Business Loan Taxation

As a business owner, and to properly account for a business loan, you should be familiar the following tax issues that result from taking out a loan for your business.

 

1-A bona fide business loan should be a written document with the following information:

            Date of the loan

            Principal Amount Borrowed

            Interest Rate

            Loan Repayment Dates

            Lender's Name & Address,

            Business Borrower's Name & Address

            Collateral pledged, if any

            Amortization Schedule

 

2-Loans are not income to the borrower. Rather, a loan is either as short-term or long-term liability. Short-Term if the loan is for less than 1 year. Long-Term if the loan is for 1 year or longer.

 

3-The Amortization Schedule shows the date and amount of each required loan payment. For interest-bearing loans, each loan payment is broken down into a principal and interest portion.

 

4-Principal repayments reduce the outstanding loan balance (and are not a tax deduction).

 

5-Interest payments are a deductible business expense.

 

6-If the borrower is unable to repay the loan in full, cancellation of debt income, and gain or loss on asset disposal may result, depending on the specific facts and circumstances.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

Marketing tip of the month

#13  FREE AS A BIRD

Continuing with the so important Call to Action, here is a list of suggestions  when you want to attract customers with something for free: Get it free,

It’s free-get started,  Get this deal, Sign up for your free trial, Free 30 day trial, Try it now, free, Start saving today. And if you want to limit your offer try these: Offer expires X, Limited time offer, For the first X people only, Order now and receive a free gift!

 

Martin Kahn, SCORE Counselor

Visit us at: www.scoresouthflorida.net

Cybersecurity 101

Here are a few pointers:

Choosing passwords:

     Using more letters, numbers and symbols while they may help, are not infallible.  

     Five or six words may be of more help by increasing the random possibilities.

Using a password manager:

     These pick random very long passwords that you do not need to remember. 

     They require a very long password that you better not forget

Public Wi Fi:

     Anyone can easedrop and intercept a conversation

     Avoid these if possible

     Use only a trusted virtual private network (VPN)

Charging your phone:

     Doing this in public places is not a good idea (airports, etc)

     Venerable to side channel attacks.

     If you must, turn the phone off while charging

Decoys can help:

     Download multiple similar apps (ie. Bank apps) making it harder to find which is real.

     Create multiple “fake files” (ie. Tax returns, customer records) for the same reason

Technologists are continually looking for alternatives, so stay on top of this subject.

 

How is your business protected?

 

Steve Koenig, SCORE Counselor

Visit us at: www:scoresouthflorida.net

 

 

S Corporation Shareholder-Employee Business Use of A Home

 

Shareholder (owners) of an S Corporation who render services to the corporation's trade or business are deemed to be an employee (and not an independent contractor) of the corporation.

 

Because the shareholder is deemed an employee, they are required by law to be paid a reasonable amount of compensation (wages) services rendered which is reportable on their W-2 each year.

 

The general rule is that employee un-reimbursed business expenses (business expenses that an employee incurs while conducting business that are not reimbursed by the corporation) are deductible on Form 2106. These expenses are then transferred to Schedule A, Itemized Deductions, and included are line #21. Further, these expenses are subject to a 2% of Adjusted Gross Limit threshold limit before they can potentially become deductible, assuming the taxpayer does itemize deductions and not take the standard deduction.

 

Employee business expenses (including the business use of a home) by a S Corporation Shareholders officers, or regular employees have a special requirement in order for the expenses to be deductible.

 

The tax law requires a written corporation resolution that requires the taxpayer to incur expense as may be necessary or required, and that they would not be reimbursed by the corporation. Thus, a written corporate resolution or policy in place requiring a shareholder, officer or employee to assume specific expenses is required in case of an IRS Audit.

 

Without the corporate resolution, the IRS in an audit will most deny the deduction as a voluntary payment of corporate expenses, and consider them to be capital contributions or loans to the corporation.

