Category Archives: Small Business Tax Advice

IRS Audits– Audit Triggers & Important FAQs to Know

IRS Audits are not fun! How does the IRS decide who to audit, and who not to? The IRS is increasing automated ways to trigger audit suggestions. Discover here the 4 triggers and FAQ about IRS audits to pay attention to in 2019

You may feel triumph or relief when you send in your taxes. However, make sure to file your work papers and documentation with care. Not only will you want to be able to refer to them next year, there is always the possibility of an IRS audit.

Less than 1% of tax payers gets audits, however we do receive new clients every year because of this painful problem.Here are several things to know about IRS audits.

How the IRS decides which tax returns to audit

The IRS checks all tax returns against other data it receives. For example, if you are employed, your employer files a W2 with the IRS. If you have interest or dividend income, your financial institution will file a 1099 with the IRS. If you neglect to include the information from these forms in your tax return, the IRS will notice and will probably contact you.

The IRS also runs automatic statistical checks to look for outliers. If what you claim looks very different from what others in similar situations claim, then your tax return is more likely to be pulled out and reviewed. Even this does not mean that you will definitely be audited. The IRS employee may look through your return, compare it to other information, and decide everything is fine. However, if the rest of the tax return is not satisfactory, then you’re more likely to receive an audit.

Sometimes your tax return is not the main target in an audit. If you do business with another person, and that person is being audited, your taxes may be checked as well in order to make sure everything is in order.

“Do You Know the Safe Harbor Conditions of the IRC Section 199A Deduction? If not, you can know about it only by clicking on the following image.

IRC Section 199A Deduction

Flags for IRS audits

Here are situations that make your tax return more likely to receive an audit:

•   Earning a lot of money. The greater your income is, the greater is the probability that you will receive an audit.

•   Filing a Schedule C. A Schedule C means that you’re self-employed. If you show losses from year to year, the IRS may want to know if you are pretending that a hobby is really a business.

•   Not reporting all taxable income. Remember the IRS gets all those W2s and 1099s and several other pieces of information as well.

•   Not reporting all foreign bank accounts. Because of pressure that the United States has put on other countries, there’s a good chance that your foreign bank is also communicating with the IRS.

How the IRS will contact you

The IRS has a policy of contacting US taxpayers by mail, at least for starting an audit So, if you receive a phone call pretending to be from the IRS, this is almost always a scam. Do not fall for it; it could cost you seriously. Of course, after you have a genuine relationship with someone working at the IRS, they may arrange to call you.

Audits themselves can be conducted entirely by mail, in which the auditor may pose certain questions, for example about deductions or expenses, for which you supply answers your answers by mail along with copies of documentation. You may also experience an in-person audit. These audits may either be “office audits” (at an IRS office) or “field audits” (such as your home, your business, or somewhere else).

The IRS tries to conduct audits within three years

The IRS keeps tax returns for six years. You may be audited on any of those years, so you should retain your documents and tax returns for at least six years. If your more recent taxes are intertwined with earlier years – for example, when you bought or sold stocks – you will want to keep those years and the supporting documents for the earlier years as well.

However, the IRS usually tries to audit taxes within three years of their being filed, so the probability of being audited on earlier years is very low.

The IRS is seriously understaffed

The Trump administration has not been replacing staff when they leave the IRS, and that means that this part of the government has experienced a reduction in personnel of about 25 percent. That translates into fewer audits being conducted.

Although this may be good for each individual taxpayer and business, the under-staffing at the IRS is not good for the revenue supplying the government. Fewer workers at the IRS means that fewer cheaters are being caught, and that means that less money is flowing in.

Even if you do get audited, you may not have to pay more

If you have followed the tax code and can document your decisions, you may not have to pay more after being audited. Unfortunately for auditees, most taxpayers have to pay extra more after they are auditedas well as penalties and fees.

Being audited is something few people anticipate with pleasure. If you follow the rules, the likelihood of your being audited is very low. If you keep your files and documents in order, being audited should be only a minor inconvenience.

If you are looking for a CPA with experience, and are located, or have property in the Phoenix area, we are accepting a few new clients. Please contact us by phone at 480-626-5043 or visit our Mesa office to set up an appointment to meet with one of our accountants! 

Do You Know the Safe Harbor Conditions of the IRC Section 199A Deduction?

The IRS issued a notice on January 18, 2019 about specific conditions under which your rental real estate enterprise may be treated as a trade or business.

This safe harbor is available to taxpayers who want to claim the section 199A deduction with respect to a rental real estate enterprise. If you can meet the safe harbor requirements, your real estate enterprise will be treated as a trade or business.

To qualify for this safe harbor your enterprise must satisfy several requirements, as follows.

Qualifiers for the IRC Section 199A Deduction

1. You must maintain separate books and records showing income and expenses for each rental real estate enterprise.

2. You (or your staff or contractors) must perform at least 250 hours of rental services during the tax year for each rental real estate enterprise. You may not combine commercial and residential rentals within the same real estate enterprise. Rental services that qualify include:

  • Advertising to rent or lease the real estate
  • Verifying information on the tenant applications
  • Negotiating and executing leases
  • Maintenance and repair of the property
  • Collecting rent
  • Daily operation, maintenance and repair of the property, including:
    • Management
    • Purchase of materials for repairs
    • Supervision of employees and independent contractors

As the property owner, you may perform these services yourself or have your employees, agents or independent contractors do so.

3. You must maintain contemporaneous records to document these hours of services, including time reports, logs or a similar description of the services performed, the dates on which they took place and who performed them. This means you must track everything, including your personal time and the time of those you employ. Maintaining a log book and invoice file scrupulously will satisfy these requirements. Your records should be available for inspection at the request of the IRS. The records requirement does not apply to taxable years beginning prior to January 1, 2019.

