How will taxes affect your business strategy?

If you’re a business owner, you know that every decision affects your business in myriad ways. With tax season in full swing, these aspects are likely (or should be) on the forefront of business owners’ minds. So, how will taxes affect your business strategy this year?

Informed Decisions

For example, finance and business strategies often fail to consider the role of taxes during the decision-making process. This is especially true of plans for small businesses. Effective business planning means accounting for every possible impact of a transaction on the overall health of a business. Owners must factor in all tax and non-tax costs into final decisions by reviewing their Strengths, Weaknesses, Opportunities and Threats. Anyone familiar with SWOT analyses knows that the entries that populate the classic project planning quadrant for decisions have far-reaching, and often unexpected implications.

At least partly, taxes affect your business strategy because of the implications of a move. Whether forming a business, raising capital, expanding or divesting business, taxes have a direct impact on cash flow. Taxes can divert as much as 40 percent of a business’s pretax cash flow to the government. Planning accordingly for these implications can prevent a business owner from being caught “flat-footed” and finding themselves deep in the red with the IRS. 

Whole fields devote study to taxes and business strategy. Every business school worth its weight in saIt offers a full program on considering the taxes, accounting and financial trade-offs involved in strategic planning. I won’t attempt to surpass thought leaders like Scholes, Wolfson and company (google them); however, there’s a reason their classic text, Taxes and Business Strategy, and others after have been so popular. The complexity of the tax code, coupled with how it can impact a business’s future plans, requires expert eyes. A true analysis takes a holistic approach to decision-making. 

Tax Structure

Business owners need to consider both explicit taxes (tax dollars paid directly to taxing authorities) and implicit taxes (taxes paid indirectly as lower before-tax rates for overall return on investments). I cannot stress how important it is to have a team of experts review any business deals before finalizing them. Experts in these fields can potentially save your business tens of thousands of dollars in the long run. 

Let’s say you receive the green light for moving forward with a proposition. Your next goal should be to minimize the amount of tax revenue the IRS makes off your transaction. Certain structuring can help you lower your tax bill while staying in compliance. 

If you’re considering more complex maneuvers, you need a tax attorney to help you navigate processes. This includes converting ordinary income into capital gains that are subject to lower tax rates or completing legal moves that shift transactions and tax consequences. 

With extensive experience in tax preparation and tax law, we’ve helped our clients save thousands of dollars in federal taxes. We can help you pay the minimum amount of taxes possible while still being in compliance with federal tax law. If you have questions or would like to schedule a consultation discuss your specific needs, call our office at 724-216-5180 or use our online form.

Business Tax Preparation 101: 5 Tips to Make Filing Easier

a grid of with photos of taxes, money and John Cochran, who provides business tax preparation 101: 5 tips to make filing easier

Tax season can be a tough time for everyone getting ready to file their tax returns. Even with a basic W-2, there is a lot of additional paperwork that can go with filing. If you’re a business owner, the entire process gets that much more complex. Get organized to help tame the annual beast. I advise all my clients to get their stuff together as soon as possible. Consider this my Business Tax Preparation 101 course.

Need help getting started? Follow these 5 things you can do to make your life (and your tax preparer’s) easier: 

1. Get Started Now

Allow plenty of time to find all your receipts, invoices and statements. Pull everything together into one place so that when we start to go over material, you can readily pull out the correct paperwork to keep moving. Also, schedule your appointment for preparation as early as possible. Taxes aren’t (or shouldn’t be) something you cram the night before the deadline.

2. Want to Save Money? Do the Legwork

Having a CPA or tax attorney prepare your taxes is an expensive, but necessary expense for business owners. If you want to cut costs, don’t skimp on the quality of the preparer. Instead, do as much of the prep work as possible before you hand over your material. This way you only get billed for high-value hours. That means adding up your expenses and revenues BEFORE you get to the office. 

3. Ask Questions Ahead of Time

Much like adding up your receipts on your own, do research on what is considered a qualified write-off before you come to your appointment. A quick review of Business Expense Deductions on the IRS site can help. If you’re still unsure about something, call and ask your tax preparer questions ahead of time so you have all the information you need at your fingertips.

