The IRS says it won’t increase “audit scrutiny on small businesses or middle-income Americans.” And yet, some taxpayers who have never been audited before have recently gotten audit notifications in the mail. What’s going on?
It’s a complicated issue. Rather than expound on the topic ourselves, we’re referring readers to an article published recently on CNBC.
Click here to read the article.
If you receive an audit notification, remember that Adams Accounting Solutions is here for you. We handle the audit process for our clients, acting as a liaison with the auditors to collect the information and documents needed to satisfy audit requirements. You’ll weather the process with less stress when you have a trusted partner looking out for your best interests.
Be proactive. Call or stop by Adams Accounting Solutions to schedule a consultation today — before you get an audit notification. That way, you’re ready for anything!
Many taxpayers get a knot in their stomach when it’s time to start working on taxes. It’s a task that very few enjoy. (Those who do are probably accountants!)
Much of the fear at tax time is caused by being unsure that you’re figuring taxes and filling out the forms correctly. But a significant amount of fear also has to do with worrying about how much you’ll owe.
Itemizing deductions can help you reduce your tax liability come time to pay up. Staying on top of expenses can be a tedious process of collecting receipts, categorizing expenses, and totaling columns of numbers. Some people find itemizing deductions too time-consuming or complicated. That’s too bad. They’re probably paying more in taxes than they should.
The IRS continuously updates the tax code, making it challenging for taxpayers to keep up. Changes often favor taxpayers, but you miss out on the benefits unless you’re in the know.
It’s never too early to start planning for tax time. Using the right mindset as you move through the year, you can collect receipts and record expenses as you go. That way, when it’s tax prep time, you have everything you need to back up your write-offs.
Following are some of the most commonly overlooked deductions for individuals and small businesses. Keep them in mind in case they apply to your situation.
Lifetime learning. You don’t have to be working on a college degree to qualify for a tax break. If you’re taking undergraduate or graduate classes, continuing education classes, or certification programs at an eligible educational institution, you may be eligible to claim part of your education expenses as a deduction. Qualified expenses include tuition, fees, books and other course materials, and computers or software required for the course.
Retirement savings. The saver’s tax credit is often overlooked and applies to those who contribute to a qualified 401(k), 403(b), traditional or Roth IRA, or other qualified retirement plan. You’re probably already getting a break on some of this if you’re using pre-tax dollars to fund your retirement contributions. But you may qualify for this bonus credit if you meet the requirements.
HSA contributions. If you’re self-employed and obtain health insurance on your own, you may also want to set up an HSA. Contributions to this HSA are tax deductible, depending on age and family status. Since the contributions help lower your taxable income, they may also help you qualify for better insurance rates.
Here are just a few of the deductions overlooked by small businesses.
Petty cash expenses. Although cash is nearly out of vogue, some businesses still use petty cash. While the purchases made with petty cash are small, they add up during the year. Petty cash expenditures are tax deductible — if you have good records to back them up. Tracking all these little expenditures is tedious but usually worth the effort.
Business start-up costs. Starting a new business is an achievement rewarded with tax write-offs for qualified expenses incurred in starting the business. The IRS separates start-up and organization costs, but both may be deductible up to specified limits. Don’t forget to include travel expenses if you’re opening a business in a remote location.
Research and development. Research and development costs may also be deductible, either through a tax deduction or amortization. R&D is considered activity that improves the overall quality of the business, leading to better product development and increased revenues.
For the sake of your business, it’s a good idea to have a trusted accountant on the team who can guide you through the tax preparation process and help ensure that you don’t miss out on eligible write-offs.
Adams Accounting Solutions brings the knowledge and expertise you need to the team, whether you’re an individual taxpayer, a self-employed worker, or a small business owner. We can guide you to the tax deductions you qualify for that make the most sense for your situation.
Drop by the office or give us a call today to schedule a consultation. We look forward to meeting you!
Small business owners are used to doing everything themselves. They often operate on a shoestring— especially when starting out— and believe it doesn’t make sense to pay for help if they can do a task themselves. That notion works until the business grows beyond the owner’s ability to keep up. That’s the time to start looking for smarter and better ways to do things.
