What Do I Need To Know About Retirement Plan Deadlines?

What Do I Need To Know About Retirement Plan Deadlines?

You may have gone through all of our retirement articles and Podcast episodes and found the perfect retirement plan for you. Now you need to know some deadlines around that.

When do you need to implement the plan by?

When do you need to fund the plan by?

We are going to outline exactly that here today!

By the way, if you are still pondering which retirement plan is right or you need help setting one up, we work directly with Life, Inc Retirement Services. Email us for an introduction or visit this page. 

Retirement Plan Deadlines or Dates To Remember

You will want to be sure to give yourself ample amount of time to ensure not running up on a deadline.

  • January 1 – Start Of Plan Year
    • This is the start of the plan year for most retirement plans that are on a calendar year schedule. 
  • April 15 – IRA
    • Deadline for IRA implementation or contributions for previous tax year.
  • October 1 – Safe Harbor 401k + Simple IRA
    • Deadline to implement these plan types for current tax year.
  • October 15 – 401(k) Plan + SEP IRA
    • Deadline to implement and contribute towards all 401(k) plans in the employER portion or a SEP IRA (tax filing date including extensions).
    • NOTE: September 15 for Partnerships and S Corporations
  • November 1 – Switching From Simple IRA to 401(k)
    • Deadline for 60-day notice to employees of switching from a Simple IRA to a 401(k) for the next tax year.
  • December 31 – 401(k) Plan – EmployEE Portion
    • Deadline for implementation and contributions for employees to contribute towards a 401(k) plan for current tax year.

What Else Should I Know?

Some other key things to know about retirement plans in general.

  • You can only have one company retirement plan in place at one time.
  • You cannot make a change within a calendar year, you must wait until January 1.
    • Ex: Lets say you have a SIMPLE IRA but want to move to a Safe Harbor 401k. You would be able to do that but you could need to wait until January 1 to make the official change.
  • Don’t wait, get on top of it early. The last thing you want to be doing is scrambling close to a deadline and missing out.

If you are looking for professional advice and help in this area, we work directly with Life, Inc Retirement Services. Email us for an introduction or visit this page. 

On the link above you can setup a call to connect with an expert and get started right away. There is also a retirement plan evaluator which will guide you towards the best plan for your business.

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

How Does The Child Tax Credit Work For 2021?

How Does The Child Tax Credit Work For 2021?

COVID has had such a major impact on everyones lives in so many different ways. Here as accountants it also means constantly changing already complex tax laws.

In our Free Facebook Group and all around the internet we have been seeing questions on the changes to the Child Tax Credit for 2021 so we can to take the time to break it down for you.

What Are The Typical Parameters Around The Child Tax Credit?

Before we dig too deep into the changes for 2021 specifically, lets talk historically.

  • For 2018-2020 and 2022-2025, the maximum annual CTC is $2,000 per qualifying child.
  • A qualifying child is under age 17 who could be claimed as your dependent for the year.
  • Phase Out If Modified Adjusted Gross Income Exceeds:
    • $200k (Single)
    • $400k (Married)
    • Note: the credit phased out by $50 per $1,000 of MAGI in excess of threshold

What Are The Changes To The CTC For 2021?

For the 2021 tax year only, the American Rescue Plan Act of 2021 (ARPA) makes big, taxpayer-friendly changes to the federal income tax child tax credit (CTC). 

  • Qualifying Children Can Be Up To 17 Years Old
    • vs under 17
  • Maximum Child Tax Credit of $3,000 per Qualifying Child or $3,600 If Age of 5 Or Younger
  • Phase Outs
    • The increased CTC amount ($1,000 or $1,600) above original is phased out for those with MAGI above $75k (Single) or $150k (Married)
    • The “regular” $2,000 CTC amount is subject to the regular phaseout rule.
    • Note:If you’re not eligible for the increased CTC amount for 2021 because your income is too high, you can still claim the regular CTC of up to $2,000, subject to the regular phaseout rule.
  • IRS Will Make Advance CTC Payments (Hopefully)
    • The COVID relief plan establishes a program to make monthly advance payments of CTCs.
    • Payments will equal 50% of the IRS’s estimate of your allowable CTC for 2021.
    • These payments will be made in equal monthly installments from July thru December 2021.
    • They will be using information from your 2020 Form 1040 (or 2019 if you haven’t filed yet) when doing those estimates.
    • Example: Lets say you qualify for a CTC in 2021 of $6,000 for two qualifying children. The IRS would advance you a total of $3,000 (50% of allowable CTC) via monthly payments of $500 each for July thru December. The remaining CTC of $3,000 will occur when filing your 2021 Form 1040.

