What Retirement Options Are Available For Business Owners?

What Retirement Options Are Available For Business Owners?

When it comes to retirement planning for small business owners there are a lot of options available which can be confusing.

There is no one strategy that is perfect for everyone. Over the course of the next few weeks, we are going to go through the various retirement options that are available to business owners. We are going to break them down and hopefully help you get a better idea of what may be right for your business.

If you would like to get started on setting up a retirement plan and need connection you can email us, submit the form below, or visit our partners site here.

What Is Your Goal With a Retirement Plan?

Before you think about putting a retirement plan in place you need to think about what your goal is by starting one. 

  • Employer looking for their own retirement or tax savings.
  • Help recruit and retain high quality employees. 
  • Can be both!

What Retirement Plan Options Are Best For Businesses With No Outside Employees?

If you have no employees you will likely want to focus on one of the two options below.

  • SEP IRA
    • Allows the owner to contribute up to 25% of your income.
    • All contributions are pre-tax.
    • Employee contributions are NOT allowed. (employer must do same amount of contribution as their own)
  • Solo 401k (AKA Individual 401k)
    • Will allow the owner to contribute 100% of your income up to a certain point.
    • Allows the company to match your contribution.
    • Choice of Pre-tax or Roth Contributions.

What Retirement Plan Options Are Best For Businesses With Employees?

When you have employees outside of the owners you will want to look into the following options.

  • Payroll Deducted IRA
    • Gives your company the feel of a retirement plan for your employees, even if you’re not quite ready for a 401k.
    • Allows your employees to contribute towards retirement straight out of their paycheck.
    • Choice of Pre-tax or Roth contributions.
    • Matching contributions from the employer are not required.
  • Traditional 401k
    • Allows the owner to mold the plan around the goals of the company.
    • Can create your own matching and vesting schedule.
    • Multiple Investment Options.
    • Both Pre-tax and Roth options inside the plan.
  • SIMPLE IRA
    • “Turn-key” matching and vesting options.
    • Pre-tax contributions only.
    • Your choice of employment qualification into the plan.
    • No administration costs.
  • Safe Harbor 401k
    • Allows the owner to maximize contributions without relying on high employee participation.
    • “Turn-key” matching and vesting options for easy compliance testing.
    • Both Pre-tax and Roth Options inside the plan.

This is just the first blog in a series that we are doing on retirement options. In future posts we will be digging deeper into all of the strategies above and discussing them so you can have a better idea of what you want to implement in your business.

As mentioned, if you are looking for professional advice and help in this area we work directly with Life Inc Retirement Services. Email us or submit the form below and we can get an introduction out to you. You can also go directly to their site here and setup a call and go through a retirement plan evaluator. 

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 Do I Need To Know About Sales Tax?

What Do I Need To Know About Sales Tax

Sales Tax – Those two words may have just given you anxiety.

Sales tax can be complex depending on the type of business you run and operate. Fortunately we were able to connect with Danny Wright from Peisner Johnson on a recent Small Business Tax Savings Podcast episode to help make this clear for us.

Fill out the form below if you would like an introduction to Danny to tackle your sales tax questions and issues. In the meantime here is some information we feel you need to know.

There are two critical components to determine where you have to collect sales tax: Nexus and the taxability of your products and services.

What Is Sales Tax Nexus?

At Peisner Johnson, they always say, “Start with Nexus”. There are two important types of nexus to be concerned about: Physical Nexus and Economic Nexus.

  • Nexus Definition: The qualifying criteria for a seller to be required to collect and pay taxes on sales in a state.
  • Physical Nexus: locations, employees, contractors, inventory, etc.
    • Physical nexus is when your business has a physical presence in a particular state. Physical nexus enables states to tax the sales of businesses that do business in their state, even if they’re headquartered elsewhere.
    • In most cases, physical presence means an office or a retail location. But a warehouse, remote employee, payroll or even a contractor can all trigger physical nexus. You can also develop physical nexus through inventory that’s stocked in a marketplace fulfillment center.
  • Economic Nexus: Revenue and transactional thresholds set by the various states.
    • In 2018, the Supreme Court decision South Dakota v. Wayfair, Inc. established the concept of economic nexus. This gave states the right to force out-of-state sellers to collect and remit sales and use tax if they meet or exceed a state’s economic threshold. In the last several years, this has dramatically increased the taxability of businesses, making them liable in states where they don’t have a physical presence.
    • So far, of the 45 states and DC that impose a sales tax, 43 have passed Economic Nexus laws (FL and MO are the holdouts).
    • Every state has its own economic threshold. Some states apply the law retroactively. Some don’t. States can define their thresholds based on retail, gross, taxable or marketplace sales.

Is My Product or Service Subject to Sales Tax?

