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Business Tax Planning

Business Growth, Business Tax Planning

Tax Paperwork Checklist

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These days, I’m often glad that it’s our busy tax filing season, so that I have an easy excuse when political conversations are happening: Oh THAT [crazy new political story]? Huh, didn’t see it — I’m too busy with tax season. With all of the chaos out there, the division and shouting — from Washington to Facebook to right here in San Francisco Bay Area, it’s helpful to try to tune out the shouting and focus on what is actually in our sphere of productivity. So speaking of being productive, it might be time to get moving on your tax files, if you haven’t already. The IRS did a study a few years ago that computed that the *average* time that it takes to complete a tax return is 22 hours. And obviously, that number varies by the return, but I’m reminded (again) of the blessing that it is to free our clients’ TIME — not to mention the additional deductions we find, the stress we remove, and the security we can provide in knowing that it’s being handled right. Already, we have many, many San Francisco Bay Area tax clients who have filed, have received refunds and have written us notes telling us that they’ve never been more pleased with their filing experience. And of course, this makes me happy, as you might imagine.Now, I’ve got something here that we posted towards the beginning of January, but as we are moving into the depths of March, I thought it would be worth posting once more… Patti ONeill and Gale Bergado Tax Paperwork Checklist “We are not retreating — we are advancing in another direction.” -Douglas MacArthur With the increased penalties associated with the ACA in 2017, and all of the other changes every year, filing your taxes on your own is not for the faint of heart — even with nice-looking softwares on the market which purport to make it easy for you. But that’s what we’re here for. Let us be your easy button. Below is a list of what you will need during the tax preparation process. Not all of them will apply to you — probably MOST will not. Nonetheless, it’s a useful checklist. Before you get overwhelmed: yes, this is a long list — but it’s the unfortunate reality of our tax code that it’s not even comprehensive! But these items will cover 95% of our San Francisco Bay Area tax clients. Really, this is for ensuring that we’re able to help you keep every dollar you can keep under our tax code. Even if for some strange reason you won’t be using our cost-effective services this year, feel free to use this list as a handy guide… Personal Data Social Security Numbers (including spouse and children) Child care provider tax I.D. or Social Security Number Employment & Income Data W-2 forms for this year Tax refunds and unemployment compensation: Form 1099-G Miscellaneous income including rent: Form 1099-MISC Partnership and trust income Pensions and annuities Alimony received Jury duty pay Gambling and lottery winnings Prizes and awards Scholarships and fellowships State and local income tax refunds Unemployment compensation Health Insurance Information * All 1095-A Forms from marketplace providers (if you purchased insurance through a Marketplace) * Existing plan information (policy numbers, etc.) * If claiming an exemption, your unique Exemption Certificate Number * Records of credits and/or advance payments received from the Premium Tax Credit (if claiming) Homeowner/Renter Data Residential address(es) for this year Mortgage interest: Form 1098 Sale of your home or other real estate: Form 1099-S Second mortgage interest paid Real estate taxes paid Rent paid during tax year Moving expenses Financial Assets Interest income statements: Form 1099-INT & 1099-OID Dividend income statements: Form 1099-DIV Proceeds from broker transactions: Form 1099-B Retirement plan distribution: Form 1099-R Capital gains or losses Financial Liabilities Auto loans and leases (account numbers and car value) if vehicle used for business Student loan interest paid Early withdrawal penalties on CDs and other fixed time deposits Automobiles Personal property tax information Department of Motor Vehicles fees Expenses Gifts to charity (receipts for any single donations of $250 or more) Unreimbursed expenses related to volunteer work Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions) Investment expenses Job-hunting expenses Education expenses (tuition and fees) Child care expenses Medical Savings Accounts Adoption expenses Alimony paid Tax return preparation expenses and fees Self-Employment Data Estimated tax vouchers for the current year Self-employment tax Self-employment SEP plans Self-employed health insurance K-1s on all partnerships Receipts or documentation for business-related expenses Farm income Deduction Documents State and local income taxes IRA, Keogh and other retirement plan contributions Medical expenses Casualty or theft losses Other miscellaneous deductions We’re here to help. Let me know if you have any questions. Warmly,  Patti ONeill and Gale Bergado(408) 241-4100ONeill & Bergado

