XLinkedInFacebook

About Office Staff

The team at SWC simplifies complex tax issues, helps you build and leverage your wealth to enhance your personal and financial freedom, and offers unparalleled peace of mind at every step along the way.

Hiring Your Kids to Cut Taxes, Part 6: Small Business Guide to Reducing Your Tax Burden Legally

By |2020-10-08T20:49:28-07:00August 25, 2020|Categories: Small Business Guide to Legally Reducing Your Tax Burden, Uncategorized|Tags: , |0 Comments

Do you ever get the feeling that your kids are taking you to the cleaners? We’re not talking about the cost of necessities such as daycare, living space, food, school supplies, and clothing. It’s those discretionary expenses, like cell phone service, sports leagues, music lessons, games and entertainment, outings with friends, and car and driving expenses.

If you’re paying for all that, you’re doing so with after-tax dollars. And you should be putting the brakes on that habit immediately if not sooner.

As a small-business owner, you’re allowed to hire your family members (including children,  grandchildren, parents, siblings, nieces, nephews) to work for your business, pay them a fair and reasonable wage, and then have them pay for their own bells and whistles. In addition, they can sock away some of that money to use later for college or to buy a car, pay for their own lavish wedding, start a business or support the start-up costs associated with starting a family, retire, pay for college or whatever else they decide to do when they’re ready to do it.

Even better, you won’t have to pay income tax or self-employment tax on the wages you pay them, and chances are good, in the case of your children, that neither will they. Also, when you hire your own children to work for you, the wages you pay them are exempt from FICA (Social Security and Medicaid) withholdings and federal unemployment (FUTA) tax unless your business is incorporated. Some restrictions apply, of course, but this tax loophole is perfectly legal and something that all small-business owners with children should consider.

So, How Does This Work?

Here’s how it works: You hire your child and the business pays them. Their first $12,400 of earned income is taxed at zero. That’s because $12,400 is the standard deduction for a single taxpayer, even if you claim them as your dependent. Their next $9,876 of taxable income is taxed at just 10 percent.

Here are the basic rules: Continue reading… Continue reading… Continue reading…

Leveraging the Tax Savings Power of Retirement Accounts, Part 5: Small Business Guide to Reducing Your Tax Burden Legally

By |2020-10-08T20:50:40-07:00August 20, 2020|Categories: Small Business Guide to Legally Reducing Your Tax Burden|Tags: , , , , , , , |0 Comments

Some of the most powerful tools for cutting taxes are tax-deferred retirement accounts, which enable you to invest money tax-free now, then pay taxes on it when you withdraw it in your retirement years. As a small-business owner, you can take advantage of several different types of tax-deferred retirement accounts, including individual retirement accounts (IRA), a simplified employee pension (SEP), a Savings Incentive Match Plan for Employees (SIMPLE) IRA, 401(k), Defined Benefit Plans, and even the option of a hybrid plan. Roth IRAs and permanent life insurance plans are two more tools that can benefit you when planning for retirement.

Many people have one or more retirement accounts, which is great, but few have a retirement plan — a highly specific approach for using retirement accounts to maximize their tax savings and achieve their retirement goals. Without a properly crafted retirement plan in place, mistakes are more likely, such as choosing an account type with a contribution limit that’s too low, exposing yourself to high taxes when you retire, or paying too much in account/plan management fees.

For example, depending on your income and the type of retirement account, your contribution limit varies considerably. If you earn $90,000, for example, you can contribute $16,200 to a SIMPLE IRA, or $22,500 to a simplified employee pension (SEP), or $42,000 to a 401(k). (Note: That’s before any catch-up contributions you can start making at the age of Continue reading… Continue reading… Continue reading…

Deducting a Percentage of Your Qualified Business Income, Part 4: Small Business Guide to Reducing Your Tax Burden Legally

By |2020-10-08T20:51:38-07:00August 6, 2020|Categories: Small Business Guide to Legally Reducing Your Tax Burden|Tags: |0 Comments

The 2017 Tax Cuts and Jobs Act (TCJA) lowered the top tax rate on C corporation income from 35 percent to 21 percent. This is considerably lower than the top rate of 37 percent on pass-through income from sole proprietorships, partnerships, and S corporations.

Cutting taxes for C corporations without also cutting taxes for small businesses, would probably have caused a stir with small-business owners justifiably exclaiming, “No fair!” To balance the scales, the TCJA allows small-business owners to deduct up to 20 percent of their qualified business income (QBI) from their taxable income for the year, calculated on an activity-by-activity basis.

This is a major change for most small-business owners, but it may leave you wondering what QBI is, how this change is likely to impact your taxes, and what the heck “calculated on an activity by activity basis” means? In this post, the fourth in our Small Business Guide to Reducing Your Tax Burden Legally series, we bring you up to speed on the QBI deduction.