There aren’t many entrepreneurs who are also certified accountants, so accounting tasks are often the first to be streamlined into something more manageable and less time-consuming. Enter cloud-based accounting software.
Cloud-based software is software that resides on a computer server on the internet. The user feeds data into the server through an application (app) that can be accessed by anyone who has sign-in authority on the app. Data can then be retrieved, stored, passed back and forth from user to user, or compiled into reports as needed.
Cloud-based software does not require desktop computers, nor do users have to be in the same physical location to access the information on the server. This makes it ideal for growing businesses.
There are several benefits to using cloud-based software for your accounting needs. Here are a few to consider.
#1. Reports at your fingertips. Accounting software usually comes with a standard set of financial statements that can be customized to fit your business needs. You don’t have to understand accounting or know how to create a balance sheet. The app does all this for you. Pull up reports whenever you want, even on your phone.
#2. 24/7 access from any location. With cloud-based accounting software, you can access your latest business stats regardless of where you are. On a business trip? No problem! Most server-based accounting applications have user interfaces that can be added to your phone, tablet, or laptop for quick access anytime.
#3. Save time. Cloud-based applications save time on recurring tasks like paying contractors and vendors. By setting up automatic monthly payments, you ensure that everyone is paid on time. You can also use the app to bill clients automatically, freeing up your valuable time for other projects.
#4. Improve accuracy. Cloud-based accounting software reduces the risk of accounting errors. Data is generally only entered once. From there, it can be used in multiple reports or fed into other systems. Since the software does the calculations, you don’t have to worry about making arithmetic errors.
#5. No IT guy required. Since cloud-based accounting software resides online, there are no software or hardware requirements to worry about. You don’t need an IT guy to install anything. Most systems are easy to set up and don’t require much more than creating a username and password and downloading the app interface.
#6. Access to tech support if you need it. Most cloud-based accounting software providers offer technical support. If you have a question about how to use the software or how to install the app correctly, contact tech support for help. You’ll find numerous ways to get the help you need on the provider’s website.
Many business owners worry about storing business data on a server. Cloud-based software providers understand this concern and know they wouldn’t stay in business if they allowed clients’ data to be compromised. These providers employ a host of security measures to keep your information safe, including encryption, security personnel at the server site, multiple servers with redundancy in case of failure or natural disaster, and multiple authentication methods to ensure that only those with permission can access the data.
Most accountants are happy to work with clients who use cloud-based accounting software. The software makes pulling the financial reports needed for tax preparation much quicker and easier. It also reduces the chance of errors. Many accounting software solutions can be linked to tax preparation software, streamlining the process further and eliminating paperwork.
Adams Accounting Solutions works with all types of cloud-based accounting software, but we specialize in QuickBooks Online. We’re Certified QuickBooks ProAdvisors who can help clients get this software set up and customized for their business needs.
Give us a call today to learn more about cloud-based accounting software and how it can help your business grow. We’ll help you streamline your accounting processes so you can move on to other things!
Starting a business is a scary proposition, even when you’re an expert in your chosen field. Many decisions must be made, and if you’re like most entrepreneurs, you’ve gambled much of your life savings on your new venture. The decisions you make have to be right.
Those who go into small business ownership with eyes closed are in for a rude awakening at tax time. The best way to prepare for tax day is to stay on top of expenses and revenues throughout the year — a challenge for many new business owners. The good news is that there are people who can help you make a go of it — trusted professionals who are happy to be a part of your business advisory team.
A certified accountant is an integral part of any entrepreneur’s team. There’s nothing more important than your financial solvency. A trusted accountant will help you stay on track, manage expenses, and offer other services to help you prepare for your first tax day as a business owner.
Here are 5 of the top challenges most small business owners face. A certified accountant can guide you through them, reducing stress levels and educating you on how small businesses work.
Cash flow. Cash flow is one of the most critical elements of business ownership. If you don’t have a handle on cash flow from the beginning, you may quickly find yourself in trouble. Managing cash flow isn’t difficult, but you do have to stay on top of it. And if you’re not used to tracking every dollar that goes in or out of your business, it may take a while to get used to doing this. Your accountant can help.