Business Growth, Business Tax Planning

The New Stimulus Update and Tax Issues for San Francisco Bay Area Filers

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The “American Rescue Plan” has been finalized. And there are things about the new stimulus update our San Francisco Bay Area clients should know. While I normally write weekly, there is information in this strategy note that you need to know about now that might even impact how you proceed in the following days. As of this writing, Congress has agreed — but this is so fresh off the presses that many of my industry colleagues are scrambling, and the research services are still compiling all the data. But I felt it important to get ahead of all of that on your behalf. If you know anyone in San Mateo who needs assistance, we are tracking all of this for our clients and are taking on new clients even now. Feel free to send people our way, and have them use this to get in touch: (408) 241-4100 There is a lot to discuss about the new stimulus update, and I will have more to say early next week, but this is important for you to know about NOW. So let’s dive in… Stimulus Payments (and how they might impact your tax paperwork) These are different from previous stimulus programs: $1,400 dollars per taxpayer and dependent (with significant income limitations). 1) Previously, if you had a child over 16, or an adult dependent, they would not qualify. In this round, you’ll receive a payment for yourself and each dependent — depending on your income. 2) The “phase out” for this is significant and steep. What this means is that in previous rounds, the phase out was much more gradual. The phase out began at the same numbers (75K for individual,150K for joint-filed return, and112,500 for HOH), but they were so gradual that it didn’t significantly impact filing decisions. Now — you will NOT receive these payments if your income is anything over 80K for individuals or 160K for joint. How This Might Impact ~ProfileMarketArea~ Taxpayers NOW (Tax Planning) We want to get you the most out of the new stimulus update as we can. And once the IRS issues you a stimulus payment, it’s yours. TIMING matters, and so might how you file (in certain unusual cases). TIMING: If your 2020 income increased versus 2019 … Congratulations on your income increase … and let’s work on other ways to reduce your tax obligations in the future. If your 2020 income decreased versus 2019 … The new stimulus update has two phases for distributing payments. In phase 1, the IRS will take the data it already has and pay out of that. If you didn’t file a return in 2019 or 2020, you will not get a stimulus. But fret not … in phase 2, there will be a second date on which the IRS will calculate stimulus payments. This will be for those who had an income decrease. That date will be the earlier of 90 days after the tax deadline day (whatever it might be — more on that later), or September 1. So as long as we get your taxes filed on time, you WILL get it. You do not have to FILE YOUR TAXESRIGHT NOW. Don’t let any scammy San Francisco Bay Area tax pros or marketers tell you differently. Fortunately, this issue was (miraculously) considered within the text of the bill. HOW YOU FILE: In certain odd cases, it might actually make sense to file “married filing separately” for your 2020 taxes even though you will (as a result) pay slightly more in taxes — because by doing so, you will be able to receive a greater stimulus payment. It would then outweigh the greater tax you might pay. This will not be the case for most of my clients, and it mostly will concern San Mateo filers whose income hovers around the phaseout thresholds. If this is you, get in touch with us: (408) 241-4100 “When Will I Get My Stimulus?” Unclear, but likely these will begin by the end of this month for those who already are under the thresholds and qualify. For the rest, it will be after the second phase that I already mentioned. Unemployment Now (Partially) Non-Taxable (for most)I already mentioned in a recent post, and it has been confirmed in the the new stimulus update– the first 10,200 of unemployment benefits are untaxable — but only for those whose income is below 150K. This is a very real benefit for many, probably meaning about 1,500 in savings. But the timing on this will take some time because the IRS will have to issue guidance. If you know anyone in San Francisco Bay Area who has unemployment who has already filed their return, it is likely that they might have to amend … but not necessarily. We are here to help if you want to make sure: (408) 241-4100 There are (obviously) many more elements to the new stimulus update, and I will unpack them in the following weeks. There are changes to child tax credits, earned income credits, and more. Look out for my update next week on those items. In the meantime … know that we are in your corner. (And also, extend us grace as we are handling these matters for a variety of clients, many of whom have very difficult circumstances. We are here to serve, and have prepared for these kinds of legislative curveballs … but they are curveballs nonetheless.) Warmly, Patti ONeill and Gale Bergado

Business Growth, Business Tax Planning

What San Francisco Bay Area Business Owners Need to Know About Commercial Real Estate Mortgages

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Does the thought of paying rent to your San Jose area commercial landlord for eternity make you cringe? Do you get a little bit of FOMO when you hear stories about other people building empires with real estate? The decision to purchase your own space from which to operate your San Francisco Bay Area business is a major one. MAJOR. And one of the biggest complexities of that decision has to do with the vagaries of commercial real estate mortgages. Before we get into that, we do have a very time-sensitive notice for San Mateo restaurant owners: THIS WEEK, the SBA opened applications for the Restaurant Revitalization Fund (RRF). This new program provides relief funds for restaurants, bars, and other food and drink establishments that have lost revenue due to the pandemic. To read the SBA program guide, go here. Please share this helpful info with any San Francisco Bay Area restaurant owners you may know, to make them aware of this program. It is expected that the funds allocated to this program will go quickly, so we want to make sure that all San Francisco Bay Area restaurant and bar owners are aware of it. Now, let’s explore how to make your dream of owning your office, store, or shop a reality. What San Francisco Bay Area Business Owners Need to Know About Commercial Real Estate Mortgages“You just can’t beat the person who won’t give up.” – Babe Ruth For many people, the American dream includes a cozy home with a manicured lawn, and our home loan system is merrily set up to make this dream a reality for quite a few people. But for entrepreneurs dreaming of owning their own store, shop, or office location, the dream is a lot murkier. There are quite a few differences between residential mortgages and commercial real estate mortgages, and you need to be sure you fully understand what you’re getting into before taking the plunge into commercial property financing in San Francisco Bay Area. Primary Differences from Residential LoansThe United States has some of the best home loan options in the world. The most common loan type, which you’re probably familiar with, is a 30-year, fixed-rate loan. These residential loans are readily available, have low interest rates, fairly low fees, and carry no prepayment penalties. Commercial real estate mortgages tend to be the polar opposite. Commercial mortgages tend to be much shorter time periods. Five to ten years is a typical loan term. The monthly payment is often calculated based on a 20 or 30 year time period, but the loan itself comes due much sooner. At that time, a balloon payment is required, which means that you must either have the cash to pay off the loan, or you must refinance it. Most business owners end up refinancing into a new loan. But you don’t want to refinance too soon. No, no. Unlike residential mortgages, commercial loans almost always have a prepayment penalty for refinancing too early. For example, a five year loan will typically have a two or three year prepayment penalty. It’s pretty common for a 10-year loan to have a 5-year prepayment penalty. These penalties are pretty stiff, also. A common structure is to have a gradually decreasing percentage of the loan balance as the penalty. For example, a loan with a 5-year prepayment penalty period might charge 5% of the loan balance if you pay it off in the first year, 4% in the second year, 3% in the third year, 2% in the fourth year, and 1% in the fifth year. This is referred to as a step-down prepayment penalty. There are also other methods for assessing this penalty that get pretty complicated. You may be able to avoid prepayment penalties by agreeing to other terms that benefit the bank, such as a floating rate loan. As the name suggests, this is a loan with a variable interest rate. Your mortgage contract may stipulate a min and max interest rate, and the time period in between adjustments. In a low interest rate business environment like we have right now, it can be a difficult decision to choose between fixed and floating rate loans. You’ll also find that interest rates on commercial mortgages will usually be higher than on residential loans. This is because of the government-backed entities, such as Fannie Mae and Freddie Mac, that buy up residential loans. Since this doesn’t exist in the commercial mortgage world, banks must manage their lending risk themselves, and thus they tend to charge higher rates for that risk. Commercial properties are going to require significantly greater down payments than residential loans. While no money down, 3.5% down, and 5% down loan programs are quite common for homes, commercial loans will almost always require a minimum of 20% to 30% down. Lastly, the fees that you’ll pay in obtaining a commercial mortgage might make you shed a few tears. Residential mortgages tend to have total fees in the range of 1% to 2% of the loan amount, whereas commercial mortgages frequently have fees in the range of 3% to 5% of the loan amount. Still craving your own San Mateo office building? Let’s talk about qualifying for this loan… Commercial Mortgage QualificationAs crazy as this may sound, it’s absolutely possible for a person to buy a home with no money down, a 580 credit score, a bankruptcy filing on their record, and even while owing back taxes to the IRS. Such loan programs not only exist but are also promoted and backed by federal agencies. Qualifying for a commercial real estate loan is another beast altogether. Qualification for commercial real estate mortgages is primarily based on the ability of the property to support itself. In other words, banks want to see that the property can generate enough rent to cover the mortgage payment, taxes, insurance, and other expenses, plus have a little extra left over every month. This is far more important than your own personal credit score or personal income. A lender will want to evaluate