Understanding the Different Income Types

The tax code has always distinguished different types of income and taxed them differently. TCJA created an entirely new type of business income, called qualified business income (QBI), and taxes it in a unique way. In this section, we define and compare the different types of income, including QBI.

Ordinary income

Ordinary income is what you earn from your work or your business. If you draw pension or IRA income, that’s ordinary income too. Here are a few key points about ordinary income:

  • Ordinary income is taxed at ordinary income tax rates.
  • Any salary you earn from your small business is ordinary income.
  • If your small business is a sole proprietorship, your entire net profit from the business is taxed as ordinary income. (You can change your business entity from sole proprietor to S corporation to reduce the amount taxed as ordinary income. See Part 3 in this series to find out more about business entities.)
  • You pay taxes on net So, for instance, if you file as married, you earn a salary from a job, and should your spouse lose money in a business, your spouse’s business loss reduces your net income (subject to tax) as a married couple.

Investment income

Investment income is money you earn from your investment portfolio, and different types of investment income are taxed at different rates: Continue reading… Continue reading… Continue reading…

Selecting a Business Entity — Small Business Guide to Legally Reducing Your Tax Burden, Part 3

By |2020-10-08T20:52:41-07:00July 30, 2020|Categories: Small Business Guide to Legally Reducing Your Tax Burden|Tags: , , , , , , , |0 Comments

Welcome to Part 3 of our 12-part series on how to legally reduce your income tax burden. Here, we describe the five ways you can choose to organize your small business, and then we provide guidance on how to choose the best business entity for your business in the current environment.

Here’s a common scenario to get us started. You set up a limited liability company (LLC) or S corporation for your small business, and now you are all set in terms of protecting your personal assets from lawsuits and minimizing your tax burden, right?

Not so fast.

One of the most expensive mistakes small-business owners make is choosing the wrong business entity — the legal/financial structure within which the business operates.

Most business owners start as sole proprietors. Then, as they grow, they establish an LLC to help protect their personal assets from any lawsuits filed against the business. Many of these same business owners make the common mistake of assuming that an LLC allows them to file their taxes as a corporation and use that filing status to save on taxes. The fact is that an LLC is a legal entity, not a tax entity. Operating a sole proprietorship as an LLC won’t save you any money in taxes.

You want a business entity (or more than one business entity) that not only provides legal protection, but also maximizes your Continue reading… Continue reading… Continue reading…

Audit-Proofing Your Tax Return – Part 2 of Small Business Guide to Legally Reducing Your Tax Burden

By |2020-10-08T20:53:36-07:00July 22, 2020|Categories: Small Business Guide to Legally Reducing Your Tax Burden|Tags: , , , |0 Comments

Welcome to Part 2 of our 12-part series on how to legally reduce your income tax burden. Here in Part 2, we going to allay fears you may have of being audited by the Internal Revenue Service (IRS).

While failing to plan ahead for taxes (the subject of Part 1 of this series) is probably the No. 1 mistake small business owners make, letting the threat of an IRS audit discourage you from claiming certain deductions or credits is a close second. Here at Stees Walker & Company, we encourage clients to claim every legally allowable deduction and credit. Failure to do so leaves money on the table — our clients’ money — and that’s something we just can’t tolerate. The fact is, your chances of being audited are slim.

However, we encourage you to assume you will be audited. What?

On its surface, that advice may strike you as a contradiction, but it’s really not. Assuming you will be audited simply calls for documenting all income and expenses, so in the event your business is audited, you have the documentation needed to prove your case. In other words, respect the IRS, but don’t fear it. Today’s historically low audit rates make it pay to be aggressive in claiming deductions and credits, but they is no excuse for careless accounting and record-keeping.

Afraid to Raise Red Flags?

As a taxpayer, chances are good that, at some time, you chose not to claim a deduction or did not claim the maximum you’re allowed because you were afraid “it would raise a red flag.” The fact is, audit rates are so low, most legitimate deductions simply aren’t likely to raise any red flags. Audit rates hit an all-time high in 1972 at one for every 44 returns the IRS received. But lately they’ve dropped to historic lows. According to the IRS, for 2019, the overall audit rate was just one in every 220 returns, or 0.45 percent of all returns.

