Newport Beach CPA Accounting

Don’t Let Taxes Trip You Up

The last thing you need as a small business owner is to have to spend time unraveling tax problems you could have avoided. There are many tax issues that can trip up small business owners — here are a few.

Mixing Business and Personal

Keeping your personal bank and credit card accounts separate from your business accounts isn’t always easy. But “commingling” business and personal accounts creates a recordkeeping nightmare. When it’s tax time, you may not be able to identify all the appropriate business expenses. As a result, it could be difficult to accurately determine your business income and you might lose deductions.

Not Keeping Track

Keeping track of business expenses can be a challenge. However, you’ll need proof of purchase for any expenses you plan to deduct. Proof can be a canceled check (or legible image of the check) or a credit card, debit card, or electronic funds transfer (EFT) statement showing the payee, the amount of the purchase or transfer, and the transaction date.

You’ll also need an invoice or a receipt identifying the purchase. If the business purpose for the purchase isn’t immediately obvious, attaching a note of explanation or writing directly on the invoice or receipt can save time later should questions arise. There are specific substantiation requirements for business travel and entertainment expenses. Check with us if you have questions.

Making the IRS Wait

The employment taxes you collect should always be remitted to the IRS in a timely manner — without exception. As an employer, you’re responsible for withholding federal income tax and FICA (Social Security and Medicare) taxes from your employees’ wages and remitting them, along with your company’s FICA contributions, to the IRS. Penalties for noncompliance can be harsh.

Misclassifying Workers

Misclassifying workers as independent contractors when they are actually employees can be a thorny issue because they are treated differently for income-tax withholding and employment-tax purposes.

 

> Employees: You must withhold federal income tax and FICA taxes, pay your share of FICA taxes, and pay unemployment taxes.

> Independent contractors: You’re not required to withhold income tax, and the worker is fully liable for his or her own self-employment taxes. FICA and unemployment taxes do not apply.

 

It’s important to get it right to avoid penalties. Generally, the more control you have, the more likely it is that the worker is an employee.

 

Workman’s Comp Coverage – What it Means for Your Business

Workers CompWhile rules and regulations for workman’s comp insurance change from state-to-state, there some general guidelines you need to know and follow no matter where your business might be located.

First, as an employer, you are required to protect employees that are killed on the job, are injured, or become ill. Most employers obtain either state sponsored or private insurance. Others will use self-insurance. Regardless of which option you select, it is the employer who foots the bill.

Secondly, workman’s comp is a state based program as opposed to a federal program. Most states require some form of workman’s comp, and as the employer, you are expected to accept the rules and regulations. For those businesses with under four employees, there is an exemption to carrying the coverage, at least in some states.

Workers Comp2Next, workman’s comp pays four different types of benefits. These are survivor’s benefits, disability benefits, rehabilitation benefits, and medical benefits. The injured employee or their heirs receive a lump sum payment which then relieves the business of any further liability.

Also, employees are covered with a few exceptions. These exceptions include business owners, independent contractors, unpaid volunteers and domestic employees in private homes.

In addition, workers’ comp is paid on the no-fault basis. This means that regardless of who is at fault for the injury, the employee receives the benefits, and the business does not have to admit liability.

Finally, even when an employee is outside of the workplace, they may be covered. This can include traveling for business purposes, running work related errands, or attending a required business social event.

The state rules and regulations for workman’s comp insurance can be tricky, but they do protect both the employee and employer. When purchasing this insurance, it is always best to work with a professional that can ensure your business’s needs are met.

Craft Brewery Sells for $1 Billion

Ballast PointWhen a craft brewery sells for $1 billion dollars, then you realize that it’s no longer a tiny niche business.

Craft beer accounted for 11% of U.S. beer sales in 2014 and market share is rapidly increasing in 2015. Just this week, the owner of Corona and Modelo, Constellation Brands, purchased Ballast Point for roughly $1 billion.

Ballast Point started selling beer commercially in 1996 and growing at a rate of 80% over the past two years. According to Brewer’s Assn, it is the 31st largest craft brewer in the country. Ballast Point is available for sale in 30 states and Sculpin IPA is their hot seller. Overall, Ballast Point produces approximately 300,000 barrels annually and the sale does not include Ballast Point Spirits, which makes rums and whiskeys.