Business Growth, Business Tax Planning

Expense Reimbursement vs Company Credit Cards: What San Francisco Bay Area Business Owners Need to Decide

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If you’ll forgive us, we’re going to get pretty geeky today. You probably didn’t realize that there are actual pros and cons to expense reimbursement for employees, etc. or using a company cc. Oh my San Jose area readers, we’re going to take you down a little rabbit hole today, yes we are. But first, a quick update on some relief programs we’ve previously discussed. First, the SBA has stopped accepting new PPP applications as most of the funds for the program have been allocated. So, if you didn’t already apply for a PPP loan for your San Jose business in this funding round, you’ll no longer be able to do so. Second, the Restaurant Revitalization Fund (RRF) program that kicked off last Monday is now in full swing. So far, the fund has received almost 200,000 applications from bars, restaurants, bakeries, and similar businesses. In our opinion, this is still a small proportion of those who actually need it. If you run such a business in San Francisco Bay Area, or know somebody that does, funds are available to help with payroll and rent. Funds are on a first come, first serve basis for approved applicants. So, just like applying for PPP loans, timing is of the essence. This is a great program for the right business. To read the SBA program guide on the RRF, go here. And as we mentioned last week, please do forward this email to any San Jose area restaurant owners you may know to make them aware of this program. It is expected that the funds allocated to this program will go quickly, so we want to make sure that all San Francisco Bay Area restaurant and bar owners are aware of it. Now, let’s dive into handling business expenses paid by employees. Expense Reimbursement vs Company Credit Cards: What San Francisco Bay Area Business Owners Need to Decide“The secret of getting ahead is getting started.” – Mark Twain You gotta spend money to make money. All businesses need supplies, materials, and services to help produce their own goods and services. Depending on the nature of your business, your employees may need to make independent purchase decisions on a frequent basis. Empowering your employees to make these purchases on their own can make your business run much more efficiently. After all, do you really need to be involved in the decision to buy a new toner cartridge for the printer? Common expense types your employees may need to pay for include: All of these expenses, and many others, are necessary to complete tasks required to run your San Francisco Bay Area business. The critical question you need to address up front is this: Will you reimburse employees for expenses they pay or provide them a company credit card to pay such expenses? This decision comes with important tax and accounting consequences, and you as the business owner need to know the pros and cons of each method. Time SavingsOn the surface, issuing employees a company credit card may seem to be the better option in terms of saving time. With a credit card there are no expense reports to be completed, no reimbursement checks to be cut. Sounds good, doesn’t it San Mateo friends? But think about this: Do you need to allocate expenses to specific clients? If your employees are, for example, purchasing parts and materials needed to complete a job for a customer, then those credit card charges ultimately need to be assigned to that customer’s account for invoicing. This means somebody has to go through the credit card statements and reconcile them against receipts and job orders. Oops! There went the time savings. If you don’t need to do this for tracking expenses back to specific customers, then a company credit card can certainly save a lot of time. Otherwise, having employees complete expense reports and reimbursing them for business expenses they paid out of pocket may actually be faster and easier for your business. Trust IssuesWhen you provide a company credit or debit card to an employee, you’re placing a significant amount of trust in that person. You need to have faith in your employees that they won’t go on a wild Amazon shopping spree. If this is a concern, running a reimbursement program might be the better way to go. We’d say this is particularly true if you happen to have a fair amount of employee turnover, or if you operate multiple locations inside and outside of San Francisco Bay Area wherein you don’t necessarily know each and every employee. As your business grows, you won’t have direct connection with every single team member, which can exacerbate trust issues. Use Tax AuditsAs more people have worked from home over the last year and have taken their company credit cards with them, one issue in particular has grown quite a bit larger. This has been compounded by state budget issues, causing states to step up their enforcement efforts in order to collect more revenue. What are we talking about? Use tax. Use tax is a tax you’re supposed to pay when sales tax wasn’t paid on items used in your San Mateo business. If your employees are working from home and order supplies online, for example, those supplies may be being ordered on a website that doesn’t collect and pay sales tax in our state. Thus, you’re supposed to pay the equivalent sales tax in the form of use tax and file a separate tax return for this purpose. The credit card statement that shows the transactions your employee is making can be demanded by the state when they conduct a use tax audit. As they scrutinize purchases that you may not even really be aware of, they’re looking for those online transactions for items used in your business that were shipped in from out of state, and then you may be liable for a use tax bill or, at the very least, have to pay the cost of us to represent you to fight that tax bill. This is a clear downside

