Although it always comes around at the same time every year, tax season often sneaks up on a lot of people, particularly business owners. As the deadline gets closer and closer, they suddenly realize they are not quite as organized as they ought to be.
“I think that’s an issue, but you can’t really blame them because they’re busy and especially now, they’re climbing out of the abyss of the pandemic, which we’re really not out of yet,” says Jo-Ann Weiner, a forensic tax accountant and the owner of J. L. Weiner & Associates. “They have so many things on their plate and so many balls in the air, so it’s hard. But they should not scrimp on tax planning.”
We spoke to five local experts to learn more about how business owners can be better prepared for tax season, important changes being implemented by the Internal Revenue Service (IRS) and the benefits of working with a trusted professional.
What are some important steps a business owner should be taking every year as he or she prepares for tax season?
Kirsten Toler, CPA, owner of KMT Consulting: The thing that I try to instill in my relationship with my clients is that we should be walking through things proactively throughout the year. A lot of times, companies scramble at the end of the year and say, ‘I need to get some deductions in.’ We find that it makes it a lot less stressful for business owners if we’re walking in steps throughout the year. Every quarter for my business clients, I will review their financials with them and we’ll see what’s trending and talk about what’s in their pipeline. We also try to help clients look at their cash flow, so when the time comes, they can bonus out payroll or purchase a capital asset.
Jo-Ann Weiner, owner of J. L. Weiner & Associates: At this time of year, everybody—including me—should start taking a look at their income from last year and they should start gathering their records that will be needed to prepare their tax returns. And here’s something that’s really important that a lot of people don’t know: If you can’t file your tax return in time and you need an extension, that’s an extension to file, not an extension to pay.
Michael Bowen-Ashwin, partner at Friedman LLP: Preparing early for tax season is important for business owners. Owners should make sure their accounting books are complete and reconciled as early as possible as they wait for other important tax forms to be provided. Plan for any taxes that might be due and look for ways to potentially reduce this, through a SEP contribution or IRA contribution that could be funded by April 15.
What kind of services can an experienced accounting professional offer a business owner?
Meggan Ciaccia, CPA, owner of Ciaccia CPA: A lot of people are having a problem right now with taxes because we’re still in COVID and we’re coming off two years that could have been devastating for businesses. They might not have the money to pay their taxes because they had to pay their employees. … [Additionally], a lot of businesses and individuals are getting notices from the IRS and they’re not always right. We’re in this weird year of COVID and I have a lot of individual clients who paid their taxes last year by check and stuck it in the mail, and it never got cashed because they don’t have the people working in the IRS centers. Clients want to give power of attorney to somebody so they can talk to the IRS on their behalf rather than try to talk to them on their own and not knowing what to say or what the right answers are. That’s where a tax resolution specialist comes into play.
JW: J. L. Weiner & Associates LLC is a tax controversy practice. What that means is that people who are having difficulty with the Internal Revenue Service or with state taxing authorities come to me for a resolution, which I’m very good at … because I worked for the IRS for 35 years. That means I know what their procedures are, what the requirements are and how to solve problems for my clients. … The IRS doesn’t really know what life is like for a business owner and they don’t know the challenges, so I bridge that gap. I help business owners figure things out during the year, like how much to put in a 401(k) or whether they have business insurance or long-term insurance that they can deduct.
As a business owner yourself, do you think you offer a unique perspective for your business clients?
KT: Definitely. [It helps] when you’re walking in the same garden as they are, even knowing that my situation is not their situation. I put myself in their shoes frequently, which makes for a lot more personalized experience, because I understand their trepidation and … it allows me to ask more pointed questions to determine [their priorities]. Do you want to lower your tax exposure? Do you want to manage cash flow? Do you want to contribute to your retirement? Do you want to set up 529 plans for your grandkids? Being in their shoes allows me to ask questions and also gives a lot of validity to the approaches that we take because they know that I’m running a business and I’m just like them.
MC: Absolutely. [My company is] the same size as a lot of my business owners and … I’m trying to do the same things, whether it’s building revenue or trying to get my brand out there. Because I’m that small to medium-sized business owner, I’m relatable. Those small to medium-sized businesses don’t always want to work with a firm with 30 CPAs; they want to work with a firm that’s their size.