After you determine your “Nexus Footprint”, it’s important to understand the taxability of your products and services.

  • For some, it might be as simple as only selling tangible products that are taxable in every jurisdiction, but for some, it can be quite complex.
  • You may sell supplements, food, medical supplies, eyewear, clothing, or a number of other goods which may be taxed at a reduced rate, or not taxed at all.
  • Those selling tangible products and services will likely face a much more complex structure.
  • We recommend you reach out to a sales tax expert to do a study on your product or service to determine the taxability of it.

When It Comes to Sales Tax, What Process Should I Follow?

Sales tax can be complex for some businesses, if you do not feel comfortable doing research on your own, hire a professional.

Follow These Steps:

  1. Conduct a Nexus Review
  2. Identify Your Taxability
  3. Get Registered and Address Unpaid Liability
  4. Collect & Remit Sales Tax Wherever You Have Nexus
  5. Create Your Audit Defense Plan

As mentioned, if you are looking for professional advice and help in this area we work directly with Peisner Johnson (Sales Tax Experts). Email us or submit the form below and we can get an introduction out to you so you can have them take care of steps 1-5 and you can rest easy knowing you are all set!

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 Make Tax Season Stress Free and What Are The 2020 Tax Due Dates?

How Can I Make Tax Season Stress Free and What Are The 2020 Tax Due Dates

See ya 2020 and welcome to 2021. Happy New Year Everyone!

Although we are onto another year, 2020 is technically not over, we have tax returns to file yet!

In this blog post we are going to go through some things you can do early here in 2021 to make this tax season a breeze. Before beginning, the number one thing I can say is be proactive. Get your documents and financials in order right away. That doesn’t mean you need to file immediately, it just means you can gather everything and be prepared so that you are not scrambling down the road. 

Action Steps For Your Business Tax Return

Many of us are setup as a Partnership or S Corp and they are pass through entities which means we prepare those prior to tackling the personal return.

If you have a sole proprietorship or single member LLC then you will file your business tax return on your personal return via a Schedule C.

  • Complete Your Bookkeeping ASAP and Wrap Up 2020
    • The last thing you want to be doing is thinking about 2020 deep into 2021. Bite the bullet and get your bookkeeping completed now so you can start preparing your tax return. If you are a client of ours, make sure you complete all transaction questions in Google Drive.
  • Gather Documents 
    • Receipts – Gather all of your receipts for 2020 and put them on file should you need them down the road as backup support.
    • Bank Statements – These will be good to have on file should you need to go back or submit them to the IRS down the road.
    • Loan Documents/Balances – You will want to ensure any loans on your balance sheet match the balance your bank shows. Make sure you have interest separated from principal. If you had a PPP loan that was forgiven, be sure to alert your accountant.
    • Asset Purchases or Sales – If you made any asset purchases (not already on the books) or sold any of your assets throughout the year, be sure to alert your accountant.
    • Complete Accountable Plan – Complete the accountable plan for your business and add that activity to your books. Learn more about accountable plans.

Action Steps For Your Personal Tax Return

Make this the easiest tax season yet.

  • Gather Documents – If you are a client of ours, you will receive an invite to Intuit Link here at the beginning of January where you can create (or use your current) Intuit account to answer a questionnaire and upload tax related documents. Here are the documents to gather:
    • Last years tax return (for first time JETRO filers)
    • Payroll Documents
    • Various Forms Tax Forms:
      • W2 (Wages)
      • 1099s – Many different types: Non-Employee Compensation (1099-NEC), Interest (1099-INT), Dividends (1099-DIV), Stocks (1099-B or 1099-COMP), State Refunds or Unemployment Compensation (1099-G), Pension or Retirement (1099-R), Social Security Administation (SSA-1099), HSA Activity (1099-SA)
      • 1098 (Mortgage Interest)
      • K1s from Partnerships, S Corporations, Trusts, or Estates
      • 1095-A, B, or C for Health Insurance
      • Student Activity – 1098-E (Student Loan Interest) or 1098-T (Tuition Paid)
    • Real Estate Taxes Paid
    • Medical Expenses
    • Charitable Contributions
    • Child Care Expenses
    • Estimated Taxes Paid
  • It’s important to gather this information as it comes in and be on top of it. If you are able to provide your accountant with all these necessary documents it will make tax filing a breeze this year.

What Are The 2020 Tax Due Dates?

Keep note of these important due dates.

  • January 15, 2021
    • 4th Quarter 2020 Estimated Tax Payments Due
  • February 1, 2021
    • 1099-NEC/MISC Forms Due
  • March 15, 2021
    • S-Corporation Tax Returns (or extensions) Due
    • Partnership Tax Returns (or extensions) Due
    • Multi-Member LLC Tax Returns (or extensions) Due
  • April 15, 2021
    • Personal and Single Member LLC Tax Returns (or extensions) Due
    • C-Corporation Tax Returns (or extensions) Due

What Is The JETRO Tax Process?