Business Tax Planning

4 Next Steps for Business Tax Return Review

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This week marks the end of another tumultuous tax filing season. I can’t remember anything like it. With the last minute legislative changes, software update delays, and IRS service issues — this very well might have been the most disrupted and difficult tax season in decades. But despite an exhausting tax season, we’re never done, and we’re always here for YOU – including for a business tax return review. More on that in a moment. We know that it probably hasn’t been easy for your San Francisco Bay Area business either, and we sincerely appreciate the trust you’ve placed in us to guide you through the difficult time we’re living through. Despite all the challenges in the world right now, we’re incredibly optimistic about the future, and look forward to continuing to work with you as you build a bigger and better business through the rest of 2021 and beyond. 4 Next Steps for Business Tax Return Review So, let’s talk about just that (your San Francisco Bay Area business), shall we? Just because tax season is over doesn’t mean we’re not still here for you. In fact, right now is a great time to devote yourself to a business tax return review. This means we want to help you look at your business finances and make improvements that’ll put you in a better position for the future. Here are a few “what ifs” to mull over, that we could help you with over the coming months. Business Tax Return Review Step 1: What if you could reduce some business expenses? It’s very rare for a business to be operating as lean as it possibly could be. There’s also a point of diminishing returns when it comes to trying to reduce your operating expenses. But we can help you find a happy medium. Let’s discuss how to: – Eliminate software that you’re paying for but don’t actually need.– Identify things that you’re doing yourself that could be done better and cheaper by hiring another company to do it — and vice versa.– Seek out ways to reduce the cost of the administrative work that is required to run your business.– Look at what could be automated in your business — without sacrificing quality of work. Some cost reductions are simpler than others. For example, switching company cell phone plans or finding a cheaper credit card processing service are the low-hanging fruit. But with some analysis, we might be able to help you find other ways to save money without introducing any negatives. Business Tax Return Review Step 2: What if you could streamline some business processes? We’ve worked with businesses in a lot of different industries in San Francisco Bay Area over the years. In that time, it’s been interesting to see both the differences and similarities in what makes each type of business “tick.” One of the most fascinating things is that ideas from one industry can often be applied to a totally different industry to make significant improvements in the efficiency of how that business operates. For example, we can help analyze who does what within your business to ensure you have the right people doing the right tasks. We can also take a look at how information is communicated at all levels of your business, finding ways to reduce unnecessary back-and-forth stuff and eliminating wait times for key decisions. You likely have workflows that can be digitized to make them more efficient, too. These are just basic examples of the type of process improvements we can help you out with Around here, we like to say that Efficient Business = Profitable Business. We can help you evaluate some of your business processes to identify areas for improvement helping your business become more profitable. And all without paying the insane management consulting fees that a giant consulting firm would charge you! Business Tax Return Review Step 3: What if you could increase your prices? You may have noticed that the prices of everything from food to lumber to used cars has gone up lately. While Jerome Powell of the Federal Reserve recently shared that these price increases are short-term as the economy reopens, I think it’s easy to see that some prices will never come back down. And many of you in San Francisco Bay Area are feeling this. When was the last time you evaluated your own prices for your San Mateo business? If it’s been a while, let’s talk about it. Your supply costs have likely increased, as have your labor costs. Not to mention the fact that you need to increase your own net profits in order to maintain your own lifestyle as costs go up around you. So, let’s take a serious look at all the inputs into your business and determine whether it’s time to raise your prices and exactly how much. Business Tax Return Review Step 4: What if you could build up some cash reserves? A year ago, many small businesses were running really, really tight. In fact, news articles at the time showed that most small businesses had only 29 days of cash on hand. That meant when lockdowns hit, they didn’t have the cash reserves to survive. If your business had an emergency fund, then your business could weather most short-term economic shocks. If you’ve ever seen gigantic corporations report taking multi-billion dollar losses during a quarter and wondered how on earth they can do that, it’s because they either: As an example, a little computer company you may have heard of called Apple has over $195 billion in cash on hand. That’s…wow… Yeah, that’s a LOT of money. It’s so much money that it’s hard to envision anything being able to destroy Apple as a company, short of an asteroid obliterating the entire planet. While you may not need to hoard that much cash, wouldn’t it be nice to have a 3-6 month cushion in case something else happens? That’s definitely a conversation worth having. So, just because your business tax return is filed and done, doesn’t mean there isn’t still

