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Payroll Taxes: Who’s Responsible?

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payroll conceptAny business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare taxes (known as Federal Insurance Contributions Act taxes, or FICA), and forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld taxes in a timely manner will find itself in trouble with the IRS.

The IRS may levy a penalty, known as the trust fund recovery penalty, on individuals classified as “responsible persons.” The penalty is equal to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.

Who’s a Responsible Person?

Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.

The IRS states that a responsible person may be:

  • An officer or an employee of a corporation
  • A member or employee of a partnership
  • A corporate director or shareholder
  • Another person with authority and control over funds to direct their disbursement
  • Another corporation or third-party payer
  • Payroll service providers

The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.

Working With the IRS

If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to a tax professional if you need to know more about the requirements.

Contact us at 801-553-1120 today. When you schedule a consultation, you’ll receive a book called The Great Tax Escape as our special gift.

Grow Your Wealth with Tax-Advantaged Income

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Businessmen handshakeWhen it comes to minimizing taxes, most people focus their efforts on maximizing deductions. They look for opportunities to reduce their taxable income by taking advantage of tax laws that allow a wide variety of expenses to be claimed as costs of doing business. This technique is a critical component of your comprehensive tax strategy, but it isn’t the only opportunity to bring your tax bill down. Think bigger, by looking for ways to shift current income or generate new income that enjoys favorable tax treatment.

Your Certified Tax Coach is an expert at thinking outside the tax box to reduce your tax liability. You can partner with these professionals to identify methods of creating tax-deferred or tax-free income to grow your wealth more quickly.

The Trouble with Traditional Investment Income

Average taxpayers rely on traditional financial products for saving and investing. Examples include standard savings and money market accounts, certificates of deposit (CDs), mutual funds, and brokerage accounts. The problem is that income earned from interest, dividends, and increased share value is subject to fairly high tax rates. Certainly, these options play an important role in your financial plan, but there is no need to rely on them exclusively. Instead, maximize use of tax-deferred and tax-free programs to reduce your total tax liability.

Options for Tax-Deferred Income

It’s no secret that it is getting harder to achieve the retirement lifestyle you want. Setting money aside to ensure you can enjoy the years after you leave the workforce is a top priority. The good news is that there are retirement savings programs specifically designed to make this goal more achievable. They offer an opportunity to earn tax-deferred or tax-free income, which lowers the total amount you hand over to the IRS.

Traditional IRAs, certain employer-sponsored retirement programs, and specific types of annuities enjoy tax-deferred status. Essentially, you contribute a portion of your current income on a pre-tax basis. You don’t pay income taxes on that amount today. Instead, taxes are assessed when you eventually take distributions.

This benefits you in two ways. First, your money stays with you longer, so you can generate interest on funds that would otherwise be lost to tax. Second, most people find themselves in lower tax brackets after retirement. That means you pay less later than you would if you paid today.

The Tax-Free Alternative

If your goal is to generate income that is completely free from taxes, you have options. Certain types of life insurance, specific annuities, and retirement savings plans like the Roth IRA make it possible to eliminate taxes on a portion of your income. Unlike tax-deferred plans, your contributions to these types of programs are made from after-tax dollars. In other words, you pay income tax on the funds you set aside in these accounts in the same year that income is earned. However, once you have paid that initial income tax, you don’t owe another penny. Any increase in value from interest, dividends, and similar is completely tax-free.

The bottom line is that minimizing taxes is more than finding deductible expenses. You can drive your tax bill down by incorporating a variety of techniques into your overall strategy. Shifting income or creating new income that enjoys favorable tax treatment is another tool you can use to reduce taxes and grow your wealth.

Learn more about transitioning to tax-advantaged income by working with a Certified Tax Coach.

To set up your consultation, contact us at 801-553-1120 today. When you schedule a consultation, you’ll receive a book called The Great Tax Escape as our special gift.

Why You Need Year Round Tax Planning…

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Tax Planning text on Note pad…and tips on how to do it.

The IRS may have granted us a reprieve for filing our income taxes this year, but we hope you’re well into your preparation for 2020 income taxes – or finished with them. Tax planning shouldn’t be a task on your to-do list every April. It should start January 1.

