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Giving on a yearly basis could trim both your estate and income taxes. First, there's the annual exclusion for gifts. Currently, you can give $14,000 annually to any number of recipients without paying federal gift tax. Married couples can double this amount by gift-splitting – a gift of $28,000 from one spouse is treated as if it came half from each.

Why giving is a two-way street
Gifts do more than help out children who need the money. They also reduce your estate so your estate will pay less estate tax upon your death. Apart from annual gift giving, you can currently transfer (during your lifetime or through your estate) a total of $5.49 million with no estate or gift tax liability. On amounts above this threshold, you or your estate will be faced with taxes at the current top rate of 40 percent. So a consistent program of annual gift giving might create substantial tax savings.

  • As the year draws to a close, there are several tax-saving ideas you should consider. Use this checklist to make sure you don’t miss an opportunity before the year is out.

    • Retirement distributions and contributions. Make final contributions to your qualified retirement plan, and take any required minimum distributions from your retirement accounts. The penalty for not taking minimum distributions can be high.
    • Investment management. Rebalance your investment portfolio, and take any final investment gains and losses. Capital losses can be used to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your ordinary income.

    • factoryworkersThe IRS continues to seek back taxes and penalties from businesses that wrongly treat workers as contractors.  Unreported or underreported employment taxes make up a big chunk of the overall federal tax gap.  The Labor and Justice departments and the states also have vital roles to play in ensuring that workers are properly classified by the businesses they work for.

      The stakes have always been high…lost taxes for federal and state governments and fewer benefits for workers who are improperly treated as contractors.  And their importance is magnified with the growth in freelance service gigs…much of it through the sharing economy with Uber, Rover, Grubhub and the like.

      To classify workers, the IRS uses three tests, each made up of multiple factors:

      The behavioral test focuses on whether the company controls or has the right to control what the worker does and how to do the job. Key factors for employee status
      include instructions about performing the work, evaluation criteria and training.

    • Not-for-profits have a luxury that most other individuals and businesses do not. They’re allowed to select their fiscal year-ends for IRS purposes. Partnerships, sole proprietorships, S corporations and other legal structures, with limited exceptions, may not. These groups generally are required to use calendar year-ends for tax filings. Read on to find out what a not-for-profit should consider when choosing a year-end date.

      How does a not-for-profit choose its year-end?

      By default, many not-for-profits are organized with a calendar year-end, but not-for-profits should assess if this is the best choice. A thoughtfully chosen year-end may produce more meaningful financial statements, ease reporting requirements and even save the organization money. Before deciding on a year-end, organizations should consider the following factors:

    • When it comes to taking qualified deductions on your federal tax return, three things must happen: (1) Recognize that an expense might be deductible on your tax return; (2) keep a record of the expense in an organized fashion; and, (3) obtain the proper (and timely) documentation to support your deduction.

      This might be obvious to most people, but here are some typical areas where taxpayers often fall short. In the long run, these items could end up costing you plenty during tax filing season, and trigger IRS audits.

      1. Cash donations to charity. To deduct and support your deduction to a qualified charity you must have valid support. Donations of cash are no longer deductible if they are not supported by a canceled check or written acknowledgement from the charity. A donation deduction of $250 or more needs to be supported by documentation created at the time of the donation. A canceled check and bank statement are not sufficient. If you get audited, having the charity issue documentation after the fact may not be enough.

    • Keeping costs under control is crucial in today's challenging business environment. Without a doubt, one of the quickest ways for a business to cut costs is through staff reduction. But cutting jobs is not always the best cost-cutting strategy. Drastic job cuts can lead to a vicious cycle of reduced productivity, followed by even slower growth and decreased profitability. Replacing skilled workers when times improve may be difficult, leaving your company to struggle longer still.

      Take a look at some alternative cost-control strategies:

    • Taxes are rarely the first thing that entrepreneurs think about.  With that in mind, the IRS put together a short-list of tax related considerations for start-up businesses. 

      1. Pick a business structure.  One of the first things you will need to decide is how to structure your business – as a sole proprietorship, a partnership, an S or C corporation, and so on.  Each comes with different tax rules and different filing requirements, so the advice of an expert is invaluable. 