Business Growth, Business Tax Planning

5 Tax Planning Tips to Give Your San Francisco Bay Area Business a New Look This Summer

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Before we talk about some tax planning tips to give your business a new look this summer, we first want to say that we hope your Memorial Day weekend was special. Even though this San Francisco Bay Area business owner had some work to do, a quiet office is my friend. In thinking about the spirit of this past weekend, we are reminded of how very grateful we are for our servicemen and women who made the ultimate sacrifice. May all of us live our lives as a reflection of their honor and the gifts we too easily take for granted. Let us never take those freedoms as “automatic.” And as Memorial day also serves to remind us, summer is finally here.But, lest you think we just sip margaritas by the pool all day after tax season… What we really spend a lot of time doing in the summer issitting down with San Jose area business owners to carefully analyze their tax situation — BEFORE the winter strikes and the moves become much more limited. This is called “tax planning,” an essential move to get the maximum tax savings possible. And with what *might* be coming down the pike from Congress, wisdom says it’s time to get your ducks in a row and plan for what lies ahead. If you’re ready for some tax planning tips, let’s chat: Patti (408) 241-4100  Gale 408-775-7800 These sort of issues are what we specialize in worrying all about — so you don’t have to. Because YOU have to keep your head in the bigger picture. Some thoughts for that below… 5 Tax Planning Tips to Give Your San Jose area Business a New Look This Summer“If you think you are too small to be effective, you have never been in the dark with a mosquito.” – Betty Reese Entrepreneurs know that hard work and a great idea don’t guarantee success. Fortunately, most of them also know that failure isn’t final — almost every successful business owner has crashed and burned at least once in their career. One of the best ways to pick yourself and your San Jose business back up off the ground is to take a fresh look at things you “thought” were set in stone. Here are some strategies that could give your business a fresh lease on life this summer… Tax Planning Tip #1: Re-target your market.In the heat of start-up passion, entrepreneurs frequently try to interest too broad a market: “Everyone will want to buy this!” The result: getting lost in the crowd. The more closely you define your market, the more success you’ll experience. Tax Planning Tip #2: Re-examine your price.Price is obviously supremely important. See how you can lower your overhead or cut production costs. Perhaps there’s a new way to package your products, so that your average transaction value can go up? Tax Planning Tip #3: Identify and push your best product.Focus on what works. If your hot product is coffee cups, look for ways to highlight and expand that niche instead of veering into new territory. How about different colors and holders for those cups? Tax Planning Tip #4: Make your marketing materials more memorable. Emphasize the benefits — SPECIFICALLY how features of your product or service will improve business or the quality of life for your customer. And scrutinize your advertising. Using big media is not always the answer, especially when you have narrowed your market. Don’t overlook narrowly-targeted marketing efforts or joint promotions. Tax Planning Tip #5: Keep promoting.Make sure your message sinks in. Find affordable ways to reach your target market, and use these avenues as often as you can. Try social advertising! These are just a few ideas to get you started. There may be longer conversations to be had. And that’s what I’m here for. To getting things done, Patti ONeill and Gale Bergado

Business Growth, Business Tax Planning

Patti ONeill and Gale Bergado’s Three Business Tax Penalties To Avoid When Possible