If you are a client of ours, we created a page on our site specifically for you so you know what to expect this tax season!

Tax season is often a stressful time of the year for business owners and things are often completed as the last minute. It does not have to be that way. Make 2020 the year that your taxes are easy and you can focus on 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.

What Do I Need To Know About the COVID Relief Bill?

What Do I Need To Know About the COVID Relief Bill?

Congress has finally passed another COVID relief bill and we want to unpack what this means to both you personally as well as your business. This bill was over 5,500 pages long so what we outline here is a high level overview. It will take a bit of time for the SBA and banks to unpack much of this, so it will be evolving.

What Is Included In the COVID Relief Bill for Individuals?

This is specific to individuals, not businesses.

  • Relief Rebates or Stimulus Checks 
    • This works very similar to the first round that went out. It is based on your 2019 tax return information.
      • $600 per individual (Including qualifying children) – Note: Adult dependents are not eligible.
      • Starts to phase out at $75k (Single), $150k (Married), $112.5k (Head of Household) 
      • Nothing needs to be done to receive the rebate. If you had a high income in 2019 and phase out but in 2020 you do not expect to phase out, you will get the benefit when filing your 2020 tax return. 
  • Unemployment Benefits
    • Extends certain unemployment benefit items for 11 weeks.
    • Additional $300 per week to supplement state unemployment compensation.
  • Charitable Contributions
    • Above the line contribution is extended through 2021 at $300 (Single) and $600 (Married).
  • Flexible Savings Account (FSA)
    • Can be rolled from 2020 into 2021 and 2021 balances can be rolled into 2022.

What Is Included In the COVID Relief Bill for Businesses?

This would be specific to businesses.

  • Original Paycheck Protection Program (PPP)
    • Forgiveness is not taxable and businesses ARE able to deduct expenses paid with forgiven PPP funds. This is big!
    • Simplified forgiveness process for loans under $150k.
    • No longer deduct the amount of any EIDL advance (up to $10k) from the PPP forgiveness amount.
  • Paycheck Protection Program (PPP) 2.0
    • PPP Round 2 with some changes:
      • Must have at least a 25% drop in gross receipts in a 2020 quarter compared to the same quarter in 2019.
      • Limited to business with 300 employees or less.
      • Maximum loan size is $2MM.
      • Have used or will use the full amount of the original PPP loan
      • Qualifying expenses extended to include: property damage, supplier costs, or PPE equipment in addition to payroll, rent, utilities, etc.
  • Employee Retention Tax Credit (ERTC)
    • Employer may claim a 70% tax credit (up from 50%) on up to $10,000 in ages paid to employees per quarter (up from $10k per year) through July 1, 2021. This results in a maximum credit of $14k per employee (up from $5k).
    • To Qualify:
      • Must be suspended due to government actions related to COVID, or
      • Have a 20% decline in gross receipts during a calendar quarter when compared to the same quarter the previous year.
    • May use both the PPP and ERTC but cannot double benefit from both programs. Basically if you used payroll costs for your PPP forgiveness you cannot use the same dollars for the ERTC.
  • Economic Injury Disaster Loan (EIDL)
    • Extends deadline to apply to December 31, 2021
  • SBA 7a Loans
    • Loan debt relief extended 3 months (8 months for some industries).
    • Loan payments made on behalf of government here are not taxable.
  • Business Meals
    • 100% deductible for 2021 and 2022.

As we discussed this is a massive bill so things will continue to evolve and this is just scratching the service. If there are certain parts of the items discussed here that are relevant to you, definitely take some time to research further on those points.

Here are a few followup pieces that you can look into:

Tax Foundation: Congress Passes $900 Billion Coronavirus Relief Bill

CNN: Here’s what’s in the second stimulus package

CNet: Everything in the new stimulus bill: $600 stimulus, $300 unemployment checks, more

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 Do I Need to Know About Purchasing, Deducting, and Depreciating a Business Vehicle?

What Do I Need to Know About Purchasing, Deducting, and Depreciating a Business Vehicle?

As we lead up to year-end we have had a lot of clients ask about business vehicle purchases so of course we are writing a blog about it! In this article we are going to be talking about some year-end things to think about but also discussing vehicle purchases in general.

Thanks the the Tax Cuts and Jobs Act (“Trump Tax Cuts”) you can write off the cost of a vehicle faster than ever before, many times up to 100% in the first year.

When it comes to year-end purchases there are two main things you need to remember. If you want to get a vehicle deduction you need to:

  1. Own the vehicle, and
  2. Place it in service on or before December 31. “Place in Service” means drive at least 1 mile.

What Options are Available for Vehicle Deductions? 

