How the PATH Act Affects Your Small Business

Federal taxes have for years been one of the top headaches for small businesses with seemingly no end in sight. Among countless shifting tax provisions, retroactive extensions, and a large helping of legalese involving even the simplest of tax rules, small business owners are now required to spend a tremendous amount of time each year complying with federal tax regulations and filing their returns.

Just how much time? Well, a recent Small business Taxation Survey, conducted by the National Small Business Association (NSBA) reported that 22 percent of small business owners devote as many as 120+ hours a year, or four full work weeks, to their taxes. This includes activities such as: completing forms, keeping up with changing regulations, as well as organizing receipts and paperwork. A full one third of the small businesses surveyed spend more than 80 hours per year on their federal taxes.

Even as the current administration in Washington considers a massive tax overhaul that will supposedly make complying with federal tax regulations a whole lot easier and cheaper, the has been at least one recent bright spot: the PATH Act enacted at the end of 2015.

The PATH Act makes more than 20 tax breaks permanent in addition to retroactively extending a slew of others for two or more years. In some cases, these include significant modifications. Some of the extensions, such as those involving equipment purchases and payroll, give small business owners some breathing room to plan for and thus maximize certain tax deductions.

Here are three main areas where the PATH Act may positively help your business:

1. Equipment Purchases. With the PATH Act, the price of big equipment purchases can be fully written off in the year they are put into service instead of taking small deductions over a period of five years. Under Section 179, business owners are allowed to deduct up to $500,000 for either new or used equipment purchases. The deduction limit starts to phase out when qualified property is more than $2 million. Both deduction amount and limit will be adjusted for inflation starting in 2016.

On top of this, the PATH act offers a second, “bonus depreciation” of 50% that can be used after the Section 179 deduction has been taken. This deduction dwindles, however, in coming years to 40% in 2018 and 30% in 2019. In 2020, the deduction will expire completely.

2. Payroll. Businesses that hire employees from certain categories, such as military veterans or those who qualified for long-term unemployment, may be eligible for the Work Opportunity Tax Credit. The PATH Act extended the credit through 2019 and added a 40% credit up to the first $6,000 in wages for businesses who hire qualified long-term unemployed individuals who have been without work for 27+ weeks.

3. Research & Development. The PATH Act permanently extends the Research and Development Tax Credit. This credit helps small businesses recover some of the costs of R&D including the expenses of obtaining a patent. Beginning in 2016, eligible small business with $50 million or less in gross receipts can claim the credit against alternative minimum tax (AMT) liability.

On top of these incentives for small businesses, the PATH Act also offers numerous individual tax breaks that may indirectly help small businesses as well. For more information, consult the IRS’s online tax center.

The IRS Thinks These Small Business Owners are Tax Cheats

Calculator and TaxesFor as long as it has existed, the Internal Revenue Service (IRS) has been in a heated hunt-down for Americans who under-report income and who evade paying taxes outright. Why such a persistent effort? Consider this: for 2006, the most recent year for which data are available, the IRS collected 86% of what it was owed in taxes. That may not sound too bad, except when you realize that this works out to an estimated $385 billion shortfall- the vast majority of which came from under-reporting income.

It was recently reported by The New York Times that one of the easiest ways to cheat on your taxes is to be the sole proprietor of a Schedule C business. The IRS knows this, but realizes as well that finding these tax cheats is not so easy.

In an effort to crack down on tax evasion and focus their auditing, the IRS conducted a survey of sole proprietors with Russell Research in the beginning of 2012. The investigators divided a representative sample of sole proprietors into those most and least likely to pay their full tax burden and then made comparisons between the two groups. The results of the study were published earlier this year, and they provide some interesting insight into which sole proprietors are most likely to be tax cheats. Here is a brief summary:

