Take Some Credit for Your Business – The General Business Credit

Take Some Credit for Your Business – The General Business Credit

by | Nov 20, 2020 | Business Tax

The phrase “tax credit” rings sweetly in the ears of business owners when it is mentioned. There are several types of business tax credits available, so long as your business qualifies for one, or possibly more. What if all those credits could be combined together? The General Business Tax Credit is an overarching term referring to a nonrefundable business tax credit, consisting of a plethora of assorted business credits available to qualified small businesses.

Qualified Small Businesses

In general, the qualifying small business should be a corporation (with no publicly traded stock), a partnership, or sole proprietorship whose average annual gross receipts do not exceed $50M.

Just to name a few of these credits available to qualified businesses:

  • Work Opportunity Credit
  • Rehabilitation Credit
  • Low-Income Housing Credit
  • Small Employer pension plan startup costs
  • Distilled Spirits Credit
  • Alternative Motor Vehicle Credit

If you only plan to claim one business credit, you only need to file the appropriate form for that credit for your business tax return, such as Form 5884 for the Work Opportunity Credit. Otherwise, you may use Form 3800 to claim the several business tax credits that you may qualify for, and attach any additionally needed forms.

Running up the credit limit

Unsurprisingly, the amount you can claim for the general business credit is limited based on your tax liability and Alternative Minimum Tax liability for the year. Excess credit may get carried into the following years though. Each credit may have its own provisions and limitations, such as the research credit.

By utilizing available business tax credits effectively, owners growing their businesses can potentially expand further and faster. Money that would be otherwise spent paying taxes can be turned around into things such as hiring new staff. Having knowledgeable tax guidance can help owners plan for using such business credits effectively, which we at MiklosCPA can do for our business clients. We have helped many small and emerging businesses with their tax and “back office” accounting needs. Give us a ring (or email) and learn more how we can help your business! Also, please follow our social media pages for additional tax tip pieces like this one as well as other useful business knowledge.

The Backbone of A Successful Business – Good Recordkeeping

The Backbone of A Successful Business – Good Recordkeeping

by | Sep 24, 2020 | Business Tax

 

When starting a business, look to how you will keep your records! The foundation of any successful business is a well-maintained set of records. A good set of records allows a business owner to check in on the health of their business and make effective decisions, such as opening new locations, obtaining a loan, or hiring new staff. Accountants and other staff use records to prepare financial statements and prepare tax returns in an efficient manner. Records may also help business owners by acting as supporting documentation when they deal with state and federal tax issues, such as an IRS audit or if they need to request a refund on an overpayment.

How should I keep my records?

With some exceptions, most businesses are able to maintain their records how they wish, such as through a robust electronic accounting system for a large engineering corporation or a simple notepad for a small mom & pop operation selling trinkets online. Regardless of the type of business, you should use a method that accurately reflects your income and expenses. That data is necessary when filing your tax returns!

Records to keep

Documents such as copies of receipts, electronic spreadsheets, purchase agreements, invoices, carbon paper estimates, payroll stubs, and past tax returns are all things a business should maintain as part of their records. Putting these documents in an ordered filing system can help keep you up-to-date on the activities of your business, as well spare your accountant from headaches!

How long should I hold records?

While there is no hard timeframe in how long you should keep your records, a generally accepted rule-of-thumb is that businesses should hold on to records for 7 years. Some banks may demand 3+ years of statements before approving a business loan. IRS audits generally ask for 3 years of records and any refund claims are within a statute of limitations 3 years from the date of the filed return. Some state tax agencies may possibly ask for records going further back in their audits.

 

Good records help a business flourish. However, as the business expands, the recordkeeping, especially the accounting, may get time-consuming and take away from a business owner’s main duty, growing the business! We can assist with that accounting recordkeeping here at MiklosCPA! We are a California-based CPA firm that has assisted many emerging firms with their bookkeeping and tax needs, as well as provide support for business owners as they grow their firms. Learn more about our services by scheduling a chat with us! Also check our social media pages for future “good-to-know” postings like this and other interesting tax tidbits.