Roughly half of those hinged on one issue — the Earned Income Tax Credit for low-income working families. The rest of the audits focused mainly on returns filed by small businesses — especially sole proprietorships and businesses that have plenty of opportunities to hide income. Examples? Single location restaurants and laundromats. (The IRS publishes a whole series of Continue reading… Continue reading… Continue reading…

Small Business Guide to Reducing Your Tax Burden Legally — Part 1: Tax Planning

By |2020-10-08T20:54:48-07:00July 16, 2020|Categories: Taxes|Tags: , , , , , , |0 Comments

Welcome to Part 1 of our 12-part series on how to reduce your tax burden legally. Here in Part 1, we address the first and most important step — tax planning. As the old saying goes, “Failing to plan is planning to fail,” and this is especially true when you are trying to reduce your tax burden legally.

Consider for a moment the first time you drove a car? If you were doing it right, you spent far more time looking where you were going than where you came from. You don’t drive forward staring in the rearview mirror. Unfortunately, that’s how most tax “specialists” are geared. They spend so much time looking back at last year’s finances that they rarely advise their clients to look forward.

They can tell you all about what you earned and spent last year and how much you owe in taxes as a result, but they rarely think to tell you what you should do today to save on taxes next year. Even the few who do tell their clients what to do rarely tell them when or how to do it.

Taking a proactive, forward-looking approach with tax planning can simplify next year’s taxes and save you a considerable amount of money, especially if you’re a small-business owner. Tax planning provides small-business owners with two valuable benefits:

Benefit No. 1: First, tax planning is a key component in your financial protection. As a small to medium size business owner, you have two ways to increase your net profits: financial offense (earning more) and financial defense (spending less). For most small-business owners, taxes are the biggest expense, so a big part of playing financial defense involves reducing the tax burden. And you do that through savvy tax planning.

Benefit No. 2: Second, participating in tax planning almost always ensures results. You can spend a huge amount of time, effort, and money promoting your business with no guarantee of achieving positive results. In contrast, every tax-savings initiative you implement guarantees a return on your investment. But those guaranteed results start with planning. For example, you can’t deduct medical expenses paid out of a medical expense reimbursement plan if you haven’t set up such a plan ahead of time.

To get this series started, indulge us for a moment as we cover how the tax system works here in the United States of America.

Understanding How the Tax System Works

A general knowledge about how the tax system works lays the foundation for understanding specific tax-savings approaches we present later on in this post. Here’s a graphic demonstrating how the tax system works: Continue reading… Continue reading… Continue reading…

Introduction to Small Business Guide to Legally Reducing Your Tax Burden

By |2020-10-08T21:00:37-07:00July 7, 2020|Categories: Business Taxes|Tags: |0 Comments

If you’re like most small-business owners, you launched your business with a great idea for a product or service and a passion for delivering it to consumers or other businesses. You were probably unaware at the time of the heavy burden of managing your business, especially the complex financials, and especially those related to taxes. Like other business owners, you most likely started out not even knowing what you didn’t know, and that is perfectly understandable.

Surely you can’t be expected to know what you haven’t been taught, right? Unfortunately, the government (federal, state, and local) and their corresponding taxing authorities do expect you to know and follow the tax code. You have probably heard the edict, “Ignorance of the law is no excuse.” It’s true. In fact, what you don’t know about the tax code can cost you dearly in both penalties (for non-compliance) and overpayments (for not taking full advantage of your eligible tax breaks).

Small Business Guide to Legally Reducing Your Tax Burden

Many small-business owners are so afraid of the Internal Revenue Service (IRS) or so terrified of making a mistake that they end up paying more than their fair share in taxes — sometimes a lot more. And that makes those of us at Stees, Walker & Company, LLP want to scream. Why? Because we know that while making money is hard, keeping it is fairly easy, as long as you know what you’re doing and choose to work with a tax and financial planning firm like ours. And, for the most part, all that involves is knowing the tax code and keeping good records, both of which are our areas of expertise.

One way we can help without it costing you any more than your time is to provide free guidance and insight. As part of that focus, we’re launching an 11-part series here on our blog on how to reduce your tax burden legally. Starting next week and over the course of the next three months or so, we will be posting one part per week, each focusing in on a single technique for reducing taxes.

Here’s what we’ll cover in each part: Continue reading… Continue reading… Continue reading…

Preparing for Your Complimentary Annual Mid-Year Meeting

By |2020-06-03T14:32:59-07:00June 3, 2020|Categories: Financial Planning|Tags: , , |0 Comments

Here at Stees, Walker & Company, LLP, we make it our responsibility to help our clients navigate the complexities of personal and business finances and maximize their tax savings, so they have more money to enjoy their lives and invest toward their financial futures. To fulfill this deeply rooted responsibility, every year at about this time, we offer our clients a complementary mid-year planning meeting. During each one-hour session, we discuss the client’s goals and any changes to their personal and/or business lives, identify ways to help them save money on taxes, answer any questions they have, and ensure that we are all working together toward the same financial goals.