  • Men were less likely than women to be tax compliant. While males made up 59 percent of the more compliant taxpayers, they composed 65 percent of the less compliant ones.
  • The more employees there were, the less compliant the owners (average employment of 6.6 versus 3.6).
  • Owners of professional, scientific and technical service businesses, health care and social assistance, and arts, entertainment and recreation businesses were more likely to be compliant than owners of construction, and real estate and rental and leasing businesses.
  • Owners of businesses with lower sales tended to be more compliant (average sales of $47,000 versus $87,000).
  • Owners of businesses with lower expenses tended to be more compliant (average expenses of $12,000 versus $50,000).
  • Owners who complete their own tax returns on their own tended to be more compliant (32% percent of the more compliant sole proprietors, versus only 21% of the less compliant ones). Those in the low-compliance group also expressed less trust in tax preparers. Although most used a tax preparer, they were less likely to follow the preparer’s advice.
  • People who were more cynical about the tax system, those who had more negative attitudes about the IRS, and those who were more skeptical about the value of government activity, tended to be less compliant.
  • Respondents from the low compliance groups tended to be suspicious of the tax system and its fairness, whereas those from the high-compliance communities viewed govern­ment positively.

If you happen to fall into one of the groups most likely to cheat on your taxes, be warned: the IRS is stepping up its efforts to catch those who try to shake their tax obligation. This means conducting more audits specifically among these “high risk” groups. Given this, make sure you do your best to be prepared for an audit if it does come. This means making your best effort to prepare your tax documentation, staying current with the major tax laws (or hiring someone else who will), making sure your business documents are complete, clear, and accessible, and making an effort to accurately fill out your tax return forms.

10 Questions to Ask Before Hiring an Accountant for Your Small Business

Now that the 2013 tax season has gotten into high gear, you may be considering using the services of an accountant- whether to help you with your tax preparation or to get your financial reporting in order.

But where and how should you start looking for the right candidate? Making a poor choice with a hired accountant can cause more headache and end up costing you more money than many of your other employees can because this person will have the ability to access and manipulate any sensitive financial data. So how do you find the right accountant for the job, especially if your knowledge of finance and accounting is limited?

Here are ten questions every small business owner should ask a prospective accountant before bringing this person on board:

1. Who are your clients and what industries are you familiar with? You want to be certain that your accountant understands your type of business and has experience working with clients within your industry. Companies in the construction industry, for example, will have a different setup and methods of operation that includes dealing with contractors and buying heavy machinery, than a restaurant or a store that may be dealing with tips and perishable inventory.

2. What is your availability? Are you looking for an accountant or an accounting firm to only help come tax time or are you looking for year-round help? Make sure that your accountant of choice follows the same schedule that you are looking for.

3. What are your qualifications? One of the things that you will need to determine before you go about hiring an accountant is what you expect to get out of the arrangement. Many financial experts suggest that small businesses hire a certified public accountant (CPA), because CPAs must go through rigorous certification requirements and will likely have more experience with broader financial planning issues. But, you have other options, such as an Enrolled Agent (EA). EAs are certified by the federal government specifically to handle taxes and are often former IRS agents with extensive experience dealing with audits. In some cases, a bookkeeper or professional tax preparer will be more than adequate.

4. Who will be doing the work? Be aware that many accountants outsource work to third parties. This can become an issue if you want to speak to someone who is familiar with your accounts. If you are working with an accounting firm, you should also find out who exactly will be processing your financial data.

5. What is your approach to accounting? 
You want to find out how aggressive your prospective accountant is. Some accountants want to write off everything they possibly can, while others are more focused on avoiding the red flags that can lead to an IRS audit. Decide which approach appeals to you and your business and then make sure your hired account abides by the same philosophy.

6. How much do you charge? Some accountants have an hourly rate while others have a set fee for certain tasks. Make sure you are clear about their billing preferences and any other expenses before deciding to take someone on.

7. Can you give me advice about my accounting system? If your accountant has been working with businesses in your industry then he or she should have a working knowledge of what works and what doesn’t in terms of financial recording and reporting systems. This person should also be able to advise you on what accounting software programs to buy for business use.

8. How will we communicate and exchange information? Make sure you are clear about how you will send financial information and documentation to your accountant. Will you be physically meeting with this person or will the exchange of information and meetings be electronically?

9. How often will we communicate? Every accountant will be different when it comes to the frequency of communication as well. So make sure that you are clear about this from the beginning and that you can feel comfortable asking questions when you need to.