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With May 17th behind us (though for those in Texas, Louisiana and Oklahama — this was just another day. June 15th is coming at us fast!), we’re turning towards the planning and optimization part of our calendar. But before we leave taxes in the rearview, let’s address an unfortunate reality: as a business owner, you have a greater number of tax reporting obligations than a regular person has. (Of course, you have MANY more tax-savings opportunities as well.) But with those increased obligations comes increased opportunity for things to slip through the cracks, potentially resulting in business tax penalties and interest charges from the IRS. Some of these penalties are straightforward and simple. Others get really complex in how they’re calculated. Of course, your best course of action is to just let us deal with all of this for you. This is, after all, what we do. But just in case there’s any question in your mind about what your filing and payment responsibilities are to the IRS for your business, let’s run through them from the perspective of the business tax penalties that can be assessed if you don’t take care of them. Buckle up, partner. There’s lots in here… Patti ONeill and Gale Bergado’s Three Business Tax Penalties To Avoid When Possible“Tell me and I forget. Teach me and I remember. Involve me and I learn.” – Benjamin Franklin Your San Francisco Bay Area business may have a variety of tax return filing requirements. The exact forms you need to file will depend on the legal structure of your business, whether you have employees or utilize independent contractors, and the dollar amounts of some of the taxes you have to pay. There are over 150 different penalties in the Internal Revenue Code. In this Strategy Note, we’ll cover the most common ones you need to be aware of. Business Tax Penalty #1: Income Tax Return Penalties Just like you need to file a 1040 return each year for your personal income taxes, your San Mateo business has tax return filing requirements, too. If you operate your business as a sole proprietorship, your business tax return is the Schedule C that gets attached to your personal 1040 return. If you don’t pay in enough tax money throughout the year, you may end up owing an Estimated Tax Penalty from your self-employment income. In addition, you could be subject to Failure to File and Failure to Pay penalties, which we’ll go into detail below. If your business operates as a partnership, you must file a Form 1065, Partnership Income Tax Return, each year. If you file this partnership tax return late, you’ll be charged an IRS penalty of $210 for each month it’s late, times the number of partners. This penalty is maxed out after 12 months of being late. So, for example, if your business has four partners, and you file the tax return 14 months late, your penalty would be: $210 x 4 x 12 = $10,080. That’s a big check to write to the IRS for a tax return that normally doesn’t have any taxes due! But wait, there’s more! Since each partner in the partnership is required to receive a Form K-1 from the partnership, reporting their share of income, the IRS imposes additional penalties for failure to provide these K-1 forms. This penalty starts at $280 per K-1, and increases significantly if the requirement to issue the K-1 was “intentionally disregarded.” This intentional disregard is difficult for the IRS to prove, but if they can do so, the maximum penalty against the partnership can be up to $3,392,000. That’s not a typo. The maximum penalty can be over three million dollars. Such penalties are incredibly rare, but they do happen. If your business operates as a subchapter-S corporation, you must file a Form 1120S each year to report the business’ income, expenses, and other information. The same $210 per month penalty applies, multiplied by the number of shareholders of the corporation during the year. In addition, the same $280 penalty can be imposed for not providing the appropriate Form K-1 to shareholders on time. Bottom Line: File these returns on time! There is usually no income tax due on a 1065 or 1120S return, so you should have no concerns about paying a balance due. The issue that most businesses face is that their bookkeeping isn’t up to date to get these returns prepared. We can help you get caught up and get returns filed to avoid these massive penalties. Business Tax Penalty #2: Employment Tax Penalties If you have employees within your San Francisco Bay Area business, then the payroll taxes that you pay to the IRS in relation to those employees are one of the highest enforcement priorities for the government. Over half of all the tax debt owed to the IRS is employment tax debt. These taxes consist of income tax withholding from your employees, plus both halves of Social Security and Medicare taxes. Depending on your total payroll tax liability for each quarter during the previous year, the frequency with which the IRS expects to receive employment tax payments from your business can change. However, the vast majority of small businesses must deposit these taxes on a monthly basis. If your business fails to make the required tax payment, you may be subject to a Failure to Deposit (FTD) penalty. This penalty is pretty stiff, and increases the longer it takes you to pay. The penalty is: In addition to making these routine tax deposits, most businesses also need to file a quarterly tax return to report wages, income tax withholding, and Social Security and Medicare taxes, among other items. If you file this tax return — Form 941 — after the due date, you can also be subject to a Failure to File (FTF) penalty of 5% per month, which caps out at 25%. On top of these two penalties, the IRS will charge you a Failure to Pay (FTP) penalty on top of the FTD and FTF penalties. This penalty will accrue at the rate of: This FTP penalty has a maximum cap of

Business Growth, Business Tax Planning

Patti ONeill and Gale Bergado’s Tips for Creating a Business Disaster Plan

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The past year and a half has been stressful for everybody in San Francisco Bay Area. And I would argue it’s been doubly so for San Francisco Bay Area business owners. The thing is though, these things happen. Quite regularly. Maybe not global pandemics, but disasters in general. So, as the person in your corner who might be one of the only ones asking you these questions — What happens to your San Francisco Bay Area business if the building next door catches on fire? Are you prepared for the next hurricane, tornado, or hail storm? Every business needs to prepare for these eventualities. Do you have a plan? If not, let’s get you one… Patti ONeill and Gale Bergado’s Tips for Creating a Business Disaster Plan“Remember, today is the tomorrow you worried about yesterday.” -Dale Carnegie Every year, millions of new businesses are started across the country. Yes, millions. Unfortunately, a higher percentage of them will be out of business within five years. Most businesses close due to issues such as a bad business plan, poor execution, and other controllable factors. But in a typical year — 2020 being an aberration — approximately 10% of businesses close due to a specific external event. The unfortunate fact of the matter is that disasters can strike anywhere, any time. And this impacts businesses that aren’t prepared for it. So how can you prepare? Obviously, different business models call for different resources, but there are some generalities that apply to all businesses. Business Disaster Plan Tip #1: Cash Is King The first step is the most important: A business needs capital to operate, and while it’s easy to think you can simply bootstrap all the funding you’ll ever need if your ideal client can’t pay you, the money has to come from somewhere. Enter cash reserves. As a baseline, all businesses need at least three months of operating capital reserves available to them in cash or easily liquidated securities. These funds are earmarked only for emergencies and can be the difference between staying afloat while your business handles whatever disaster has befallen it.    At the same time, it’s important for you to understand two other important resources that can provide capital after a disaster. One is your insurance policy. Know what types of coverages you have, how to make a claim, and store copies of important policy documents away from the business location — such as scanned and uploaded to the cloud. The second is to know what resources will likely be available to you from local, state, and federal government agencies, including FEMA and the SBA. Contact our local emergency management agencies to learn more about what resources — including possible grants and emergency loans — are usually made available after local disasters. Learning about this stuff now will better equip you to navigate all the red tape later. Business Disaster Plan Tip #2: Know Your Customer The events of the past year will be studied for generations due to the impact the pandemic has had on businesses of all sizes. While many companies were forced to shutter their operations, other businesses were able to shift their operations into new markets and actually grow business while the economy shrank. In addition, many new businesses were started, as crazy as that sounds. The lesson here is simple: You must know your customer. This is critical for being able to survive a disaster situation. By knowing and understanding your customers, you’ll be prepared to do what is necessary to shift your operations to continue serving them. For example, a restaurant might be forced to close their dining room, but can they still handle take-out orders? Or, for example, could that restaurant cater meals for first responders, even if they couldn’t be open to the general public? OK, in light of recent events, maybe that’s the too-obvious example. So, how about a factory? Can production be shifted from one product line to another to meet the needs of the changing business climate? OK, maybe this is obvious, too, as some businesses were able to quickly shift production to make ventilators, masks, and hand sanitizer last year. Take the time now to learn more about your customers. Find out how they would respond in certain situations. Learn about what kind of support, products, and services they need and how their consumption changes during a disaster situation. Business Disaster Plan Tip #3: Secure Your Supply Chain It’s also important to understand how your suppliers will fare in a disaster. If you rely solely on one supplier for a key item, and that supply line is upset, your business could be forced to close. A far better plan is to foster relationships with multiple suppliers to ensure there are no challenges to you. Remember when the Suez Canal was closed this spring?  While this wasn’t a “disaster” in the traditional sense of the word, it created challenges for many companies that relied too heavily on only one means of bringing in supplies. At the same time, it’s also wise to know how your suppliers plan on dealing with disasters, too. What type of situations could affect them (which are different from what can affect you) due to location? Will they shut down a production line themselves – or shift production to other products? Where does that leave you, and what will you do about it? If you’re scratching your head on any of these questions, that’s OK. That’s the whole point of a planning exercise like this — to make you dig deep and find the answers now, rather than after disaster strikes. Business Disaster Plan Tip #4: Creating The Plan Common sense would dictate that no one can create a plan to handily cover all disasters – in the last year, we’ve seen monstrous wildfires, cities torn apart by riots, a global pandemic, and transportation and supply line disruptions. Every one of them impacts somebody’s business, and a hurricane offers a far different “type” of disaster than a localized riot. Any disaster plan simply starts with asking “What if?” and beginning to think about

