By Debbie Gregory.

Now is the time to take advantage of a few tax breaks that expire as the decade comes to an end.   You will need to check with your financial advisor.   Below are three use-it-or-lose-it opportunities for tax breaks that might make sense for you and your company.

• Paid Family and Medical Leave Tax Credit:

Employers with 50 or more employees are required by law (the Family and Medical Leave Act) to provide up to 12-weeks of time off for certain family matters. There is no law that says those weeks must be paid time off. If your company offers that time off paid, and that policy is in writing, you may be eligible for a federal tax credit so check with your accountant and determine if you are eligible to file. The amount of the credit, which is figured on IRS Form 8994, is a minimum of 12.5% of the paid leave amount up to a maximum of 25%.

• Tax Credit for Electric Powered Vehicle:

This credit applies to plug-in electric vehicles and is calculated on IRS Form 8936. If the vehicle is purchased for business use, the tax credit is then part of the general business credit. This credit was designed to encourage people to purchase and use electric powered, clean-fuel, vehicles. The credit amount can be a maximum of $7,500. Certain vehicle manufacturer restrictions apply.

• Work Opportunity Tax Credit:

This credit is a federal tax incentive to hire a person who falls within a targeted group (as defined by the tax law). This incentive only applies to people who fall within one of the 10 eligible groups (listed below with a link to the IRS site about it) and who begins work before January 1, 2020. The credit can range from $2,400 to $9,600 per hire.   The Work Opportunity Tax Credit is usually renewed each year.

The targeted groups are as follows:

• Summer youth employees
• Recipient of SNAP benefits (food stamps)
• SSI recipient
• Member of a family receiving Temporary Assistance for Needy Families (TANF)
• Qualified Veteran (there are 5 subcategories)
• Qualified ex-felon
• Designed community resident
• Vocational rehabilitation referral
• Long-term family assistance recipient
• Long-term unemployed

In order to take advantage of this tax credit you will need to prove the employee falls within a targeted group and submit IRS Form 8850 to the state workforce agency within 28 days of the first day of that person’s employment with you. The basic credit for this is 40% of first year wages up to $6,000 (for a top credit of $2,400), as long as the employee works at least 400 hours. However, the credit for a veteran with a service-connected disability, who is employed for at least 6 months, is 40% of their wages up to $24,000 (for a top credit of $9,600). Not only is it the right thing to hire Veterans who make outstanding employees, but it makes financial sense.

If any of these three tax incentives are applicable for your business, jump on them now and discuss with your financial professional.

By Debbie Gregory.

All businesses pay taxes, there is not any way of getting around it.   However, depending on where you start and operate your business, you may be able to minimize the amount of taxes that you pay. We aren’t just talking about income or property taxes either. Certain taxes are higher than others and each state has its own tax rate for each item taxed.   Taxes such as property, sales, excise, unemployment insurance, franchise, and income taxes for both the business and your personal income vary depending on where you live and run your small business.

What are the best states in the nation to start a business and minimize your overall taxes?

• Alaska: Alaska has no sales tax and no personal income tax. It does have particularly high excise taxes as well as some of the highest property taxes nationwide.
• Florida: Florida has no personal income tax, but their sales tax is 6% and is higher and lower than other states. Florida excise tax is also quite high.
• Ohio: Ohio is one of the six states that does not have corporate taxes.  However, Ohio is the seventh highest personal taxes in the country.  The sales tax rate in Ohio is 5.75%
• Nevada: Nevada has no corporate income tax and no personal income tax. Property taxes are also fairly low. However, they the sales tax rate in Nevada is on the high side at 6.85%.
• New Hampshire: There is not an income tax and the sales tax is zero and cities and municipalities do not have a sales tax.  There is an 8.5% tax assessed on income from conducting business within the state of New Hampshire.
• South Dakota: South Dakota has no corporate income tax and no personal income tax. Their sales tax is quite low at 4.5%. However, the franchise tax rate in South Dakota is high.
• Tennessee: There is no state income tax but Tennessee has one of the highest sales taxes at 7% and cities and counties can add as much as another 2.75%.  Tennessee’s excise tax, which effectively is an income tax, is a flat 6.5% tax on net earnings from doing business in the state.
• Texas: Texas does not have a state income tax, but the sales tax rate is 6.25% and localities can also add their own sales tax rate, so it is as high as 8.25%.  Texas does not have corporate taxes.
• Washington: Washington is one of the states without state income tax.  However, the sales tax rate is 6.5% and depending on local municipalities, the total sales tax can be as high as 10.4%.  There is also a business and occupation tax (B&O).
• Wyoming: Wyoming has no corporate income tax and no personal income tax. Their sales tax is one of the lowest in the entire nation at 4%. However, their property taxes are quite high.

