Category Archives: Tax Tips

indiana tax attorney

Tax Considerations for the Self-Employed

When you’re self-employed, all your income goes straight into your own bank account. It doesn’t mean you’re off the hook for paying taxes to the Internal Revenue Service (IRS). Taxes apply to you, just like any other member of the workforce – and if you don’t play by the tax rules, the IRS could assign stiff penalties that could destroy your business.

How Does the IRS Define Self-Employment?

Whether you define yourself as a freelancer, a sole proprietor, a one-person corporation owner or another kind of worker, you’re one of the 15 million Americans who is self-employed. Maybe you don’t have a brick-and-mortar storefront or business cards or even an official business name – but it doesn’t matter. If you are accepting payment for services rendered, it’s a business according to the IRS. Because no employer is withholding taxes on your behalf, you’ll owe taxes to the IRS and should file as self-employed.

What Taxes Do Self-Employed Workers Pay?

You’ll owe both income tax and self-employed, or SE, tax. The SE tax is essentially the same thing as the tax any other worker would pay for Social Security and Medicare.

How Do I Determine How Much I Owe?

Start by figuring your net profit/loss during the tax year, which is your business income minus business expenses. If it’s more than $400, you’ll owe money to the IRS – but even if it’s under $400 or a net loss, you may need to file because you meet other requirements set by the IRS.

How Do I Pay What I Owe?

Use IRS tax Form 1040 to report your earnings, with Schedule SE for the self-employed. Schedule C or Schedule C-EZ will help you figure what you owe for Medicare and Social Security. Pay the IRS the total due, and keep in mind that they require any business that estimates it will owe more than $1,000 annually to make estimated tax payments every quarter using Form 1040 ES each time.

What About Credits and Deductions?

There are many credits and deductions that apply to self-employed workers, just like any other business. Take advantage of credits like the health coverage credit and the earned-income credit. Many expenses of running a business can also be deducted, as long as the IRS defines them as “necessary and ordinary” costs, like office supplies and using your vehicle for business.

What if I’ve Fallen Behind on Taxes?
If you owe back taxes, penalties will accrue and be applied retroactively when they realize you have delinquent unpaid taxes. This means you should start paying taxes immediately, even if you have never done so before. Otherwise the penalties will grow steeper and steeper. Call us for help and we can assist in laying out your options and helping you set up a payment plan.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

small business taxes

The Right Way for Corporations to Reimburse Home Office Expenses

small business taxes

If your company has people working from home offices, many of their business expenses are reimbursable. However, a corporation must reimburse these expenses the right way, or the IRS could consider the reimbursements improper and trigger an audit with financial penalties. Let’s look at the two main methods of seeking home office reimbursements – the actual expense method and the safe harbor method. For a corporation, one option is clearly better than the other.

What is the Actual Expense Method?

The actual expense method directly reflects the amount of business expenses a home-based worker is experiencing. The employee would submit receipts and other proof for reimbursement from the company. If the expense comes from a house-wide cost, its reimbursement will be calculated as a percentage of the total household cost. This percentage is usually found by determining how many square feet of the home is used for business use only, then using that percentage as the guide. So, if their home office is 15% of the total home space, they should never be requesting reimbursement for any amount above 15% of an expense that applies to the entire home.

What is the Safe Harbor Method?

The safe harbor method is also for work-from-home taxpayers who have business expenses. It gives them a certain level of safety in claiming business expenses up to a threshold amount. However, there are still many limitations and requirements to consider. In general, the maximum amount a taxpayer can deduct annually under the safe harbor method is $1,500. Consult a tax attorney to ensure you qualify for safe harbor before using it.

Why Does the Safe Harbor Method Exist?

The IRS introduced the safe harbor method to help taxpayers affected by changing laws. Lawmakers working on the 2010 economic stimulus package inadvertently penalized taxpayers who were simply trying to claim legitimate business deductions. In response, the IRS introduced the safe harbor method, also called the safe harbor escape, to give these taxpayers another choice. If people feel too uneasy about claiming business deductions for fear of triggering an IRS audit, they could seek the safe harbor option.

