One of the great things about America is that it was founded by capitalists.  Our tax code, contrary to popular belief, is full of tax incentives in favor of enterprising individuals. There are a large array of deductions and credits for people building businesses.

From what I have seen is that a lot of small business owners are not taking legitimate business deductions available to them, such as retirement plans, business expenses that are tax deductions, or depreciation for the equipment or machinery.  Therefore it is important to become familiar with the tax code or hire a professional tax advisor, especially ones that are business owners themselves or have worked with small businesses, for expert guidance.

How Tax Structures Change as Businesses Grow

From the beginning, how a business is formed carries its own tax characteristics.  When a business first starts out, having a sole proprietorship form may make more sense as there isn’t a lot of profit to be concerned about taxation, and it does not take much time and effort in terms of legal compliance and administration. 

As a business starts to break even, afford to pay back its owner or to hire employee, changing to S-corp or C-corp for optimization of self-employment taxes or for lower corporate tax bracket (compared to higher individual tax brackets) will be a natural evolution. [please visit www.bayCPAplus.com for comparison of legal entities and tax implication]

Proactive Tax Strategy - Your Checklist For Tax Filing Season

As you already know, how much you make doesn’t mean as much as how much you keep in your pocket at the end of the day.  Below is a list of reminders to organize your thoughts and records ready for tax filing, which is the first step of taking inventory of where you are and plan for where you are going to be.   

• Create an April 15 reminder. It’s the deadline for filing your 2019 individual income tax return, completing gift tax returns, making contributions to a Roth or traditional IRA for 2019, and for paying the first installment of 2020 individual estimated taxes.

• Gather your tax information for filing. Items you’ll need include W-2s, 1099s and other forms you receive from your employers, brokers, banks and others. If you detect any errors, contact the sender immediately to request a corrected copy.

• Know business return deadlines. If you own a business or are in a partnership, the deadline for filing partnership and S corporation returns is March 16. Calendar-year C corporation tax returns are due by April 15. Six-month extensions can be requested for partnerships and corporations.
  

• Keep great donation records. Here’s what you need to deduct your donations: Cash contributions under $250 require a bank record like a canceled check, credit card record or a receipt from the charity. For larger donations, a receipt from the charity must be obtained before filing your return. Donations of property should include a photo, a receipt from the charity and a detailed listing of the items donated that are in good or better condition.
  

• Review your child’s income. Your child may be required to file a 2019 income tax return, too. Generally, a 2019 return is required if your child has earned more than $12,200, or has investment income (such as dividends, interest, or capital gains) over $1,100. If your child had both earned and investment income, other thresholds apply.
  

• Contribute to your IRA. There’s still time to make 2019 IRA contributions — up to April 15, or until you’ve contributed the maximum allowed. That’s the lesser of your earned income for 2019 or $6,000 ($7,000 if you’re 50 or older).
  

• Make any final moves. Remember, you can reduce your income by up to $3,000 of excess capital losses. So plan now to review your investments and make any final moves.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

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