 

NOTE: Even if there is a written corporation resolution, specifically the shareholder MUST follow the law requiring they receive reasonable compensation wages for services rendered to the corporation.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

Home Office Deduction For Self-Employed

 

Self Employed taxpayers file Schedule C (Form 1040) to report their business income and expenses.

The home office deduction, if allowed, is taken on Line 30 of Schedule C.

The IRS allows taxpayers two options for taking the Home Office Deduction, the Simplified Method or the Regular Method, whether they own or rent the home.

Under the Simplified Method, the taxpayer is allowed a home office deduction of $5 per square foot up to a maximum of 300 square feet in lieu of determining actual expenses. Actual expenses are not considered or taken into account. Thus, the total potential deduction is $1,500.00.

If the taxpayer uses the Simplified Method for the home office deduction, they do not File Form 8829 Expenses For Business Use of Your Home.

Under the Regular Method, the taxpayer take into account various actual home office expenses and then takes the business use percentage of the home office to calculate the potential home office deduction. Thus, more record-keeping is required to track the expenses.

If the taxpayer uses the Regular Method, they must file Form 8829 Expenses For Business Use of Your Home, to calculate the allowable home office deduction, which then transfers to Schedule C, Line 30.

Typical home office expenses include: mortgage interest, real estate taxes, homeowners insurance, utilities, maintenance and repairs, and depreciation.

Under either method you need to figure the percentage of your home devoted to your business activities. Therefore you will need both the total square footage of the entire home and the square footage devoted to the business activity.

Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:

1-Regular AND Exclusive Use-you must regularly use part of your home exclusively for conducting business, and

2-Principal Place of Business-your home must be the principal place where you conduce business.

IRS Publication 587 from the IRS provides information for Business Use of Your Home.

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

Marketing Tip of the Month

#12  CALLS TO ACTION

Here are some great calls to action to use in your sales literature. Choose the ones YOU like, then, if possible, change them from time to time to find out the BEST ones for your business: Find out more, Visit now, Get on our mailing list, Join the club now, Take the next step, How to get started, Start here, How it works, Learn more.

Martin Kahn, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

Partner's Business Use of A Home

 

Partners report expenses for the business use of a home as unreimbursed partnership expenses on Part II,  Line #28, column (h), Schedule E, Form 1040.

Partners do not use Form 8829, Expenses For Business Use Of A Home, for a partner's expenses.

See a detailed discussion of Partner's Unreimbursed Expenses, article.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

The Value of a Deal

I recently saw a great sale on watches. Not those offered on the streets in some cities, but an unusually good deal in any event. I did not really need another watch, but I fell for the deal, and purchased one. It had the main watch dials as well as two smaller dials and a few added controls on the side. It took a while to get the band sized to fit with the help of the seller. I actually could not see the smaller dials without my glasses, which I did not have in my possession at the time of sale. When I got home and had some time I looked closer and determined that the two small dials and controls were decorative only, without functionality at all. The next day I returned to the seller and asked about this and he responded: “what do you expect for that price?”  He was right. The deal was just that…

He also took the watch back and returned my money. OK seller…of TRASH…and I should have knowm better…

How about your products and/or service?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Un-reimbursed Partner Expenses

 

Under the general rule, a partner in partnership is NOT allowed to deduct un-reimbursed partnership expenses (partnership business expenses paid by the partner that the partner is not reimbursed for) on his/her individual tax return.

An exception applies when there is a provision in the partnership agreement requiring the partner to pay the specific expenses.

Each partner's Schedule K-1 should indicate in Box 20, Code Z along with a statement that the amount is for “UPE”.

Allowable expenses are deducted on Part II, Schedule E, Form 1040 of the partner's individual income tax return.

Report allowable un-reimbursed partnership expenses as a separate item on Line 28, Schedule E. Enter “UPE” as the name of the line item, then list the amount on (h) of line 28.

The “UPE” amount will be deducted from partnership income and will also reduce the net income subject to self-employment tax.

Audit Tip:

Include the requirement that the partners pay the specific expenses in the written partnership agreement to help ensure deductibility in case of an IRS Audit. Also include wording that the partnership will not reimburse the partners for the expenses.