10. Can you tell me about such and such tax deduction? If the accountant you’re speaking with is unfamiliar with typical deductions or financial reporting terms, you should be wary because that might be a red flag that he or she isn’t knowledgeable enough to handle your business’ financial accounts and information.  

Reduce the Risk of Filing Your Business Taxes Electronically

As the year comes to an end many small businesses owners may already be thinking about the upcoming tax season. If you are among that population then here’s one more thing to think about: If you plan on filing your business taxes electronically or will be working with sensitive personal and financial information online in preparation for filing tax documents, then make sure you take enough precautions to ensure the safety of your data. There is an eager population of online hackers, fraudsters, and identity thieves hoping to turn your tax season into a lucrative fishing season.


Cyber-crime has been on the rise keeping pace with advances in technology that are pushing more and more transactions and sensitive personal and financial data online. According to the latest annual report by the Internet Crime Complaint Center, the number of recorded cyber-crime related complaints were the second highest in 2010 since the organization’s inception. This trend was also reported in the 2010 CSO Cyber Security Watch Survey, sponsored by Deloitte & Touche.

That said, here are a few tips to help you reduce the security risks involved in preparing and filing your tax return electronically:

  • Keep your security software and settings up-to-date. Make sure that you are using the latest version of any security software that you have installed. Most services have a setting that allows for automatic updates.


  • Stay wired. Where possible, avoid sending sensitive information via wireless Internet connections. If you must file wirelessly, make sure your wireless network is locked and data is encrypted, and use a WPA2 connection if possible.


  • Avoid transmitting sensitive information via email. Email as a general rule is not a secure way to send sensitive data so be very selective about the information you send. Be wary of any sites or services requesting data such as social security numbers, credit card numbers and information, bank account information, or passwords via email. Even if the message claims to be from the IRS, you should refrain from sending anything that could be exploited by identity thieves Where a sensitive document needs to be sent, then make sure it is password protected.


  • Watch out for scams. As tax time approaches, scammers get busy sending out official-looking email, supposedly from well-known tax preparers and tax-prep software vendors, such as H&R Block and TurboTax. They use these messages to lure people into providing sensitive personal and financial data. Again, as mentioned above, a legitimate site will never request such information over email.


  • Keep tabs on your credit reports and accounts. Shortly after filing your taxes make sure to take a look at your credit report for any suspicious activity that might show that your identity has been stolen. You should also make it a point to constantly review banking and credit accounts for any fraudulent transactions.

In short, if you want to avoid getting burned by cyber criminals this tax season then make sure you’re not taking their bait or inadvertently sending data into their awaiting nets

5 Business Tax Tips to Make Your Tax Filing Easier

If the thought of filing your business taxes makes you head for a bottle of Tums, then take a look at these five business tax tips to simplify the process. Learn how gain more control, take advantage of free or low-cost tax tools, and get educated.

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1. Maintain clear records and know what supporting documents to keep. The first rule of business taxes is making sure that you have an effective and efficient system in place for recording your business’ financial transactions and keeping supporting financial documentation, such as W-2 forms, account statements, sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These kinds of documents are important to hold on to because they support the entries in your accounting records and on your tax return. For more detailed information refer to Publication 583: Starting a Business and Keeping Records.

2. Get a good accounting software program. With the cost of commercial accounting software suites, such as QuickBooks Pro, becoming more cost-effective (especially when you factor in the available customer support) and with the emergence of several, quality free open source options, such as NolaPro, GnuCash, and TurboCash, Microsoft Office Accounting Express, you practically have no excuse not to use some kind of accounting software package in your business.

3. File your taxes electronically. If your income was $58,000 or less, you may have the option of filing with the IRS’s Free File system which offers free e-filing and tax preparation via commercial software packages. The service is only available via the IRS website. Even if your income exceeded that amount, e-filing is definitely the way to go. You can either file yourself via the IRS’s e-filing portal, or there are several commercial software programs, such as TurboTax, that can do it for you (in addition to helping you maximize your tax deductions).

