How You Can Avoid a Tax Audit

/in /by

As we discussed in our last post – taxes can be terrifying and overwhelming. What’s scarier than doing your taxes? Being audited. We have devised a list of 5 key things you can do to help avoid getting audited.

#1 – Know your risk. Are you a cash business? Perhaps an accounting firm? You are at a higher risk than other industries. Why? Well if you deal in mostly cash, they know that it’s easier to fudge the numbers. If you are an accountant they will assume that you do your own taxes and keep your own books. These are both red flags that will not guarantee but will greatly increase your risk. Another threat is if you had a GREAT year – maybe it was a change in marketing strategy or just an economic boom in your area. Whatever the reason, for the IRS it is seen as a red flag. Keep your books clean and your records accurate and up to date.

#2 – File strategically. Many tax advisors make a few key suggestions around filing behaviors. The first is extend, extend, extend if you think your business may be at risk for an audit. Generally, the companies selected for audits have been selected by the October 15th extension deadline. If you do not think that you are at risk, then file close to the April 15th deadline. As we all know – it doesn’t matter when you file you still have the same deadline for paying your taxes. The other piece of advice is to refrain from filing amendments. Get it right the first time whenever possible. If you are rushing – extend don’t amend.

#3 – Check your work. This is a phrase you probably haven’t heard since high school math but it resonates. Even if you can crunch numbers in your brain faster than you can brew a cup of coffee, check your math two and three times on your taxes. Make sure that your numbers in your forms match your documents.

#4 – Leave no line unwritten. Blanks are just as suspicious to the IRS as the numbers. Give them zero room to question anything. Even if you simply place a dash or a zero, fill in every line. This will show that not only do you have nothing to report but that you were detail oriented.

#5 – Explain your work. We are going back to high school again with this one but again, it matters. Did your company decide to sign on as a major sponsor for an event, thus doubling or tripling your charitable contributions? Let them know! Provide proof. Perhaps you had a REALLY good year and doubled your income thanks to hiring on a second salesperson. Explain yourself. By providing the information up front, you are reducing suspicion around why these unusual events occurred.

While there are no guarantees that these tips will protect you from an audit, being informed can certainly help lower your chances. So can hiring outside help/experts within this niche – contact us today to find out how we can help partner you with tax filing experts!

What Tax Records Should You Keep?

/in , /by

There are few words that can universally make people cringe – among them is the word “taxes.” The brilliant Benjamin Franklin once said “In this world, nothing can be said to be certain, except taxes and death.” While we know we can’t avoid taxes – we do know that we can streamline the record-keeping end of things.

It is important to know what records you need to keep for long-term purposes. This allows you to streamline the process a bit and make your paper trail less burdensome. We have used the IRS’ website to compose a basic list of items that you should keep:

Gross Receipts – these prove business income. These include:

  • Cash register tapes
  • Bank deposit slips
  • Receipt books
  • Invoices
  • Credit card charge slips
  • 1099-Misc forms

Purchases – these include items that you buy and sell to customers. If you sell finished products or are a manufacturer you should include all receipts for materials and parts. These include:

  • Canceled checks
  • Cash register tape receipts
  • Credit card sales slips
  • Invoices

Expenses – these are costs that you incur to execute your business operations.

  • All receipts both digital and physical
  • Credit card invoices

Assets – this is a BIG one! These are the property of your business and include both physical and intellectual items. You must keep records for each individual asset that include the following information:

  • Acquisition of assets (when/how)
  • Purchase price
  • Improvements – cost and value
  • Section 179 deductions
  • Depreciation calculation and deductions
  • Casualty and loss deductions
  • How you used the asset
  • Selling price and how it was disposed
  • Expenses of sale

Employment Taxes: Keep ALL tax documents for employees for a minimum of 4 years.

This list is pretty exhaustive and it still doesn’t even cover absolutely everything. As a business owner it may seem overwhelming, which is where we can help. Contact us today to help manage your tax filings – let us do the hard work for you!