Can a Corporation Use the Safe Harbor Method?

No. Corporations should not use the safe harbor method. A corporation should use the actual expense method for reimbursements. This means that any request for reimbursement coming from an employee or employee-shareholder should be based on their actual expense, with proof in the form of receipts and other paperwork. For more information about handling reimbursements properly, reach out to your corporation’s tax attorney.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

indiana tax attorney

10 Proven Strategies to Lower S Corporation Taxes

indiana tax attorney

One of the biggest benefits of setting up an S corporation is avoiding double taxation by not paying corporate income tax. Shareholders absorb profits and losses, paying tax when they file their individual returns. Of course, this makes S corporation owners wonder whether there are additional ways to lower taxes even further. The good news: S corp taxes can be lowered using reliable methods of keeping your tax burden as small as possible.

How Can Limiting Owner Wages Lower S Corp Taxes?

An S corporation is taxed in part at the level of its owner’s wages. By reducing the owner’s salary, the corporation’s taxes can be cut by thousands of dollars. Additional payments can be made to the owner through distributions – a sort of periodic bonus plan – without adding to the corporation taxes. The only caveat with this approach is that the owner’s salary can’t be so small that it falls below the IRS “reasonable compensation” threshold.

Can I Employ My Adult Children to Lower S Corp Taxes?

Do you know each of your children can make up to $12,000 without paying any federal income taxes on what they earn? This comes as great news for family businesses operating as S corporations, when you employ a second generation of family workers. It means you can not only provide a job for your children but also decrease the family tax burden at the same time. Keep in mind that you’re still responsible for payroll taxes for every employee, including your children.

What Happens If I Rent a Home to the S Corporation?

For up to 14 days a year, an S corporation owner can rent their home to the company and receive a tax deduction. To pursue this option, draw up formal paperwork for the transaction and have the S corporation deduct the full amount of the rental fees at tax time. The net result is that the owner of the company receives tax-free income.

Can Selling a Home to the S Corporation Also Lower Taxes?

This is a great option if you’re already considering turning a home into a rental property. Sell the house to the S corporation first and avoid taxes through something known as the home-sale profit exclusion. You can exclude a $250,000 gain from your income if filing individually and $500,000 if filing jointly. 

How Does Using Owner-Employee Health Care Reimbursement Help?

The 21st Century Cures Act removes penalties for owner-employees who have health insurance through the company. If the S corporation owner holds more than 2% of the company, establish a health insurance plan for them and the S corporation can reimburse them for the premiums.

How Can Business Deductions Lower S Corp Taxes?

  • Deduct home office expenses. The deduction of home office expenses must be well-documented for the IRS, but it’s worth doing. The owner is reimbursed for the expenses. It’s like tax-free income. Make sure you create expense reports and a clear paper trail, in case the IRS questions your purchases.
  • Deduct depreciation. Under IRS rules, depreciation is an allowable reimbursement – although some people may try to convince you otherwise. If you have depreciation related to a vehicle, building or other asset used for the business, you can take it as a deduction.
  • Deduct vehicle expenses. Does your company use vehicles for business? Take advantage of the tax break this offers. If a vehicle is used for business trips, deliveries or day-to-day business driving, it almost certainly qualifies – especially if it is a “heavy vehicle” used for commercial purposes. Plus, don’t forget the depreciation deduction related to these vehicles.
  • Deduct travel. Travel expenses are deductible. We must caution you that the IRS pays close attention to these kinds of deductions, so make sure you keep receipts, fill out detailed expense reports and submit them to your S corporation financial executives just as any employee should.
  • Deduct cell phone costs. Don’t forget about cell phones at tax time. S corporations that provide employees with smartphones and other communications equipment can reimburse the employees for the full cost of the phone – including non-work-related use – and deduct it from their corporate tax return. For the employee, this is like tax-free income and comes as a very welcome fringe benefit of working for your company.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

pass-through deductions

Small Businesses Using Pass-Through Deduction Need to Take Care

pass-through deductions

Small business owners using the 20% tax break for pass-through entities should pay close attention to a new rule change proposed by the Internal Revenue Service (IRS). The change would end these business income deductions and could impact how your company is structured or spins off new divisions. Learn why you might need to contact a tax attorney urgently and stop using the pass-through deduction for your business.

