Writing Off Start-Up Costs

One of the biggest benefits of owning your own business is being able to write off certain expenses to lower your annual income tax liability. When done right, writing off business expenses, especially when they are investments in things or experiences you would invest in even if you did not have your business, is a lot like having the government subsidize the things you want to do in the world.

If you are starting a business, the good news is you can typically write off costs for starting, launching, and organizing your business. But you may face certain restrictions, and you need to know how to write off those expenses in a way that will benefit your business. To learn more, let’s take a look at the most common startup expenses businesses may write off for tax purposes.

Starting Expenses

You can write off many research expenses incurred when starting a business. Surveys, feasibility studies, market research, and similar costs are valid startup write-offs.

Launch Expenses

Many costs incurred while executing your business launch—like recruitment and training costs—can be deducted. Conversely, equipment purchases cannot be deducted because they’re subject to rules for deducting depreciation.

Organization Expenses

You can also write off the costs for creating your business entity. These typically include legal fees, accounting fees, and expenses for organizational meetings.

Now that you have a better idea of the type of startup expenses you can write off let’s go over how those expenses should be deducted.

The IRS puts a cap on first-year startup deductions at $5,000 and an additional $5,000 for organizational costs. But, if your startup expenses exceed $50,000, that first-year deduction cap will be reduced by the costs that exceed $50,000. Thus, if your startup expenses equal $54,000, your first-year deduction is reduced to $1,000. You would then lose the deduction entirely once your startup expenses exceed $55,000. In your second year, the rest of your expenses can be amortized and deducted in equal installments over 15 years.

If your business never gets off the ground and running, your startup costs could be considered personal costs and therefore non-deductible. In certain cases, however, these costs could be regarded as capital losses, so always consult with a tax advisor to ensure you are taking advantage of every tax break available to you.

As you can see, there are some big risks when it comes to identifying and allocating your expenses properly to maximize your deductions and minimize your tax liability. The decisions you need to make are important and shouldn’t be executed without first consulting with a trusted advisor, such as a Creative Business lawyer®. If you need tax help for your startup, start by sitting down with us. As your Creative Business Lawyer® we are experienced in helping startups achieve success through careful financial and legal planning. We will guide you to  establish sound legal, insurance, financial, and tax systems for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

This article is a service of Gratia P. Schoemakers, Business Attorney. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

How to Choose the Right Ownership Structure for Your Business

Many Americans are starting their own businesses these days, and may be confused about exactly what the best ownership structure is for their business.  The answer is, it depends on the type of business, how many owners are involved, and the financial situation for each owner.

Here are some considerations when deciding which structure to choose for your business:

Risk.  If your business involves some degree of risk to the products or services you provide, then a business structure that protects owners from personal liability for business debts and claims – a corporation or a limited liability company (LLC) — may be a good choice.

Taxes.  What the IRS calls “pass-through” entities – LLCs, sole proprietorships, and partnerships – require business owners to report business profits and losses on their personal tax returns and pay taxes on net profits.  Corporation owners do not report corporate profits (their share) on their personal returns; the corporation itself pays taxes, at corporate tax rates, on retained earnings.  Although having a corporation may add more tax reporting paperwork, it can also benefit some businesses since corporate tax rates are usually lower than the individual rate.

Complexity.  LLCs and corporations are more complex entities than sole proprietorships or partnerships, generally requiring more time and money to create and maintain.  LLCs and corporations also require meticulous record keeping and the performance of other duties not required by sole proprietorships or partnerships.

Whether you’re starting or already running a business, the best time to hire a lawyer is before you need one. Having a business attorney that understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Is Your Small Business Being Audited? Stay Calm and Read On

Audits can happen to any business. Small businesses are no exception. The IRS can conduct an audit on your business when your tax filing contains questionable deductions, your business is of particular interest to the IRS or by random selection. Contrary to popular belief, being audited doesn’t necessarily mean you did anything wrong. And for those who are prepared, it doesn’t have to be the end of the world.

If your small business is being audited, don’t panic. If you stay calm and seek expert help, you can get through your audit easily.

The key to surviving your audit is all in your response. Audits vary in their complexity. The IRS conducts three types of small business audits, each of which call for a different course of action. Here’s what you need to know:

Office audits are typically conducted on small businesses (usually sole proprietors, and a great reason to incorporate your business properly) with revenues under $500,000. The IRS will mail you a notice of the audit, and you will meet with an IRS agent to answer clarifying questions or provide additional documentation. It is highly recommended that you bring a CPA, a tax attorney or an enrolled agent with you when answering any questions.

Field audits are a little more thorough. An IRS agent will call you and arrange a time to come to your business office. Again, you should always have an approved representative with you when meeting with IRS agents, especially if they are going to be at your place of business. Your representative will serve as your advocate and help ensure the agent’s inquiries are limited only to relevant matters.