Hope that helps clear this new change up a little bit!

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

How Can I Deduct 100% of Employee Recreation and Parties?

How Can I Deduct 100% of Employee Recreation and Parties?

Not too long ago we talked about meal expenses for small businesses. We also discussed how entertainment expenses are no longer deductible but what if we told you that if you do it the right way you can party with your employees and deduct 100% of the cost?

We get questions like this all of the time in our Free Facebook Group so here is a great article to touch on it.

How Is It Possible To Get a 100% Deduction For Entertainment?

If you take Billy Bob, your best client, out golfing, the cost of golf will give you no tax deduction. However, if you take your employees to the local country club, enjoy golf, lunch, dinner, etc it can be 100% deductible.

  • Activities That Qualify for the 100% Employee Entertainment Tax Deduction
    • “expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees” qualify for the 100 percent deduction.
    • Examples: Holiday parties, annual picnics, and summer outings, maintaining a swimming pool, baseball diamond, bowling alley, or golf course.
  • MUST be primarily for the benefit of employees other than a tainted group. A tainted group includes:
    • Highly Compensated Employee (More than $130k in 2021) 
    • Anyone who owns at least 10% interest in the business
    • Any member of the family of a 10% owner (children, spouses, siblings, parents, grandparents, etc.)
    • As an owner you are part of the tainted group which is fine, you just need to make sure the partying is primarily for the benefit of the employees.
    • Primarily = More Than 50%
    • Be sure you hav clear and accurate documentation in your records to support this!

What Else Do I Need To Know? 

Documentation, Documentation, Documentation

  • You still need to meet the business requirement of ordinary and necessary. This should be relatively easy, improving employee morale or creating a fun and inviting culture.
  • Documentation – You must keep good documentation regarding your employee entertainment expenses (just as you would any other business expense).
    • Keep Receipts (Who/What/Where/When/Why)
    • Document the business reason for the entertainment (annual retreat to boost employee morale, office party to celebrate new big client, etc.)
    • Keep record of who the outing all benefits so that you can ensure you are under 50% from the “tainted group”.
    • When coding in your bookkeeping, make sure you have a separate line item so it doesn’t get wrapped into any nondeductible items or 50% meals.

That is it! Now go out and take care of your employees and do a little partying this summer!

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

How Does The Legal Structure Of Your Business Affect Tax Filing?

How does the legal structure of your business affect tax filing?

Deciding to flex your entrepreneurial muscles and start your own law firm is an exciting step in your legal career. Running your own firm means that you’re doing a lot more than practicing law. You’re also running a business. You’ll have to make big decisions about things like your location, your brand, your area of focus, and of course, how you plan to legally structure your practice for tax filing purposes. In order to help you make the right decision for your small or solo law firm, let’s explore some of your choices.

Sole Proprietorship

A sole proprietorship is a popular choice for many solo law firms. In this business structure, you’re the sole owner and operator of your practice. This also means you’re the one liable for your business’ obligations, such as any debts or losses incurred while you’re in business. You’ll be required to obtain the appropriate licenses and permits, but you won’t have to file any forms with the state. The income from your sole proprietorship will be reported on your personal income tax return.

Advantages of a sole proprietorship include:

  • Low tax rates
  • Inexpensive and easy to get up and running
  • Taxes are simplified
  • You’re in control

Disadvantages of a sole proprietorship include:

  • You’re personally responsible for any legal trouble you might encounter
  • You pay self-employment taxes
  • Raising capital can be difficult

Partnership

If you’re hoping to start a firm with another lawyer or business associate, then a partnership might be the right path for you. A partnership has two or more people who split the business responsibilities. In this structure, partners basically share everything equally, including profits, liability, and management. Partnerships file tax returns on the income of their business, and they also file taxes personally on their portion of the income or any losses. If you’re not too keen on sharing liability, you can see if a limited liability partnership is available in your state.

