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EP200217 RichOnPlanning - PLANNING MATTERS - SMALL BUSINESS TAXES W Author Dan Pilla

Planning Matters Radio / Peter Richon
The Truth Network Radio
February 17, 2020 11:00 am

EP200217 RichOnPlanning - PLANNING MATTERS - SMALL BUSINESS TAXES W Author Dan Pilla

Planning Matters Radio / Peter Richon

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February 17, 2020 11:00 am

One of the biggest burdens on small business growth is taxes. Business owners often get into business because they have a great idea or product. Too often, they go out of business because they run afoul of the IRS and their tax liability. Author of "Small Business Tax Guide" Dan Pilla joins us on the program to address some of the biggest tax traps and challenges business owners face, how to know about them, and address them.

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Now, as any small business owner knows running the business is not just about running the business. You've got to deal with a lot of paperwork and one of the biggest burdens on small business owners is taxes. So as we usually do.

We got a very special guest joining us on this edition of the program we are now alleged to be joined by our guest. He is Dan Phillips, author of small business tax guide. The complete guide to organizing and operating your small business. Dan will commit every pewter. We appreciate the time, not Anna's. Everybody knows. I mean to get to business.

You gotta be a tax expert as well. Don't you want hear that where me.

The fact of the matter is there's 100s of different obligations that are heaped on small business. Unfortunately, most small business owners find out about them the hard way after the Iris challenges what their daughter or most cases, what they didn't do it. That should've gotten so that's what gets you folks in trouble and that so that's what this book is pointed out, keeping small business is in compliance with don't get clobbered by rules and never knew existed, but to be frank, I mean doing the taxes is one of the most enjoyable parts of being in business is why the first place right yeah that's exactly why we all get get into good leaders to be Texaco but you know and and and and the fact of the matter is that doing the tax return is is is just just one part of tax compliance generally and you know small businesses listening to us right now. Small business owners may say, well, I've got an account and I don't have to worry about that.

What will that's great you have a counter to the tax return.

That's great but but I like to use the analogy of a dentist you know you go to the dentist.

Once your get your check up in your your you know your teeth cleaning to fill a cavity if necessary. Okay, that's fine, but the dentist doesn't brush her teeth for every night. The dentist doesn't pause for every day. The dentist doesn't do the day-to-day things that you need to do to keep your your teeth and gums healthy and that's exactly the relationship that most people have with their accountants. They seem once a year or maybe twice a year for four. You certainly tax return preparation and and perhaps the preparation of other reports or documents, but the day-to-day stuff is on the business owner and he has to know what he or she is doing here to to keep the proper records so the account's job is not only easier, but the tax return is accurate that the accountant doesn't have anything to do with the underlying records that are dependent on the tax returns accuracy and like the dentist in the cavity to be pretty painful if the problem is already there. Yeah exactly right. No question about what are some of those mistakes that you have seen small business owners make that have cost them time, money and productivity. While I think one of his mistakes and this is something that no accountant can help you with is keeping a proper mileage log into one of the biggest expenses that a small business owner is going to have is that is her vehicle and she is driver always say for example you got a realtor, a self-employed real estate salesperson right so she's driving around in a car every single day showing customers and prospective customers houses he or she might drive a couple hundred miles to two through 400 miles in a weekend. You know, that's that that's a huge deduction for real estate professional and and that deduction is available only if you have the proper logs of your mileage and there's particular ways that have to do it particular legs of travel that are deductible and certain other legs are not deductible and and this is not an area were CPAs going to babysit you on an ongoing basis.

Now that you know so you have to know how to keep these logs in these records. I got a chapter in the book dental small business tax guy got a chapter in the book that shows you exactly how to keep these records, including charts to demonstrate for you graphically exactly what legs of your trip are deductible. What legs of your of your trips are not deductible. So you get the most possible bang for your buck on the on the mileage expense for your vehicle technology some extent making that a little bit easier. Correct yet. In fact I talked about the technology and in the book as well but together. Technology can't tell you whether this leg is deductible or that leg is deductible. You have to know that in order to take advantage of the technology now purchasing of tools and equipment things to help the business run productively.

That's another one of business owners largest pieces of overhead and expense. There are some some great advantages to to making those purchases specifically. Maybe this year and and next year.

Over the next couple years, correct yet the real advantages of so-called section 179. Normally, when you buy equipment that has a useful life of longer than one year. In other words, it's very ill copy machine for your office. For example, I've got a useful life of more than one year unless you bought a piece of junk that dies in six months but course shooters pretty solid these days right so useful life of more than one year that equipment typically generally has to be depreciated over its useful life.

So you spend less lecture so you spend the Mashable seven $7500 on upscale copy machine and and got useful life of three years. While your deduction typically is $2500 a year, but the election so you can't claim it all at once. Generally, it has to be spread out, but there's an election that's available under code section 179 that allows you to expense the entire amount of the expenditure that is to say, deducted all in one year.