What recent changes implemented by the IRS should business owners be aware of?
Avani Bharucha, CPA/MBA, associate partner at Baratz & Associates: The Tax Cuts and Jobs Act implemented 80% of taxable income limitation on deduction of the net operating losses (NOL). The CARES Act suspected NOL limitation for the tax years beginning after Dec. 31, 2017 and before Jan. 1, 2021. The 80% limitation rule set by TCJA applies starting tax year 2021. [Additionally], the CARES Act introduced the employee retention credit (ERC), a refundable payroll tax credit to eligible employers on qualified wages. ERC credit expired on Sept. 30, 2021. There is still time to review your ERC eligibility and file amended payroll returns to claim the credit. [Also], the New Jersey pass-through entity tax took effect Jan. 1, 2020. This law allows pass-through businesses to pay income taxes at the entity level instead of the personal level. The New Jersey business alternative income tax (also referred to as NJ BAIT) helps business owners mitigate the negative impact of the federal state and local tax (SALT) deduction cap. If you don’t have a CPA, these can be difficult laws to navigate and implement. If you haven’t used an expert tax preparer before, this could be the year to start.
KT: One of the new things that came out of the tax laws in 2018 is the qualified business income deduction. Even though there are some hoops to jump through depending upon the type of business you’re in and the amount of income you have, this has allowed small business owners a pretty sizable deduction against this income so that they’re at least lowering their income tax on their earnings.
JW: The CARES Act now allows for a net operating loss to be carried back five years; that’s something new, so you have to talk to your advisers about it. … Another thing is people should be very aware of whatever stimulus and recovery money they received, along with the money for the enhanced child tax credit that they received ahead of time before the end of the year. Make sure to keep a record of that, because some people have forgotten, but the IRS didn’t forget. They’ll change your tax return, so gather that information before you talk to your practitioner or file your tax return.
MC: On the individual side, in 2021 part of one of the rescue plans was that the child tax credit was increased. Normally it’s $2,000 per child and this year, depending on how old the child was, it increased to either $3,000 or $3,600. That was only good for one year and it expired at the end of 2021. A lot of people are trying to push for that to be increased indefinitely. I don’t know what’s going to happen but that’s one thing that’s up in the air. On the business side, for 2021 and 2022, 100% of meals and entertainment—with some guidelines—is deductible, and typically it’s 50%. It’s not huge but it’s something to help businesses.
MBA: If business owners received any COVID relief over the past few years, be certain to make sure whether any of this would be considered taxable or tax-free in 2021. There were many types of credits, grants and loans available, all of which have different tax treatments to the business owners.
What other advice do you have for business owners?
MC: It’s really important to file before the deadline. Extensions are there and extensions are great in certain circumstances. But for a business, depending on what your business is, your return is due either March 15 or April 15, so a six-month extension puts you at either Sept. 15 or Oct. 15. If you’re waiting that long to do your 2021 tax return, it’s almost too late to make any changes and big moves for 2022—especially if you have a pretty large profit and you should have been paying estimates for this year. I say that your numbers tell the story of your business, and if you don’t know what your 2021 income was until September, it’s too late to use that to grow your business in 2022. I urge my clients to only file for extensions when it’s absolutely necessary.
JW: If you owe the state and the federal government, get an agreement with the state and enter into that agreement for how much you’re going to pay monthly, because the federal government program allows that as a credit. If you enter into an agreement with the IRS first, and then you go to the state, you may have to double your payments.
AB: Business owners are my favorite type of client. I love learning about their business and what makes it tick. I want to help them be successful. A business owner should have a strong relationship with his/her CPA. They should be able to ask a question any time of the year and not save it all for tax season. My advice is to ensure that you have a good working relationship with this essential professional.
KT: A business owner is the driver behind their tax journey, but finding the right tax advisor is like having a really good GPS system. You want to partner with a tax advisor who you can relate to and understand in their communications. I think the most important thing that business owners and individuals take away is that ultimately, they’re driving, but if they’re looking for guidance and they want to be more in control of what’s happening, it’s always a good idea to reach out to a tax advisor.
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Published (and copyrighted) in South Jersey Biz, Volume 12, Issue 1 (January 2022).
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