Advantages of a partnership include:

  • Inexpensive and easy to get up and running
  • Room for growth
  • Incentives for incoming employees to reach partnership level

Disadvantages of a partnership include:

  • Personally liable for the acts of others
  • Lack of control over business decisions
  • Potential for conflicts between partners

Limited Liability Company (LLC)

A limited liability company (LLC) is often seen as a blend of a corporation, a partnership, and a sole proprietorship. That means that you can still structure your business as an LLC if you’re running a solo law firm. Structuring your law firm as an LLC protects you personally from any losses or wrongful acts made by the company. The LLC itself doesn’t pay taxes — the owners of the LLC claim profits and losses on their personal taxes. LLC’s must file organization papers with the state and create an agreement on how the business will operate as well as the rights and responsibilities of the members and managers.

Advantages of a limited liability company include:

  • Members and managers have more protection
  • Any surplus earnings are not taxed
  • Not many restrictions on profit sharing

Disadvantages of a limited liability company include:

  • If a member decides to leave, the LLC is at risk of dissolving in some states
  • May be subject to self-employment tax
  • Some states put restrictions on certain professions operating as an LLC

Corporations

Corporations are single legal entities with limited liability and are typically owned by a group of people. A corporation has to deal with more red tape and formalities than other business structures. For instance, all paperwork must be filed with the state and you must create bylaws that will dictate the way a corporation will operate. You also have to create a board, have board meetings, and issue funds to the corporation’s stock. Corporations can be filed as a C Corp, which are separate legal entities owned by shareholders. They can also be filed as an S Corp, which allows profits and losses to be passed through personal tax returns and requires shareholders to pay taxes on distributed dividends.

Advantages of corporations include:

  • No personal liability
  • Easy to raise funds
  • Tax-deductions

Disadvantages of corporations include:

  • Lack of control, since the corporation is run by a board
  • Double-taxation
  • Complicated to get up and running

Now that you know a little bit more about the different legal structures of businesses, which one is right for you?

For more information about how to structure your new small or solo law firm, contact the tax pros at JETRO today!

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

How Do I Avoid A Big Tax Bill Or Surprise?

How Do I Avoid A Big Tax Bill Or Surprise?

I get it, everyone hates talking or thinking about taxes. However, avoiding the word tax only makes the situation worse. We hear stories from business owners all the time where they are simply paying too much in tax or are surprised with a big tax bill at year-end.

In our Free Facebook Group a member actually just posted about this so here we go.

How Do I Avoid A Big Tax Bill?

Plan, Plan, Plan

  • #1 Mistake Business Owners Make: Failing to Tax Plan
    • When thinking about tax, most business owners think about tax filing in March and April.
    • However, that is the LAST step in the process.
    • Tax planning should occur way before the year is even over.
  • What Is Tax Planning?
    • The act of doing research and implementing strategies to ensure you are paying the least amount in taxes as legally possible.
    • Check out Baseline Tax Strategies vs Advanced Tax Strategies for more information on type of tax planning strategies.
    • Most tax planning needs to be implemented BEFORE year-end.
    • We recommend sitting down in June to do tax planning. Why June? You have a half of years worth of data to see how your business is performing this year and you have a half of year left to implement those strategies.
  • Simply Put: If you are not doing any tax planning you are paying more in taxes than you should be.
  • My Goal: When you hear taxes you think of tax planning FIRST and tax preparation and filing AFTER that.
  • If you already got hit with a big tax bill, I understand it, that sucks. However, use that as your motivation to make a change NOW to avoid that in the future.

How Do I Avoid A Tax Surprise?

Estimates, Estimates, Estimate

  • Tax surprises are never fun, avoiding them involves multiple parts.
    • #1 – Accurate and Up To Date Bookkeeping: You need to have accurate and up to date bookkeeping so that you know how your business is performing at any point throughout the year. As part of our Tax Minimization Program we have an entire set of modules specifically on how to do bookkeeping on your own. Do NOT neglect this part of your business.
    • #2 – Tax Planning: We discussed this part above.
    • #3 – Estimated Tax Calculation: Once you have a good idea on all of your income (this includes business and non-business activity) you can do tax estimates. This entails taking the information/expected income and estimating what your tax bill will be so that you can properly plan and pay those estimated taxes as necessary.
  • #2 and #3 above often times play together. You may be estimating a large tax bill and thinking, how can I reduce that and that is when you will dive into additional tax planning strategies.