4. Hire help, ask questions, do your research. When it comes to taxes, ignorance is not bliss- especially if it leads to an audit. If you are just starting out it may be worthwhile to hire a qualified accountant to make sure that you are filing your taxes properly. If you do not choose this option, then make sure you seek out support and knowledge elsewhere. If your using a commercial software package then take full advantage of the customer support. You can also head over to the IRS Small Business Tax Center, and sift through the countless, informative articles and tools designed to help business owners correctly file their taxes.

5. Know your tax payment options. Business tax filers who are unable to cover the full amount of their tax liabilities should make sure to still complete their tax returns with a partial payment and/or file for an extension by April 15th.

Be aware that the IRS allows for installment payments. Those whose tax liabilities total $25,000 or less can use the Online Payment Agreement (OPA) or download a fill-in Request for Installment Agreement, Form 9465 that can be mailed to the address on the bill. Those who owe more than $25,000 may still qualify for an installment agreement, but a Collection Information Statement, Form 433F (PDF) may also need to be completed.

With installment payments filers can indicate how much they can afford to send the IRS each month and on what day they will want to make these monthly payments. The IRS will generally accept an installment agreement if the amount owed is less than $25,000 and the balance will be paid within five years. For filers who owe less than $10,000 and fulfill other requirements, acceptance is guaranteed.

(Very) Last Minute Tax Tips For Unprofitable Businesses

Though there have been a few indications as of late that our economic situation is starting to lighten up (a bit), the truth is that for many small businesses, 2010 has been a hard year. When “hard” spells not profitable, knowing how to handle your taxes properly is essential. Many small business owners may not be aware that declaring a net loss has important tax consequences. Any business that declares a loss in more than two out of the past five years can be re-classified by the IRS as a hobby, and “hobbies,” unlike businesses are not eligible for tax breaks.


If you are just waking up to this fact, then there may still be some things you can do even within the last week of the year, depending on the extent of your loss:

  • See if you can capitalize on some holiday cheer by speaking with vendors and other creditors about deferring some of your business’ debts.
  • Meanwhile, you could try some last minute efforts to collect on any outstanding debts to your business- even partial payments may help ease the situation.
  • Try to unload any unused or unneeded inventory by selling it on eBay or Craigslist
  • Make sure to mail any checks for deductible purchases, business expenses and write-offs so that they are postmarked by midnight on Dec. 31.
  • Talk to an accountant or CPA to ensure that you are either writing off equipment purchases or depreciating them in the way most beneficial to your particular situation.

Does Your Small Business Need an Accountant?

As a small business owner, keeping overhead costs to a minimum may be top priority. So, when it comes to accounting issues, it may be tempting to tackle the job on your own rather then spending precious capital on hiring a professional accountant to do the job.


But is this really a wise move or could you possibly end up losing more than you gain?

The following are some questions that small business owners should ask themselves to determine if they should hire an accountant:

  • Are you really saving money by doing your own bookkeeping? How much time and resources are being put aside to do the job on your own?
  • Do you need professional help in establishing your accounting systems for quarterly and year-end reports?
  • Will you need to complete year-end paperwork for your business, such as W-2 and 1099 forms?
  • Are you aware of what taxes you are obligated to pay and when they are due?
  • Do you need professional help for company payroll?
  • Do you know what expenses are tax deductible?
  • Do you know how to separate personal expenses and business expenses for tax purposes?
  • Do you understand financial statements?
  • Do you know what health insurance is best for you and your employees?
  • How difficult and time consuming is it for you to remain informed regarding tax law changes?


If you decide in the end to take professional accounting help, it does not mean that you should dump all the accounting matters on an accountant and walk away – it always pays to be well informed about your business’ cash flow, tax obligations, and overall financial health. Although accounting functions generally get easier the longer you are in business, take a good look at the questions above and consider whether it is really worth the time and hassle to deal with your own accounting.

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How to Legally Avoid Paying Business Taxes

Business TaxMany small business owners are unknowingly paying more than they have to towards their federal taxes!  Much of this has to do with either ignorance or confusion regarding what can and cannot be deducted. If you are looking the maximize your tax deductions this year, then consider the following recommendations. Please note, however, that the conditions may vary depending on the unique circumstances of your business, you should consult with an accountant or professional tax consultant before making any decisions.

