You should avoid filing your taxes late. Filing your tax return late will cause late filing penalties. You can avoid late-filing penalties by filing an extension of time to file a form with the federal and state tax authorities.
If you think you may not make the due date of your return, you should seek help as soon as possible to receive the full benefit of the extension of time to file. Remember that an extension of time to file is an extension to file and not an extension to pay the taxes.
Our tax system is a pay-as-you-go tax system, which means that the taxes are due as you earn the taxable income throughout the year. There are many tax types, so do not automatically assume that the extension of time to file is always April 15th.
As always, remember our core belief resonates with you, our client, and our motto here at Freyman CPA is that your success is our success, all day, every day!
Pitfalls are many, and one should be careful when going into business to plan accordingly. It is one thing looking at your business plan on paper, and then there is the practical application.
As business advisors and tax accountants, we see it all too often, folks plan well. Still, when they start their business, there are so many things coming to them at once, the business plan goes by the waist side, and many business owners are what we call “winging it” and never really have a good start or a good grasp on how to run the ship right.
It is so essential to hire the right team to guide you in business advisory. You must surround yourself with the right people and make the right decisions in your line of work before you open your doors for business, and let me say that again, “before” you open your doors for business. What are these reasons people tend to fail in their plight for success as an entrepreneur, you ask? ask, and you shall receive, here they are:
1) Not selling fast enough
That is right, not selling fast enough would be our top number 1 reason. You might have the proper capitalization, but if you do not sell enough at the right price or enough of what you need to sell, you will be out of money faster than you say, “show me the money.”
2) No having enough startup seed funds
The days of starting in your basement are less and less ideal; you need money! You need as much money as you can either gather from your pocket or a loan. Many people are afraid of lending money when starting a business as there is so much that can stand to go wrong, but I can assure you that loaned startup money can a long way fast if you use the funds the right way.
3) Not setting up the right processes as things change – getting too comfortable – this is not a W2 job – you have to move quick in this town!
Once you start your operations, you should quickly realize that things are not working exactly how you planned on them to work. That is because the business environment is never perfect, and the business tides are always changing, so as things change, you should be adapting and evolving.
4) Not hiring the right professionals to help the business avoid pitfalls
If I had a dollar for each time we helped a client climb out of tax problems, that could have been easily avoided had they sought out the right help in the first place; I would have many dollars, oh wait, I do, do you know why? Because it takes a lot more dollars to fix problems than it does to get it right the first time. Remember, folks; tax problems are like cancer for a person; it could literally put your business out of business almost immediately.
5) Not delegating soon enough
We saved the worst for last, not as easily spotted as you would think, you may ask, how about budgeting or maximizing profits or some other accounting-related item? Isn’t that what you are pitching for here, Greg? Nope, not delegating fast enough so that you can do what you do best as fast as you can. Frustration can get you drained faster than a speeding ticket. As soon as you can, start handing off your responsibilities where you can, hopefully into capable hands. Start tunning the business, and stop working for the business as an employee. Your job is to be the CEO, the owner, the visionary, the entrepreneur, not the employed individual who bought him or herself a regular W2 job.
Now I know I bashed around the W2 worker here a bit, but I honestly mean no harm in it; it is what it is. A regular job has many benefits and comes with its rewards. If you are ready to become that owner, that visionary, you better be prepared to make some significant sacrifices in your life and be prepared to risk as it all, as there is no reward without no risk.
If anyone ever asks me, I always say, I love what I do, and it is hard as all heck, but I would not trade it for the world.
Remember folks, here at Freyman CPA, your success is our success, all day, every day! Freyman CPA
As long as there was a tax, taxpayers were attempting to circumvent the tax system.
A good example would be the assignment of income, where a wealthy individual would shift earned income to a child who did not earn the income to pay through a reduced child’s rate. Hence, the family would benefit overall from overall lower taxes as the parent was in a higher tax bracket compared to the child. Courts have struck down taxpayers’ efforts in high tax brackets to assign income for personal services to low tax rate individuals.
So what ends up happening? The IRS eventually catches up to these “creative and aggressive ways around the tax system” and corrects the “loophole” by introducing a new law to close the hole and to set things right.
Some examples of the taxes introduced to close out ways around the tax code would be what we now call the “kiddie tax.” Another classic example that many have heard about would be the “generation-skipping transfer tax,” or the GSTT. Freyman CPA, your success is our success each day, all day!
A household worker would be a worker you hired and not a worker temp service that you pay, as in the service delivers the nanny and the service issues the nanny with the W2 and takes care of the payroll aspect for you. This situation speaks of when you independently hire a household worker.
What typically happens is that a nanny or other household worker will receive payment “under the table” and does not report the wages earned on their income taxes as they receive no W2.
In the nanny case, once the wages go unreported, the government authorities may not collect the taxes, the parents lose out on any dependent care tax credits, and the worker will not collect any social security or medicare benefits for the services performed.
The right way to handle this situation is to do the following:
1) Register as a household employer with the IRS and the state to receive an IRS household employer tax identification number and an employer registration number with the state. Gather all pertinent documentation from your employee as you would with any other employee.