That is it! It all stems around planning. Make this be the year that you pay the least amount in taxes as legally possible and avoid any tax surprises.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

How Are Start-Up Costs Handled?

How Are Start-Up Costs Handled?

Thinking of starting a business? Congratulations! This is one big step in tax savings. Being a business owner provides you a lot of opportunities for tax deductions that are not available to a typical W2 employee.

We talk about those tax savings options in most of our articles but today we are going to talk specifically about the costs associated with starting up your business and how those are handled.

We got this question a lot in our Free Facebook Group so I figured it was time to tackle it to clear things up for everyone!

What Are Start Up Costs?

Instead of waiting until you officially open for business, you can start the timer now on your deductible expenses. 

  • Per the IRS website, start-up costs are amounts paid or incurred for:
    • Creating an active trade or business
    • Investigating the creation or acquisition of an active trade or business.
  • To qualify as a start-up expense it must meet both of the following tests:
    • It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into).
    • It is a cost you pay or incur before the day your active trade or business begins.
  • Here are some common start-up expenses we see:
    • Travel Costs 
    • Meal Expenses 
    • Training Costs
    • Market Analysis
    • Book or magazine purchases related to the business.
    • Office supplies to use in the business.
    • Advertising fees for the opening of your business.
    • Wages or contractor labor for consultants and employees.
    • etc.
  • Costs That DO NOT Qualify As Start-Up Expenses
    • Interest
    • Taxes
    • Research and Development Costs
    • However these can generally be deducted under other tax law provision.

What Are Organizational Costs?

Wait, organization costs? That’s not considered start-up?

  • The IRS has two separate categories for what you might think of as start-up costs. We discussed actual start-up costs above. 
  • Organizational costs are those expenses for the actual formation of the company. This would be if you are setting up an actual entity and not just a sole prop.
  • Examples of organizational costs are:
    • State incorporation or registration fees
    • Legal and Accounting Fees
    • The cost of temporary directors
    • The cost of organizational meetings
  • To summarize, you may have both start-up costs AND organizational costs.

How Does The Tax Deduction For Start-Up and Organizational Costs Work?

Alright, so now that we understand what are start-up and organizational costs, how does the deduction work?

  • Important Number: $50,000 (For Each Start-Up and Organizational Costs)
  • Total Less Than $50k
    • Deduct $5,000 in the first year the business starts
    • Amortize Remaining
  • Total More Than $50k
    • First year deduction decreases by $1 for every dollar over $50k
    • Amortize Remaining
  • How Amortization Works
    • Deduct Remaining Equally Over 180 Months (15 Years)
    • Complete and attach Form 4562 to your return for the first year in business.

Examples Of Start-Up Costs Deduction

Lets put this into practice and use some actual numbers..

  • Start-Up Costs: $3,500
    • Deduct all in first year of business
  • Start-Up Costs: $45,000
    • Deduct $5,000 in first year of business
    • Amortize remaining $40,000 equally over 180 months ($222 per Month)
  • Start-Up Costs: $52,000
    • Deduction $3,000 in first year of business ($5,000 less $2,000 over $50k)
    • Amortize remaining $49,000 equally over 180 months ($272 per Month)
  • Start-Up Costs: $65,000
    • Amortize all $65,000 equally over 180 months ($361 per Month)
  • Organizational costs would work the exact same way, if you qualify.

Start-Up Costs Frequently Asked Questions

I still have questions..

  • When are you considered “in business” and no longer start-up costs?
    • When a “sale” occurs. Lets use an example of starting a lawn service. You may have made flyers and bought some weed killer and a few garden tools these would all be start-up costs until you have your first sale. Once you first sale occurs expenses are just normal operating costs.
  • How does equipment factor into this?
    • Equipment would not be included in start-up costs but rather depreciated. Lets assume you are starting that lawn care business. Your new lawn mower for the business would be an asset that you depreciate and not included in start-up costs. 
  • When can I start recording these start-up costs?
    • You have to wait until the new business actually begins to start realizing the tax benefits of your start-up expenses but you can start accruing and recording them as soon as you start thinking about creating your business.
  • What happens if my start-up never becomes an active business?
    • You need to start and make the business an active business for the start-up costs to be deductible. If you fail after starting, then you can realize the unamortized deductions. If you never start, the costs you had in your attempt to acquire or begin a specific business are capital expenses and you can deduct them as a capital loss. Costs you had before making a decision to acquire or begin a specific business would be personal and non deductible.
    • Keep in mind the specific piece. Example, if you are just doing general research/analysis and do not have any specific business in mind and you end up not moving forward with anything, those are considered personal expenses and not deductible.
  • What else should I keep in mind?
    • Always keep detailed and accurate records to substantiate your costs in case the IRS challenges you.
    • Once your business starts, expenses after that start date move to normal operating expenses and stops the addition to start-up costs.
    • If you close your business before costs are fully amortized (180 months) you will take the remaining when closing.