Expense management. Tracking and managing expenses are tasks that every business owner has to deal with. Many business expenses can be taken as deductions at tax time, reducing your overall tax liability. To benefit from these deductions, though, you have to have proof of the expense, which often means saving receipts and tracking your mileage every time you use the car for a business-related errand. Many accountants offer expense tracking tools and advice to help clients stay organized so that it’s not a mad rush to gather expense records at tax time.
Financial reporting. Financial reporting is another challenge for many new business owners. Preparing reports that reflect the state of the business can be overwhelming for one who’s never done this before. Profit and loss statements, income statements, balance sheets, cash flow statements…all these and more are necessary when trying to get a small business loan or prove the financial viability of your company. Many certified accountants are experts at preparing the financial reports that go with small business ownership. Let them take this task off your plate.
Financial forecasting. While financial statements give you a view of where your company is now, a financial forecast highlights where the business is headed. Financial forecasting is crucial to help you stay on track throughout the year, meeting sales and revenue goals and tracking company growth. Your accountant can help prepare forecasts based on your current financial performance and the goals you’ve set for the company.
Tax law changes. One of the most significant impacts on a small business is changing tax laws. The government changes the rules frequently, and it’s difficult to keep up with the changes that impact small businesses. Accountants stay on top of these things because they have to. When it comes time to prepare your tax return, your trusted accountant will do it right according to the most recent tax laws and regulations.
If you’ve recently started a new business, now is the time to consult with an accountant who understands the ins and out of small business ownership and can get you going in the right direction. The sooner you put processes in place to manage expenses, file receipts, and create financial reports, the more quickly your business will grow.
Adams Accounting Solutions specializes in small business accounting and tax preparation. We also offer business consulting services with an emphasis on operations consulting, tax preparation, payroll taxes, and internal control evaluation. If you’re new to the accounting challenges of business ownership, we’d love to talk with you. Give us a call or stop by our office in Overland Park for more information. We’ll help you get your new business set up for success!
The IRS is hiring. It’s not just looking for call center employees or seasonal help for the next tax season. It’s planning to add more auditors — tens of thousands more. And that will likely increase your chance of being audited.
The IRS is staffing up under the Biden Administration’s infrastructure plan, which includes plans to increase tax enforcement on wealthy individuals and corporations and potentially narrow the nation’s tax gap — that pesky chasm between what the IRS thinks it should be receiving in taxes each year and the amount actually paid.
The agency claims it’s replacing lost employees; it lost nearly 33,000 employees over the past decade, according to CNBC. So far, these new hires are being added to the small business and criminal investigations teams, indicating a greater focus on tax violators in these categories. As hiring ramps up, it’s possible that more auditors will be assigned to the wealthy.
The intent is for the IRS to go after the wealthiest taxpayers — those who can afford high-powered lawyers and accountants to help them minimize their taxes, sometimes reaching ludicrously low levels. Economists agree there’s a lot of money to be found in the wealthiest population segments. Whether these new auditors can find that money and collect it is another matter.
By far, the lower-hanging fruit is regular taxpayers, individuals with average incomes and small businesses with modest revenues. Many pundits watching this situation have noted that with the decrease of IRS auditors during the past decade has come an increase in the audit frequency in marginalized and working-class segments of the population, communities whose tax returns take the least time and effort to audit. Wealthy taxpayers seem to have dropped off the radar.
It may only be a matter of time before the IRS’s new audit army gets tired of arguing with wealthy taxpayers and moves on to small businesses and individuals. If you’re in one of these categories, it’s more important than ever to ensure your taxes are calculated correctly and filed according to IRS rules every year.
Adams Accounting Solutions is a true partner when it comes to preparing taxes. We get the job done accurately and on time. If you’re concerned about being audited, we’ll talk you through the process and educate you on what happens during an audit.
It’s important to remember that being chosen for an audit doesn’t automatically mean you did something wrong. It just means the IRS found something it wants to check out more closely. If you get audited, we’ll go through the audit with you, acting as a buffer, answering questions on your behalf, and working with the auditor to complete the audit as quickly as possible.
Being audited is stressful. Let us help. Call Adams Accounting Solutions today.