You won’t know what legislation Congress will pass before December 31 that will affect your taxes, but the planning and recordkeeping you do throughout the year will help minimize last-minute panic and frustration. It can also reduce your total tax obligation.

There are other reasons why you should treat tax preparation as a part of your overall financial planning. As the year progresses and you monitor your income and expenses, you can make adjustments that will have impact on your tax bill.

If you’re filing an individual return, you need to learn how major life events like marriage, children, unexpected unemployment, a new side gig, or a change in home ownership will affect you, and how to adjust accordingly. If you have a small business, this attention to money in and money out is even more critical. You don’t want to come to the end of the year and discover that your income is significantly higher than the total of your expenses, and you haven’t paid nearly enough in estimated taxes.

QuickBooks tips

If you’re starting a new side gig or sole proprietorship in 2021, you’ll be filing an IRS Schedule C along with your Form 1040 (above image from 2020 Schedule C).

Waiting until the last minute is unwise for other reasons. For example, you may learn that you’re missing critical documents like receipts and official tax forms from employers. Further, what happens if an emergency comes up in early April and you’re unable to finish? Yes, you can file for an extension, but that also requires that paperwork and possibly a payment be submitted by the deadline.

Year-round tax planning gives you the opportunity to control what you can while anticipating what could happen. Sometimes, tax legislation comes early in the year, like the American Rescue Plan did in 2021. You probably already know how that will affect your 2021 taxes. If you’re conscientious about your bookkeeping throughout the year, you’ll be in a better position to gauge how both tax law changes and your own unfolding financial situation might alter your tax obligation.

How Do You Plan for Taxes?

Here’s the best answer we can give you to that question: Treat every day like it’s April 14. You don’t have to scrutinize every single expense and determine its tax implications (though you should, for major purchases), but there are a number of ways you can prepare.

Consider using a financial software program or website, or at least Excel. If you’re filing individually, you can start tracking your income and expenses in a free service like Mint or pay to use, for example, Quicken or Simplifi. These applications allow you to import transactions from your financial institutions, categorize them so you know what is tax-related, and run reports that can help you in your tax preparation.

Develop a manual system for organizing your taxes. If you don’t want to go digital, visit an office supply store and invest in suitable paper or a ledger book, file folders, and anything else that you can dedicate to only tax-related documentation. Keep all receipts in one place.

Keep abreast of tax legislation. Tax law changes are reported in newspapers and magazines, on websites, and on television news. Pay close attention, especially to those that will affect you.

Change your withholding if necessary. If you’re a W-2 employee and you’re getting large refunds, talk to a benefits representative at your company about changing the number of allowances you claim. Refunds are nice, but you could be putting that money to use yourself during the year.

Look at IRS tax forms. If you’re taking on a side gig or starting your own small business as a sole proprietor in 2021, you’re going to want to acquaint yourself with the IRS Schedule C. You can look at the 2020 version now to see what information you’ll have to supply. Pay close attention to the types of expenses that are deductible and track them carefully. You might even look at the instructions.

Consult with a professional. This is an especially good idea if you’re starting a new business this year and/or you’ve experienced life changes that could affect your taxes. We can help you come up with a plan to prepare for tax filing throughout the year. With that in hand, we’d also be happy to do your tax preparation for you when the time comes. Contact us, and we’ll schedule some time to meet.

Request your consultation today by calling us at 801-553-1120. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.

What You Need to Know About Incorporating Your Business

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Confident young man at his deskIncorporating your small business the right way can bring tax benefits and protect your personal assets. Read on to learn more about what incorporation is, why you might want to incorporate, and how an accountant can help you navigate the questions that come with selecting the right business structure.

What is Incorporation?

When discussing “incorporation” in terms of a business, the term denotes how the business is organized or structured.

Regardless of the structure you choose for your business, incorporation is a legal process that brings your business into existence. The following are business structures commonly used in a small business.

Sole proprietorship

If you conduct business as an individual and do not register as any other type of business, you are a sole proprietor. With this business structure, your personal and business assets and liabilities are not separate. Sole proprietorships are relatively simple structures and a good choice for low-risk businesses or entrepreneurs testing a business idea. However, this business structure does not offer liability protection, so the owner is personally responsible for business debts and obligations. Another drawback is that it can be more challenging to get bank financing and business credit with this structure.