This can often times be a confusing area but hopefully we were able to break it down in an easier to understand format for you.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

What Are Baseline Tax Strategies vs Advanced Tax Strategies?

What Are Baseline Tax Strategies vs Advanced Tax Strategies?

If you are a regular reader here you know that we put a very heavy focus on tax savings or tax strategies you can implement to ensure you pay the least amount in taxes as legally possible.

You’ll often times see us talking about baseline tax strategies and then advanced tax strategies. 

Someone in our Free Facebook Group asked how a baseline tax strategy is different from an advanced tax strategy so that is exactly what we are going to break down here!

What Are Baseline Tax Strategies?

Strategies every business owner should take advantage of!

  • Easy to Understand
  • Easy to Implement
  • Generally no cost or inexpensive to implement.
  • Available to business owners of all sizes. Whether you are making $50k a year or $1MM a year, baseline tax strategies are available to you.
  • Examples
    • Maximizing Deductions
      • Meals, Travel, Supplies, Utilities, Rent, Equipment, Advertising, Postage, etc.
    • Hiring Your Kids
    • Home Office
    • 14 Day Home Rental
    • Retirement Options
    • Entity Structure / S Corp
    • Depreciation / Business Vehicles 
    • Health Insurance / Costs
    • Accountable Plans
    • Capitalization Policies
    • and so much more!
  • Essentially baseline tax strategies are the ones that businesses, no matter your size, should be learning, researching, and implementing to ensure you are paying the least amount in taxes as legally possible.

What Are Advanced Tax Strategies? 

Once you hit a certain point in household income, these comes into play.

  • More complex / difficult to understand.
  • Harder to implement
  • Generally have some costs associated with them.
  • Riskier and need to make sure they are setup and managed correctly.
  • Provide massive tax savings.
  • General Qualification Threshold: Household income (regardless of it’s business income or not) of $250k+
  • These are going to be reserved for higher income earners and the reason is because often times the learning curve and cost associated to them would outweigh the tax savings they provide until you hit that threshold.

That is it! So now that you understand baseline tax strategies vs advanced tax strategies, we can help.

For more details along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

Accounting Firms vs. Accounting Software For Law Firms

Accounting Firms vs. Accounting Software For Law Firms

As the owner of a small or solo law firm, you’ve got plenty on your to-do list. Between handling cases and clients and managing your employees, the days fill up quickly. As with any small business, prioritizing and delegating is always necessary. But when it comes to your law firm’s financial management, the inevitable question arises— ‘Do I handle this myself using accounting software or do I hire an accounting firm?’

This is an important question to answer, and the sooner you make a decision about your law firm’s accounting needs, the better. It’s probably not hard to imagine how messy tax season can be if you delay organizing your law firm’s finances and budget. Knowing when the use of accounting software will cut it, and when it won’t, is key. Below you’ll find some essential points to consider when trying to choose between a professional accounting firm that specializes in small and solo law firms, and accounting software programs you can use to manage accounting tasks on your own. 

When to Use Accounting Software

If you’re going to handle your firm’s accounting with just the use of accounting software, most experts recommend having previous experience in accounting.

When exactly is it appropriate to simply use accounting software for your small or solo law firm? If you’re going to handle your firm’s accounting with just the use of accounting software, most experts recommend having previous experience in accounting. For instance, if you have a strong background in law firm accounting, you’re well-versed in tax laws, and you’re considered an expert in money management, then accounting software may be a solid option for you. Accounting software can help you budget, stay organized, and it can offer a glimpse into the financial future of your law firm. 