Previously in our rental series, we covered the pros and cons of residential rentals and the basics of residential and commercial rentals. In the final installment, we want to talk about the pros and cons of commercial rental properties.
Commercial property provides a lucrative income stream for investors who know what they’re getting into. It helps to have a little business acumen to make a commercial rental pay off. Those new to the commercial rental space may need the help of an experienced tax accountant to fully understand the tax implications of such an investment.
Here’s a quick overview of the pros and cons of commercial rentals from Adams Accounting Solutions.
There are several benefits of owning commercial rental property.
Great income potential. Many real estate investors get into the commercial rental space because of the revenue potential. Rather than having income from one or two single-family homes, commercial spaces provide multiple streams of income because they house several tenants at a time.
Help covering the costs of ownership. Commercial property owners can often pass some of the costs of owning the building to tenants in the form of a net lease. This means each month’s rent also includes a portion to cover maintenance, taxes, and insurance on the building, providing the owner with a buffer for the future and ensuring money is available for more extensive repairs or maintenance when needed.
Own your office. If you need office space, a commercial rental fills that need. Not only do you have other tenants in the building, but you can office there yourself. Check with your accountant to verify any tax implications involved with owning the building and using space within it for your own business purposes.
Professional tenants. Since the tenants in your building are businesses or corporations, they can provide financial information proving their ability to pay the rent for the foreseeable future. This is a significant selling point over residential rentals. Businesses are used to providing financials that show they’re solvent. Knowing you won’t have to chase the rent every month puts your mind at ease, at least on that point.
Longer terms. Since you’re renting space to businesses or corporations, you can request a longer lease term. Rather than tenants signing a one-year lease — as is common with residential rentals — lease terms can be five years or more. In fact, tenants will appreciate the longer lease term. It helps with cash flow on both sides of the equation.
Commercial rentals have a few cons to be aware of before signing the purchase agreement.
High entry barrier. While it’s relatively easy to buy a small house to use as a rental property, it’s considerably more challenging to muster the cash to purchase a commercial building. Initial investments are steep, putting this option out of reach for some investors.
More challenging to finance. Commercial property also has different rules when it comes to financing the purchase. Lenders view commercial property purchases as riskier than residential. This results in higher interest rates and shorter loan terms — sometimes as short as five years. Lenders may also want investors to show that they’ve purchased a commercial property in the past, something that’s impossible if this is your first one.
Limited exit ability. If you decide to sell your commercial property, it can take a long time. Not only do you have to find the right buyer, but market conditions usually come into play, as well. If you decide to invest in commercial rental property, make sure you’re in it for the long term.
If you’re serious about investing in commercial real estate, talk it over with an experienced accountant before you complete the deal. There are many costs associated with buying and running a commercial rental property, and your accountant will help you determine the impact of those costs on your taxes. This is an area best not left to chance.
Adams Accounting Solutions is happy to answer questions and help clients figure out what their taxes will look like if they dive into such an investment. We’ll help you put a plan in place so that you know what to expect at tax time. Give us a call to schedule an appointment today!
Rental properties are a reliable source of income for many investors. A rental property is a business, and good business people know what it takes to keep a property maintained and tenants happy. On the flip side, rental properties can quickly become money pits if owners get into the landlord business without first doing their homework.
Our last article talked about the differences between commercial and residential real estate. This week, we’re going more in-depth to discuss the pros and cons of residential rental properties.
Residential rental properties — those that house individuals, couples, or families — have several benefits.
Constant demand. People have to live somewhere. If they can’t afford or aren’t ready to buy a home yet, they often look for a place to rent. This constant demand keeps residential rental properties circulating in the market, offering shelter for tenants while also supporting a large pool of buyers and sellers.
Easy to attain. There’s a relatively low barrier to entry for residential real estate. Even if a buyer’s budget is limited, there are still numerous properties that might work as rental investments. Lucrative properties are everywhere, from the smallest town to the largest city. Anyone can buy a house, providing they qualify for a loan.