Business Tax Credits for Electric Vehicles

/in , /by

Are you in the market for a new vehicle or perhaps a fleet of vehicles for your business? Have you considered going electric? Most people think that the only major financial benefit to electric vehicles is the gas savings – truth be told, that is just the tip of the iceberg.

In addition to saving up to 75% in fuel costs there are major savings in maintenance and mechanics. Because these vehicles do not have a transmission or combustion engine you will be able to omit oil changes, fuel filters, emissions testing and other costly upkeep. In addition to being low maintenance, the drive train and braking system design is simpler, resulting in greater reliability which will render fewer repairs. And last but not least, electric vehicles also offer tax credits!

According to the IRS.gov website, “For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500.”

Electric vehicle pricing is comparable to that of mid-range cars on the market. What does that mean? That means that simply by purchasing a single electric vehicle, you immediately save up to $7500 on your taxes. You are, at the end of the day, saving money on a purchase you would have made regardless.

Have you recently purchased an electric vehicle used for business purposes? Are you planning on purchasing one? Calculating the tax breaks can be challenging – we recommend reaching out to someone who has experience. Employer Solutions Plus is partnered with those who are well versed in tax filings and can help you maximize your deductions like this one.

Contact us today for a consultation!

 

What is Deferred Compensation?

/in , /by

New to investments? Trying to arrange something that’s beneficial for both you (the employer) and your employees? You may have stumbled upon the term “deferred compensation.”

A deferred compensation plan is an arrangement between an employer and an employee in which a portion of the employee’s compensation for work performed is deferred for payment to a later date.

Your first impression may be “why on earth would anyone not want the money they’ve earned right now?” But, there are a number of benefits to deferred compensation plans deemed eligible by the IRS. The most obvious is the deferral of tax to the date at which the employee actually receives the income.
Because they are not earning the income at this exact time, there is no federal or state liability for that portion of income. Also, by deferring some of the income, the employee may fall into a different tax bracket, resulting in a lower tax rate.

Upon retirement (or the future date of choice), the employee or the surviving spouse of a deceased employee then receives a periodic payment or lump sum payment based on their contributions over the years.

Examples of deferred compensation include:

  • Pensions
  • Retirement plans
  • Employee stock options

So, how do you know if your deferred compensation plan is eligible according to the IRS? You can refer to IRC section 457, which describes plans of deferred compensation available for certain state and local governments and non-governmental entities (tax exempt under IRC 501). Or, you can rely on a tax/investment professional or Professional Employer Organization (PEO) which we’ll talk a little bit more about next week.

For immediate questions or concerns regarding your workplace retirement plans or deferred compensation models, contact us at Employer Solutions Plus.

 

What are Section 125 Tax Savings Plans?

/in , , /by

As a small business owner or HR professional, you can only know so much! Navigating the ins and outs of tax compliance can be a full time job in itself, which is why Employer Solutions Plus offers clients assistance in Section 125 Tax Savings Plans.

What you need to know: A Section 125 Plan provides tax savings for both the employer and employee by reducing employee benefits from gross salary prior to the calculation of federal income and social security taxes. This is allowed under Internal Revenue Code Section 125 – which is where this plan gets its name! You may have also heard this plan referred to as a “Cafeteria Plan” because employees “choose” from a selection of two or more benefits – similar to the cafeteria concept, where visitors choose from different foods.

This plan provides employee participants an opportunity to receive certain benefits on a pre-tax basis. A Section 125 Plan is a separate written plan maintained by an employer for employees that meet the specific requirements of, and regulations of, section 125 of the Internal Revenue Code (IRC). Do your employees meet the specific requirements of the IRC?

How we can help: Employer Solutions Plus can almost immediately tell you upon consultation if your company and employees qualify for such a plan. If your company does qualify, the written plan must specifically describe all benefits and establish rules for employee eligibility and elections – another area Employer Solutions Plus can help with.

Qualified benefits include: accident and health benefits, dependent care assistance, group-term life insurance coverage and HSAs (Health Savings Accounts). If you currently have a plan that only offers employees a choice between taxable benefits it is not considered a Section 125 Plan.

For more information on Section 125 Tax Savings Plans or Cafeteria Plans, contact Employer Solutions Plus today.