1.Tax planning is year-round. Many small business owners do not start thinking about their income tax deductions until the end of the year draws near. Since small businesses often deal with tight cash flows and small profit margins, they stand to benefit a lot from a full reduction in their tax payments. To do so requires planning and foresight that really extends throughout the whole year!

2. Efficient financial accounting. The next step in maximizing your small business tax deductions is having an accurate picture of your company’s financial situation. Your books should be clear and up to date. You should also have a system for collecting and filing any receipts for business expenses. Finally, you need to be on top of your cash flow, namely accounts payable, accounts receivable, and inventory.

3. Hire a tax consultant. Hiring an accountant or a tax consultant, is good business practice- especially if you are unfamiliar with basic business accounting. Hiring such a professional is a tax-deductible business expense, and the tax advice you will receive should also help pay for the cost.

4. Increase your expenses. One well-known method of increasing your tax deductions is by increasing your business expenditures shortly before the years ends. Depending on your available cash flow, you could do the following:

  • Purchase items your business will require in the immediate future, such as office supplies
  • Pay any outstanding bills, such as rent or utilities, early
  • Take care of any repairs or maintenance that you have been putting off
  • Make any business trips to existing or potential customers

5. Make year-end equipment purchases. If plan on buying buying new office equipment or furniture, then consider purchasing it at the end of the year. You will then have to decide whether you want an immediate write off or a depreciation that is spread out over a few years. Keep in mind that to claim the deduction, your equipment needs to be set up and in use by year-end.

6. Delay or defer income. Any income that is expected in December, but can be deferred to January, will lower your yearly business income. If your income is smaller, then the taxes you will have to pay will be accordingly reduced.

7. Split your income. By splitting your income among family members hired to work in your business, you can reduce your tax liability.

8. Contribute to a retirement plan. Making payments to a retirement plan is another good way to reduce your tax obligation. If you do not currently have a retirement plan then consider setting one up before the end of the year. In the US there are several plans to choose from, each with their own terms and conditions, so make sure to check these out beforehand.

9. Be aware of what can be deducted. Small business owners who want to take full advantage of income tax deductions need to be familiar with expenses they are entitled to claim. The following is a brief list of some common deductible expenses. For more information regarding how and when these expenses can be deducted, you should consult with your accountant or professional tax consultant.

  • Advertising and Promotional Expenses
  • Banking Fees Including:check charges, monthly charges, bank wire fees or overdraft fees.
  • Business Gifts
  • Business-Related Education, such as seminars, classes, and educational tapes or video
  • Charitable Contributions
  • Conference and Convention fees
  • Equipment and Furniture This includes the cost of the equipment, furniture, or vehicle purchased, as well as depreciation on old equipment, and lease payments
  • Health-Insurance Premiums
  • Insurance (for buildings, machinery or equipment)
  • Interest and Fees (on money borrowed for the business)
  • Losses Losses from theft, fraud, damage from natural disasters
  • Meals and Entertainment
  • Membership Dues
  • Moving Expenses
  • Office Rent Expenses
  • Office Supplies
  • Postage and Shipping Expenses
  • Professional Fees Including: legal help, accounting and bookkeeping, architectural, business consulting and marketing consulting)
  • Property Taxes
  • Repair and Maintenance On the building, grounds, and equipment
  • Retirement Accounts for self and employees
  • Salaries of Employees
  • Software Costs
  • Taxes This includes: sales tax on items purchased for business usage, real estate tax on business property, employer’s share of employment taxes, excise taxes and, in some instances, state income tax
  • Telephone and Telecommunications Expenses Including, Internet, television and other communication usage for business purposes
  • Trade-show exhibition and/or attendance Including travel, meals, admission fees and costs of booths or exhibitions.
  • Travel This includes: automobile expenses pertaining to business usage, using either actual costs of repair and gas or the standard mileage deduction, hotels, airfare, meals, laundry and business entertainment while on the road. You can also claim the costs of passports for self and employees when traveling for business purposes
  • Utilities

 Don’t pay more taxes than you need to… Be creative, Be smart!