Do taxes sound daunting to you? It may sound very tedious. But let's face it, you probably didn’t prepare throughout the year. If you haven't done anything to get ready for taxes, in this week's episode, Angela Sticca Snyder explains how you should prepare for taxes.

How do taxes work in America? Let's break it down simply. Taxes might not seem like an exciting subject, but most people don't know how taxes work. Financial advisors are most guilty of this. It's about time for the facts on different investing you can do.

There's a difference between a 1099 and a W2. Most people get W2's. W2 is when you're an employee and you're working for someone else, and they're withholding taxes for you. It's the most common way of getting paid. 1099, on the other hand, is when you're doing side work, maybe a gig or some extra work for somebody, or you have your own business and your customers then give you 1099, that income is not taxed before you receive it. In this week's episode, Angela Sticca Synder talks about W2 vs. 1099.

The IRS revealed the 2020 tax brackets, and it's never too early to start planning to reduce money owed for taxes. You can start thinking ahead about how to handle your 2020 finances in the most cost-effective way. In this week's episode, Angela Sticca Snyder explains tax brackets for 2020 and why they are important.

Difference Between LLC and S-Corp

“You’re Taxed Where You Do the Work” - Angela Sticca Snyder (01:24-01:27)

Finances play an important part in any business. Every business must file tax returns and make payments on income at the state and federal level. It is important to document the cash flow for business analytics. In this episode, Angela talks about the difference between an LLC and S-Corp.

Part One of ‘Difference Between LLC and S-Corp’

The first thing I want to know is if you have an LLC. If you don't have an LLC already created, you need to get one. That's the first thing you need to do to move your business on the path of growth. So, we're going to be talking about two different instruments today. Number one is an LLC. An LLC is something you get registered within a state.

“You’re supposed to file in all the states where you are present and earn income.” – Angela Sticca Snyder (01:47-01:53)

There's a big misconception that where you register your business is how you're taxed. That's not the case. I have clients that will come to me and say that they got their business registered in Nevada. Or, in Wyoming or Texas. There are definitely good legal reasons for that. But there's not always good tax reasons because you're taxed where you do the work. LLC is a limited liability company. There's no such thing as a federal limited liability tax return. If you're an S-Corp, how are you taxed? And that's when I get the deer in the headlights. What I mean is if you created an LLC and you didn't do anything different than you could be what's called a disregarded entity. And what that means is that you'll file a schedule C on your personal return for your business activity. You're going to be considered a partnership if you formed an LLC with an unrelated party by default without any election required. The other option is the S-corporation status. It's considered a flow-through entity. A flow-through entity is where the entity itself gathers and organizes the income and expenses. But it's passed through or flown through to the owners in the form of a K1. So, a partnership and S-Corp are considered flow-through entities. That is the business itself will not pay income tax. The income or loss will flow through to the individual owners. They will report on their own individual tax returns.

Many small businesses are interested in forming an S corporation. S corporation can be very helpful for a growing business. You're required to run payroll when you select status at a top-level.

You've got two components of your income out of an S corporation. You have wages that come to you in the form of a W2 and that has the social security and Medicare tax on it, which is 15.3% for both the employer, which is your business and the employee, which is you. You also get a K1 which is somewhat like 1099. It’s the other document you get to report your income. If you're an S corporation, that income escapes the social security and medicare tax. That's why people are so anxious to create S corporation returns.

Part Two of ‘Difference Between LLC and S-Corp’

Another rule of S corporation is that you're required to file payroll on a reasonable basis and on a reasonable salary. That way you cannot avoid the self-employment tax on all S corporation income. There is no right or wrong way in which to elect the S corporation status.

 

 “Wait until a business has made some income and it is cost-beneficial for the business owner.” – Angela Sticca Snyder (06:38-06:46)

We need to start having conversations to determine the best time once your business is netting about 40 to 50,000. Otherwise, the only person that really makes out usually is the accountant. Like myself. For instance, let's say you created an LLC and we put you into an S Corporation right away, but you hadn't started earning any income yet. In that instance, we would still be required to run payroll as a condition of the S-Corp status. We would have to file an S corporation tax return. There would be very little benefit to you and more filing fees that the accountant would collect.

 

The S corporation tax return is due one month before the normal business return. So, it is due on March 15th and an extension would need to be filed. If you can't make that time, the extended due date pushes it out until September 15th. It is crucial that you make sure that you meet those deadlines. The penalty for failing to file by the extended due date is $195 or $200 per shareholder per month. If there's two of you, then it's $400 a month and it does not end. It's super important that you make sure that you have adequate records and file on time. Something also to keep in mind about S corporation is you are required to report the balance sheet. If your gross income is greater than $250,000 more than likely if you're in an S corporation status, your gross income will be above the $250,000 if you have to report a balance sheet. Now's the time to go ahead and get your accounting software started. So, if you're not currently utilizing anything, now's a great time to get going. We personally recommend XERO for bookkeeping and accounting software.