4. Former tax problems? Self-Disclose Now

I don’t like surprises. If you already owe money to the IRS, received a letter from them, or are currently under investigation, don’t try to hide this because of embarrassment. Be up front before we get started, it’ll save us both a lot of heartache (and you a lot of money) down the road. As a tax attorney, knowing you have a problem, I’d  approach your current tax responsibilities much differently – and focus on the bigger problems at hand – than I would otherwise. 

5. File for an Extension

I personally hate dragging out processes, but sometimes things happen. You may have an upcoming hearing, a large change in income on the horizon, or a very busy quarter preventing you from filing on time. There is no penalty for filing for an extension, IF you do it on time. If you fail to file, you could be facing hefty fines and penalties, compounded by interest.

With extensive experience in tax preparation and tax law, we’ve helped our clients save thousands of dollars in federal taxes. We can help you pay the minimum amount of taxes possible while still being in compliance with federal tax law. If you have questions or would like to schedule a consultation discuss your specific needs, call our office at 724-216-5180 or use our online form.

CPA or Tax Attorney: Which is Right for your Business?

a photo of a business card holder for John Cochran. Decide whether you need a CPA or tax attorney for your needs.

Say you own an independent business or need someone to offer tax code or legal advice on a specific situation. You know already you need someone with more experience than your typical tax preparation consultant. But should you hire a certified public accountant (CPA) or retain a tax attorney? Who you go to is largely determined by your specific needs. 

CPAs

For most tax preparation questions, a CPA serves as a logical resource. They understand complex tax situations and compliance of federal laws. A CPA has far more experience than someone at a tax preparation booth in a big box store during tax season. They have earned advanced business degrees. They’ve passed intensive CPA exams. And they complete 80 hours of continuing education every two years. While a CPA is more expensive than the tax preparation consultant you see annually, you build a professional relationship with them. And they will know your business and understand how fluctuations or new tax clauses can affect you and your long-term financial plans. For many, this ongoing relationship provides all the tax support they need. 

Tax Attorneys

Tax attorneys, on the other hand, are legal professionals with law degrees specializing in tax law. A tax attorney has matriculated from a law school and sat for the bar exam. Their expertise is in tax controversy and dispute resolution. Tax attorneys help with especially complex personal or business tax matters. They are invaluable if you have serious tax problems involving negotiations with the IRS or if you are implicated in tax fraud. Tax attorney training prepares them to defend their clients against adverse tax actions. They also will represent their clients during IRS proceedings. 

An important point to note: while both a CPA and tax attorney will look out for your best interests with the IRS, only a tax attorney is bound by attorney-client privilege. Nothing shared with your tax attorney will be admissible against you during negotiations on your behalf without your consent. A CPA will need to disclose information to regulatory bodies outside of the IRS, in private civil matters, or in criminal tax matters. 

How we can help

With extensive experience in complex tax matters, I focus on tax compliance and minimization and resolution of tax controversies. Although I hold a J.D and a master’s degree in taxation, for many years I worked as a CPA. This allows me to interact more closely with accountants and financial professionals while offering insights that only an attorney can provide. I provide an enhanced level of legal advice, right in Greensburg, at lower rates than firms in downtown Pittsburgh. My combination of experience provides a one-stop shop for my clients on everything they need to survive this tax season and ghosts from fiscal years past. 

Interested in learning more? To schedule a free consultation, call our office at 724-216-5180 or use our online form.

How Will Your Business Benefit from the SECURE Act?

In the twilight of 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act that took effect January 1, 2020. So, how will your business benefit from the SECURE Act?

At its core, the SECURE Act means to encourage increased retirement savings. And it provides a number of paths for individuals to do so. It has pushed back timelines for contribution and required distributions. Now, part-time employees can participate in employer 401(k) plans if they meet certain stipulations. And it includes a host of other enhanced saving opportunities.

Small Business Retirement Plan Tax Credits

While the majority of Americans save for retirement through a work-based plan, employees at small businesses largely could not. Nearly 75 percent of workers at companies with fewer than 100 employees could participate in an employer plan in 2017. Small business owners have rightfully cited startup costs and administrative burdens as hurdles to offering plans. 

