Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Aug 3

    In the flurry of launching a new business, filing your taxes may well be one of the last things on your mind. But, you don’t want to wait until the last minute to figure things out. At best, you could leave money on the table – at worst, suffer penalties or other legal ramifications.

    Avoiding these common startup bloopers can ensure your new business is on the right track to handling its tax obligations properly.

    1. Not keeping track of all of your expenses
    From the moment you launch a business, you can deduct “all ordinary and necessary” business expenses such as office supplies, professional fees, and business mileage. Your biggest mistake is not keeping track of these expenses throughout the year, and trying to gather every receipt when it’s time to file. The bottom line is you can’t deduct what you can’t document, and failing to record as you go most likely means you’re forgetting expenses and leaving money on the table.

    Find a method for documenting expenses that works for you. An accounting program, such as QuickBooks®, will let you record and manage revenue and expenses. In addition, there are dedicated apps such as Expensify for tracking expenses, MileBug for recording mileage, or Shoeboxed for capturing paper receipts. The best method is whichever one you will consistently use.

    2. Mixing personal and business
    New startups and small business owners often invest so much of themselves, their time and their money, into their new company that it’s hard to separate them. But separate them you must! The mixing of business and personal funds makes it extremely difficult to make sure you deduct all of your business expenses and only your business expenses. At the very least, you must have separate business and personal checking accounts. Just imagine the look on an IRS auditor’s face when she finds out you can’t tell your business and personal expenses apart.

    3. Choosing the wrong legal entity
    Your business’ legal structure affects how you report your taxes and how much you pay, so it’s important to choose the right entity. For example, many start out as a sole proprietor or partnership because it’s easiest, but soon find themselves paying way too much in self-employment taxes. Creating a corporation can help lower their tax bill significantly.

    4. Mixing equipment and supplies
    Both first-time and experienced business owners get tripped up by what is considered equipment versus supplies. Equipment are often higher value items that will typically last longer than one year, while supplies are generally things that you use up during the year.

    When it comes to equipment, there are a couple of approaches: 1) You can recover a portion of the cost each year, or 2) you may qualify to write-off the full amount in the year of purchase. There are, naturally, some restrictions on the ability to deduct the full amount. Be sure you talk to us first to find out if you qualify.

    If you mistakenly deduct your equipment or other capital item as an operating expense such as supplies, the IRS could determine that you’re not entitled to any deduction.

    5. Not sending Forms 1099
    When you pay any freelancer, contractor, attorney or other non-corporate entity $600 or more for services over the course of the year, you’re required to issue Form 1099-MISC and send copies to both the entity (business, contractor, individual, etc.) and the IRS. If you fail to do so on time the penalty can be as high as $520 per occurrence.

    6. Deducting too much for gifts
    Maybe you sent some of your best clients a holiday present, or sent them a closing gift after a large purchase, or sent a colleague a thank you gift for an especially nice referral. Great! Business gifts are deductible, but there’s a big catch. You can only deduct $25 per gift. So, if you send Paula a $150 fruit basket, you only get to deduct $25 for it.

    Documentation is going to be important. If you report $2,500 in business gifts, you need to be able to have documentation that shows you gave gifts to 100 different people.

    7. Not making estimated tax payments
    If your business is any legal form other than a C corporation you are personally going to be liable for paying taxes on the profits you earn. Business owners are required to pay in sufficient taxes to cover their expected tax obligations. Those payments can be in the form of payroll withholding – if you or someone in your household qualifies – or through quarterly estimated tax payments. Even if it wasn’t required, it is generally easier to make smaller payments on a quarterly basis than to have to pay the entire bill at year end.

    The best way to stay on top of your estimated tax payments is to get into the habit of setting aside a percentage of your revenue on a regular basis. Then, on a quarterly basis, review your revenue and expenses, calculate your tax liability, and make the appropriate payments.

  • ANNOUNCING:

    Filed under Marketing
    Sep 30

    Richard Lindsey and Zevac & Lindsey, LLC are now offering new services to our business clients. Richard is available to help you grow and market your business through Marketing, Consulting and Coaching. So, whether you’re an established business looking for fresh ideas or a budding company looking to kick start your business, we’re here to help.

    Make your appointment today to get started with Richard!

    **Consulting Fees Apply**

  • Jul 8

    Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.

    1. First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.

    2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

    3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.

    4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

    5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

    6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

    IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with staring and operating a new business.

    ***Richard’s Note: Of all the tips I could ever give you, #4 is the most important. If you need help getting that started, contact our office’s QuickBooks advisor, Paula Waldo.***

  • Apr 29

    One of the first questions we often get from budding entrepreneurs is, “What type of business should I be?” and the answer is always…

    “That depends.” When starting a new business, it is important to begin with the right type of entity for you. There are several considerations to think about when deciding what type of business entity to use for your new business. Each type of entity has its own unique features. Some factors to consider include:

    • How do you want profits and losses to be treated?
    • Should it be easy for the company to allow owners to sell or transfer their ownership?
    • Are you concerned with personal liability?
    • Do you want it to be easy to withdraw cash from the company when it is available?

    All of these are important questions to ask and each answer narrows the type of business entity you might want to become.

    There are four common entities. Each of the following business entities has its own formation and operating requirements:

    • Sole proprietorship
    • Corporations

    * C and Sub Chapter S

    • Partnerships

    * General Partnership

    * Limited Partnership

    • Limited Liability Companies

    A sole proprietorship is the quickest and easiest entity to form. You just start doing business. However, the owner assumes all responsibility for operations and finances. In addition, the owner assumes unlimited risk of his personal assets. The income is taxed at the individual owner’s tax rate and self-employment taxes are paid on the income.

    C Corporations are separate from the owners. It provides the shareholders with the most protection from personal liability. The income is taxed at the corporate level. The income is often referred to as being “double taxed”. This is because the corporation pays taxes on the income and any distribution from the company is taxable income to the shareholders as well. The S corporation is similar to the C corporation with the exception of double taxation. All income flows through to the shareholders and taxed at their respective income tax rates.

    General partnerships simply require an agreement between two or more individuals to jointly own and operate a business. Income and management is shared among the partners and each partner is personally liable for the debt of the partnership. The income is reported on each partner’s tax return based on ownership. The limited partnership offers some of the partners limited liability. The general partner, who assumes personal liability, manages the partnership and the limited partners contribute capital, but have limited liability and assume no role in management.

    Limited liability companies are a hybrid type of entity with characteristics of both a corporation and a partnership. The company is run similar to a corporation with members/owners owning and managing the company and the income is “passed through” to the individual owners and taxed at their individual income tax rate.

    There is no one right answer to the question “What type of business should I be?” Contact us today if you’d like to review your business formation options from a tax standpoint. We would be happy to help you understand your choices.