Taxpayer Compliance Measurement Program (TCMP) audits are much more rigorous and involve a line-by-line review of your return. Be prepared to provide supporting documentation for every entry. This is incredibly time-consuming, but an accountant can arrange an extension, help you stay organized and advocate on your behalf.

Regardless of the type of audit your small business faces, you can prevail if you remain calm, immediately seek guidance and comply with all the IRS’s requests. Ask for an extension as soon as you get your notification to allow extra response time, and take your time gathering all the documentation you need. Most importantly, do not go it alone.

When facing action by the IRS, it is easy to panic. But finding a trusted professional who can guide you through audits and other administrative headaches is invaluable in times of need.

That’s why we recommend you have a Creative Business Lawyer® by your side to help you face the many stresses of owning a business with ease. We are experienced in helping small business owners expeditiously deal with audits so you can direct your time and energy toward business growth and potential.

If you want to refocus your priorities, begin by sitting down with us as your Creative Business Lawyer® to discuss how you can implement solid legal, insurance, financial and tax systems that will streamline your business operations and minimize your risk of being audited.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial and tax systems you need for your business. Call our office today to schedule.

 

Doing Your Homework: How to Maximize Your Home Office Deduction

If you work from home, you may be eligible for tax deductions on part of the rent or mortgage payments you make, but you may be afraid this puts you at risk of tax audit. And, rightly so. Calculating your home office deduction properly can minimize your taxes and keep you out of risk.

The IRS provides two methods with which you can calculate your deduction: the simplified method and the regular method.

Assuming your home office space is regularly and exclusively used for your business operations, you can choose the method that will give you the biggest deduction. Let’s take a look at these methods to see what kind of benefit they can provide the business owner.

The simplified method is based on the square footage of the office space in your home. To determine your deduction, simply multiply your home office square footage by $5. For example, if your allowable home office square footage is 60 sq. feet, you would multiply that by 5 to arrive at a deduction total of $300.

This method is as easy as it gets and makes calculating your home office deduction a breeze.

The regular method is based on adding up expenses you’ve paid to maintain that space, such as mortgage payments, rent, utilities and internet access. The percentage of your home you regularly and exclusively use for your home office will be another variable. To use this method, you will have to do some math, but the total deduction may be higher than it would be using the simplified method.

To maximize your home office write-off, you should run your numbers through both methods. Determine which method will maximize your home office deduction and use accordingly.

One other option, if you rent your home, is to enter into two separate lease agreements with your landlord. One lease with you personally for part of your rent, and the other lease with your business, for the part of your rent that is specifically for the space that is used for your business. In that case, you would not take a home office deduction, but instead categorize your business rent expense as office rent on the expenses part of your tax return.

Not sure which is best? Contact us to discuss options for how we can support you in maximizing your tax deductions with advice from a tax advisor you can trust, with our support.

It’s important consider these opportunities carefully when running a business out of your home. If you want to ensure you are getting the most out of your home-based business, start by sitting down with a Creative Business Lawyer®, like us. We can help you maximize the benefits and minimize the liabilities of operating your business out of your home and ensure your business operates at its peak in any location.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial and tax systems you need for your business. Call our office today to schedule.

Are You Scrambling to Get Prepped For Your Taxes? Here Are Some Tips

While tax day here in the United States is not until April 15, if you own a business and you intend to follow the rules, you’ve already started scrambling.

1099s were due to your independent contractors February 1, and if you are filing an S or C-Corp tax return, it’s due March 15, and then of course personal returns are due April 15.

That means you should have everything to your bookkeeper and tax advisor right around now.

If you don’t, or you are feeling stressed about the whole tax time scenario, here’s where we can help.

  1. Get set up with a great bookkeeping team that can meet with you each month to categorize your expenses so you aren’t scrambling to do that at year end or the start of a new year when you should be focusing on business growth;
  2. Ensure that your bookkeeping team never pays anyone more than $600 for the year without collecting a W-9 and then you won’t have to hustle at the beginning of the year to track down the people you paid so you can send them 1099s;
  3. Meet with your tax advisor during the fourth quarter so you can make wise decisions about your income and expenses (we can attend this meeting with you so you ask all the right questions and so we can support in execution of the strategy), and if you’ve been having monthly bookkeeping meetings with your bookkeeper each month, your bookkeeper can submit your books to your tax advisor in early January to prepare your return.
  4. Review your return no later than mid-February so you have time to look for anything that seems off before you sign.

Preparing for taxes doesn’t have to be difficult, if you have good “financial hygiene” practices throughout the year. If you don’t, make this the year you get them set up. If you are ready to do so,  start by sitting down with us. As your Creative Business Lawyer® we can help you identify your needs and wisely choose a bookkeeper and tax advisor who will make tax time a breeze for you so you can stay focused on innovation, income and creating a great product or service for your clients and customers.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial and tax systems you need for your business. Call us today to schedule.