Mileage Deduction or Actual Expenses

  • Mileage Deduction
    • This one is pretty straight forward. Get a certain amount of money per mile driven. Here is the mileage deduction rates for 2020:
      • Business: 57.5 Cents per Mile
      • Charity: 14 Cents per Mile
      • Medical and Moving: 17 Cents per Mile
      • Personal or Commuting: None
    • Note: For the business side, if you use your vehicle for business less than 50% of the time, you MUST use the mileage deduction.
  • Actual Expenses
    • For this option you take the business use (business miles divided by total miles) and multiple that by the total actual expenses for the vehicle. These can include: loan interest (if owned), depreciation (if owned), lease payment, fuel, registrations, car washing, repairs and maintenance, insurance, etc.
    • This method complicates things slightly and is where depreciation comes into play. We will be talking about depreciation for the rest of this blog.
    • Note: If you use the actual expense method you cannot also use mileage deduction. It is one or the other.

What Do I Need To Know About Vehicle Depreciation?

Depreciation is how you get the expense for the actual cost of the vehicle.

  • GVWR Matters – But what is GVWR? It stands for Gross Vehicle Weight Rating and the big thing to know here is whether it is over or under 6,000. Here are some example vehicles and their GVWR:
    • Trucks: 2020 Ford F-150 (6,100 to 7,050) — 2021 GMC Sierra 1500 (6,800 to 7,100)
    • SUV:  2020 Ford Explorer (6,160) — 2020 GMC Terrain (4,464 to 4,630) — 2020 GMC Acadia (6,001)
    • These are just examples so be sure to double check the vehicle you are purchasing and what its GVWR is. The GVWR will decide which depreciation options are available for you.
  • Bonus Depreciation
    • 100% Bonus Depreciation Available in Year 1 if GVWR of 6,001 or more.
    • GVWR of 6,000 or less, $8,000 in Year 1
  • Section 179 Expensing
    • Maximum of $1,020,000
      • Limit: $25,500 for heavy SUV’s and other vehicles
    • The total amount you can deduct under Section 179 cannot be more than taxable income of the business.
  • MACRS 5 Year Depreciation Table
    • Year 1: 20%
    • Year 2: 32%
    • Year 3: 19.2%
    • Year 4 and 5: 11.52%
    • Year 6: 5.76%
  • Luxury Passenger Vehicle Depreciation Limits:
    • Year 1: $10,100
    • Year 2: $16,100
    • Year 3: $9,700
    • Year 4, and each year thereafter: $5,760
  • Now all of that can all be a bit confusing so lets go through some scenarios to discuss how the depreciation would work.

How Do I Depreciate a New or Used SUV, Van or Pickup Truck With GVWR of 6,001 Pounds or More?

The important thing to understand here is a GVWR of 6,001 pounds or more

  • Here are the depreciation options available to you:
    • The ability to elect bonus depreciation of 100 percent in year 1
    • The ability to select Section 179 expensing
      • SUV, Crossover Vehicle or Van: Up to $25,900
      • Pickup, Cargo Van or Passenger Van: Up to $1,040,000
        • Note: A pickup must have bed of at least six feet, otherwise it would fall under the SUV 179 limit. A cargo van would also qualify under SUV 179 limit unless it has a fully enclosed driver compartment and load-carrying area and no seats behind the drivers seat. A passenger van would fall under the SUV 179 limit if it seats nine people or less behind the driver’s seat.
    • MACRS depreciation using the five-year table
    • No luxury limits on vehicle depreciation deductions.
  • Example: You buy and put in service before year-end a qualifying used SUV with a GVWR over 6,000 pounds for $50,000. Assuming it is 100% business use you can take a maximum deduction of $50,000 for the year using bonus deprecation.
    • If you did not want 100% bonus depreciation you can elect out, take $25,900 in Section 179 and then depreciate the remaining using MACRS over 5 years.

How Do I Deduct a New or Used Car or Vehicle With a GVWR of 6,000 Pounds or Less?

The important thing to understand here is basically any vehicle type with a GVWR of 6,000 pounds or less

  • Here are the depreciation options available to you:
    • Claim up to $8,000 Bonus Depreciation in Year 1
    • Then depreciation with the follow maximums per year:
      • Year 1: $10,100 ($18,100 if you factor in the $8k bonus depreciation)
      • Year 2: $16,100
      • Year 3: $9,700
      • Year 4, and each year thereafter: $5,760
  • Example: You buy and put in service before year-end a used SUV with a GVWR of 6,000 pounds or less for $65,000. Assuming it is 100% business use you can take $8,000 in bonus depreciation in year 1 and then an additional $10,100 for a total of $18,100.