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

Marketing tip of The Month

#11 THE OPENING KICKOFF

Start every business day, and I mean EVERY business day, by making TWO cold calls. It’s a great, proven tactic. You’re bound to meet customers who had a great day themselves the day before and are ready to do business with you. But it’s got to be a habit. Every business day.

Martin Kahn, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

 

 

 

 

IRS Installment Agreements

 

If you are financially unable to pay your tax debt immediately, you may be able to make monthly payments through an installment agreement with the IRS.

Before applying for a payment agreement, you must file all required tax returns.

You may be eligible to apply for an online payment agreement:

·Individuals must owe $50,000 or less in combined individual income tax, penalties and interest, and have filed all required tax returns.

·Business must owe $25,000 or less in payroll taxes and have filed all required tax returns.

Even if you are ineligible for an online payment agreement, you can still pay in installments:

·Complete and mail Form 9465 and Form 433-F

·Call 800-829-1040 or the phone number on your bill or notice.

 

Things to Consider

·Penalties and interest continue to accrue until your balance is paid in full.

·Your future refunds will be applied to your tax debt until it is paid in full.

·There may be a restatement fee if your agreement goes into default.

·You must pay at least your minimum monthly payment---on time.

·You must file all required tax returns on time.

·You must contact the IRS if you need to make any changes to your agreement.

·Ensure the IRS has your current address if you move by filing Form 8822 Change of Address.

·Include your name, address, SSN, daytime phone number, tax year and return type on your payment.

Currently, the IRS One Time Fee for a standard installment agreement or payroll deduction agreement is $120 or $52 if you choose to pay through a direct debit from your bank account.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

Product, Price and Service

We recently had a good example of the subject title that could be a good learning experience. First, we purchased a small home appliance from a discount retailer.

Upon putting the pieces together and plugging it in to power, the power circuit breaker blew out.. each time it was reset and reattempted. The retailer replaced the appliance with one that would not blow the breaker, but also would not turn on at all. So we gave up and returned this second one for a refund which the retailer provided. So we received a terrible product, but received good service, but felt a lack of confidence in any event. We then purchased a replacement appliance from another retailer. The model and manufacturer were different, as was the price…slightly lower…which was a surprise as the device was of higher quality. The lack of confidence in the products carried by the discount retailer, also led us to return another small appliance UNOPENED, and received another refund. So this is a case where poor quality products led to NO SALES.

How about your business?

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

 

 

IRS Offer In Compromise

The IRS Offer In Comprise program allows you to settle your tax debt for less than the full amount you owe—if you are eligible.

Make Sure You Are Eligible

Before the IRS can consider your offer, you must be current with all filing and payments requirements. You are not eligible if you are in an open bankruptcy proceeding. You can use the IRS Offer In Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.

The IRS will generally approve an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time.

The IRS considers each taxpayers unique set of facts and circumstances such as:

·Ability to pay

·Income

·Expenses, and

·Asset equity

 

IRS Form 656-B contains the step-by-step instructions and all the forms and information required for submitting an offer in compromise.

Note that the IRS will return any newly filed Offer In Compromise Application where the taxpayer has not filed all required tax returns. This policy does not apply to current year tax returns if there is a valid extension to file.

Currently the application fee is $186.00 and is non-refundable. You will also need to make an initial payment (non-refundable) with each Form 656.

BEWARE:

Television ads suggesting you can settle for “pennies on the dollar” may be misleading. Always seek competent professionals you can trust before considering an offer in compromise.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

Marketing Tip of The Month

#10 SIGNS OF SUCCESS

Get yourself a license plate with your company name or tag line, anything that uniquely identifies you when you pull up, or that promotes you as you drive about.  I’m an Interior Designer..or was til I retired..my plate could be DECOR8. What’s yours?