 

Tax Lessons for Your Business, Courtesy of the Clintons!

In anticipation of the election and in response to public demand, Hillary and Bill Clinton have released their 2015 federal tax return. Tax returns have been a hot topic this year, as candidate Donald Trump continues to refuse to release his tax returns.

What can you learn from reviewing the Clinton’s tax returns about how to set up your business to save money on your own taxes?

First and foremost, plan ahead and plan well, and this is the time of year to do it. If you have not already scheduled your year-end tax planning session with a CPA you love, contact us for a referral.

And if you are on one of our top-tier VIP membership programs, we’ll even attend the meeting with you.

So, what can you learn from the Clinton’s returns to save on your own taxes?

A few of the things they overlooked (or chose not to utilize due to potential public scrutiny or political backlash), that you can benefit from:

  1. Incorporate your business and have it taxed as an S-corporation, then pay yourself a small, but reasonable salary and take the rest of your income via profit distributions, saving big on self employment taxes.

    Most self-employed business owners are missing this major tax saving opportunity, including the Clintons (which cost them over $348,000).

    If you are not already incorporated and using the S-corporation tax election and paying yourself a small but reasonable salary, contact us to help you get set up.

  2. Maximize your retirement plan contributions each year, either to an IRA or self-employed 401k.

    Not using a plan like this, likely cost the Clinton’s more than $40,000. But, it’s not too late for you to set up a retirement plan that will allow you to defer taxes on income you are saving for retirement, if you begin planning now.

    Once the end of the year has come and passed, it will be too late for this year. So, contact us to support you to get set up with the right kind of retirement plan for you and your business.

  3. Consider how you handle charitable contributions.

In 1998, the New York Times ran an article that showed how the Clintons could have structured book royalties from “It Takes a Village” slightly differently (sending the royalties directly to charity, rather than to Hillary Clinton first, limiting the total deduction to just half her income, would have netted the charities an additional $32,000 that went to the government instead).

If you have written a book or created another service or product with the proceeds going to charity, ensure that the income flows directly to the charity, and not to you. We can help you with this as well.

It’s always best to consult with an experienced legal and tax advisor to maximize the tax savings for your business.

As a Family & Business Lawyer we can help you learn about the various options available so you can maximize the beneficial tax treatment of your business under federal and state law.

This article is a service of Gratia P. Schoemakers, Family & Business Lawyer. We offer a complete spectrum of legal services for businesses and can help you structure your operations for success.

Strategy Inside: Now is the Time to Plan to Reduce Your 2017 Tax Bill

While it’s only October or November when you are reading this, now is the time to plan to reduce your tax bill for 2017.

By December, it’ll likely be too late. And by the time January comes around, you will have likely missed out on your best tax saving opportunities.

So, how can you best start planning now?

First, call your tax advisor and book an appointment to review your projected revenues for the year. If you do not have a tax advisor you love, contact us and we can refer you to someone we trust for your type of business.

If you are part of one of our ongoing advisory relationships, inquire about having us attend the meeting with your tax advisor with you. If you aren’t part of an ongoing advisory relationship with us yet, this could be the time to get started.

To prepare for the meeting with your tax advisor, make sure your year to date profit & loss (P&L) is up to date, all income and expenses are properly categorized, and prepare a projection of anticipated income through the end of the year.

Then, when you meet with your tax advisor, ask her or him to prepare a projection of anticipated tax due based on your current expected annual income and expenses and to provide at least two alternatives with tax savings strategies built in, such as funding a retirement account, deferring expenses, accelerating income or other strategies that may be unique to your life and business.

Finally, once you receive that back, and ideally you will receive that before December 1, contact us so we can support you in making the right strategic choices for your business before the end of the year.

This article is a service of Gratia P. Schoemakers, Family & Business Lawyer. We offer a complete spectrum of legal services for businesses and can help you structure your operations for success. One of our primary services is a LIFT Audit™,  in which we review all of the legal, insurance, financial and tax systems in your business, identify any holes that are costing you money and keeping you from earning more.  Call us today to schedule a time to get your legal, insurance, financial and tax systems in order!

Broaden Your Business Market Landscape: Venture Overseas!

Today, we live in a truly global economy, so much so that it is often natural to consider expanding by doing business overseas. The Internet helps make this quicker and easier than ever before. Before moving to global operations, however, it is important to consider how that decision will affect marketing, shipping and delivery, tax, and intellectual property issues.

Marketing

Existing online marketplaces provide ready-made web-based storefronts for small businesses that wish to expand their operations. And although you can keep your costs down by using your current website to market your products or services, you should first obtain expert advice about many issues in the markets you wish to target:

  • The obvious, such as language and cultural sensitivities;
  • The basics, such as website layout, colors, and shapes; and
  • What is effective, in terms of preferred search engines and terms.

