When do you move from an LLC to an S- Corp?

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22 May 2023

When do you move from an LLC to an S- Corp?

LLC vs. S-Corporation

A Limited Liability Company (LLC) and an S-Corporation (S-Corp) are two common business structures that offer their owners legal protection and tax advantages. An LLC is a flexible entity that combines elements of a corporation and a partnership. It provides its owners, known as members, with limited liability protection, meaning their assets are generally shielded from business liabilities. LLCs also offer pass-through taxation, where profits and losses flow to the members’ tax returns. Sounds good, right? LLC partnerships in the U.S. have declined for the first time since 1993 by 4.7%.  

An S-Corp is a type of corporation that allows for similar liability protection but offers potential tax advantages. S-Corps also follow the pass-through taxation model, but they allow for the distribution of profits as dividends, which are exempt from self-employment taxes. Choosing between an LLC and an S-Corp depends on various factors, including taxation, self-employment taxes, ownership structure, and compliance requirements. 

5 Factors to Consider  

The decision to transition from an LLC (Limited Liability Company) to an S-Corporation (S-Corp) is complex and depends on various factors. You should always consult a qualified attorney and tax professional before making the decision to switch business structures. Here are some factors to discuss.  

  1. Taxation: LLCs are typically subject to “pass-through” taxation, where profits and losses are reported on the owner’s tax returns. S-Corps also offer pass-through taxation, but they provide potential tax advantages by allowing owners to pay themselves a reasonable salary (subject to payroll taxes) while distributing remaining profits as dividends, which are not subject to self-employment taxes. 
  2. Self-Employment Taxes: In an LLC, all business income is subject to self-employment taxes, which include Social Security and Medicare taxes. S-Corps reduce these taxes by splitting income between salaries and dividends, only the former being subject to self-employment taxes. 
  3. Employment Benefits: S-Corps offer more flexibility in providing employee benefits, such as health insurance, retirement plans, and fringe benefits. These benefits may be deductible by the corporation, providing potential tax advantages. 
  4. Ownership and Investors: If you seek outside investors or issue different classes of stock, an S-Corp structure may be more suitable. LLCs have restrictions on the types of ownership interests they offer, while S-Corps have multiple classes of stock and easily facilitate investment opportunities. 
  5. Formalities and Compliance: S-Corps generally have more formalities and administrative requirements than LLCs. This includes holding regular shareholder and director meetings, maintaining corporate bylaws, and adhering to specific record-keeping and reporting obligations. 

It’s important to note that the decision to convert from an LLC to an S-Corp involves legal, tax, and financial considerations. Be sure you understand the ramifications in all three areas before making a change.  

The Right Time to Transition  

Determining the optimal time to transition from an LLC to an S-Corp depends on several factors specific to each business owner’s circumstances and goals. While there is no universally applicable timeframe, particular indicators suggest that a conversion could be beneficial. Typically, the decision to switch is motivated by tax considerations, such as the ability to reduce self-employment taxes and optimize distributions.  

Additionally, the need for outside investment, multiple classes of stock, and a more formal business structure influence the timing. To make an informed choice, it is crucial to consult with a qualified tax professional who can assess your situation and provide personalized guidance.  

What Your Tax Professionals Need to Know to Complete Your Return

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16 May 2023

What Your Tax Professionals Need to Know to Complete Your Return

Shed Light on Your Return 

It is estimated that 80 percent of people missed a tax-related step therefore, not knowing what information your tax professional needs to file your taxes correctly is a significant source of stress and confusion. Without a clear understanding of what documents and information are required, you may struggle to provide your tax professional with the necessary information, resulting in a delay in filing your return or even an incorrect filing. This leads to further complications, such as an audit or a delay in receiving any refunds you may be owed. Additionally, not knowing what information your tax professional needs can result in missed opportunities for tax benefits, such as deductions or credits you may be eligible for. That means paying more taxes than necessary, a significant financial burden. Working closely with your tax professional and understanding their required information is essential to ensure a smooth and accurate filing process. 

The Most Important Information  

Providing your tax professional with accurate and complete information in these three areas will help ensure your return is filed correctly, and you receive any tax benefits you are entitled to. 

  1. Personal Information: Your tax professional will need your personal information, including your full name, Social Security number (or other tax identification number), date of birth, and address. This information is essential for correctly identifying you and ensuring your return is filed with the appropriate tax authorities. 
  2. Income documents: Your tax professional will need documents showing all the sources of income you received during the tax year, such as W-2 forms from your employer(s), 1099 forms for freelance work, interest and dividend statements from banks and financial institutions, and rental income statements. These documents will help your tax professional accurately report your income and determine your tax liability. 
  3. Deduction and credit documentation: Your tax professional will need the relevant documentation if you plan to claim deductions or credits on your tax return. For example, suppose you plan to claim a deduction for charitable contributions. In this case, your tax professional will require receipts or other documentation that show the amount you donated and the name of the charity. If you plan to claim the earned income tax credit (EITC), your tax professional will need documentation showing your income and the number of qualifying children you have. 