Whether you’re a client of ours or another financial planning firm, you should engage in a midyear tax and financial planning session because the financial decisions and actions you take over the coming months can have a significant impact on your finances for years to come. However, very few people engage in such planning or they do so without professional guidance. As a result, we suspect that many people miss out on opportunities to reduce their taxes and have more money to invest toward their financial futures.

This year, we have a sense that more people might neglect their finances due to COVID-19. With the spring filing deadline postponed to July 15, many people are still focused on filing their 2019 tax returns. However, early preparation is key to taking advantage of future tax-saving opportunities, so we encourage you to meet with a qualified tax advisor or financial planner to explore opportunities to improve your finances.

In this post, we cover some of the recent changes in tax legislation and present a list of tax moves that you and your advisor may want to discuss.

Recent and Future Changes Likely to Impact Your Taxes

Several changes in tax legislation occurred near the end of 2019 and early in 2020 that are likely to provide tax-saving opportunities: Continue reading… Continue reading… Continue reading…

It’s Time to Schedule Your Free Annual Financial Tune-Up

By |2020-05-18T09:25:45-07:00May 18, 2020|Categories: News From Our Office|Tags: |0 Comments

Tax and financial planning professionals typically have two busy seasons — the February-April crunch, as clients push to file their taxes by mid-April, and August-October for extensions (mostly corporate filers). This raises the question of where professional like us go and what we do in the summer.

Here at Stees, Walker & Company, LLP, we stay put and continue to work hard for our clients. As your tax and financial planning firm, we take advantage of this lull in the rush to conduct complementary mid-year planning meetings with clients in a more relaxed atmosphere.

Summer is the perfect time for us to discuss a financial tune up, and this year it is especially important since we are all facing unusual financial situations. The next three months give us the best opportunity to listen to your concerns, hear about any opportunities you’re interested in pursuing, and help you prepare approaches to take you from potential crises to recovery and beyond.

As a part of your tax and financial planning team, we listen for what matters to you and what you want your financial future to look like. Once we understand where you’re at financially, and where you want to be in the future, we work closely with you to reduce your tax bill and ultimately increase your net worth.

This year’s complementary mid-year meeting gives us an opportunity to re-evaluate your financial profile and enhance your financial journey by covering a range of topics — all of which are important pieces in your financial profile. During this one-hour meeting, we focus on the following three outcomes: Continue reading… Continue reading… Continue reading…

Coronavirus and Taxes Frequently Asked Questions

By |2020-03-25T16:03:41-07:00March 17, 2020|Categories: Taxes|Tags: , , |3 Comments

Updated: March 25, 2020 at 4:00 p.m. PT

In an effort to provide relief to individuals and businesses affected by coronavirus (COVID-19), the White House recently announced changes to the traditional 2020 tax filing season. Additionally, California’s state government recently announced similar relief.

With that in mind, below are answers to frequently asked questions about coronavirus and taxes, focusing both federal and California tax filings, as well as our role here at Stees, Walker & Company, LLP.

Q. What’s is Stees, Walker & Company, LLP’s role during this time?

A. Accounting firms such as ours employ personnel who have been designated by the State of California (according to Executive Order N-33-20) as part of the “essential” workforce that is needed right now. Not only are we assisting with current tax season issues for individuals and business entities, but we consider ourselves to be part of the financial front line — ready and able to assist businesses take steps now to successfully get back to work as usual when the State’s stay at home order is lifted.

Q. What is the IRS’ role in the National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak?

A. Under the Stafford Act, the IRS Disaster Assistance and Emergency Relief Program provides administrative tax relief to taxpayers and tax practitioners affected by a federally declared disaster in areas FEMA identifies for its Individual Assistance to Households and Families Program.

Authorized tax relief and other assistance the IRS is authorized to provide includes:

  • Extending tax return filing deadlines
  • Extending tax payment deadlines
  • Waiving penalty and interest charges normally applied to late filing and payment
  • Providing free copies of tax return transcripts
    • Tax return records are often needed to claim benefits, file insurance claims, replace lost financial records, etc.
  • Expediting amended tax returns claiming a casualty loss and refund resulting from the disaster.

Q. What accommodations has the Internal Revenue Service (IRS) made to help individual and business taxpayers during the National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak?

A. In addition to the IRS establishing a special section focused on steps to help taxpayers, businesses, and others affected by COVID-19 — on Friday, March 20, 2020, the U.S. Secretary of the Treasury announced that the current federal tax filing deadline has been extended from April 15, 2020 to Continue reading… Continue reading… Continue reading…

© 2014- Stees, Walker & Company, LLP (SWC). All rights reserved.
XLinkedInFacebook
Go to Top