Easier to finance. Residential rentals are generally easier to finance than commercial properties. Serious real estate investors should have no problem qualifying for a loan for a residential rental property, assuming their credit is good. Many mortgage options are available, and lenders are often willing to work with buyers to get them the best rate and term possible.
Short-term leases. Many residential rentals are leased one year at a time. This shorter rental period allows the landlord to adjust the lease price if needed to keep up with inflation or unexpected rental costs. Cash flow is easier to manage if prices can be modified frequently.
Here are a few of the drawbacks to becoming a residential landlord.
Demanding tenants. Residential landlords are responsible for maintaining the property in good condition. Although the work involved in doing this is usually pretty minimal, there are times when it feels like it’s out of control. Frequent calls from tenants — especially high-maintenance tenants — take away from other activities and can also be a mental and financial drain. Make sure the rental contract is clear on who’s responsible for what before the tenant moves in. This reduces stress in the long run.
Eviction challenges. Many states have made it increasingly difficult to evict tenants from a residential property. Federal, state, and local fair housing and landlord-tenant laws often favor the tenant, regardless of their egregious behavior. Trying to evict a tenant can take months, even if they’re months behind on rent. Rigorous tenant screening at the outset can help prevent eviction later.
Before you take the plunge, know this: Many aspects of investing in residential rental properties can impact you at tax time. The experts at Adams Accounting Solutions have years of experience dealing with the tax implications and requirements of residential rental properties. We can help you plan for these impacts so that you’re adequately prepared at tax time.
If you’re considering the purchase of a residential rental property, give Adams Accounting Solutions a call first. We’ll make sure you go into the transaction with your eyes open.
The residential real estate market is crazy right now. Many people are seizing the opportunity to snatch up houses they plan to use to bring in rental income. Perhaps they want to list the property on Airbnb or VRBO, or maybe they’re more interested in renting to long-term tenants. Either way, residential rentals can be a good source of income for those who go into them with their eyes open.
The commercial real estate market is also hot. It goes without saying that commercial rental properties require a larger outlay of cash and often involve long-term financing. But they also provide a substantially higher stream of revenue. Commercial rentals may be a good option for investors as long as they do their homework before committing to the purchase.
So what’s the difference between residential and commercial rentals? Here’s what you need to know before investing hard-earned dollars in either one.
Residential real estate consists of places where people live: single-family homes, townhomes, condos, duplexes, mobile homes, and multifamily units of four or fewer families. Residential rentals also include apartments in a mixed-use development where businesses are on the ground floor and residential living space is on the upper floors. These mixed-use developments are increasingly more common in cities throughout the country.
Residential rentals have a much lower cost of entry than commercial rentals do, which is why they’re attractive to the everyday investor. These properties are easily managed by an off-site owner or leasing manager.
Commercial properties are places where people do business. Offices, malls, retail shops, industrial spaces, and warehouses fall into the commercial real estate category. So do retail and office space in a mixed-use project and multifamily units of more than four families. Commercial rentals also include special use facilities such as casinos, student housing, buildings used for government or religious organizations, and sports stadiums.
Commercial property may be owner-occupied, with the building owner having office space on the premises. But these properties are more often managed by a commercial real estate management company or facilities manager on behalf of an absentee landlord.
Any rental property impacts your tax liability. You’ll have to pay taxes on the income you receive from your rental property. You’ll also want to depreciate the property over time to recapture some of the taxes paid. Many of the expenses associated with rental properties are deductible, which lowers your tax liability. And if you sell a rental property, you may have to pay capital gains tax.
These are just a few of the tax implications of owning rental property. A licensed CPA can advise you of other impacts specific to your situation.
Adams Accounting Solutions specializes in helping clients assess the tax implications of owning residential or commercial rental property. We’re experts when it comes to understanding how rental properties impact your financial future.
If you’re thinking of investing in a rental property, give us a call first. We’ll walk you through the process, answer questions, and help you make the best decision for your situation. We look forward to working with you!
Congratulations! Another tax day has come and gone, and once again, you got your taxes filed on time. Go ahead and breathe a sigh of relief. You’re safe until next year, right?
Maybe.