 

Martin Kahn, SCORE Counselor

Visit us at: www.scoresouthflorida.net

Payroll Taxes and the Trust Fund Recovery Penalty (TFRP)

To encourage prompt payment of payroll employment taxes, Congress passed a law that provides for the TFRP. These taxes are called trust fund taxes because you actually hold the employee's money in trust until you make a federal tax deposit payment in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. And, the business does not have to have stopped operating in order for the TFRP to be assessed.

Who Can Be Responsible for the TFRP?

The TFRP can be assessed against any person who:

1-Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and

2-Willfully fails to collect or pay them.

A responsible person may be:

·An officer or employee of  a corporation

·A member or employee of a partnership

·A corporate director or shareholder

·A member of a board of trustees for a nonprofit organization

·Another person with authority and control over funds to direct their disbursement

·Another corporation or third party

·Payroll service providers or responsible parties within these organizations

 

For willfulness to exist, the responsible person:

·Must have been, or should have been, aware of the outstanding taxes and

·Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required)

The Penalty and Enforcement

The amount of the penalty is equal to the unpaid balance of the trust fund tax.

Once the IRS asserts the penalty, they can take collection action your personal assets by fiing a federal tax lien or take levy or seizure action.

Avoiding the TFRP

You can avoid the TFRP by making sure that all employment taxes are collected, accounted for, and paid to the IRS when required. Make your tax deposits and payments in full and on time.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

 

 

Florida Small Business Index Report

 

Near the end of 2017 The Florida Chamber of Commerce reported its

Quarterly Small Business Index statewide survey showing small businesses are most concerned about:

 

Workforce quality (18 percent),

Government regulations (17 percent),

Economic uncertainty (12 percent),

Healthcare costs (10 percent),

Lawsuit abuse (8 percent),

Access to capital (6 percent).

 

The Chamber reported: Of Florida small businesses, 48 percent of respondents expect to hire in the next six months.

 

How does your business compare?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Canceling an EIN "Employer Identrification Number"

 

If, for some reason, you have an old EIN with the IRS, the IRS can close your business account.

The IRS cannot cancel your EIN. Once an EIN has been assigned to a business entity, it becomes the permanent Federal taxpayer identification number for that entity. Regardless of whether the EIN is ever used to file Federal tax returns, the EIN is never reused or reassigned to another business entity. The EIN still belongs to the business entity and can be used at a later date, should the need arise.

If you receive an EIN but later determine you do not need the number (the new business never started up, for example), the IRS can close your business account.

To close your business account, send the IRS a letter that includes the complete legal name of the business entity, the EIN, the business address and the reason you wish to close your business account.

If you have a copy of the EIN Assignment Notice that was provided by the IRS when your EIN was assigned, include that with your letter.

Send the information to:

Internal Revenue Service

Cincinnati, Ohio 45999

To prevent potential tax issues down the road, it is a good idea to take the above steps to close your business account with the IRS.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

Marketing Tip of the Month

#9 THINGS THAT GO BUMP IN THE NIGHT

Want your mail opened? Include something that makes a “bump” in the envelope. It could be as simple as a wrapped mint, a product sample, whatever.  I guarantee it will be opened, because we’re all curious, aren’t we, just like the  proverbial cat! And to be doubly sure? Use a bunch of stamps instead of one!

 

Martin Kahn, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Special Counselor of the Month

OWEN KOFF 

Electing a counselor of the Quarter is often a difficult task for the CTT (Counselor Training Team). So many of our members do such outstanding work, with clients, colleges, organizations, Chambers, truly we are blessed with the outstanding staff we have. And of all the members perhaps no one works harder, takes on more additional duties and responsibilities than does our Counselor of the 1^st Quarter of 2018, Owen Koff.

You may know Owen as an outstanding client-devoted fellow member, but are you aware Owen is a member of the Executive Committee, a member of the CTT, a special ambassador to the JM Executive Program for Entrepreneurs, a representative to the Delray Chamber of Commerce, both as a speaker and a Mentor, a developer of a Boot Camp on the Art of Selling, a representative to St. John Paul’s, an ambassador to the West Boca Chamber of Commerce, all  among his many “jobs”. Additionally  Owen has designed and written his own material for his Seminars, and will be delivering an all-day Seminar on Selling as part of our upcoming Business Certificate Academy.