To address these issues, one less publicized provision of the SECURE Act is a massive increase in the small business tax credit. This credit covers the costs of the first three years an employer offers a workplace retirement plan. Originally, the tax credit covered $500 a year for up to three years. However, the new provision now allows up to $5,000 a year (for a total of up to $15,000 over three years). There are also increased credits available for employers who require their workers to automatically enroll in their company’s retirement plans. 

Multiple Employer Plans for Retirement

Perhaps most importantly though, a part of the SECURE Act now allows small business owners the ability to band together to create Multiple Employer Plans (MEPs). MEPs pool small business resources to offer workplace retirement plans easier to administer. They are also more cost effective for their owners. This also includes an annuity option for existing retirement plans, which previously could only be taken as a lump sum for taxation purposes.

Why does this matter? If you want to attract the highest quality employees for your open positions, you must offer plans that increase the allure of working for you. A 2019 study by the Society for Human Resource Management, ranked retirement benefits second in importance (after health care). This accounted for all the benefits that employers offer. 

The new law comes with a variety of updates and procedures. We can help you realign your business practices today to start capitalizing on its benefits. Whether you’re a small business owner or an employee contributing to a work-based plan, we can help. 

Want to learn more on how these and other portions of the SECURE Act affect your taxes? Contact our office at 724-216-5180 or use our online form to schedule a consultation.

Ready to Sell Your Company in 2020? Read this First

a photo of a business for sale

Congratulations! You made a decision to pass your company’s legacy onto someone else. Perhaps a child or a likeminded stranger will take the reins, leaving you free ride off into the sunset of retirement. Or onto your next business venture. 

Of course, the IRS will tax you on the profit you make from the sale. As you prepare for this transition, minimize your tax responsibilities by considering a number of implications. Without proper guidance, you could end up paying nearly half of your sales price in taxes. 

Tax Rates

Different tax rates apply depending on whether proceeds of the sale are taxed as ordinary income or capital gains. When you sell a business, you want to maximize the amount of sold assets categorized as capital gain. Buyers, for their own taxes, prefer to allocate as much of the contract sales price as ordinary income to the seller.  

Like most business deals, subtle negotiating happens between the parties over the ratio of capital gains versus ordinary income. Usually, this results in a settlement that makes neither party happy, but both can live with.

Additional intricacies to consider include whether the sale is an all-cash deal or requires payment installments. Also consider whether you the sale includes assets or stocks. Finally, determined if the sale can be treated as a tax-free corporation (if between two corporations). 

Prepare before Negotiations

Before you begin negotiations to sell your company, contact a law firm that specializes in tax law. I have provided tax services to businesses and individuals for many years, including advising on timing and characterizations of transactions. . Beforehand, I worked as a licensed certified public accountant and earned a master’s in taxation. Contact our office at 724-216-5180 or use our online form to see how we can help you.

Three Common Problems When Filing Taxes

It’s getting to be that time of year when individuals and businesses alike begin preparations to file their taxes. Year over year, we see filers stymied with pitfalls that are easily avoidable. Minimize your pain this season by avoiding these three common problems: 

If You Don’t Have a Record of It, Don’t Try to Claim It
Maybe you legitimately paid for a new business computer but cannot find the receipt. Of course, there is a trail somewhere. If you’re missing the original receipt, you can often go back to the card you used to purchase the item or the store where it was purchased for copies of bills of sale… don’t attempt to claim the personal laptop you bought for your kid for college. We both know that’s not a business expense. Guess what? The IRS will figure that out, too. Make several little ‘they’ll never notice’ claims and you could expose yourself to costly penalties. Other murky areas that can raise red flags include claiming utility costs for a home office (be sure you’re doing it correctly), untraceable income to family members, lavish gifts and other expenses outsized for the level of income generated by a business. Be honest. Be real. Be on the right side of an audit.