Accounting software may also be appropriate if you’ve just launched your own law firm and you’re in the building phase of your business. Purchasing accounting software programs with integrated budgeting tools can help you throughout these initial stages and create some structure for your finances, such as knowing how much you can spend each quarter and what you’ll likely spend annually. 

To summarize, accounting software programs are suitable for small law firms when they’re in the early building stages and when lawyers have strong backgrounds in accounting, tax laws, budgeting, payroll, and bookkeeping. However, if you don’t necessarily qualify as an accounting expert and managing your finances is distracting you from other daily tasks, like practicing law, you may need to consider the alternative — hiring a professional accounting firm that specializes in small and solo law firms. 

Benefits of Accounting Firms

First, it’s important to note that even if you have a strong background in accounting and you’re in the building stages of your private law firm business, it’s still beneficial to work with an accounting firm. While using accounting software may be sufficient, it isn’t necessarily the best option. The best option will always be working with an accounting firm. Even lawyers who consider themselves accounting mavens are still taking time away from their law practice to handle accounting tasks. And for those who are just building their practice, an accountant can act as a financial advisor and help you set goals for growth, which accounting software can’t do. In other words, while accounting software may be convenient, it can’t provide the human touch that an accounting firm offers. That is it, pretty simple! Do not over complicate it, just do one of the options mentioned and move on making sure you have everything documented.

  • Time Management
    • We can’t stress enough the importance of having a professional handle your accounting needs so you can handle everything else. Developing a tax strategy, managing your bookkeeping, handling payroll, and setting a budget aren’t small feats. In fact, these actions create the financial backbone of your small or solo law firm. They’re not only important tasks, but they’re also time-consuming. Hiring an accounting firm allows you to dedicate your valuable time to your clients and your cases. 

  • Tax Management
    • If you find yourself sleeping less and stressing more during tax season, you’re not alone. Preparing and filing taxes is an infamous chore for a reason. It’s often described as time-consuming, complicated, and risky to complete independently. We already know that hiring an accounting firm for your small or solo law practice saves you time, but it also helps you avoid errors on your tax forms. Utilizing the help of a professional accountant can help you discover tax deductions and credits, avoid overpaying in taxes, and complete all of your necessary tax forms accurately. 

  • Ultimately Saves You Money
    • One reason why some law firm owners will choose accounting software over an accounting firm is that they believe it will save them money. This can be an expensive mistake. Yes, it may initially be cheaper to register for accounting software, but on average, small and solo law firms end up saving more money by working with professional accountants. While your Quickbooks program might help you keep your budget organized, it’s not going to do the heavy lifting for you. An accounting firm is going to dedicate time and energy to researching the best possible paths for your law firm to thrive, maintain a healthy budget, and discover significant tax credits and deductions. 

  • Growth Plans and Financial Guidance
    • When you’re running your own private law firm, words like growth, development, building clientele, increasing profits may be constantly running through your head. Growth is something that often remains on the back burner because you either don’t have the time to address it or you lack a concrete path to achieve it. Developing a plan to help your law firm grow is both necessary and challenging. This is when a trustworthy accounting firm comes into play. An experienced accountant can help you visualize where you see your law firm going in the future and help you design the necessary steps to bring this dream to fruition. 

When asking yourself if accounting software or an accounting firm is right for you, the answer is clear. The benefits of working with professional accountants who specialize in small or solo law firms overwhelmingly outweigh the benefits of accounting software. 

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

I Accidentally Paid For Business Expenses Using Personal Funds, Now What?

I Accidentally Paid For Business Expenses Using Personal Funds, Now What?

If you have been around here for awhile you will know I am always preaching, always have a separate business bank account. That should always be the case. Whether you run your business as a sole proprietor, LLC, partnership, S Corp, C Corp, if you have a business you should have a separate business bank account.

With that being said, one question we see asked more and more on our Free Facebook Group is what you should do if you accidentally put business expenses on your personal accounts, so that is what we will discuss here.

Why Should I Separate Business and Personal Expenses?

Because otherwise you will go to jail…. just kidding!