Get Help with the Right Information  

Better Accounting provides the tools and guidance to keep accurate yearly income and expenses records. The company helps you set up an accounting system, such as software or a spreadsheet, to keep track of all your transactions and ensure you have all the necessary documentation to support your deductions and credits.  

Additionally, Better Accounting helps you stay informed about tax law and regulation changes and provides guidance on what personal information and documentation you will need to file your taxes. The company’s experienced professionals help you prepare for tax season by ensuring all the necessary documents and information are organized and ready to file. Overall, Better Accounting allows you to stay organized, keep accurate records, and provide the guidance and support you need to ensure you have all the necessary personal information, income documents, and deduction and credit documentation ready for tax season.

Maximizing Tax Benefits: Understanding R&D Capitalization for Your Business

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5 May 2023

Maximizing Tax Benefits: Understanding R&D Capitalization for Your Business

Are you ready to save money on taxes and reinvest those savings into your business? As a business owner, you may have heard about the exciting tax benefits of Research and Development (R&D) Capitalization. But when do you qualify for this tax incentive, and what exactly is it? In this blog post, we’ll explore the ins and outs of R&D Capitalization, when you may qualify for it, and what you need to take advantage of this valuable tax incentive.

What is R&D Capitalization?

R&D Capitalization is a tax incentive that allows businesses to capitalize and amortize certain research and development expenses over time rather than deducting them as an expense in the year they are incurred. This can provide significant tax benefits for businesses engaged in research and development activities. To qualify for R&D Capitalization, businesses must meet specific criteria, including:

  1. The expenses must be related to research and development activities intended to create new or improved products, processes, or software.
  2. The expenses must be incurred before the product or software development stage is complete.
  3. The expenses must be capitalized and amortized over a period of time rather than deducted as an expense in the year they are incurred.

The Activities’ Qualifications

To qualify for R&D Capitalization, the research and development activities must meet the following criteria:

  1. Technological in Nature: The research and development activities must rely on principles of engineering, physics, biology, or computer science. The activity must be intended to discover technological information and be useful in developing a new or improved product, process, or software.
  2. Uncertainty: The research and development activities must involve uncertainty. This means that the information sought cannot be readily available or deducible by a competent professional in the field.
  3. Process of Experimentation: The research and development activities must involve a process of experimentation. This means the activities must involve evaluating alternatives and testing hypotheses through experimentation or modeling.
  4. Permitted Purposes: The research and development activities must be intended to create new or improved products, processes, or software. This includes the design and development of prototypes, models, or processes.

The expenses that can be capitalized under R&D Capitalization include wages, supplies, and contract research expenses related to the research and development activities. It’s important to note that only expenses related to research and development activities that meet the criteria established by the IRS can be capitalized.

Once the expenses are properly capitalized, they can be amortized over time. The amortization period is generally over the useful life of the research or over ten years, whichever is shorter.

So Why Should Businesses Consider R&D Capitalization?

  1. Tax Savings: Businesses can save on taxes by capitalizing and amortizing research and development expenses over time.
  2. Cash Flow: R&D Capitalization can improve cash flow by reducing the amount of taxes owed in the current year. By capitalizing and amortizing research and development expenses, businesses can lower their tax liability and free up cash to invest back into the business.
  3. Competitive Advantage: Engaging in research and development activities can help businesses stay competitive by creating new or improved products, processes, or software. By taking advantage of R&D Capitalization, businesses can allocate more resources to research and development activities, providing a competitive advantage over other businesses in their industry.
  4. Compliance: R&D Capitalization requires careful accounting and record-keeping to ensure that expenses are properly capitalized and amortized over time. By complying with the requirements of R&D Capitalization, businesses can avoid penalties and fines for noncompliance with tax laws and regulations.

It’s important to note that while R&D Capitalization can provide significant tax benefits for businesses, it requires careful planning and accounting. Businesses must keep detailed records of research and development expenses and ensure that they meet the criteria established by the IRS.

R&D Capitalization can be a complicated process, and businesses should seek the assistance of a qualified accountant or tax professional. They can help businesses understand the qualifications and requirements of the program, maximize their tax savings, and ensure compliance with tax laws and regulations.