I’ll Do It Tomorrow
The worst time to get started on your taxes is ‘later.’ I don’t care what you told yourself in school about working better under pressure when you waited until the last possible second to write a paper or study for a test, taxes are not meant for cramming. When you wait until the 11th hour, you risk not having everything you need or not having enough time to pull all the receipts and figures together accurately. Here’s another shocking fact: you can actually collate your receipts and record them (manually or automatically with software) throughout the year! Yes, instead of scrambling to organize paperwork the second week of April, you can enter receipts periodically to avoid fighting the shoebox full of crumpled papers all at once. Bonus: you increase your chances of maximizing your deductions when you have time to consider all possible deductions thoughtfully.

Know What You Owe
Ever hear the expression: ignorance is not a defense? Know the full amount of taxes you’re responsible for. Many taxpayers find themselves in a bind by not being aware of their financial responsibilities. It’s better to go through everything honestly and find out the full extent of your obligations. If you come up shy, we can work out a plan to sort things out with the IRS. Being blissfully unaware does not exempt you and avoiding it will only make things worse. Likewise, as we mentioned in other blogs, if you receive a letter from the IRS, do not ignore it! We cannot stress this enough. Avoiding whatever is in the correspondence, won’t make it go away. It will sit there and accrue mad fees. 

The good news is we’re still early in the year. You have enough time now to deal with the shoebox under your desk, find lost receipts and get yourself organized. You also have time to ask questions about what is allowable and the best way to attack your unique tax situations. That’s where we can help. Contact our office at 724-216-5180 or use our online form. 

Charitable Giving Season Tax Guidelines

As we near the bustle of holiday season shopping and cheer, the feelings of good will towards man and year-end tax deductions translate into the busy season for charity donations. Every store seems to have someone out front with a bucket and a bell asking for spare change to help a specific cause.

Top view of a U.S. Individual tax form, calculator, pen, glasses and white files.

If you’re donating to a cause out of the goodness of your heart, please make sure you’re giving to a reputable entity: ask for a charity’s public 501(c)(3) or number or visit charitynavigator.org for ratings of thousands of charities. If you’re hoping to use your good will to lighten your load come tax time, you have to be a bit more intentional in where and how you give. To learn whether (and what percentage of) your donation is tax deductible, visit the IRS Tax Exempt Organization Search. 

You may know that cash donations greater than $250 must have an acknowledgement from the charity with the date and amount of the donation. The rules have changed in that cash donations without a receipt are not deductible. That means if you plan to deduct a weekly donation to a religious entity, you must have a cancelled check, or a bank or credit card statement to be able to claim it as a tax deduction. Also remember that if you receive a benefit in exchange for your donation (tickets to a ball game, free admission to a museum or other goods), you can only deduct that amount that exceeds the fair market value of the benefit received. 

If you are donating non-cash property to a charity (clothing, land or a vehicle), you can only deduct the fair market value of the items. Clothing can be determined by what a reasonable resale value would be, say if you chose to sell it on Facebook Marketplace or Craigslist. Larger donations like real estate or an automobile should have an appraisal amount to verify its value.

Are you considering a large donation to a charity or need some guidance on what you can write off come tax season? For a consultation, contact our office at 724-216-5180 or use our online form. 

Newly Discovered Heir after an Estate is Already Closed

Previously ‘unknown heirs’ have always been known to come out of the woodwork when an estate proceeding is publicly posted. If you are the personal representative for a deceased’s estate, it can be disorienting to deal with individuals outside those who are specifically named beneficiaries. This confusion is compounded after an estate has already been probated and effectively is considered ‘closed’ by the courts. If a new heir comes forward, you need to determine if the estate should be reopened in probate court. 

When notice is given to all heirs, sometimes a particular individual does not respond in time. Unfortunately for them, some courts will not allow a reopening. Afterall, they should have pressed their claim within the allotted time. Sometimes there is an error and if the personal representative failed to give notice to a named heir of the probate proceeding, then the estate will need to be reopened in court and appropriately addressed. This can be followed with the unenviable position of needing to collect previously distributed assets from current beneficiaries for redistribution. 

Every once in a while, an heir emerges that even the deceased did not know about, such as an unknown child of the deceased. While they can petition the court as an heir-at-law, if the individual is not specifically named in a will, there is a good chance that even bringing forth a lawsuit will not successfully overturn the will. 