What is the Pass-Through Deduction?

Currently, a 20% business deduction is allowable for business owners who have a taxable income below $157,500 if single or $315,000 if married. Businesses must also adhere to requirements on how much to pay employees, the amount of property owned and whether it fits into certain special categories. The deduction, introduced in December 2017, is part of the Tax Cuts and Jobs Act, which is intended to support growth and fairness for small business owners. However, the IRS has determined that some business owners are restructuring in order to skirt the rules and qualify when they wouldn’t otherwise. The IRS is seeking to end the pass-through deduction.

Why Does the IRS Say Businesses are Skirting the Rules?

Some business owners have found ways to split their businesses into smaller divisions in order to remain below the taxable income threshold for their primary business, allowing them to qualify for the pass-through deduction. A doctor or lawyer, for example, is in a “specified service” category that usually has a high enough personal income to put them over the limit. They might spin off a portion of their business, like their billing office, into its own entity in what is sometimes called a “crack and pack” strategy.

Is “Crack and Pack” Illegal?

No, it’s not illegal; however, the IRS is aware of crack and pack, and wants to crack down on it. Using this kind of strategy is not the original intent of the Tax Cuts and Jobs Act. If you’re currently using “crack and pack” to take advantage of the 20% deduction, you may want to rethink your strategy. Consult a tax attorney right away to discussion your options. Otherwise, the IRS could decide to make an example of your business, which would be a financial and legal headache. It could also be a public relations disaster. From the public’s perspective, it could seem like you’ve done something wrong, even if you were just using a creative tax strategy.

If the IRS Changes the Rules, What Should I Do?

Assuming the IRS proposal goes through – as most IRS proposals do – the change could take effect immediately and impact how your business should be structured. It might become unnecessary to keep a certain division of your company separate and could even look suspicious to the IRS in the future. Rely on your tax attorney to guide you through the process of examining your company structure and evaluating how you can take a proactive approach to this tax issue.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

tax finances

7 Ways Technology Can Help with Business Finances

tax finances

What if a simple tech tool could make running your business easier? New types of financial technology can save time, boost your efficiency and ensure you always stay well within the law. At Dutton Legal, we assist people with tax resolution and financial management. We are familiar with tech solutions that could make the finance departments of Indiana’s small businesses run more smoothly. Here’s a look at seven ways technology could help your company’s finances.

How Do Tech Apps Standardize Invoicing, Collections and Payments?

1- Invoicing. By automating your invoicing, you can get paid more quickly by your customers and keep a firm grip on your cash flow. Electronic invoicing can also offer the benefit of handling worldwide payments, including cryptocurrency and international currency, so your business can expand around the globe.

2- Collections. Collecting on overdue bills usually sucks up manpower. With electronic collections, you can send automated messages that encourage faster payment and shorter collection cycles.

3- Payments. Your company can also make payments with electronic invoicing. Whether it’s a one-off payment, monthly billing or complex contract, a finance program can handle the details and ensure everything keeps flowing. It limits the possibility of human error, which can cause delays and costly late payments.

Can Technology Help with Funding and Investing?

4- Funding. When you need to obtain loans, funding is made easier through the use of technology. The system can be set up to fund certain amounts to certain accounts, so funds are available almost instantaneously from your financial institution.

5- Investing. Most financial systems include some type of investment tool or calculator, which makes investing much easier. An earnings calendar, for example, provides a small business with a clearer look at its overall investment picture.

How Can My Company Benefit from a Cybersecurity Program?