Unemployment and Other Income – Yes That’s Taxable

Unemployment and Other Income – Yes That’s Taxable

by | Sep 7, 2020 | Business Tax, Individual Tax

 

Income may come from a lot of sources. Most of it is taxable. Taxpayers often report income on their tax returns from things such as wages, dividends from stocks, and business-related income. However, there are some not-so-commonly known income sources that are taxable, such as income from unemployment. Here’s a list of some “yes-that’s-actually-taxable” income:

  • Unemployment benefits – A hot topic as of late. Many people who suffered a job loss or furlough during this pandemic rely on this financial lifeline. Just as if they had earned a wage, unemployment money is taxable. Submitting a W-4V Form will allow a withholding to be applied to the unemployment income.
  • Gains from the sale of property – The capital gains made from the sale of property like buildings and stocks are taxable. Notably, this also applies to the sale and exchanges of virtual currency like bitcoin. Check out our article on capital gains for more info.
  • Gambling winnings – Lady Luck have a thing for you? Well you’ll be on the hook for the income taxes connected to those sweet, sweet winnings. Winners are issued a Form W-2G to report those winnings above a certain threshold on your income tax return.
  • Bartering – Exchanges of services, such as a plumber doing plumbing work for an accountant in exchange for accounting services, is consider taxable and needs to be reported as income. Generally gets reported on Schedule C.
  • Alimony (paid to you) – Alimony money paid to you in a divorce arrangement is treated as taxable income. Report any alimony money on the Form 1040 Schedule 1 on line 2a.
  • Loan forgiveness – Worked a deal with a bank or collection agency on an outstanding debt to have it forgiven? Well, depending on some circumstances, that forgiven debt balance may be taxable income. Check out our article on cancelled debts for more info.

Generally, it may be easier to consider your sources of income as most likely taxable unless otherwise specifically exempted, such as child-support money or qualified gains made from the sale of your home.

 Figuring taxable income can get complicated. Business owners already have enough on their plate running and expanding their business. Having the right backup can help move your business forward, and we at MiklosCPA can help you. We are a California-based firm that supports emerging businesses with their tax and accounting needs so owners can focus on their business goals and dreams. Learn more how we can help your business by giving us a call. Also follow our social media pages for future “good-to-know” articles like this and other interesting tax tidbits.

Income Tax? Sales Tax? – A Plethora of Different Taxes

Income Tax? Sales Tax? – A Plethora of Different Taxes

by | Aug 7, 2020 | Business Tax, Individual Tax

An old college acquaintance recently made a fiery statement on social media stating that a certain kind of nonprofit “is not taxed” and that they should “lose their tax exempt status.” For the sake of peace, I won’t specify what kind of nonprofit it is. As for the matter of that “lose their tax exempt status” statement, it demonstrates a common, hazy misconception that taxes are all the same. 501c3 nonprofits are exempt from INCOME tax, but may be (and usually are) subject to other taxes, such as sales tax and employee taxes.

In reality, there are actually many different types of taxes. It’s worth getting a general picture where those taxes may appear in your daily life.

Just My (Tax) Type

Generally speaking, taxes can be broadly split into these categories:

  • Income Taxes
    • Taxes based upon your income earned. Factors such as the type of income, how it was earned, and where it was earned often affect how your income tax is calculated. This tax exists at the federal and state level. Some states do not have an income tax. The IRS is the most well-known agency involved in income tax. Nonprofits may qualify for an “exemption” from income tax through the IRS and state income tax agencies.
  • Consumption Taxes
    • Very broad category of taxes based on taxable transactions that take place. Some common ones are:
      • Sales Tax – taxes applied often to retail sales. Does not exist at the federal level but almost all states enact some form of sales tax.
      • Use Tax – taxes applied to the use of goods where a sales tax would normally apply. E.g. purchasing items from out-of-state with no sales tax applied. Exists often at the state level.
      • Excise tax – A tax applied to a specified type of good, such as alcohol, gasoline, and cigarettes. Exists usually at the state level.

 Property Taxes

    • Taxes based upon the value of owned property or any improvements made upon it. Often exists at the county and city level.
  • Payroll Taxes
    • Otherwise known as “employee taxes.” These taxes apply towards business owners with employees. Exists at both the federal and state level. The taxes collected go to assorted unemployment and social security programs.

 

There’s quite a plethora of taxes that can affect our daily lives! Business owners should especially be aware of these taxes, and we at MiklosCPA can help! MiklosCPA supports business owners in emerging and mid-sized firms with their accounting and tax needs. We got your back so you can focus on what drives you, your business! Give us a ring (or email) and learn more how we can help your business. Meanwhile, let’s keep in touch and follow our social media pages.

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