As the Chapter Editor, I can tell you that when it comes to “volunteering”, Owen is at the head of the line. And yes, Owen has won this award before, but he simply never says “no”, and always wants to help the Chapter in any way he can. All of that begins to describe this very special guy, and so we join in saluting him for everything he does that makes our Chapter shine.

Take a bow, friend, you are so worthy of the award and you ARE our Special Counselor of the Quarter for January, February, and March.

 

Martin Kahn, SCORE Counselor

Vist is at: www.scoresouthflorida.net

 

 

Entertainment & Meal Expense Tax Rules

 

The following tax law rules pertain to entertainment and meal expenses.

1-The expense must be directly related to and or associated with the active conduct of the taxpayer's trade or business.

2-Generally, the deductible portion is 50% of the amount deemed not lavish or extravagant. Meal expenses incurred in the course of travel away from home fall in this category. (NOTE: Some limited exceptions to the 50% limit apply and the full 100% is deductible)

3-The total expense also includes any admission fees, parking fees, tips, and taxes paid.

4-Club dues such as airline, country, hotel, luncheon, social, and sporting clubs are NOT deductible in and of themselves.

5-The deductible portion of business gifts is limited to $25 per recipient per year and is treated separately from entertainment and meal expenses.

The taxpayer should keep documentation and substantiation with the following information:

            Date

            Description

            Total Amount

            Business Discussed

            Business Relationship of those entertained

            Identification of individuals who attended the event, their reason for attending, their titles, etc.

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

Terrible Customer Service

A family mail ordered a lamp shade to replace one of their own that had aged. Prior to placing an order the supplier asked them to send via email a scanned photo of their existing shade to confirm they had a replacement. The family did so. When the replacement shade arrived it was the correct version, however, it was discolored and damaged probably from years on a shelf.

The family called the supplier who pushed back, refusing to take the unit in return. The family escalated to management of the organization who agreed to accept the unit and pay the cost of return shipping. The return shipping costs where high because the supply organization refused to allow use of their bulk shipping rates. The family notified their credit card company to dispute the charges, and made a point with management about abuse from the underlings in the organization. Someone probably lost a job as a result.

How to you train your employees?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Accountable & Non-accountable Reimbursement Plans

 

The arrangement under which an employer reimburses business expenses incurred by employees or provides advances to cover such expenses is either an accountable or non-accountable plan.

The federal tax treatment of each plan is summarized below.

Accountable Plans

Amounts paid under an accountable plan are deductible by the employer as business expenses and are not reported as taxable income to the employee. They are not reported on the employee's Form W-2 and are not subject to federal income tax withholding, social security tax withholding, medicare tax withholding, or Federal Unemployment Tax (FICA and FUTA).

Non-accountable Plans

Amounts paid under a non-accountable plan are deductible by the employer as “compensation” reportable on the employer's Form W-2 and subject to withholding as supplemental wages.

Expense reimbursements that are subject to withholding may be added to the employee's regular wages for the appropriate payroll period and withheld payroll taxes may be withheld on the total.

Specific Rules for Accountable Plan Treatment

Accountable plans have the following 3 requirements:

1-the expenses covered under the plan must have a business connection,

2-the plan must require the employees to document and document and substantiate the covered expenses within a reasonable period of time, and

3-the plan must require the employees who receive advances to return any amounts in excess of their documented and substantiated expenses within a reasonable period of time.

If the above rules for accountable plans are not strictly followed, employer reimbursements will be deemed to be made under a non-accountable plan.

It is good practice to put the plan in writing to document and substantiate all expense reimbursements. This will provide valuable evidence should an IRS Tax Audit occur.

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

Marketing tip of the month

#8  COPYCAT

Want to impress your clients that you really care about them? Photocopy interesting articles and send them to clients and prospects  with a hand written  FYI (For your information) note, and include your business card.

 

Martin Kahn, SCORE Counselor

Visit us at: www.scoresouthflorida.net