Vehicle Depreciation Key Points and Take-Aways

Key things to consider and summary

  • Keep a mileage log to prove the business use. Even if it is a 100% business use vehicle you should keep a mileage log to backup the business purpose.
  • Vehicle must be in business name. If it is not, then use the accountable plan to reimburse yourself.
  • If business use is less than 50% you must use the mileage method.
  • If business use is 50% or more you can use the mileage or actual method.
  • If your new or used vehicle has a GVWR of more than 6,000 pounds then you write off 100% of your business cost with bonus depreciation as long as you buy it and place in service before year-end.
  • If your new or used vehicle has a GVWR or 6,000 pounds or less, then with a purchase price of $58,100 or more, you can write off up to $18,100 in 2020 if you buy it and place in service before year-end.

Remember, once the calendar rolls over to 2021 the majority of tax planning opportunities get tossed out the window. You have time now, take a couple hours to strategize and implement so you can ensure when you file your tax return you are paying the lease amount in taxes as legally possible!

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 Do I Need To Know About Deducting Self-Employed Health Insurance? PLUS: Last Minute Medical Plan Strategies

What Do I Need To Know About Deducting Self-Employed Health Insurance?

End of year is around the corner which brings up this idea of S Corp owner health insurance and health benefits in general for small business owners. 

When you are self-employed your health insurance premiums for yourself and your family must be treated a certain way to ensure a tax deduction.

We’re going to jump into the proper way to handle health premiums if you are self-employed and then discuss various other health options before year-end.

How do I report self-employed health insurance premiums as a sole proprietor or single member LLC?

Basically any entity structure outside of a C or S Corporation…

  • Simply deduct your self-employed health insurance on Schedule 1 of your personal tax return (Form 1040).
  • You do not take the deduction on your Schedule C.

How do I report self-employed health insurance premiums as an S Corporation owner?

There are a few hoops you need to jump through…

  • As an S Corp there are a few steps you need to take to ensure you are properly getting the deduction for your insurance premiums to the S Corp owner(s).
    1. 1) Have the S Corp Pay for the Insurance – This can be done directly out of the business bank account or you can reimburse yourself for it through an Accountable Plan. You will deduct the expense as wages on the S Corp side.
    2. 2) Gross Up W2 Payroll – You will take that insurance expense paid and gross up the payroll wages for the owner(s). If the plan is non-discriminatory, then no FICA taxes need to be withheld. This also will add to your “reasonable salary” as an S Corp owner. If you use a software like Gusto you can simply send a request at year-end to get this added in.
    3. 3) Deduct on Personal Tax Return – Finally that income that was reported to you in wages for the insurance will be deducted on Schedule 1 of your personal tax return (Form 1040).
  • Again a couple hoops you have to jump through. Essentially you get a deduction on the business tax return, include it as income on your personal tax return, and then get a deduction on your personal tax return. The net result is one deduction for it!
  • It is important to note that this treatment is only for the S Corp owners. If you have other employees you would not follow this same treatment.
  • Here is an article Gusto put together as well.

What Other Health Related Options Are Available to Small Business?

If you have less than 50 employees you are not required to offer health insurance although you can and may want to.

  • If you did not obtain a PPP loan, then you should make sure to claim the federal tax credit equal to 100 percent of required emergency sick leave and emergency family leave payments made pursuant to the FFCRA. And as long as you are doing that, make sure to obtain the employee retention tax credit (ERC) too.
  • If you have a Section 105 plan in place and you have not been reimbursing expenses monthly, do a reimbursement now to get your 2020 deductions, and then put yourself on a monthly reimbursement schedule in 2021.
  • If you want to but have not implemented a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement), make sure to get that done properly now. You are late, so you could suffer a $50-per-employee penalty should you be found out. A QSEHRA is a company funded, tax-free health benefit used to reimburse employees for personal health care expenses.
  • Claim the tax credit for the group health insurance you give your employees. If you provide your employees with group health insurance, see whether your pay structure and number of employees put you in a position to claim a 50 percent tax credit for some or all of the monies you paid for health insurance in 2020 and possibly in prior years.
  • Utilize and contribute to a Health Savings Account (HSA) if you have a high deductible health plan. Maximum contributions for 2020 is $3,550 for self-only or $7,100 for families.

That’s what we have for now as it relates to year-end health items. Be sure that if you are operating as an S Corp you are following the procedure correctly to ensure you receive a full deduction for your health insurance premiums.

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 Can I Do In My Business Before Year-End to Minimize Taxes?

What Can I Do In My Business Before Year-End to Minimize Taxes?

December 31st will be here before you know it and once the clock ticks January 1, most tax planning for 2020 is done.

With that being said, we still have plenty of time to get tax savings in before 12/31, we just need to act now.

Here are five powerful business tax deduction strategies that you can easily understand and implement before the end of 2020.