Ballast SculpinTo put this into perspective, Constellation Brands will be paying 20 times Ballast’s revenue in 2014. And if Ballast’s revenue increases 100% in 2015, then the multiple is 10 times revenue, which is still a stiff premium.

And while demand for craft brews explodes, demand for watered down national brands like Bud, Miller, and Coors is flat which is creating a trend towards consolidation. For example, AB InBev’s takeover of SABMiller for $107B.
While the acquisition of craft brews is nothing new, the valuation on this purchase is eye opening.

Morey & Associates is an Orange County CPA Firm that works with business owners that would like to eventually sell their business for $1B or more.  If you are searching for an accountant during your next growth phase, call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.  Our offices are conveniently located in Newport Beach and San Clemente.

 

Tax Credits for Electric Car Owners in Orange County CA

Besides being healthier for the environment, purchasing an electric car can be healthy for your tax return. However, there are a few requirements that go hand-in-hand with the purchase of an electric car that one needs to understand to reap the full benefit from the tax credit.

Electric CarsPut simply, the current tax credit for purchasing an electric car is $7,500. This tax credit is not a rebate, so you will not receive it when you purchase the vehicle, nor is it a tax deduction. That means you cannot use it to reduce the amount of your taxable income.

How to Use an Electric Car Tax Credit

In the year you purchase an electric car, you are allowed to reduce the total amount of income tax you owe by $7,500. This means that if you own less than $7,500, you will lose the remainder of the tax credit. For example, if your tax liability is $6,500, then that is the full amount of the tax credit you will receive. The balance is not a refund nor can it be used to offset future tax liabilities.

Determining Which Cars Qualify for the Tax Credit

When considering the purchase of an electric car, keep in mind, it must be a new vehicle that will be used for your personal use. You cannot use the credit on a used car or a lease as the leasing company typically receives the tax credit. In addition, the car must have been manufactured by a car company and cannot be a conversion. Finally, the car must be used in the United States.

As with all things related to the IRS, there are conditions that must be adhered to when using the electric car tax credit, but the upside is that by utilizing this credit, it is possible to bring the cost of an electric car down to where it is inline with a gasoline vehicle.

If you’d like to minimize your tax liability legally, then call 949-759-5626 and ask for Jerry.

Morey & Associates is a Southern California CPA Firm with two offices in Orange County, Newport Beach and San Clemente.

Real Estate Professionals – Do I Qualify?

It is exceedingly difficult for taxpayers to prove to the IRS’s satisfaction that they meet the real estate professional threshold if they are otherwise employed in an unrelated occupation.

Real Estate ProfessionalThe IRS typically uses this first factor to exclude taxpayers with non-real-property-related full-time occupations. An examiner assumes that 40- or 50-hour-a-week wage earners would have to spend more than an additional 40- or 50-plus hours a week in a real property trade or business. Even if the taxpayer does not work full time in an unrelated occupation, an unrelated part-time occupation can still make it difficult for him or her to meet the 50% requirement.

More Than 750 Hours Spent in a Real Property Trade or Business
The second requirement of proving more than 750 hours were spent in the tax year materially participating in real property trades or businesses likewise presents a substantial issue of proof. In DeGuzman, 147 F. Supp. 2d 274 (D.N.J. 2001), the taxpayer husband failed to meet the 750-hour requirement when a portion of the hours were spent cleaning, shoveling snow, and maintaining his wife’s leased office space, because he was basically just being a nice husband rather than participating in a trade or business. Hours spent on call, available to attend to rentals should the need arise, do not count toward the 750-hour requirement (see Moss, 135 T.C. 365 (2010)).

In practical application, however, the IRS regularly dismisses a narrative summary as self-serving and is more apt to accept a contemporaneously created log that is cross-referenced to objective substantiation.  A good example of an acceptable log is one that references, for example, “meetings with the plumber,” and the hours indicated are cross-referenced to a calendar entry, an invoice from the plumber with that date, and telephone records of calls made to the plumber’s number.

Morey and Associates is an Orange County CPA Firm with offices in Newport Beach and San Clemente.  We service all types of small and medium sized businesses.  To better service real estate businesses in Orange County, we have a specialty in real estate accounting providing tax compliance, outsourced CFO, and financial reporting services.  Our real estate clients include real estate investment trusts, property management companies, investor groups, and real estate agents and developers.

If you are searching for a CPA Firm with expertise in real estate accounting, call 949-759-5626 and ask for Jerry Morey.  Our initial consultation is free.