Shipping and Delivery

Shipping and delivery issues are also present for small companies who wish to do business overseas. It is not uncommon for carriers to subcontract for various aspects of delivery, and customs issues can be tricky to navigate. You will need to find a reputable business partner with the following characteristics:

  • The ability to track packages;
  • A proven track record of on-time operations; and
  • The capability to uplevel operations fast if necessary.

Also make sure your customers understand how items will be delivered, as well as who pays for delivery. Currency converters can be helpful if the customer will carry the cost of delivery.

Taxes

As with delivery charges, it is important that your customers understand who is responsible for sales taxes, and you need to understand potentially applicable value-added taxes. The rules vary across markets, so it is critical that you find a tax expert with specific knowledge about the jurisdictions in which you wish to operate.

Intellectual Property

One of the most difficult issues to deal with when you are considering expanding overseas relates to intellectual property. Picking up additional potential markets will mean nothing if someone steals your ideas or processes and undercuts your brand. Unfortunately, protecting your intellectual property can be very difficult and requires the counsel of highly specialized experts familiar with the laws within relevant jurisdictions.

Contact us if you would love to consider expanding overseas. We can help, or refer you to the right people who can.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. One of our primary services is a LIFT Start-Up Session,™ in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate.  Call us today to schedule a time to have a conversation!

Partnerships and LLCs, Take Heed of New Tax Law

Beginning with tax year 2018, all partnerships and limited liability companies (LLCs) taxed as partnerships will be affected by a new federal tax audit law. In 2015, the Bipartisan Budget Act repealed the earlier audit system, known as TEFRA, and replaced it with entirely new taxation audit provisions. It is important for those affected by this change to address certain issues under the new system by taking affirmative action now.

Who Will the Law Affect?

The new law will affect many small business owners, particularly those who are in a partnership or are members in an LLC that is taxed as a partnership.

What Will the Law Require?

Several provisions are similar to the old law, but there are at least two major differences which will impact many small businesses.

The first big change relates to how tax deficiencies are treated. Under the old system, necessary adjustments due to tax deficiencies flowed through to the partners themselves. Under the new law, tax deficiencies will be imposed on the partnership or LLC. As a result of this new provision, partners or LLC members could be responsible for tax deficiencies in prior years, even if they did not own any interest in the company during the tax year in question.

The IRS will allow some small partnerships—defined as those with fewer than 101 partners of certain types— to opt out of the new law. General taxpayer audit laws will apply to those who opt out, provided the election is made every year.

The second major change deals with the IRS’s contact requirements for partnerships and LLCs. Under the old law, partnerships were required to designate a partner to deal with tax matters. The new law provides that partnerships must instead designate a partnership representative, who need not be a partner at all. If the partnership fails to designate a representative, the IRS has the power to appoint one.

The partnership representative’s role is to serve as the main point of contact in audit matters. The representative must have the power to bind the partnership, as well as the individual partners, in an audit.

How Can I Be Ready?

Partnerships and LLC members must act quickly to protect their own interests, as well as those of their businesses. This complicated new law could significantly impact the personal liability of partners or members who do not restructure their business agreements to account for its provisions. Contact us for support if you are set up as either an LLC or a partnership. We can help.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer® One of our primary services is a LIFT Start-Up Session,™ in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate.  Call us today to schedule a time to get started!

 

 

 

 

Important Deadline March 15 re Your Business Entity That Could Save Thousands on Next Year’s Taxes

If you have a newly incorporated LLC or Corporation, you only have until March 15 to elect S-Corporation status for the 2016 tax year, using IRS Form 2553.

This is important because there could be significant tax consequences to you if you do not elect for S-Corporation status.

As the owner of an LLC interest, not taxed as an S-Corporation, you will report your share of LLC income on your personal tax return as if you were a sole proprietor or a partner of the business. That means you will pay self-employment taxes on your full share of the LLC income for the year.

In contrast, if you set your business entity up to be taxed as an S-Corporation and pay yourself a reasonable, but small salary, you will only pay self-employment tax on your salary and the rest of the business income can be paid to you in the form of distributions that are not subject to self-employment tax.

This one decision can save you thousands or even tens of thousands of dollars on your taxes next year.

This decision is only one of many decisions that significantly impacts how much money you keep in your bank account when it comes to your business.

If we can help you with this decision, or any other decisions when it comes to the legal, insurance, financial and tax parts of your business, give us a call.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer.® We offer a complete spectrum of legal services for businesses and can help you with your business tax issues. We also offer a LIFT Start-Up Session,™ which includes employment structuring, financial, and tax systems you need for your business. Call our office to schedule your appointment and ensure your business is set up for success.