If this year’s tax preparations were stressful, you might want to take steps now to get better organized for next year. While it seems a long way off right now, a year goes by quickly. Before you know it, you’ll be scrambling to create a profit and loss statement, a balance sheet, and an itemized list of business assets to hand over to your accountant. Not to mention digging out all those receipts from the year’s purchases.
Here are a few tips from the IRS if you want to get a jump on next year’s taxes. There’s no time like the present!
Confirm your information with the IRS. View your personal tax information online to ensure that it’s complete and accurate. You can do this using the IRS portal. If you don’t have an online account with the IRS, now is the time to set one up. Once that’s done, you’ll have access to information that may come in handy when preparing your taxes next year.
Examples of what you’ll be able to see online include:
Make sure your ITIN is valid. Taxpayers who don’t qualify for a social security number need an individual taxpayer identification number (ITIN). These numbers expire periodically, so make sure yours is valid through 2022. If not, this is the time to submit a renewal application.
Check your withholding amount. If you work for an employer and are expecting a hefty refund this year, you may be having too much money withheld from your paycheck. Likewise, if you have to pay a substantial amount in taxes, you may not be withholding enough. True this up, and make adjustments so you’re on target for next year.
If you’re self-employed (a freelancer, consultant, or business owner), this is the time to determine how much you’ll need to pay each quarter this year to avoid penalties when you file your taxes next year. Your accountant can help you calculate this.
Set up a filing system. One of the best tasks to spend time on right now is setting up a good filing system so that during the year, you can file important documents and receipts as you go. This prevents paper from piling up in the office and helps you avoid that last-minute flurry of activity when your accountant asks you for a missing piece of information.
There are several good bookkeeping software systems on the market today. QuickBooks Online is one that many small business owners choose because it’s easy to use. Independent bookkeepers are also available to help you get organized.
If you have questions about steps you can take now to stay on track for next year’s tax preparation, give Adams Accounting Solutions a call. We specialize in all aspects of individual and small business tax preparation. We’ll help you get systems in place to make tax day next year less stressful. Schedule an appointment today!
Employees of mid-size to large corporations have an advantage when it comes to saving for retirement. They have a corporate-sponsored 401(k) plan that allows them to contribute from each paycheck. Companies that offer this benefit also often have a matching program whereby they contribute an additional amount of money based on company earnings or other indicators.
Self-employed people — freelancers, contractors, or consultants — often feel like they’re missing out in this regard. They have to figure out a way to save for retirement on their own without the structure of a corporate 401(k) plan to help. This is a challenge for many.
There is an option for self-employed workers, though. A Simplified Employee Pension (SEP) plan may be just what they need. A SEP is an individual retirement account (IRA) that can be set up by a self-employed worker for themself and their employees, if any, to save for their golden years. Not only do they get the benefit of invested savings through the plan, but they get tax breaks too.
SEP plans allow the self-employed business owner to set money aside for retirement for themselves and any employees they have at a fraction of the cost of a typical 401(k) plan. SEPs are available to businesses of any size, but they’re most often used by smaller companies and single-employee operations. A SEP IRA allows the business owner to put up to 25% of the business’s income toward retirement — a considerable advantage for freelancers and other solopreneurs. There are income requirements, though, so check with your accountant to make sure your business qualifies.
One of the biggest differences between a SEP IRA and a typical 401(k) is that in the case of the SEP, the employer makes contributions for all plan participants, whereas with a 401(k), each employee is responsible for participating and contributing. SEP IRAs often have a higher contribution limit than a standard IRA, and all participants are immediately vested in the plan, meaning they have access to the total amount contributed to the SEP IRA account at all times. Many companies that offer standard 401(k) plans require that employees work for five years or more before becoming fully vested.
A SEP IRA is also helpful when business takes a downturn. Employers can skip contributions in years when revenue is less than stellar. This is a benefit not found with a traditional 401(k) plan. Also, there are no tax filing requirements for a SEP IRA.
SEP plans are relatively easy to set up.
There are many other factors to consider in setting up a SEP IRA for retirement. Consult the IRS website for more information, or better yet, let the tax professionals at Adams Accounting Solutions help. We’ll advise you on the best avenue to retirement and help you set up the accounts you need to stay on track. Give us a call today!
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.