Tax Questions & Answers

Late last month, the IRS officially opened the 2024 tax filing season and began accepting 2023 tax returns. Below, we have compiled some of the most commonly asked questions we receive from clients and have provided some answers and guidance.

General

What documents do I need to gather for my business taxes?

You’ll need essential documents like an income statement, balance sheet, payroll records, and relevant tax documents issued to your business. (CB)

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How do I categorize and track business expenses effectively for tax purposes?

Ensure accurate record-keeping by categorizing expenses into clear, distinct categories, such as office supplies, travel, and utilities. Use accounting software for streamlined tracking, such as Xero or QBO. (CB)

When is the deadline for filing business taxes?

For calendar year filers -

● Corporation standard deadline is April 15

● Partnerships and S-corps is March 15

Am I more likely to be audited because I extended my return?

There is no published data that shows that taxpayers are more likely to be audited simply because they file an extension of time to file. (SG)

What is the process for filing an extension if needed?

If you need more time, file IRS Form 7004 to request an automatic six-month extension of time to file your business return. The extension must be filed before the original due date of the return. Remember, an extension grants additional time to file, but taxes owed are still due on the original deadline date. (CB)

Do I need to issue 1099 forms for independent contractors hired for my business?

Yes, if you paid an independent contractor $600 or more during the tax year, you are generally required to issue a 1099-NEC form. Ensure accurate reporting and compliance with IRS guidelines at irs.gov. (CB)

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My partner and I have a partnership - can we pay ourselves wages from our business?

Partners in a partnership do not qualify to receive W-2 wages from the entity. However, they are eligible to receive guaranteed payments for their services provided. With guaranteed payments, the entity does not withhold or pay any taxes on behalf of the partner. Rather, the partner will be responsible for paying these taxes with their personal income tax return and may need to make estimated tax payments each quarter to avoid interest and penalties. (SG)

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Recommendations for how to track my expenses and income for my new business(es)?

One of the easiest ways to track business income and expenses is to open a business banking account and credit card that are used solely for each specific business’s activities. Using the account and credit card for business only transactions creates a paper trail that is easy to maintain and follow, and can save time and efforts when it comes time to prepare year-end financial statements and/or tax returns. We recommend having separate banking accounts and credit cards for each business entity that is created. (SG)

Deductions

What can I deduct for small business expenses?

Things like office supplies, equipment purchases, rent for office space, utilities, property taxes, business insurance, travel expenses (but not commuting expenses), advertising, internet, and phone bills for business. (AM)

How long should I keep my tax records?

Typically, you should retain tax records for three years; however, if you find yourself in any of the below circumstances, please be advised the retention period may be longer:

● If you have ‘bad debt deductions,’ then you should keep records for seven years.

● Keep records for six years if you are not reporting income (ill-advised) and the unreported income is greater than 25% of your gross income per your return.

● Keep records indefinitely if you have not filed a return at all.

Also, you should keep employment records five years after date tax due or tax paid date whichever is later. (AM)

Should I, as a business owner, take a distribution?

Know that the distribution does not affect the income statement. It affects the balance sheet, and you should keep enough cash on hand to cover normal operating costs like payroll, etc. (AM)

How often do I have to make business tax payments?

Quarterly. (AM)

Is there a limit to deducting business gifts?

Yes, $25 per gift. (AM)

Are shared ride services used to get to business meetings deductible?

Yes. (AM)

Can I deduct expenses without receipts?

The IRS allows reasonable and necessary expenses, but the taxpayer must prove that the expense was reasonable and necessary. (AM)

Are business meals still 100% deductible in 2023?

No, they are now back to the 50% (AM)

Can I take a deduction for my home office I use to run my business?

The rules and regulations for home offices have changed in recent years, so it is always best to check with your tax advisor about your specific situation. However, for most W-2 employees, a home office deduction is generally not allowed. For others, you may be eligible for a home office deduction if the space is generally used solely and exclusively for conducting business. The deduction can be calculated taking the square footage of the space in comparison with the total square footage of your residence and allocating certain home costs. In recent years, the IRS has also provided the simplified method for the deduction which allows the square footage to be multiplied by a predetermined rate set by the IRS. Again, every situation is different, so we recommend checking with your tax professional about your situation. (SG)

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Can I take a deduction for my personal auto I use for my business?

Much like the home office deduction, there are specific rules and regulations that determine who and when a deduction is allowed for personal auto use. Much like the home office deduction, since the IRS changed the regulations related to unreimbursed employee expenses, W-2 employees most likely are not eligible to deduct personal use of their auto for business purposes on their tax return. However, for taxpayers who do not receive a W-2 for services provided, there are additional factors that need to be considered when determining the deductibility of the expenses related to the auto. If tracking expenses for auto use seems too cumbersome, the IRS also publishes standard mileage rates which can be used in lieu of actual expenses each year. If you are unsure if your situation qualifies for a deduction, please contact your tax professional. (SG)

SALT

If I have remote workers, do I have to file a state return for where they are located?

Typically file a state return where the company is located. However, having workers in another state may create a nexus sufficient to require filing an income tax return in that state and paying state and local taxes in that location. (AM)

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