Prepay Expenses Using the IRS Safe Harbor

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

  • Under this safe harbor, your 2020 prepayments cannot go into 2022. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.
  • Qualifying Expenses: Lease payments on vehicles, rent payments (office or machinery), and business insurance premiums.
  • Example: You pay $2,000 per month in rent and would like a $24k deduction this year. On Thursday, 12/31/2020 you mail a rent check for $24,000 to cover all of your 2021 rent.
    • You deduct $24,000 (the year you paid the money).
    • The landlord reports taxable income of $24,000 in 2021 (the year they received the money).
    • A win-win situation, just don’t surprise your landlord because if they receive the money in 2020 they will need to pay taxes on that in 2020.

Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, easy strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2020. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

  • Customers, clients, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.
  • Example: A business attorney generally bills his clients at the end of each week; however, in December he sends no bill. Instead he gathers up those bills and sends them the first week of January. Bingo! They just postponed paying taxes on their December 2020 income by moving that income to 2021.
    • Caution: If you have clients that are known to have issues getting you paid in time this is a strategy you likely will not to use for them. Most importantly you want to ensure you still get paid. 

Buy Office Equipment

Planning to make some equipment purchases? Do it now instead of later.

  • With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2020.
  • Qualifying bonus depreciation and Section 179 purchases include new and used personal property such and machinery, equipment, computers, desks, chairs, other furniture, and certain qualifying vehicles.

Use Your Credit Cards

Assuming you have a business credit card, you get the deduction on the day of charge, not when paid.

  • If you are a single-member LLC or sole prop, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.
  • If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.
  • But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that happens on the date of reimbursement. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31. Look at our accountable plan article and Podcast episode for more information on this.
  • Caution: Don’t just spend to spend. Ultimately you do not want to be wasting money on things you do not need but if you plan to purchase items in early 2021 why not purchase those now via a CC to get them on the books and pay for it later.

Don’t Assume You Are Taking Too Many Deductions

The IRS code was written the way it was for a reason, so you can utilize it to your advantage. 

  • If your business deductions exceed your business income, you have a tax loss for the year. This a “net operating loss,” or NOL.
  • If you are just starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.
  • What does this all mean? You should never stop documenting your deductions, and you should always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.
  • COVID-19 changes the NOL slightly. Two opportunities come from the CARES act:
    • Allows NOLs arising in tax years beginning in 2018, 2019, and 2020 to be carried back five years for refunds against prior taxes.
    • Allows application of 100% of the NOL to the carry back years
    • Previously you could only carry forward your NOL and it could only offset up to 80% of your taxable income in any future year.

Remember, once the calendar rolls over to 2021 the majority of tax planning opportunities get tossed out the window. You have time now, take a couple hours to strategize and implement so you can ensure when you file your tax return you are paying the lease amount in taxes as legally possible!

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 Is An Accountable Plan and Why Is It Important To My Business?

What Is An Accountable Plan and Why Is It Important To My Business?

You may or may not have ever heard of this thing called an Accountable Plan. It is something we talk about often here at JETRO. Regardless of where you are at, we are going to bring you up to speed in this article!

Do you reimburse yourself for business expenses put on personal accounts or expenses that are business and personal mix? In most cases we know you use your business accounts for business related expenses, but there are always moments when you have to use cash or your personal accounts to pay for something and you want the business to reimburse you.

If you have employees, this applies to reimbursing them as well. It’s important to keep specific records for these occurrences so that reimbursements can be tax free.

What is an Accountable Plan?

A fancy way of saying “reimbursement policy”.

  • Purpose: This is for S Corporation owners that pay for business (or personal and business mix) expenses using their personal accounts.
  • An Accountable Plan is a reimbursement policy and expense reporting system that allows owners and their employees to turn in expense reports to the business for reimbursement in a way that keeps those amounts from being counted as taxable income.
  • It is important to note that if you have an expense that is 100% business related, simply run it through a business account.
  • However, if you have expenses you accidentally paid for personally or expenses that have both a business and personal use (think home office) then you will want to use an accountable plan.

Why Is It Important To Have An Accountable Plan?

Because if you reimburse yourself without an Accountable Plan, that money may be considered taxable income.

How Do I Implement An Accountable Plan?

Below are the steps for establishing an Accountable Plan.

  1. Adopt a written reimbursement policy (Accountable Plan). You can find a sample document here. Keep this in your corporate records. Important to consider:
    • The expense(s) must have a valid business purpose.
    • Owners (and employees) must be able to identify the expense with a receipt and have documentation (substantiation) that supports it.
    • You should provide documentation in a timely manner.
    • Advances can be given to provide for anticipated expenses but any unused funds or non business items must be returned.
  2. Create an accountable plan template that you can fill out to determine the reimbursement amount. You can find a sample here.
  3. Make the reimbursement payment. Pay from the business bank account to your personal (or employee’s) bank account.
    • Note: Keep all original reports and substantiation documents for your records.