If you are a personal representative or beneficiary of a closed estate and have recently learned of a potential new heir to the deceased’s estate, speak to an expert who is knowledgeable in probate law before determining what to do. Every new development – particularly if redistribution of assets may be necessary – should be thoroughly analyzed for the most efficient way of addressing it. 

With more than 15 years of experience in probating wills, our offices can help! Contact our office at 724-216-5180 or use our online form to discuss your options. 

Surprise! A Disclosure after an Estate is Already Closed

a photo of a gavel, pen and paper

If you are executor of a will or one of its named beneficiaries, you may think that once debts are settled, property is disbursed and the estate is closed, that’s the end. For the most part, this is true; however, occasionally a surprise disclosure pops up after the fact. This generally takes the form of a newly discovered insurance policy, bank account or other asset of value that was not initially accounted for. 

If the discovery happens within one year of the closing statement, the personal representative has authority to act without being reappointed. However, if the closing statement was filed more than a year prior to the discovery, then anyone with a vested interest can petition the court to reopen a previously administered estate. Usually, the court may appoint the same personal representative to administer the subsequently discovered estate. 

Not every asset discovery requires the estate to be reopened. For example, insurance policies name at least one beneficiary. Assets with titles will list the owner(s). If more than one owner is listed on a title, that person would become the full owner of asset. If an asset does not have a title or a named beneficiary, then it would need to be collected for the estate. 

It’s also not entirely unheard of for a new debtor to file a claim against the estate; however, these should be carefully reviewed by an experienced probate attorney because during the normal administrative process, the personal representative has provided notice to known creditors and posted public notice of the estate. Creditors have a finite period of time to respond. If they do not respond in time, they can be barred from collecting on the debt. Unfortunately, late responses are often fraudulent claims. 

If you are a personal representative or beneficiary of a closed estate and have recently learned of a new asset or debt related to the deceased’s estate, speak to an expert who is knowledgeable in probate law before determining what to do. Every new disclosure should be thoroughly analyzed for the most efficient way of addressing it. 

With more than 35 years of experience in probating wills, our offices can help! Contact us at 724-216-5180 or use our online form to discuss your options.

Don’t Let Certified Letters from the IRS Make You ‘Certifiable’

a photo of tax court building

You get a knock at the door. It’s the mailman. He’s holding an envelope in his hand and needs you to sign for it. You sign and he’s gone before you even know what it’s for. 

Then you turn the envelope over. You’ve just received a certified letter from the Internal Revenue Service! What’s the first thing you should do? Try to relax. 

This doesn’t automatically mean you’re going to jail or your banks accounts have been seized. It typically is about a specific issue on your federal tax return or tax account. A notice may tell you about changes to your account or ask you for more information. It could also tell you that you must make a payment. 

When you read the notice, it will contain specific instructions on what they want you to do. As I mentioned before in the auditing blog (Taxman Disputes Solved): DO NOT ignore this letter, regardless of its contents. If the IRS sends a certified letter, it’s because this is an important document they wanted to confirm you’ve received. 

By signing for the letter, you’ve confirmed you’re in receipt of their notice. Also, don’t just refuse to sign for it (or not answer the door when the mailman rings). That also is not a productive way of dealing with things: even if it works with door-to-door solicitors. If you do owe money, the longer you wait to deal with the situation, the more interest your account could be accruing,

However, before you respond, gather all the information they are asking from you and call an attorney. Do not respond until you’ve had a chance to have a consultation with a tax professional. If my blogs sound like a broken record, it’s because I cannot stress to you enough that there are often ways to make things right with causing far less financial and emotional pain otherwise. A proper plan potentially can save you thousands of dollars and untold hours of lost sleep. 

One last tidbit: the IRS will never call you, email you or contact you via social media. Nor will anyone from the IRS ask for personal or financial information over the phone or via e-mail. These are all scams. Remember this when a scammer reaches out via these methods. Remind your mother. Remind your gullible friend and elderly neighbor. The same “prince from Nigeria” who wants to give you a million dollars for transferring funds if you just give him your bank account, is the same person who wants your personal information to run you over the coals. Don’t fall for it. 

With extensive experience in all reasons the IRS sends certified letters or any other tax disputes, I can help you resolve your problems and minimize your tax exposure. Call my office at 724-216-5180.