VAMBOA hopes this state tax information is valuable to you and your business.

By Debbie Gregory.

Whether you are just starting a business or thinking of changing your business structure, a common first step is comparing the types of business structures. While a Limited Liability Company, a C Corporation and an S Corporation share some characteristics, they also have distinct differences. You should spend the time getting familiar with each type before deciding which one might be right for you.

Most small businesses are usually either a sole proprietorship or simple partnership. In both of these cases, the business taxes are part of the individual’s taxes. There are three major types of business entities that classify the business as its own “person”– a C Corporation, an S Corporation, and an LLC (Limited Liability Company).

Some business and certain tax rules are unique to the type of entity that you choose for your business. Read below for more information on each and always check with your accountant.

C Corporations

A C Corporation is taxed at a flat 21% regardless of how much business they conduct or money they make. Additionally, C Corporations help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd.

This type of corporation can issue stocks that when held for more than five years, they entitle the seller to tax-free gains. Raising capital is also very easy for a C Corporation as compared to the other business types because they issue stock in exchange for the funds raised.

The major downside to a C Corporation is double taxation. All business earnings are taxed and paid for by the business however, the income received by the business owners is not deductible and they must claim and pay income taxes on the salary they take from the business on their personal taxes.

C Corporations are separate taxpaying entities and file their own very specific tax forms every year to the IRS.   These C Corporations can actually choose to be taxed as an S Corporation to help offset the double taxation by utilizing income pass-through to the owners, so they report their share on their personal taxes. This way the business and the business owners pay between 10 and 37% depending on the individual.

S Corporations

S Corporations also help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd – the same as C Corporations. An S Corporation also has the ability to allow up to 20% total business income deductions.

S Corporations are required by law to adopt and maintain certain formalities and they have extensive rules in place for how the business can be managed. They include by-laws, operating agreements, issuing stocks, membership shares, holding director and shareholder meetings, keeping meeting minutes and other extensive records.

LLC (Limited Liability Company)

An LLC has many advantages for business owners. As an LLC, you can elect to be taxed at the flat C Corporation rate, which can be very beneficial if the business owner is not qualified to use certain income deductions. This type of business entity also helps you avoid the double taxation issue of the C Corporation as the LLC is taxed a lot more like a sole proprietorship. This type of business also provides you good liability protection and some pass-through taxation, just like the C and S Corporations.

Another benefit of the LLC structure to a startup is that once you have set it up, there is not any need for continual maintenance. It is also easy to add new partners or sell interest in the entity to someone else.   An LLC can have an unlimited number of members whereas S or C Corporations can only have a maximum of 100.

The downside to an LLC is that there is a minimum tax regardless of how much business you conduct. If you make zero dollars or ten thousand dollars you still owe that minimum tax.

The choice of business entity is a complex matter and you need to take into consideration both state and federal tax matters as well as any other issues and non-tax considerations (personal liability protection, raising capital, etc.). As with any major changes to the overall structure of your business, as well as the tax implications of any changes, we highly recommend consulting a tax, financial, and/or business professional before making any changes.

By Debbie Gregory.

What does the IRS have to say?

Every year the IRS releases a list of the most common taxpayer scams to help the general public identify and hopefully avoid falling victim to. The following is the list for 2019.

The IRS’ “Dirty Dozen” worst scams for 2019 (grabbed right from the IRS’ website):

• Abusive tax shelters, trusts, and conservation easements – See IR-2019-47
• Frivolous tax arguments – See IR-2019-45
• Failure to report offshore funds – See IR-2019-43
• Improper claims for business credits – See IR-2019-42
• Scams involving disasters and charitable causes – See IR-2019-39
• Inflating deductions and/or credits – See IR-2019-36
• Falsifying income and/or creating bogus documents – See IR-2019-35
• Promises of inflated tax refunds – See IR-2019-33
• Tax return preparer fraud – See IR-2019-32
• Identity theft – See IR-2019-30
• Phone scams – See IR-2019-28
• Pervasive phishing schemes –  See IR-2019-26

The IRS also has a quick intro video about the Dirty Dozen list:

For more information or to read the full text on any of the Dirty Dozen listed above, check out the official IRS website:

https://www.irs.gov/

VAMBOA, the Veterans and Military Business Owners Association encourages its members and supporters to be on the alert and protect all of your information.