Business Growth, Business Tax Planning

Patti ONeill and Gale Bergado’s Latest Updates on Small Business Tax Deductions

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One thing you can expect from us come rain or shine is to keep you in the loop on changes to all things tax-related. This week is no exception. There are some important changes to small business tax deductions rolling out, and not all deductions apply to all San Francisco Bay Area businesses. But first, let’s briefly talk 2021 Infrastructure bill. While the bill is getting some serious push and pull in the House, there are conflicting views on how this will affect small businesses. Per the Treasury, the bill will target tax increases on big corporations (raising the corporate income tax — i.e. C-corps —  to 28%, among other moves) while protecting the majority of small businesses (around 97%). But opposing sources argue that this doesn’t take into account the many small C corporations that could possibly be affected by the proposed corporate tax rate increase. In fact, according to the Tax Foundation “more than half of the pass-through business income could face tax increases.” There’s certainly more to come on this, and we’ll keep you posted as lawmakers reach a final decision. Now, even if we can’t stop a possible tax increase, we can help you with your small business tax deductions. Let’s jump into the most recent updates… Patti ONeill and Gale Bergado’s Latest Updates on Small Business Tax Deductions“Life is the art of drawing without an eraser.” – John W. Gardner Do your friends ever say that you’re lucky because you’ve got a business and can deduct everything on your taxes? Maybe you should get new friends… just kidding (sort of). But there’s no “maybe” when you’re watching how to take tax deductions for your San Francisco Bay Area small business. The rules keep changing.  What’s in a deduction? Though the tax reform of 2017 did away with a lot of deductions for individual taxpayers (at least for now), businesses still have a bit more leeway. Hundreds of deductions remain available to business owners (generally speaking), including complex ones of depreciation — which we won’t get into this time. Some small business tax deductions are infamous and fancy, like the “Hummer Loophole” where some business owners can successfully write off the entire purchase price of heavy SUVs. By no means are all deductions available to all San Jose businesses. So, let’s simplify the discussion here. Experts say small businesses are best off trying to use about six to ten strategies for taking tax deductions. First off (and most importantly), plan ahead. If you show up with the shoebox of receipts at the last minute and expect us (or any tax preparer, we warn you) to pull some magic deductions out of a hat… well, that’s not gonna work. Making deductions stick with the IRS takes time and work – especially when keeping records to back up your deductions. Some common small business tax deductions include office expenses (which we’ll discuss in a minute), cell phone expenses, and personal car mileage. These deductions are pro-rated between personal and business use – and again, we want to emphasize to San Francisco Bay Area business owners: document document document. Meal tickets Let’s look at those decades-old dependable biz deductions: meals and entertainment (M&E, aka wining and dining). For ages, it was assumed you could write off the whole cost of a steak dinner or even a ball game if you just took a business “associate” and mentioned business once or twice. Well, no more. Now, the rule is a “business associate” that ignites this whole deduction has to be someone you “reasonably” expect to do business with. The federal M&E deduction (claims for which still keep the tax courts mighty busy) recently became a little confusing. Rule-makers tried saying that meals were okay to deduct but not entertainment, leading many biz taxpayers to wonder how exactly you separate the two. Right now, business meals from a restaurant are 100% deductible through next year; the deductible percentage is expected to plunge again after that. The food you buy during an entertainment activity is also a separate deduction from the entertainment itself. Entertainment expenses are no longer deductible. Entertainment, according to the IRS, is “any activity which is of a type generally considered to constitute entertainment, amusement, or recreation,” listing as examples “entertaining at bars, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips.” Sometimes the wording of deduction rules is open to a little (or a lot of) interpretation. Did we mention tax courts? Home and away Let’s wrap up with two other common small business tax deductions. Home office: As more and more people are enjoying the beauty of working from home, this is one deduction that will require a little more pondering. A regular employee can’t take a deduction for the workspace. But you as a business owner or independent contractor might be able to deduct office expenses. If you’re self-employed, you have a few more options – but with the caveats that the space is your main place of business and that it is used exclusively for that purpose. Examples of allowable deductions: repairs and maintenance to the area used for business; utilities; real estate taxes; insurance; and home mortgage interest. The easy way to calculate your deduction is to basically take the square footage of your home office (up to 300 square feet) and multiply it by five dollars. The more complex method is finding out what percentage of your home’s square footage constitutes your home office and then pro-rate certain “direct” and “indirect” expenses. Make sure to check in with us (or the IRS) about these terms. Travel: The IRS considers a business day to be eight hours. For a 100% travel deduction for an entire day, at least half that time must be spent on a work-related activity. Note: Traveling from one destination to another is considered a work-related activity by the IRS. Spend four hours getting somewhere for a business meeting and you’ve qualified. Deducting your meals when you