IRC Section 199A Deduction

See also: Changes to Arizona Department of Revenue’s Electronic Filing and Tax Payment are In Effect as of January 1, 2019

If you cannot satisfy these requirements, your rental real estate enterprise may still be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business in § 1.199A-1(b)(14).

The tax experts at Sean Core CPA can help you determine if your enterprise meets the requirements for the safe harbor IRC section 199A deduction. Call us today at 480 626-5043 or contact us online.

Business and Individual Tax Return Extension Deadlines Approaching

If you filed for an extension for your corporate business tax return, the deadline of October 15th, 2017 is fast approaching.  Typically, these returns and individual tax returns are due on the 15th of the fourth month following the tax year end, December 31st 2016 for individuals and most businesses.  A six-month extension gave you until October 15th 2017.  Schedule C sole proprietorships and single member LLC’s also have the luxury of waiting until October, with a six-month extension.

New Deadlines for Partnerships and LLCs

Beginning with the 2016 tax year filing in 2017, Partnerships  and S-Corps filed on a form 1065 and form 1120s respectively,  are required to file returns  by March 15th.  This  provides the necessary time to send Schedule K-1 to business owners for filing on their personal returns.

If you were part of a partnership filing Form 1065, your deadline is September 15th if you filed an extension by March 15th.  In case you missed this deadline, or if you have any questions about these or any other tax deadlines, contact Sean Core CPA PLLC, for tax and business services.  We provide business tax services related to Individuals, S Corps, C Corps, LLCs and Partnerships, and filing of all required schedules including K1’s.

Sean Core CPA for a Wide Range of Tax and Business Services

Our small business focused accounting firm provides tax preparation services including payroll tax returns for federal and state withholding (940, 941, 943, and 944), all State Unemployment returns, sales tax, and property tax returns.  Sean Core CPA provides personal attention to small business, with a wide range of business planning and financial services such as monthly bookkeeping with compilation of financial statements, and business tax services.

Sean Core CPA has been assisting small business owners in and around Mesa, AZ including businesses in Chandler, Scottsdale, Tempe and Phoenix with accurate and timely tax and business services that you can trust.

Never miss a tax deadline again!  Contact Sean Core, CPA today to maximize your return regardless of your business structure.  We have the knowledge and experience to reduce your tax debt and maximize your return with timely tax filings. 

What to consider when opening a Small Business in Phoenix, AZ

Owning a small business, being the boss, making all the decisions are dreams come true for any Phoenix entrepreneur. Many people day dream about opening a business. Others make those dreams come true by following the path to business ownership.

Business Planning

Most businesses are started because of the driving passion and ambition of the owner. Before letting the passion take over, there are three major components of business ownership that every potential entrepreneur needs to consider before hanging an open sign on the door.

Researching and developing a business plan, determining finances and taxes, and looking at the legal side of owning a business are vital to long-term success to any size or type of business. 

1.     Researching and Developing a Business Plan 

The business plan is important to setting many of the procedures, techniques, and operations of a business. All business plans should include the following:

  • Market research to determine the need for the product, pricing structures, and delivery methods
  • Realizing the Strengths, Weaknesses, Opportunities, and Risks (called a SWOT analysis)
  • A marketing plan for how are the products/services are going to be promoted
  • A growth plan showing what the next 3, 5, or 10 years look like
  • Personnel needs at startup and as growth occurs
  • Specifics of an office or brick and mortar store front that includes size, location, rents and furnishing, etc.
  • Projected first year sales, expenses, and profit margins?
  • Financing, investments, taxes, and other money matters
  • Legal factors such as naming, type of business (corporation, Limited Liability Corporation, Partnership), and licensing needed

2.     Financing and Taxes 

After researching and developing a business plan, the next step is to detail the financing and taxes section. The following list is a starting point for determining all the money details.

  • Detail all financing matters such as investors, loans, and credit cards
  • Projection of cash flow details such as how customers will be billed and what billing terms will be given to customers such as net due in 15 or 30 days
  • Projected monthly profits
  • Projected monthly expenses
  • Bookkeeping
  • Tax payment schedules
  • Payroll particulars such as how often to pay employees, benefits offered, and who processes payroll
  • Accounting practices for the office including computer software to help manage and monitor cash in and cash out
  • Weekly, Monthly and/or Yearly Tax preparation and filings

3.     Legal, Business Forms and Insurance

There are many decisions business owners have to make from the moment he or she decides to go into business for themselves until the day the business is sold, closed, or as it grows. The list below contains the legal aspects of opening a business.

  • Selecting a business name that is unique and legal
  • Determining business structure such as sole proprietorship, Limited Liability Company, Cooperative, Corporation, Partnership, or S Corporation. Each type has its benefits and downfalls. It helps to consult an attorney to determine the best structure for a particular type of business.
  • What types of insurance is needed for the business such as renter’s insurance, employee insurance, health or life insurance, consumer protection insurance, etc.
  • How to file patents or copyrights
  • Obtaining any all of the necessary licensing

Keep the Passion Alive

Many business owners tend to get put off by some of these details (especially the accounting and tax tasks) and would rather ignore them than to address them. Most of the details listed above are one time decisions while others have to be continually updated like the business plan.

Laying the ground work before starting the business is always the best way to approach these items. There will be time for the business owner to pursue their passions of making or providing the products and services that will always remain the foundation of any business.

We wish you much success, and if you are looking for tax advice or business accounting help from an experienced CPA in Arizona, please reach out to our Mesa office.