6- Cybersecurity. Data leaks are always a risk. A staggering 60% of small businesses close permanently within six months of a cyber-attack due to the toll it takes on the business. Another way technology can strongly benefit a company’s business finances is security. By protecting your company’s assets, you’re also protecting your customers’ valuable financial information. Use your monitoring system to identify risks and minimize cyber-opportunities for data breaches. If a breach occurs, technicians can use your financial technology to troubleshoot the issue and plug the gaps.

What if the Company Owns Real Estate?

7- Real estate/rental management. If your company owns real estate or rents property, technology can streamline all routine paperwork and even create a paperless work environment. Leases and rent notices and payments can be handled right from a smartphone. This makes it much easier to manage properties without being physically present at every location. Plus, at tax time, all the necessary information can be pulled from your tech app and shared with your tax attorney.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

The Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

business equipment procurement

How 2018 Tax Reforms Affect Business Equipment Procurement

business equipment procurement

Provisions in the 2018 tax reform bill are enticing businesses to upgrade their outdated equipment. However, do they buy or lease? With the new corporate tax rate sitting comfortably at 21%, businesses large and small are rethinking their old purchasing plans and changing the way they approach their bottom line. The new tax laws are prompting some to move away from owning and embrace long-term leasing. As technology evolves, these companies are poised to change with it. Businesses are spending money on new equipment and giving the economy the healthy jolt it needs.

What are the 3 Key Provisions Affecting Equipment Procurement?

  1. The lower tax rate for businesses (21%)
  2. Like-kind exchanges limited to real property (real estate)
  3. Companies can apply an accelerated depreciation bonus of 100% for capital equipment. It relates to new and used items and can be used in purchase year.

Can I Still Use a Like-Kind Exchange to Obtain New Equipment?

Swapping one asset for a similar one (and deferring taxes) is referred to as a like-kind exchange (Section 1031). The old definition of property allows businesses to trade in an older model of machinery, equipment or vehicles for a newer version. It is no longer possible. Section 1031 now applies only to real property or real estate. Companies use this loophole to procure updated products. If they are unable to purchase or lease new items, they must hold onto the older equipment

What is the Purpose of an Accelerated Depreciation Bonus?

It is meant to increase corporate spending and encourage the use of the latest technology and growth. Since this provision concerns the buying and leasing of new or used products, many companies are considering upgrading outdated equipment. If your business is thinking of buying, get busy. This tax gift has a shelf-life. The one-time bonus drops its rate to 80% in 2023 and reduces it to 20% the following year.

Are Businesses Switching from Buying to Leasing Equipment?

It is already happening. The leasing industry is now a $1 trillion industry and set for even more growth. Because many businesses now lease, the 2018 tax reform bill favors using vs. owning. Currently, eight out of 10 companies lease their equipment rather than buy. It saves them on the cost of maintaining and repairing outdated equipment. With leasing, a business can upgrade to the latest, most efficient products every few years. Having updated systems means you are more competitive in your field, can recruit and hire top employees and keep a stronger bottom line.

Don’t You Lose Money on Leasing?

If you have the right type of lease, your business can benefit. An operating lease has a lower capitalized asset cost compared to a loan or cash transaction. This kind of agreement does not affect a company’s profit and loss statements the same way as purchasing does. There is no P&L front-end impact the way there is with buying. Compared with borrowing to buy, leases have a better return on assets (ROA), return on invested capital (ROIC) and return on capital employed (ROCE) for the lessee. To determine if leasing equipment is a better option for your company, speak with a tax professional about how you can improve your bottom line.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

state tax code changes

2018 Tax Reform Brings Changes to State Tax Codes

state tax code changes

Since the end of 2017, everyone is scrambling to figure out how the Tax Cuts and Job Act (TCJA) affects them. Individual taxpayers, businesses and state governments (like Indiana) are determining how this new legislation affects them on a state and local level. An unexpected consequence is some states can expect to collect additional tax revenue without raising rates. Of the 41 states that impose an income tax, only five (Alabama, Arkansas, Mississippi, New Jersey and Pennsylvania) do not have laws tied to sections of the federal code. The remaining states must decide whether to change their plan to match the new TCJA, reform individual state code to be different from the federal one or continue to follow 2017 filing guidelines until they decide what to do. Preliminary estimates show states that do nothing are going to increase their tax revenue. Many legislators are already planning how to spend the windfall.

