering is being implemented).  Integrates well with Square and has bank linking that works the best of anything I’ve tested. Lastly it has reasonably priced add-ons for things like job-costing if you are a custom manufacturer.

Desktop Accounting Software: QuickBooks Pro (Desktop)

Once you know what you are doing inside Intuit’s desktop software it is hard to beat in terms of functionality and the speed of working on a locally installed software.  For price/functionality it is a go-to choice.  Some specialized industries will need add-on’s or a different solution entirely, but for a large percentage of clients this is a good choice if you don’t need the flexibility of a cloud product.

Payroll:  Does it integrate easily?

Here it depends on what accounting solution you pick.  Xero is integrating with Gusto, Intuit/QuickBooks has a variety of options and pricing tiers that integrate with their solutions and even the tried and true companies like ADP have ways to integrate with your software.  My preference is the one that reduces overall end user workload and opportunity for mistakes.

E-Commerce Platform:  Shopify or SquareSpace

There are a lot of great tools for this, these two options will do the trick for a lot of businesses but there are other great choices.  The big issue here is finding something that will help you stay compliant in the multi-state tax world where states are gaining better legal grounds for collecting sales tax from out-of-state sellers.  This can be a compliance nightmare for small businesses so make sure you plan this step carefully!

Honorable Mentions:

Clover (POS/Credit Card)
QuickBooks (Online/Cloud)
FreshBooks (Online/Cloud)
Sage 50 (Desktop)