Documents like proof of identification, payroll withholding forms, and voided checks would all be examples of documents to gather and retain on the employee file.
2) Use a payroll processor specializing in household employment to process the regular pay so that a W2 is issued at yearend and the payroll tax forms are filed with the state tax authority ONLY.
3) Remit the federal employee income and payroll taxes and the employer payroll taxes along with your federal estimated income taxes quarterly or as frequently as you wish via the EFTPS site.
4) File Schedule H with your annual personal income tax return.
5) Claim any dependent care tax credits if they apply to your situation. If your worker is a home health aid, consider reflecting the medical costs (and payroll taxes) as a deduction on IRS Schedule A as a medical itemized deduction.
As always, speak with your tax professional to ensure that the situation you are facing is described above and to ensure that you are in full compliance with labor and tax laws.
These are the questions, as small business owners, we ask ourselves – or should be! In the ever-changing business taxation environment, this question of a contractor vs. employee classification, in Jacksonville and outside our local geographic area, has remained relevant for a good portion of the past decade. And even today, when it feels like the entire world has been turned upside down, and all rules seem to have been broken, this remains a current and relevant topic for us to worry about.
California, always a leader in adopting tax reform, is actively pursuing contractor vs. employment classification – and MIS-classification. This year, if you hire a person in the same line of work as your business, you MUST classify them as employees. Most prominently, that means that the thousands of Uber and Lyft drivers are now required to be classified as employees; no longer are they considered independent contractors, no longer can they file a Schedule C and claim business expenses. They will be forced to convert to the companies’ employees, as has just been confirmed by the Appeals Court in CA.
But this ruling affects many others, not just the Uber and Lyft drivers as seen throughout California, small business owners such as beauty salon owners, insurance agencies, contractors, restaurant owners – are learning that the workforce they have traditionally classified as independent contractors are now legally their employees, with all the consequences that bring about.
Does this affect others living and working outside of California? Absolutely, you bet your sweet….bottom! You see, California has always been at the forefront of tax reform. Other states are quick to jump on this bandwagon. At the same time, others will also look to the Gold Rush State in how the independent subcontractors are to be treated very shortly! States already starting to follow in the trailblazer’s path include New York, New Jersey, and Illinois – each planning its own version of the legislation affecting the classification of the freelance workers.
As a small business owner, be responsible if you were to classify these freelancers as employees in an audit? Layers of taxation and compliance vary from state to state, and the main compliance points would be:
There may be more, but these consideration points are pretty universal, and you should be aware of it. If you think you may need to re-think your independent contractor employee classification, reach out to our Jacksonville CPA firm for a consultation. You may call us at 904-330-1200 or email at email@example.com.
I have exciting news that I couldn’t wait to share with you! It’s official, as of last week, September 17 to be exact – I am now an Enrolled Agent, admitted to practice before the IRS!
Although I’ve been deeply involved with tax planning and preparation for well over six years now, working closely with Greg at Freyman CPA, and helping our firm grow, this really takes it to the next level. This designation took over a year of hard work, studying every free moment, giving up weekends, weeknights, and working toward this goal. I have achieved this success because I love what I do, as much as I do.
The designation involves passing three separate exams of 3 ½ hours each, and the bar to pass is quite high. Passing the exam demonstrates a thorough knowledge of individual and business Federal taxation, as well as in-depth expertise with representing clients before the IRS. I am so excited to bring this additional qualification to our firm. I look forward to helping you address existing tax issues and to work proactively on avoiding and preventing such pitfalls!
An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete continuing education courses to remain active.
Enrolled agents, like attorneys and CPAs, have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before. Because this is a Federal, not state, designation, enrolled agents can practice and represent clients in all 50 states.
Enrolled agents are experts in taxation and are the only federally licensed tax practitioners. The designation dates back to 1884, enacted after questionable claims had been presented for Civil War losses. Congress acted to regulate persons who represented citizens in their dealings with the US Treasury Department.
And for you, that means the next time we prepare a Power of Attorney form for your signature, you will see my name right next to Greg’s as the authorized representative, and you will know that both partners at our firm are working on your side, resolving and communicating with the IRS and other tax authorities.
Angie Freyman, MBA, EA – and the team at Freyman CPA
If you ever need help from a trusted Jacksonville, FL accountant or an Enrolled Agent call 904-330-1200 or email at firstname.lastname@example.org
If you have a topic of interest you would like to see us cover, feel free to reach out and let us know; we are always happy to hear your thoughts, ideas, and feedback.
“The purpose of a tax cut is to leave more money where it belongs: in the hands of the working men and working women who earned it in the first place.”
~ Bob Dole
This tax blog specifically deals with how the new tax law affects the rental of real estate as an activity.
On January 18, 2019, the IRS released the final regulations for section 199A via Notice 2019-7.
If you have not heard of section 199A by now, you most certainly will very soon. This new addition to the tax law will be around until December 31, 2025.
“You must pay taxes. But there’s no law that says you gotta leave a tip.”
~ Morgan Stanley advertisement
To catch up to part three, see parts 1 and 2 on how to succeed in any business.