Why Would States Gain More Revenue?

With the increase in federal standard deductions, more individuals and businesses will skip itemizing starting in 2018. Some of the exemptions eliminated in the TCJA still exist on the state level. Unfortunately, you won’t get to use them since you must file your state return the same way as your federal. Those unused exemptions mean individuals pay more in state tax than the year before. States currently reforming their tax codes look to balance the tax obligations for their citizens.

Is Indiana Reforming Its Tax Code?

The Indiana legislature has actively worked to revise our tax code since 2011. By passing numerous bills over several years, the state’s reform package is less obvious but no less sweeping. Indiana has lowered individual and corporate rates, broadened tax bases, simplified tax structures and improved competitiveness for Hoosier businesses. We rank ninth on the State Business Tax Climate Index.

Will My State Taxes Go Up?

Indiana does follow the federal tax code in some areas. Any changes to our state laws pass through the legislature before being implemented. Because of the tax reforms our state government is already doing, any rate increase is expected to be offset by the cuts on federal returns.

If Indiana Has an Increase in Tax Revenue, Will I Get a Refund?

In 2011, Indiana passed a successful taxpayer rebate program. The regulation states if our state’s rainy-day fund grows over 12.5% of its budget spending, we get money back. All excess cash splits between the teacher’s pension program and taxpayers. In 2012, lots of happy Hoosiers received a $111 refund. With this law in place, any extra revenue from the new federal tax reform means refund checks for Indiana citizens.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

2017 tax deadlines extensions

Consider Extension Deadlines for Filing 2017 Small Business Returns

2017 tax deadlines extensions

If you’re a small business, you may be focused on how the new tax laws will affect your company’s future tax returns. Meanwhile, the 2017 tax return deadline for individual filers and sole proprietor or single member LLC small businesses is looming. This year, the ubiquitous April 15 deadline was extended by two days (April 17, 2018). Other types of businesses would have had to meet 2017 tax deadlines earlier in 2018 or are subject to quarterly payments – so you may want to switch to extension mode and think about taking advantage of current tax breaks that will be phased out with your 2018 tax returns.

The type of tax entity a company is determines their tax deadlines. While converting to an LLC or S-Corporation may seem advantageous, it is prudent to weigh your options. If you are considering incorporating to take advantage of the new 2018 tax changes, you would need to meet tax deadlines earlier than those you may be used to meeting. Learn more about official federal income tax return due dates here and talk to a tax professional to determine what is the best move for your company.

What Deductions Could I Take on My 2017 Business Taxes?

After 2017, companies can no longer deduct entertainment as a business expense. They can still claim client meals. For example, if your sales staff takes a client to a baseball game, you can only claim the food eaten at the game. The game tickets will not be deductible. 

Can I Still Claim My Home Office for My Business?

After 2017, any room you claim as an office must be 100% dedicated to your company. It cannot be an office/guest room. The IRS is cracking down on individuals claiming an office is any space with a computer in it. Phone, internet and supplies must be solely for the function of the office. If you are a sole proprietor and work out of your home, seek the expertise of a tax professional to help you review what you can itemize on your 2018 tax return. With the new standard deductions, you may find itemizing is no longer beneficial.

In 2018, Will the Loss of Business Deductions Affect My Company?

Many of the eliminated deductions are those individuals claim on their 1040 Schedule A forms. Business owners file Schedule C forms. The new changes do not affect their deductions.

Should I Convert from a Sole Proprietor to an LLC?

If you are considering incorporating due to the loss of Schedule A itemized deductions, you may find limited benefits. Costs are involved in incorporating and maintaining an LLC. Tax deductions reduce your overall taxable income. They do not reduce your tax bill on a dollar per dollar basis.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

We know small business is big in Indiana. Dutton Legal Group helps the people and businesses of our state navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your company taxes and get back to business. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.