Partnership

When two or more individuals own a business together, the simplest structure is the partnership. There are limited partnerships (LP) and limited liability partnerships (LLP). LPs consist of a general partner with unlimited liability; the remaining partners have limited liability and limited control in the business. The partner without limited liability pays self-employment taxes. In LLPs, every owner has limited liability, protecting them from business debts and the actions of the other partners.

Partnerships can be a good choice for multiple-owned businesses and professional groups like physicians, attorneys, and veterinarians.

C-corp

Sometimes called a C-corp, a corporation is a separate legal entity from the business owner(s). The benefit of a corporation is that they offer the most robust protection for owners from personal liability; however, it costs more to form a corporation than it does to establish other business structures, and business profits are taxed at the personal and corporate level. Further, the record-keeping, operations, and reporting are more involved for a corporation. This structure is usually best for higher-risk businesses or those that raise money or plan to become publicly traded in the stock market.

S-corp

An S-corporation, or S-corp, is designed to avoid the double-taxation of a C-corp. This avoidance is possible because, in an S-corp, profits and some losses go through the owner’s personal income to avoid corporate taxes. S-corps are taxed differently in different states, so it is essential to have your accountant help you understand the guidelines and laws in your state.

LLC

A limited liability company (LLC) has the benefits of a corporation and a partnership. The owner is protected from personal liability in situations like bankruptcy or lawsuits and can avoid corporate taxes because profits and losses can pass through their personal income. However, there are self-employment taxes and Medicare and Social Security contributions since LLC members are considered self-employed.

An LLC is an option for owners with significant assets that need protection and who want the benefit of a lower tax rate than a corporation pays.

How to Incorporate

When you’re ready to incorporate your business, consult your trusted CPA or accountant so that you have a full view of what incorporating will mean for you and your business initially and for years to come.

To set up your consultation, contact us at 801-553-1120 today. When you schedule a consultation, you’ll receive a book called The Great Tax Escape as our special gift.

5 Benefits of Hiring an Accountant for Your Business

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Running a small business is demanding, and there’s not always time to manage every task well. If you’re letting some tasks slip through the cracks, or if you want to prevent that from happening, it’s time to consider hiring an accountant. Here’s how your business will benefit if you do:

1. You will save time.

Your number one asset as a small business owner is time. Saving as much time as you can by streamlining tasks, assigning the right employee to the job, and working efficiently are all ways business owners can manage and save time. If you’re currently managing all the accounting and payroll tasks for your company, you might be feeling the pressure of getting everything accomplished. For example, you may need to learn a new accounting software program to keep records, but you likely don’t have time to do that. Leaving bookkeeping, payroll, and other general accounting tasks to a professional saves time and dramatically reduces the likelihood of costly errors.

2. You will save money.

Understandably, you want to cut costs as a business owner. After all, that’s what intelligent owners do – minimize expenses and maximize profits. However, if you think hiring an accountant is just another added expense, think again. It may seem like you’re saving money by doing your accounting at first, but in the long run, an accountant can save your business money in a big way. They can reduce the risk of costly tax errors, provide sound advice on business decisions, and advise you on the most cost-effective choices for running your business. 3. You will gain valuable advice.

An accountant’s advice doesn’t end at how to manage your taxes or payroll. Any business decision you make as an owner involves finances. If you’re hiring new employees, launching a new product, or expanding your operations, you need to know the projected cost, any additional tax ramifications, and your potential return on investment. Your accountant can help with all of that and more, which puts you in the ideal position to make the best decision for your business.

4. You will get business plan support.

This is crucial for new startups or anyone in the early stages of starting a business. Accountants draw on their experience to help business owners understand how much money they should be making in their particular business and project out over those first few crucial years to know what to expect. That information is beneficial when putting together the financial portion of your business plan because it helps you set realistic goals regarding expenses and cash flow.

5. You will reap sound financial advice.

Your accountant is a financial expert. Unless you are as well, they know more than you do about making the most of your dollar. Choose an accountant with experience working with clients in the same business you’re in so that they will know the ins and outs of what you do and what to expect. This is particularly important when it’s time to make significant financial decisions. Your accountant can draw on their experience and help you minimize risk and get a better outcome than if you made uninformed financial decisions.