In addition to R&D Capitalization, businesses may be eligible for other tax incentives related to research and development activities, such as the Research and Experimentation Tax Credit (R&D Tax Credit). The R&D Tax Credit is a general business tax credit that allows businesses to offset federal income tax liability for qualified research and development expenses. If your business is engaged in research and development activities, it’s worth exploring the potential benefits of R&D Capitalization. Contact Better Accounting today and see if you can start enjoying the benefits of the R&D Capitalization incentive.

Sales Tax Regulation: E-commerce  

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2 May 2023

Sales Tax Regulation: E-commerce  

Eliminate the Stress of Sales Tax Regulation   

E-commerce sales in the United States exceeded 360 billion in 2021 and increased to 431.4 billion in 2022, and as e-commerce continues to boom, so does the complexity of sales tax regulation. For many online retailers, navigating complex and ever-changing tax laws can be a significant source of stress. From understanding which products are taxable to keeping track of rates and filing returns, managing sales tax can be time-consuming and error-prone. Fortunately, there are ways to eliminate the stress of sales tax regulation in e-commerce. By leveraging technology and outsourcing tax compliance to experts, businesses can streamline their sales tax processes and focus on what they do best: running their business. In this article, we will explore some strategies e-commerce businesses can use to ease the burden of sales tax compliance and reduce stress. 

Navigating complex sales tax regulations can be daunting for any business but incredibly challenging for e-commerce businesses. The proliferation of online sales has led to a patchwork of regulations at the state and local levels, with each jurisdiction imposing its own set of rules and requirements. E-commerce businesses must stay current on these regulations, ensure compliance, or face penalties and legal action. To navigate this complex landscape, e-commerce businesses should invest in tax automation software, consult with tax experts, and maintain detailed sales and tax liabilities records. By taking these steps, e-commerce businesses can avoid costly mistakes and stay on the right side of the law.   

How To Navigate Sales Tax Regulations?  

Navigating complex sales tax regulations can be a challenging task for e-commerce businesses. Here are some tips to help:  

  1. Stay current on tax laws: E-commerce businesses should stay informed about sales tax laws and regulations at the state and local levels. Staying current can be done by regularly monitoring updates from the relevant tax authorities and industry associations. 
  2. Invest in tax automation software: E-commerce businesses should consider investing in tax automation software to help manage their tax compliance obligations such as calculations, filing, reporting, and reducing the risk of errors. 
  3. Consult with tax experts: E-commerce businesses should seek advice from tax experts, such as accountants or tax attorneys, who can help ensure compliance with complex tax laws. 
  4. Maintain detailed records: E-commerce businesses should keep detailed records of their sales and tax liabilities, including invoices, receipts, and tax returns. This information can be used to verify compliance with tax laws and to defend against audits or disputes. 
  5. Consider outsourcing tax compliance: If tax compliance is too complex or time-consuming, e-commerce businesses may consider outsourcing these responsibilities to a third-party provider. Outsourcing tax compliance can ensure compliance while allowing the company to focus on its core operations. 

We Will Navigate Sales Tax Regulations For You   

Better Accounting can provide various services to help e-commerce businesses navigate complex tax regulations. Their team of financial experts can assist with tax compliance by determining tax obligations and making payments on behalf of the business. Additionally, they can implement sales tax automation software to manage sales tax obligations, including calculation, collection, and filing. Better Accounting can also help e-commerce businesses with tax planning and strategy, such as structuring the business and optimizing tax obligations. Finally, they can provide guidance and representation during tax audits or disputes. By leveraging Better Accounting’s expertise, e-commerce businesses can ensure compliance with tax laws, reduce the risk of penalties or legal action, and focus on their core business operations.  

Can I Donate My Retirement Plan or HSA? 

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1 May 2023

Can I Donate My Retirement Plan or HSA? 

If you’re planning for retirement, you may need to save more than you initially thought. According to a recent study, the savings expectations for a comfortable retirement increased from 2020 by 10 % to $1.04 million in 2021. Retirees will need a more significant nest egg to cover their expenses, healthcare costs, and other financial needs throughout their retirement years. While this may seem daunting, saving early and making a plan that works for your financial situation is essential. Doing so can help ensure you have the necessary resources to enjoy a comfortable and fulfilling retirement. 

Donating your retirement plan or HSA (Health Savings Account) can be a great way to support important causes while enjoying some tax benefits. Donating retirement plan assets can help you reduce your taxable income and lower your tax bill. This is because contributions to qualified charitable organizations are tax-deductible. Additionally, donating your retirement plan assets can help you fulfill your philanthropic goals and leave a legacy by supporting charitable causes you care about. Similarly, donating your HSA can provide tax benefits while supporting your favorite charity. You can use your HSA to pay for qualified medical expenses tax-free. If you present your HSA funds to a qualified charitable organization, you can also claim a tax deduction for the donation. Donating your retirement plan or HSA can be a win-win situation that benefits you and the charitable organizations you support.