Example of Common Accountable Plan Expenses

Here are some items we typically see involved in an Accountable Plan reimbursement.

  • Home Office
    • First determine business use percentage by taking square footage of office divided by total home square footage.
    • Multiply business use percentage by all related costs to determine the reimbursement amount. This could include: mortgage interest, property taxes, rent, insurance, utilities, HOA dues, repairs and maintenance, cleaning, lawn care, etc.
  • Automobile (Owned by Employee, NOT Business)
    • First determine business use percentage by taking business miles driven divided by total miles driven and be sure to keep a mileage log.
    • Then use one of two methods:
      • Mileage Method (Required if less than 50% business use): Simply take 57.5 (2020) cents per business mile.
      • Actual Method: Multiply business use percentage by all related costs to determine the reimbursement amount. This could include: loan interest, lease payment, fuel, registrations, car washing, repairs and maintenance, etc.
  • Office Expenses
    • Multiply business use percentage by the cost of: Internet, Cell Phone, etc
  • Others
    • Travel, Parking, Tolls, Business Meals, etc.
    • Any other business related item (whether full or partial) that was paid for personally.
  • Remember: If an item is 100% business use, save the extra effort and simply run it through the business account. This is specifically for business items you accidentally paid for personally or items that are business and personal mix.

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.

Coronavirus (COVID-19): PPP Forgiveness and Tax Treatment + EIDL Advance

Coronavirus (COVID-19): PPP Forgiveness and Tax Treatment + EIDL Advance

We wanted to give you an update to the PPP forgiveness as well as tax treatment of both the PPP and EIDL.

With another Coronavirus relief bill possible to happen at some point, know that there may be changes to the way things currently stand.

With that being said, what we outline here is the way things are today but we will be sure to let you know if anything changes.

Paycheck Protection Program (PPP) Forgiveness

The SBA is accepting forgiveness applications for the PPP loan.

  • This process must be done through the bank you received your loan from. Be sure to reach out to your banker to ensure they are accepting the forgiveness applications currently and exactly what they need from you. They will more than likely give you the form along with a list of requested docs they need to complete the process.
  • There are three application types: Form 3508 requires the most calculations, Form 3508EZ requires less calculations and Form 3508S requires close to zero calculations. Lets dive into these:
  • PPP Forgiveness Application – Which form should I use?
    • Form 3508S – Simplified form for those with a loan less than $50,000. In this form you do not need to “show your math” you simply do the computation of the forgivable amount on your own and and report it on the application. If you are using this form you are NOT subject to the salary or full-time equivalent reduction requirements.
    • Form 3508EZ – Available to those that are self-employed with no employees OR those who did not reduce employee salaries by more than 25% and did not reduce employee hours OR those who reduced business activity due to COVID health guidelines and did not reduce salaries by more than 25%.
    • Form 3508 – For those who do not qualify to use Form 3508S or 3508EZ. This form is the most complicated,requiring various calculations around eligible costs, salary or hour reductions, etc.
  • Once the bank receives the application they have 60 days to review it and then the SBA has another 90 days to review.

Paycheck Protection Program (PPP) Tax Treatment

PPP Forgiveness is not taxable but… expenses are not deductible.

  • PPP forgiveness does NOT trigger cancellation of debt meaning that the actual forgiveness of the loan is not taxable.
  • However, here is where things get a little sticky. The expenses for the items that are being forgiven (payroll, rent, utilities, etc) are not deductible per the IRS.
  • Example: You got a PPP loan for $40k, used all of the funds for payroll, and then got the full loan forgiven. You do not need to report income of $40k forgiven, however the $40k you spent on payroll (or other eligible costs) for that forgiven amount is not deductible.
  • This may come as a surprise to some and may be a little frustrating. This is one item that has been addressed in various relief bills that have come to the table but nothing in this area has been passed yet. There is a lot of push for the IRS to reverse this and allow expenses for the items forgiven.

Economic Injury Disaster Loan (EIDL) Advance Tax Treatment

The EIDL was a loan offered by the SBA for businesses suffering from the pandemic. As part of the EIDL loan there was an advance that was available which was technically a grant, up to $10k in value.

  • Since this advance is considered a grant it is not part of the loan that needs to be repaid. Many businesses just received the grant, with no additional loan.
  • There is still no formal guidance from the IRS on whether this specifically will be taxable, however we are assuming it will need to be included in your taxable income.
  • Previously they have made it clear that forgiven SBA loan amounts need to be included as other income.
  • For the time being, assume the grant will be taxable and should something change, great!

Hopefully that is helpful and gives you a good idea on where things stand as it comes to both the PPP loan and the EIDL advance.