Remember, rely on the experts to help you with aspects of your business that mean the most, like finances. With a qualified accountant on your team, you’ll garner these benefits and more by freeing your time up for what’s most important – running your business – your stress level with decrease. The chance of errors in vital areas of your business like taxes and payroll will be significantly reduced, and your business will run smoother.

 

Billing Customers for Time and Expenses in QuickBooks Online

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Analyzing electronic documentSometimes, you have to spend money on your customers. Make sure you’re billing them for it.

Usually, money flows from your customers to your business. But there may be times when you have to purchase items for a job whose costs will eventually be reimbursed. Or you, or an employee, might spend time providing services for customers and get paid for those hours by your company before you receive payment from the responsible party. If you’re a sole proprietor with no payroll and no reserves, of course, you just have to wait to be paid for your work.

In the first two cases, you’re spending money upfront that will eventually be paid back. In all three cases, QuickBooks Online calls these billable expenses and billable time, and it does a good job of tracking these transactions – much better than if you were scribbling notes on a receipt or a paper timecard.

Obviously, you want to be paid for these expenditures as soon as possible to minimize their impact on your own cash flow. So QuickBooks Online “reminds” you that they need to be billed when you create an invoice for a customer. It also offers reports that help you track unbilled time and expenses. Here’s a look at how it works.

Tracking Billable Time

It’s easy to create a billable time activity. Click +New, then Single time activity. Fill in the blanks and select items from drop-down lists until you’ve completed a form. The critical section of this screen is pictured below:

In this example, the employee will receive $50/hour for the work done (Cost rate). Because the Service being provided will be billed back to the customer, you click in the box in front of Billable to create a checkmark. You’re charging the customer $65/hour (a $15/hour markup), so you enter that number in the Billable field. You don’t have to worry about remembering that. QuickBooks Online, as it does with all of your other company information, retains that and makes it available to you.

Tracking Expenses

You probably already know how to record expenses in QuickBooks Online. You can either click the +New button and then Expense, or you can click the Expenses link in the toolbar and the New transaction | Expense. Just as you did in recording time activities, you complete the fields and place a checkmark in the Billable column and select the Customer/Project from the drop-down list.

Once you’ve saved a billable expense, it will appear in the table on the Expense Transactions page. To display is again, click View/Edit at the end of the corresponding row. The transaction will open, and you’ll notice that there’s a small View link in the Billable column. Click it, and you’ll see this:

In this example, there’s been no markup applied to the transaction. If you want to add markup costs to all billable expenses, click the gear icon in the upper right and go to Account and settings | Expenses. Click the pencil icon to the far right of the Bills and expenses block of options. Click the box in front of Markup with a default rate of to create a checkmark and enter a percentage. All of your billable expenses will now include a markup of that percentage.

Invoicing Time and Expenses

The next time you invoice a customer who has outstanding time and expenses, QuickBooks Online will remind you that they’re pending. Open an invoice form and select a customer who you know has billables. The right vertical pane will contain a box containing information like this:

Click Open if you want to see the original expense record. Clicking Add will, of course, include that transaction on the invoice.

QuickBooks Online offers another way to see your pending billables. Click the Reports link in the toolbar and scroll down to the Who owes you section. You’ll see two related reports here: Unbilled charges and Unbilled time.

We want you to make sure that you’re getting reimbursed for all of the time and expenses you incur on behalf of your clients. So please let us know if you have further questions on this topic or if you have other QuickBooks Online issues.

SOCIAL MEDIA POSTS

Do you ever spend money on behalf of your customers? QuickBooks Online calls these billable expenses, and it can track them. Here’s how.

If you provide services for customers, you’ll have to invoice those hours as billable time. Did you know you can record this activity in QuickBooks Online? Here’s how.

Did you know when you invoice customers with outstanding time and expense charges, QuickBooks Online reminds you about them? Find out more here.

Confused about which customers owe you for billable time and expenses? QuickBooks Online provides specific reports for that. Find out more here.

Request your consultation today by calling us at 801-553-1120. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.