How Can I Donate My Retirement Plan or HSA? 

There are a few ways to donate your retirement plan or Health Savings Account (HSA) to a charitable organization: 

  1. Designate a beneficiary: You can designate a charity as a beneficiary of your retirement plan or HSA. This means that upon your passing, the funds will be distributed to the charity. 
  2. Make a qualified charitable distribution (QCD): If you are 70 1/2 years or older, you can make a tax-free charitable donation of up to $100,000 per year from your IRA to a qualified charity. The QCD counts towards your required minimum distribution (RMD) and can help lower your taxable income. 
  3. Donate unused HSA funds: If you have new funds in your HSA, you can donate them to a qualified charitable organization. However, it’s important to note that you cannot claim a tax deduction for this type of donation. 

It’s essential to consult with a financial advisor or tax professional before donating your retirement plan or HSA to ensure you understand the potential tax implications and rules governing these types of donations. Better Accounting can help you donate your retirement plan, HSA, or other assets to a charitable organization in a tax-efficient manner. Their team of accounting professionals will ensure you donate these assets in a way that protects and benefits your overall financial strategy. 

Where Can I Learn More About Donating My Retirement Plan? 

 Additionally, Better Accounting can assist with setting up a charitable foundation or donor-advised fund to manage your charitable giving over time. This can allow you to make donations to multiple charities while receiving maximum tax benefits. Better Accounting can also provide ongoing support to ensure your donations are properly recorded and reported on your tax returns. This can help ensure that you follow IRS regulations and maximize your tax benefits. 

By working with Better Accounting, you can ensure that your charitable giving is managed in a way that is both financially beneficial for you and aligned with your philanthropic goals. 

What Are Taxable Transactions When Using Crypto?

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1 May 2023

What Are Taxable Transactions When Using Crypto?

The Basics of Crypto

Cryptocurrency, or crypto, is a digital or virtual currency that uses cryptography for security. It operates independently of a central bank and is stored and transferred using a decentralized blockchain ledger system. The most well-known cryptocurrency is Bitcoin, but thousands of cryptocurrencies are circulating. A taxable transaction is any transaction that results in a taxable event for the parties involved. The basic idea behind Cryptocurrency is to create a decentralized, secure, and transparent digital currency that no one government or financial institution controls. Cryptocurrencies use blockchain technology, a decentralized ledger that records all transactions securely and transparently. The first ten cryptocurrencies with the highest market cap comprise about 88% of the total cryptocurrency market value.

Is Crypto Really Here to Stay?

The history of cryptocurrency can be traced back to the early 1990s when computer scientists attempted to create a secure and decentralized digital currency. However, with the creation of Bitcoin in 2009, Cryptocurrency gained mainstream attention. Bitcoin’s popularity increased, and it was soon followed by other Cryptocurrencies such as Ethereum, Litecoin, and Ripple.
Today, cryptocurrency is used for various purposes, including as a store of value, a medium of exchange, and a means of investment. However, it is still a relatively new and rapidly evolving technology, and many challenges and risks are associated with it, including security, volatility, and regulatory uncertainty. Nevertheless, cryptocurrency has captured the imagination of many people worldwide and continues to be a subject of intense interest and debate.

Taxable Transactions Using Crypto

In Cryptocurrency, taxable transactions include:

  1. Buying or selling cryptocurrency.
  2. Exchanging one type of cryptocurrency for another.
  3. Using cryptocurrency to purchase goods or services.
  4. Receiving cryptocurrency as payment for goods or services.

Depending on the country and the specific circumstances of the transaction, taxes may need to be paid on the profits or gains resulting from these transactions. It is vital for cryptocurrency users to be aware of the tax laws in their jurisdiction and to keep accurate records of all their cryptocurrency transactions. For example, if an individual purchases Bitcoin for $10,000 and sells it for $12,000, they have realized a capital gain of $2,000, which may be subject to capital gains tax.

Better Accounting helps individuals and businesses better understand cryptocurrency and taxable transactions by providing a clear and accurate record of all cryptocurrency transactions. This includes keeping track of the purchase price of each cryptocurrency asset, the date of acquisition, and the sale price and date of sale. By maintaining good accounting records, individuals and businesses can determine their capital gains or losses on cryptocurrency investments, which are used to calculate the taxes owed on taxable transactions. Accurate accounting also ensures compliance with tax laws and regulations, reducing the risk of penalties or fines.

In addition, Better Accounting helps individuals and businesses understand the impact of cryptocurrency transactions on their overall financial position. For example, accounting for cryptocurrency holdings as assets on a balance sheet can provide a more accurate picture of an individual’s or business’s net worth. Talk to a Better Accounting expert to ensure you are compliant with tax laws and regulations today to get started.