Your go-to resource for expert insights and practical advice for navigating taxes and finance. At Lewis.cpa, we believe that informed clients make the best financial decisions, and these guides are designed to empower you with the knowledge and confidence you need.
How to Choose the Right Entity Type for Your Business
Selecting the right business entity is one of the most critical decisions you'll make as an entrepreneur. Your choice affects everything from taxes to liability protection to future growth opportunities.
Key takeaways:
- Sole proprietorship: Best for single-owner service businesses; a simple setup but unlimited personal liability.
- LLC: Ideal for small to medium businesses wanting liability protection with tax flexibility.
- S corporation: Perfect for active business owners looking to minimize self-employment taxes.
- C corporation: Best for larger businesses planning significant growth or outside investment.
Consider liability exposure, tax implications, growth plans, and compliance costs when deciding.
Checklist: Documents to Gather Before Tax Season
This comprehensive checklist ensures you have all necessary documents for tax preparation. Being prepared helps maximize your deductions and streamlines the filing process.
Key takeaways:
- Income documents: W-2s, 1099s, K-1s, and business income records.
- Deduction records: Mortgage interest, charitable donations, medical expenses, business expenses.
- Investment information: 1099-B forms, brokerage statements, cryptocurrency transactions.
- Family documents: Dependent care expenses, education costs, health insurance forms.
- Business records: Mileage logs, equipment purchases, home office documentation.
Always bring more documentation than you think you need — your CPA can determine what's relevant.
Accountant vs. CPA: Which to Choose for Your Business
Understanding the difference between CPAs and general accountants helps you choose the right professional for your financial needs and complexity level.
Key takeaways:
- CPAs: Higher education requirements, pass comprehensive exam, licensed by state, can represent you before the IRS.
- General accountants: May have relevant experience but no standardized licensing requirements.
- Choose a CPA for: Complex tax situations, business ownership, IRS issues, financial planning, audit needs.
- An accountant may suffice for: Basic bookkeeping, simple payroll, straightforward tax returns, routine services.
- CPA value: Professional accountability, continuing education requirements, comprehensive expertise.
Small Business Tax Deductions: What You Need to Know
Remember: When in doubt, track it. It's better to have documentation you don't need than to miss valuable deductions. Proper documentation and timing can significantly reduce your tax liability.
Key takeaways:
- Common deductions: Office expenses, equipment purchases, business meals, professional services, marketing costs.
- Home office: Must be used regularly and exclusively for business; calculate using simplified or actual expense method.
- Vehicle expenses: Track business mileage or actual expenses; maintain detailed logs.
- Equipment purchases: Section 179 allows immediate deduction up to $1,160,000 for qualifying equipment.
- Documentation: Keep receipts, invoices, and records; digital storage is acceptable.
How to Avoid an IRS Audit
While IRS audits are relatively rare, certain red flags can increase your chances of being selected. Understanding what triggers audits and how to minimize risk helps you file confidently.
Key takeaways:
- Common audit triggers: Unreported income, excessive deductions relative to income, business losses year after year, large charitable deductions.
- Documentation is key: Keep detailed records for all deductions and business expenses; digital copies are acceptable.
- Accurate reporting: Ensure all 1099s and W-2s match your return; report all income even if you don't receive forms.
- Business deductions: Home office, meals, and travel deductions are scrutinized heavily, so proper documentation is essential.
- Professional preparation: Having a CPA prepare your return reduces errors and provides representation if issues arise.
Penalties for Filing Your Taxes Late
Filing your tax return late can result in significant penalties and interest charges. Understanding the costs helps you prioritize timely filing and explore available options if you’re unable to meet the deadlines.
Key takeaways:
- Failure-to-file penalty: 5% of unpaid taxes per month, up to 25% maximum; minimum $485 if over 60 days late.
- Failure-to-pay penalty: 0.5% of unpaid taxes per month, up to 25% maximum; continues until paid in full.
- Interest charges: Compound daily on both unpaid taxes and penalties from the due date.
- File even without payment: Always file on time, even if you can't pay; the failure-to-file penalty is much higher.
- Extensions help: Filing extension gives you 6 more months to file, but doesn't extend the payment deadline.
How to Prepare an Income Statement
An accurate income statement is essential for understanding your business's profitability and making informed financial decisions. It's also required for loan applications, investor presentations, and tax planning.
Key takeaways:
- Revenue recognition: Record income when earned, not necessarily when cash is received (accrual method).
- Expense categories: Organize expenses by type — cost of goods sold, operating expenses, and non-operating expenses.
- Key components: Revenue, cost of goods sold, gross profit, operating expenses, operating income, net income.
- Monthly vs. annual: Prepare monthly statements for management decisions; annual for tax and compliance purposes.
- Professional review: Have your CPA review statements for accuracy and compliance with accounting standards.
What to Do If You Owe Taxes This Year (But Nothing Changed)
Sometimes you receive an unexpected tax bill even when your situation seems unchanged. When you understand the causes and your options, you can address the issue and plan for future years.
Key takeaways:
- Common causes: Tax law changes, withholding adjustments, investment gains, inflation adjustments to tax brackets.
- Immediate actions: Verify the tax calculation accuracy, review all income sources, check for missed deductions.
- Payment options: Pay in full by the due date, set up a payment plan, request an extension if you need more time to pay.
- Prevent future issues: Adjust withholding, make estimated payments, increase retirement contributions, review quarterly.
- Professional help: Consult your CPA to identify causes and develop strategies to avoid future surprises.
How to Avoid the Illinois Estate Tax
Illinois has one of the lowest estate tax exemptions in the country. The right planning is key in minimizing or eliminating estate taxes for your heirs while preserving your wealth-building strategies.
Key takeaways:
- Current exemption: Illinois exempts only $4 million (vs. $13.61 million federal exemption for 2024).
- Tax rates: Illinois rates range from 0.8% to 16% on amounts above the exemption.
- Planning strategies: Annual gifting, charitable giving, life insurance trusts, family limited partnerships.
- Illinois-specific issues: State considers gifts within 3 years of death as part of taxable estate.
- Regular reviews: Estate plans should be reviewed every 3-5 years or after major life changes.
Illinois estate tax planning requires specialized knowledge of state-specific rules that differ significantly from federal requirements.
Need Personalized Guidance?
While these guides provide valuable insights, every financial situation is unique and has complexities. Our experienced team at Lewis.cpa can provide comprehensive, personalized advice tailored to your circumstances.
Schedule a free consultation — get expert advice today!
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