      2. Pick a tax year.  How and when a business files its taxes is determined by its tax year, which can either match the calendar year, or be a fiscal year of any 12 consecutive months.  In most cases, the business owner can choose whichever works best for them.  But, calendar years are required for businesses with no books or records, no annual accounting period, or in certain circumstances laid out in the Internal Revenue Code or the income tax regs.

    • After disaster strikes, people often want to help those in need. Unfortunately, this is also when fake charities pop up. The IRS recently reported an uptick in emerging charity scams since hurricanes Harvey, Irma and others made landfall.

      Scammers commonly take advantage of donators with emails that steer people to fake websites asking for donations and other financial information. These fraudulent websites usually claim to be affiliated with authentic organizations. They try to get you to make donations or disclose your personal information.

      If you're planning on donating to a charity, follow these rules:

    • Smaller organizations are targets for hacking and phishing attacks to get information that can harm them or bigger companies they do business with.  This July 2017 Journal of Accountancy publication addresses these increasing threats.

      Why would cyberthieves target a company other than the very largest - big enterprises with big payoffs?  It's a question that many small and medium-size businesses (SMBs) ponder, arriving at the wrong answer.

      Hackers have SMBs in their crosshairs as much - if not more so - than the world's biggest enterprises.  Here's one reason:  Small companies in the business-to-business space that serve large organizations often connect to the latter's networks and systems.  In effect, the SMB is a potential conduit to the larger company's data assets. 

    • Knowing whether you can or can't expense a purchase for business purposes can be complicated. That's why there are a few hard and fast rules to help you make the best decisions.

      According to the IRS, business expenses must be ordinary and necessary to be deductible. That means they are common and accepted in your business, as well as helpful and appropriate. You'll need to maintain records (such as journals and ledgers) and supporting documents (e.g., receipts, invoices) to substantiate your deductions. Certain expenses are subject to extra requirements, as described below.

      Travel expenses pertain to business trips and can include transportation to and from: your destination, airports, your hotel and business meeting places. They also generally include lodging, meals, tips and other related incidentals.

      Do:

      •  Maintain trip logs describing your business expenses and the purpose of each. If your trip is mostly for business but includes personal components, separate them in your log. These nondeductible personal items could include extending your stay for a vacation or taking personal side trips.
      •  Deduct travel-related meal costs, but only up to the 50 percent are allowed by the IRS.

      Don't:

      • Rely on estimates to determine the business vs. personal components of your expenses.
      • Deduct any of your travel expenses if your trip is primarily for personal purposes.
      • Deduct any of your meal costs if they could be considered unreasonably "lavish or extravagant."

      Entertainment expenses need to be either directly related to or associated with the conduct of your business. That means that business is the main purpose of the activities and it's highly likely you'll get income or future business benefits. Expenses from entertainment that isn't considered directly related might still be deductible if they are associated with your business and happen right before or after an important business discussion.

      Do:

      • Keep records of entertainment expenses, including clear descriptions of the nature, dates and times of the pertinent business activities or discussions.
      • Deduct only up to 50 percent of entertainment expenses, as allowed by the IRS.

      Don't:

      • Claim the costs of pleasure boat outings or entertainment facilities (e.g., hunting lodges).

      Business use of your personal car is calculated according to your actual business-related expenses, or by multiplying your business mileage by the prescribed IRS rate (53.5 cents per mile in 2017). This is called the standard mileage rate.

      Do:

      • Log odometer readings for each business trip and record your business purpose.
      • Claim actual basis deductions by applying the ratio of your business-to-total mileage.

      Don't:

      • Claim mileage or expenses pertaining to commuting to and from work.

      If you would like more guidance on knowing whether you can or can't expense a purchase for business purposes please feel free to contact a Dugan & Lopatka professional at This email address is being protected from spambots. You need JavaScript enabled to view it. or (630) 665-4440.

    • The chance the IRS will target your business for a federal tax audit is usually low. However, if your tax return for your business includes certain red flags, you boost your odds of being audited. Here are a few of the most common audit triggers that are likely to grab the attention of the IRS.

      Continuous losses. If you report a net loss on a Schedule C in more than two out of the last five years, the IRS may consider your business a hobby. If deemed a hobby, you can deduct expenses only up to the amount of your hobby's total income. Enjoy rebuilding cars? Great. But if you never turn a profit, don't expect the IRS to consider it more than a hobby.

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By Dugan Lopatka - Accountants for Midsize Businesses in Chicago:  CPAs for Small Businesses

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