Business Growth, Business Tax Planning

Disaster Recovery Planning Your San Francisco Bay Area Small Business Probably Needs

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The phone rings in the middle of the night and a voice says your office is on fire. Early on a long weekend, that old pipe in the back finally bursts and no one will see the water for days. Or suddenly the Weather Channel’s saying a hurricane is barreling in your city’s direction. Oh, it’s always the other guy, you say? Ask the folks in Louisiana and Mississippi this week, or those out West most of this summer. Nobody in New York City ever used to even think about flash floods … According to FEMA, about *half* of small businesses never reopen after a disaster. Worse yet, one in four fails within a year, and nine out of ten shut their doors within two years. Not odds you want to bet against. So what do you do? If you’ve thought ahead, you pull out your disaster recovery plan for your San Francisco Bay Area small business. Disaster Recovery Planning Your San Francisco Bay Area Business Probably Needs“Success is the residue of planning.” – Benjamin Franklin When disaster hits, you have two jobs: 1) Stay open that day and 2) stay open in the days ahead. So, let’s take a look at the difference between a business continuity plan and a disaster recovery plan for your San Jose business, and why and when you need both… First off, both plans are actual documents (and they work best if you develop and use them together – in fact, a lot of people use the terms interchangeably). Unlike all those other reports you read once and then buried, these plans you pull out once a year to keep up to speed on preemptive approaches – in other words, you’re not waiting for those floodwaters to seep under your door before you know what to do. Your business continuity plan outlines how your business will keep going during a disruption. It includes procedures and instructions you and your team will follow when bad stuff drips (or gushes) down. Disaster recovery is how you’ll pick up your business again after a disaster… how you’ll get the doors unlocked… how you’ll start seeing customers again in the days ahead. Seems like common sense, right? But can you believe that a survey last year found more than 50% of companies don’t have a business continuity plan? Or that one in five execs of small and mid-size businesses don’t have a recovery plan? It’s difficult to imagine why anyone would risk the lost business, make themselves vulnerable to legal risk, a damaged reputation, or even possible fines and the loss of a business license. Just keep going To put it in simple terms, your business continuity plan looks like driving to the gas station while your engine warning light is still on — you’re trying to keep things going while the emergency is still happening. It doesn’t have to be a storm or wildfire on national news, either – you can even get hammered by something as small as a local power outage. The key is to assume that (for a little while) your equipment, workforce, office or workplace, third-party vendors, and just about everything else are unavailable. Here are a few questions you’ll want to answer on this front: – What jobs around your business can you NOT survive without, and who does those jobs? – How are you going to contact your people? Calling on the phone is everybody’s first thought, but don’t forget about texting and social media. You can keep staff updated on your Facebook page if you need to. – Who should your employees contact first? What shouldn’t they do? (Want ‘em talking to the local news?) – How will you keep phones and computers/servers working? Are there laptops somewhere else you can run on for a while? – Will you have to move your business, even temporarily? Where could you go? Your new normal Your disaster recovery plan tells you how to get your business back to normal as fast as possible. For instance, your recovery will probably hinge on technology. Part of your plan could be laying hands on your backup files that are in the cloud or on a portable hard drive that you keep somewhere far from your office. What’s your long-term plan to finance ruined computers? And of course, in this wonderful world, not all disasters involve water, fire, or wind. Suppose your business gets caught in a public relations mess… a bad lawsuit or a data hack. Part of your recovery plan should cover what statements you’ll make (deny all knowledge, we’re investigating, we can’t comment at this time, etc.) Both is better A lot of people combine the business continuity and disaster recovery plans. Suppose your inventory goes up in a warehouse fire. ‘Continuity’ means you call all your employees and vendors. Your recovery involves telling staff what to tell customers and notifying the right people at your insurance company. The point is, both types of plans work to keep you ahead of a problem. Do not wait to make them. If we can help let us know. You can even make that part of the disaster recovery plan for your small business. If that’s something you want in your corner, let’s chat about it:Patti (408) 241-4100 Gale 408-775-7800 To your bottom line, Patti ONeill and Gale Bergado(408) 241-4100ONeill & Bergado

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