It's an affirmative election. You have to make on the tax return that says, write all this off, instead of spreading out and and that that is a huge advantage for folks that that a have to purchase equipment they need equipment for their businesses in the had a higher than that than usual or higher-than-expected income and particularly your let's let's say in 2020 here. Now you've closed a couple of big deals Internet have substantially more income this year than you had in years past.

No, rather than hounding yourself with an additional income tax liability because you got this additional income. Maybe this then would be the year to purchase equipment that you needed was the 179 election to write it all off and and and and and and and therefore get a deduction that will offset that income and keep your tax liability down C Corp. S Corp., LLC does your book help small business owner make sense of those and maybe when to utilize one of the other or make a transition yet yet doesn't affect that in my opinion, one of one of the most important parts of the book is understanding different entities that are out there you know you talk to small business owners at a course I taught small business owners every day because my job Peter is litigating against the IRS all the information that's in the small business tax guide is the culmination of over 40 years of litigating with the IRS in the small business cases were people of gone sideways with the IRS right so this is this is the formula for staying out of trouble. He will talk about your soul. So in an specific answer your question. I'll talk to small business owners all the time about the reasons why they elected. For example, to be an LLC or to be an S corporation and the answer is almost universally I don't know that's what so-and-so suggested this was the easiest thing to do.

It will grade it easy for sure and and and maybe it was just a suggestion from this person or that person or CPA or or whoever into into many cases into many cases per year. The suggestion was from their brother-in-law the barber who suggested that the LLC was the best way to go because of somebody's something somebody told him ill while in the barber chair will that's not that's not that you know that's not solid tax advice you can't go by that. So in in the small business tax that I have a chapter in their that lays out that that explained all eight first, I identify all age of the different entities that a person can use to do business from S corporation sole proprietorship, LLC, and the list goes on. There's eight of them. I give you the, the, the explanation of what that entity really looks like another word what is an S corporation. What is that even mean I so explain that. And then I show you the pros and cons of operating under each one of of of of the particular entity. So what is the advantage of a sole proprietorship.

What is the disadvantage of a sole proprietorship and then Peter and this is where this is where virtually everybody goes sideways and and this. Frankly, this is worth the price of the ticket writer just this information. My opinion is I show you exactly what you need to do to stay in compliance with respect to that particular entity, so another words, an S corporation has a return filing obligation different from a partnership partnership has filing obligations different from an LLC right and so I explained all of these but these were these compliance requirements so you can see at a glance exactly what you need need to do to stay in compliance with your tax reporting obligations that I'm telling you, I can't. You can't imagine the percentage of small businesses that convicted that are out of whack with compliance because they do not understand exactly what they have to do. In other words, what hoops they have to jump through to stay legal, you could be paying more than your fair share with you not keeping the proper records and keeping in compliance could still run afoul, no question about it. Absolutely I would argue that small, most small businesses do pay more taxes than are legally required to pay for for for just for just that reason.

Payroll and benefits.

Another area where small business owners have questions. Any guidance or or tips or secrets. There yeah infect others. There's two chapters in the book that you would payroll issues. One chapter shows you exactly how to deal with employees.

What are the requirements that the iris places on an employer when they hire employee know what most employers think in terms of well you know I hire an employee I got MOH and then I got a do deductions you know.

Okay, fine. What is that look like all right but but now I show you what the forms are the need to be filed. I show you I show you, you know, there's five things Peter that employer needs to do when they first hire an employee and in most employers you know they can't name five of him and I and I would argue to the most CPA Name five of and so you don't. That's another reason why they get white way wipe small businesses get sideways now. Along those lines. One of the single biggest mistakes that small business owners make is in the classification of workers as independent contractors.

In other words, they want they want to have some help in their business of business owners need help in their business. They don't want to go to the step of hiring employee because of the cost and the hassle goes along with it. And so what they do is they treat their worker as an independent contractor that is to say they just pay the pay the full check and they say okay this person is an independent contractor, not an employee. And so therefore I don't have to Google holding all rest of that and that and that is a huge problem for small businesses because the rules that govern whether a worker is a is an employee or an independent contractor are very strict of their very specific and I promise you is not one person and 3000 that knows what these rules are that includes unfortunately most CPA's that the return preparation. If they're not in the practice area that is to say dealing in I should say the litigation area D-Link dealing with iris challenges and audits and appeals in Tax Court and they just probably are not going to understand the nuances of these rules and in the small business tax guide. I break this down for you step by step-by-step so anybody even something without a tax background, especially someone without a tax background and understand what these rules are and how to apply them so you don't get messed up before doing that one wrong is a small business owner and as an employee.

What are the possible repercussions while the repercussions are significant because, for example, if you pay if you pay a worker as an independent contractor and the iris does employment tax audit, which by the way employment tax audits are always on the top on the list of the top six or seven of what so-called enforcement initiatives.