  • The last thing you want to do is commingle business and personal items together because…
    • It is easier to miss legitimate tax deductions. When you have everything commingled together it is easy to forget whether certain expenses were business or personal.
    • You may take a business deduction on an item that is personal related which if found in an audit could potentially create uncertainty for all expenses claimed.
    • It is harder to prove business purpose in the event of an audit.
    • Simply put, do not commingle, regardless of how big or small your business is.
  • Need a modern, virtual business bank account? Email us or submit the form below with your business name and email and I will invite you to a modern digital bank designed specifically for small businesses. It is actually one we use internally here too!

Okay, I Accidentally Paid For A Business Expense On My Personal Account. Now What? 

I get it. Sometimes you can be as careful as possible but certain situations arise where you have no option but to pay for something personally or you accidentally use the wrong card. The good thing is, you can still get the deduction.

  • Option 1: Simply Reimburse Yourself
    • Write a check or transfer money from your business account to your personal account for the items you paid for personally. It is as simple as that.
    • In our discussion about accountable plans we discuss items that are business and personal mixed and how we treat those. This would be handled the same way.
  • Option 2: Do A Manual Journal Entry
    • This option may be a little more difficult if you are not experienced in accounting/bookkeeping.
    • Basically you would create a manual journal in your accounting software to report the expense and offset the expense with either an owners contribution or offset to your owner draws that you may have already took.
    • This is a great option if you don’t need the actual funds personally, where you can still get the deduction without using business cash.
    • If you don’t know how to do this, ask your accountant or bookkeeper and they should know how to take care of this for you.
  • Things To Do To Ensure The Business Deduction:
    • As always, keep a receipt for all business related items especially the ones you paid for personally.
    • Document on the receipt the business purpose and details of the deduction (ex: who, what, where, when, how, etc.) – Be as detailed as possible so if it is ever questioned down the road, there is no questions asked.

That is it, pretty simple! Do not over complicate it, just do one of the options mentioned and move on making sure you have everything documented.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

Why Should I Hire My Kids In My Business?

Why Should I Hire My Kids In My Business?

Hiring your kids is one of the top kept tax saving secrets.

Now when we start this conversation with clients a lot of people cringe and think this is something that the IRS surely would not allow. However, that is not the case. This is actually discussed directly in the tax code. However, it must be done correctly in order for it to be legal.

We have actually had some lengthy conversations on this in our Free Facebook Group so thought it would be a great topic to write on!

What Do I Need To Know About Hiring My Kids In My Business?

Get a business deduction and your kids potentially pay no tax on that income.

  • IRS Website
    • “Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.”
    • Pay your child through a sole prop or partnership, no need to withhold social security, medicare, FUTA, etc if your child is under 18.
  • Benefits
    • You get a business deduction for items you are typically paying personally anyways.
    • You child can claim the standard deduction (up to $12,550) in 2021, so the first $12,550 would be tax fee and then any income above that would be taxed starting in the lowest tax bracket.
    • You are likely paying for your child’s basketball camps, entertainment, technology, etc so why not get a business deduction for these items you are going to pay for anyway?

Great, Now How Do I Do It? 

In order for this to be legal and stand up against the IRS, it must be done correctly! You cannot just pay your kids a set amount out of your business without any backup.

  • The Details
    • Must be age 7+ – This is an age that has been proven in tax court.
    • Must pay a reasonable wage for the type of work they are doing.
    • Track time to record the actual work they are doing to support the deduction.
    • Pay to an account in the child’s name.
    • Prepare a W2 at year-end
    • Have required documentation: job description, employment agreement, hour/task tracking, payment proof, W2, etc. In our Tax Minimization Program we have a full implementation guide with all of these documents. Check that out here!
  • Potential Issues or Planning Opportunities
    • S Corp – If you operate as an S Corp you are not considered a sole prop or partnership so you WOULD need to be withholding social security, medicare, etc from the payments. This would all of course still be considered a business expense, just some additional tax. In our Tax Minimization Program we do have some work arounds for this “problem”.
    • Non Child Family Members – Think grandchildren, nieces, nephews, etc. If you wanted to hire family members in this area they would not be your direct children so the social security and medicare avoidance would not be applicable. Here too there are some potential work arounds that we walk through in our Tax Minimization Program.

As mentioned, this is a tax strategy you do not want to miss out on. What a great opportunity to get a business deduction and have your children potentially pay no taxes on that income.

Now of course you need to make sure you are doing things correctly to cover you in an IRS audit but that is something that can easily be done as we discussed here.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.