 

If your business is netting at least $40,000 to $50,000 dollars and you have one individual involved in your LLC, it's time to chat for additional members of your LLC. Then the net income would need to rise to determine the best time for us to chat. Once we do chat, it's super simple. We determine the state you're located in and the state it's best to get organized. Once we do that, then we make the election with the IRS for you to be taxed as an S corporation. Once we make that election, after many weeks or months, you will get a letter back from the IRS. It says, congratulations, we've approved your selection status as of X, Y, Z date. It is super important that we get a copy of that letter that you received back from the IRS. So that we can put it in your permanent file and also make sure that the correct date that we requested was accepted at the end fortunate circumstance that the date where you requested was not accepted.

How to Get Involved

Taxanista is a leading certified public accountant who offers reliable professional tax and accounting services. She is a consummate strategist. She loves listening, analyzing and developing strategic plans. Do you have bigger issues? Taxanista can help you fight off the IRS. 

Angela knows how unsettling some of your struggles may be, that’s why she offers private consultations for your business and tax matters. Increase your profit by knowing your numbers. Reach out to her now. https://www.taxanista.com/

It’s Year-End Close! Are You Ready?

“Invest in A Good Bookkeeping and Accounting System.” -Angela Sticca Snyder (06:07-06:10)

Are you prepared for the year-end? It’s critical to review your business financials as this information will be used to prepare your tax returns. How else are you supposed to analyze the performance of your business? In this episode, Angela Sticca Snyder will give you some actionable year-end accounting advice that you don’t want to miss.

Part One of ‘It’s Year-End! Are You Ready?’

If you’re sitting on a huge profit, you might want to make some asset purchases before the end of the year. For instance, if your highest tax bracket is 30% and you buy a new computer for $1,000. That means you saved $300 on your federal taxes. So, it’s a good time to take a look and see everything that you know you’re going to need to buy soon. It’s a good idea for you to buy it now before the end of the year.  

“Keep in mind that you’re technically supposed to have all your taxes paid by the end of the year.” – Angela Sticca Snyder (02:13-02:17)

For some reason, I have received notices about penalties. The tax was due back in December or at the latest April 15th, but they didn't get it filed. They filed an extension but only an extension of time to file and not an extension to pay. What you can do is you can go to irs.gov/payments and go ahead and set up an account and make a payment that way. Nobody wants to make a payment to the IRS, but you also don't want penalties or interest. So, that's one thing to keep in mind.

If you think you have any balance due or you think you've got an under-withheld for your taxes, do something about it. Make sure that you file on time to cut those penalties or put in estimated tax payment.

It's super simple to organize your taxes. We have amazing tools to make your life easier in terms of tax and accounting. Even if you don't do anything with it throughout the year and you have it for tax time, at least you've got it organized. If you don't have some type of checks and balances, something's going to fall through the cracks.

Part Two of ‘It’s Year-End! Are You Ready?’

Here’s another cool tip for you. When you get 'frequent flyer points' or 'credit card points', don't use it for business purchases. Your business buy would be deductible anyway. You can use it for other things like Christmas gifts for a holiday item, or for yourself. 

“If you’re sitting on any old capital losses or mutual funds, consider selling some of your investments.” - Angela Sticca Snyder (03:49-04:03)

There’s another important thing you need to keep in mind. If you have a flexible spending accounts or an HSA, make sure to maximize that before year-end. It’s a good idea to fund your HSA each year because that money can grow, and it comes out tax-free for medical purposes. When you pull it out in your later years with your flexible spending account, you've got to use it or lose it. So, look at your flexible spending account and see if there's anything in there, any stock sales. 

Now is a good time to sell some of your investments or your mutual funds if you're sitting on any old capital losses. The market is up so high that you would be able to offset those capital gains with any leftover capital loss. Remember, you're limited only to 3000 a year. So, if you capture some of those gains, then you can offset it with some of those losses and not have to pay it.

To end this podcast episode, make sure that you start the year off right with a mileage tracking app. Consider getting some type of good bookkeeping and accounting system. No receipt, no deduction.

How to Get Involved

Taxanista is a leading certified public accountant who offers reliable professional tax and accounting services. She is a consummate strategist. She loves listening, analyzing and developing strategic plans. Do you have bigger issues? Taxanista can help you fight off the IRS. Angela knows how unsettling some of your struggles may be that’s why she offers private consultations for your business and tax matters. Increase your profit by knowing your numbers. Reach out to her now. https://www.taxanista.com/