As mentioned there have been talks of an additional COVID-19 relief package being passed which may very well change some of the information addressed here however as of now nothing has been agreed upon or passed by Congress.

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 Is a 1099-NEC and What Do I Need To Know About 1099s?

What Is a 1099-NEC and What Do I Need To Know About 1099s?

If you have been in business for at least a year you have heard of this thing called a 1099. You may have done nothing about them, you may not know what it means but others tell you to send one, or you may being doing them religiously every year and know they can be pain.

Wherever you are in that process we are going to break down everything you need to know about 1099s along with the new Form 1099-NEC for 2020.

What is Form 1099?

A 1099 is an informational filing form used to report non salary income to the IRS.

  • There are over 15 different types of 1099 forms that are used for various purposes.
  • Examples of other 1099 Forms:
    • 1099-INT: Financial institutions are required to file this form if they pay you more than $10 in interest during the year.
    • 1099-K: Issued by third-party payment processors (Ex: Credit card, PayPal, etc) if payments over the year total $20k or more.
    • 1099-DIV: This form reports distributions, such as dividends, capital gain distributions, etc.
    • 1099-B: Happens when you sell stock, showing the date of the sale, cost basis, etc.
    • 1099-G: Used to report unemployment compensation, state tax refunds, etc.
    • 1099-R: Reports a distribution from a retirement plan.
  • The most common that we see business owners needing to deal with are the 1099-MISC and 1099-NEC so that is what we are discussing on this blog post.

What is a 1099-MISC vs 1099-NEC?

The 1099-NEC is new starting tax year 2020. Before this new form, contractor payments were included on the 1099-MISC.

  • 1099-NEC: New form that is used to report independent contractor income. NEC stands for “non-employee compensation”. Prior to 2020 this activity would have been reported on Box 7 of the 1099-MISC.
  • 1099-MISC: This form has not gone away, they have just removed the non-employee compensation from it and moved that to the 1099-NEC.  The 1099-MISC will still be used for the other items including: rent, royalties, prizes/awards, etc.
  • Basically if you were use to filing (or receiving) a 1099-MISC for contractors that has just moved to a 1099-NEC. Still required of course, just a new form.
  • 1099-MISC from IRS Website
  • 1099-NEC from IRS Website
  • IRS Instructions for Both 1099-MISC and 1099-NEC

When Do I Need to File a 1099-NEC?

If you paid a contractor $600+ in a year.

  • If you paid a contractor $600+ in total for a year you would need to send them a 1099-NEC. This could include an individual, company, vendor, etc. Note: This is an accumulative, so if you send three payments of $250 for a total of $750 throughout the year, a 1099-NEC would be required.
  • Exceptions (1099-NEC NOT required to be filed):
    • Payments to C or S Corporations
    • Employees – You should be submitting a W-2 for all employees.
    • Payments for merchandise, freight, or storage.
    • Payments made via Credit Card or PayPal – Instead the merchant process would report those to the vendor via 1099-K.
    • Note: The C or S Corporation exception does not apply for payments to attorneys for legal services.
  • The person that is paying the contractor is the one that files the 1099-NEC. Here is the typical process:
    • Step 1 Collect a W9 from all contractors you pay (even if under $600, as it might get above that with future payments).
    • Step 2 – If a 1099-NEC is required (see notes above) then you as the business would prepare it. All information needed to prepare a 1099 would be found on the W9.
    • Step 3 – Send a copy of the Form 1099-NEC form to the contractor.
    • Step 4 -File a copy of the Form 1099-NEC with the IRS.
  • Note if you are contractor that has received a 1099-NEC you must report this income (of course) on your tax return. The IRS gets a copy of the same form and will match to ensure they see that income reported.

When Is The 1099-NEC Filing Deadline?

1099-NEC’s must be filed with the IRS and sent to the recipient by January 31st of the following year.

 

Note: If January 31st falls on the weekend it would be the next business day.

What Are The Penalties For Not Filing A 1099-NEC?

This depends on how late you are…

  • File within 30 days past deadline: $50 per
  • File more than 30 days late but before August 1st: $110 per
  • File after August 1 or not at all: $270 per
  • Intentional Disregard: $550 per

1099-MISC and 1099-NEC Summary

This article focuses on these two 1099 forms specifically, if you are looking for more information on other variations of 1099 forms, reach out to our team.

  • Starting in 2020 independent contractor or non-employee compensation will be filed on 1099-NEC instead of 1099-MISC.
  • Be sure to always grab a W9 from all independent contractors you pay. You never know when you may need it.
  • Forms are due to both the IRS and contractor by January 31st.
  • Total payments throughout the year totaling $600 or more trigger the form requirement, unless certain exceptions are met.
  • Need help filing? Reach out to us or check out the software we use, Track1099.

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.