The iris pursues every single euro zone over employment tax compliance is very high priority item for the iris and has been for years and continue to be going forward and saw if you go through employment tax audit. The iris is all you been paying these workers at it as anything contracted with the really employees what they do. Peter is a reclassify the worker. The iris will come along and reclassify the worker and say okay. This worker should have been treated as an employee but but he wasn't and so therefore now working to go back and assess against you. The employer working to assess all the employment taxes and all the penalties that should have been paid, but weren't. And in addition to that, not just employment taxes and penalties. But in addition to that they assess against the employer. The workers tax liability that should've been withheld from the worker's paycheck and wasn't and so this is a huge risk if you pay if you pay less a $10,000 and in payments in the iris reclassify those payments as wages you might have a $4500 tax liability when everything is set.as an LS project that over bill instead of 10,000.

Let's say 50,000 year analysis through 45 employee workers that are converted. This is a huge, huge problem and it Emmett and and it happens John. It happens all the time it's all good.

So employer. Self-employed people just simply need to know what these rules are so they don't get sideways, expenses, equipment, employees, taxes, penalties, is is there any room for profit or even making headway toward saving for retirement for small business owner. Well I got there is any that there is this the semi-crock corset districts that we depend on the business is no question about that but but you know small businesses are the backbone of America that they think they have been for for centuries and they will continue to be II would argue for decades going forward.

Small businesses are the are the backbone. The vast majority of the of of workers that are there new employees are hired in the workforce are hired by businesses with fewer than 20 employees, so it's not no it's not Amazon and NGM and and Microsoft that makes up the bulk of the new hires in our country.

I am in those companies have hundreds of thousand employees combined in. We think a big big big businesses being responsible for all all employees but I remember there is millions of small businesses out there and in the vast majority these businesses have fewer than 20 employees. So when those businesses are out there hiring one or two additional employees that were all the growth comes from and that and their experience businesses are experiencing these crossed this growth because the alarm or making moaning. Obviously not all of do.

The fact is that the attrition rate for new businesses is pretty high. Talk about this in the book as well that I forget the statistics off the top of my head, but he like to me that about half of all new businesses fail in the first three years of operation, and in the first 10 years.

Another 30% of those fail, so if anything be as a result of IRS.

While certainly there is there there there is so there's no question that that's a factor Peter no doubt about it. You businesses get sideways with the iris and I know I've had I've had small business people tell me.

I've heard this a thousand times over 40 years and I'm never going to business, but for myself again in all but and and and so that's the result of bad experiences with the IRS not necessarily bad experiences in the business itself.

And so what I want to do. My goal here is to bring all my my experience in all my all my knowledge of how the IRS attacks a small business and later that battle plan in front of every business owner America so they can see exactly the direction the IRS is coming from right while I'm giving you the enemy's battle plan here. So now you can see exactly the direction the enemy is coming from and precisely what kind of forces the enemy has their bringing to bear against you and me. What kind of advantages that is that in the military situation. Obviously it's a huge advantage in this is the advantage I give you in the battle to stay in compliance with your tax obligations.

He is Danville, author of small business tax guide complete guide to organizing and operating your small business.

Of course Dan. That's the best step would be ahead of time to read the book understand the information if we run a falcon. We give you a call that absolutely anybody that orders a book about my website Peter tax help online.com that's all one word tax help online.com you order this book from my website.

You will get a free 15 minute consultation directly with me personally, not my staff me right but you gotta buy the book from the website tax help online.com and end, and you can get all the information there on this book and the other materials that are without that we have available to help people with iris issues was a great book. Lots of information. If you are looking to to stay in good shape. Be proactive, not not run afoul or get into any gray areas. I would suggest picking this one up and in reading through it tax help online.com again.

Author Dan Piller small business tax guide we push each time. Thank you, but my pleasure. Thank you, will again taxes. As with many other topics. The taxes being the big one.

Such a huge part of running a successful business. You gotta be on top of that the tax situation of your business. And on top of the taxes to run a successful business not being on top of it can cost big time. In fact, it couldn't even cost you your business. So let's make sure that we are staying informed up-to-date Dan Piller's book very good resource to to understand some of the complexities and some of the solutions to address them. So we appreciate Dan joining us on the program. Now, if you've got questions about your personal planning and would like to look over any topic or financial investment, retirement planning your forward-looking tax roach tooth keeping the most of your money. Feel free to be in touch. He always enjoy and appreciate hearing from listeners to the program and do offer the opportunity for a complementary review of your situation. A strategy session for your financial and retirement planning progress of how you can be in touch with Rochon planning by calling 919-300-5886 can visit us online, which on planning.com is always encouraged.

Please like strive to the podcast channel on their 919-3005 online which on planning. This is planning radio.

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