Tax Planning for Small Business Owners

Tax planning is the process of looking at various tax options to determine when, whether, and how to conduct business transactions to reduce or eliminate tax liability.

Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

Although tax avoidance planning is legal, tax evasion – the reduction of tax through deceit, subterfuge, or concealment – is not. Frequently what sets tax evasion apart from tax avoidance is the IRS’s finding that there was fraudulent intent on the part of the business owner. The following are four of the areas the IRS examiners commonly focus on as pointing to possible fraud:

1. Failure to report substantial amounts of income such as a shareholder’s failure to report dividends or a store owner’s failure to report a portion of the daily business receipts.
2. Claims for fictitious or improper deductions on a return such as a sales representative’s substantial overstatement of travel expenses or a taxpayer’s claim of a large deduction for charitable contributions when no verification exists.
3. Accounting irregularities such as a business’s failure to keep adequate records or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements.
4. Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder’s children. Read more

Deducting Business-Related Car Expenses

Whether you’re self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.

There are two choices for claiming deductions:

1. Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
2. Use the standard mileage deduction in 2016 and simply multiply 54 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method.

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Statement of Information Filing Requirement with California Secretary of State

Just as a reminder for all of our corporate clients, the California Secretary of State requires you to update your records by filing a Statement of Information every year based on your original registration date with the state. Limited Liability Company entities have the same reporting requirement, but need to do so every other year.

Corporate filings can be filed electronically at https://businessfilings.sos.ca.gov/.

LLC filings are required to be paper filed on form LLC-12. That form can be downloaded at http://bpd.cdn.sos.ca.gov/llc/forms/llc-12.pdf.

Please don’t hesitate to call us if you have any questions or need assistance filing these forms. Additional information is available on the California Secretary of State website — http://www.sos.ca.gov/business-programs/business-entities/statements.

The Home-Based Business: Basics to Consider

More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements, and attics are being transformed into the corporate headquarters of the newest entrepreneurs–home-based businesspeople.

And, with technological advances in smartphones, tablets, and iPads as well as rising demand for “service-oriented” businesses, the opportunities seem to be endless. Read more

The New LLC Act in California – What Does it Mean for You?

California has a new Limited Liability Company (LLC) act which took effect January 1, 2014. The new law automatically applies to existing LLCs and the new law contains provisions that can result in forfeiture of LLC member rights, if action is not taken. If you are a member of a LLC, now would be a good time to have an attorney review the LLC operating agreement to ensure you are protected against possible forfeiture of your member rights. This is applicable to existing California LLCs and does not apply to foreign LLCs that have qualified to do business in California. Also, the new rules are not important for single-member LLCs or husband-and-wife LLCs. Please contact us if you need a referral to an attorney that can review your current operating agreement and make amendments to prevent forfeiture.