Tsagaris & Tsagaris Answers Your Questions
Per the IRS:
Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
The IRS will grant you 6 extra months to file your annual return (5 months for certain business entities), although your tax balance is still due by the original deadline. Many people are misled to believe that there’s a direct relationship between tax extensions and tax auditing, or that a tax extension raises a red flag to the IRS. Luckily, that is incorrect. In fact, getting a tax extension can actually reduce your chances of facing an IRS audit.
Generally, the IRS can include returns filed within the last three years in an audit. If we (the IRS) identify a substantial error, we (the IRS) may add additional years. We usually don’t go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.
To purchase a vehicle that belongs to your company, the company must be registered as an LLC or another legal business entity. You should also have an Employer Identification Number from the IRS.
While you can often purchase a vehicle through your business and ride it personally, it’s important to consider the tax implications beforehand. The more non-business driving is done with that vehicle, the less money you can save, and the more time it’ll take to prepare your taxes.
2021 saw an unprecedented number of workers and businesses using a work-from-home model. If you work from home, you should know these important tax implications of setting up a home office.
Generally speaking, to qualify for the home office deduction, you must meet one of these criteria:
- Exclusive and regular use: You must use a portion of your house, apartment, condominium, mobile home, boat or similar structure for your business on a regular basis. This also includes structures on your property, such as an unattached studio, barn, greenhouse or garage. It doesn’t include any part of a taxpayer’s property used exclusively as a hotel, motel, inn, or similar business.
- Principal place of business: Your home office must be either the principal location of your business or a place where you regularly meet with customers or clients. Some exceptions to this rule include day care and storage facilities.
The IRS does check each and every tax return that is filed. If there are any discrepancies, you will be notified through the mail. The IRS compares your tax return against “norms” for similar returns. … most audits will be of returns filed within the last two years.
Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code. When corporate officers perform services for the corporation, and receive or are entitled to receive payments, their compensation is generally considered wages. Subchapter S corporations should treat payments for services to officers as wages and not as
distributions of cash and property or loans to shareholders.
Example:
| Company gross income range | Company average gross income | Shareholder average salary |
|---|---|---|
| $100,000 to $249,999 | $168,051 | $22,786 |
| $250,000 to $499,999 | $365,476 | $43,158 |
| $500,000 to $999,999 | $720,013 | $67,474 |
| $1M to $2.5M | $1,572,621 | $110,911 |
Your financial records are crucial for tracking deductions, projecting cash flow and more. According to the IRS, there are two financial statements you should keep a record of:
- Balance sheet, which consists of your business’s income and expenses.
- Income statement, which consists of assets, liabilities and equities in business.
Additionally, you’ll want to keep track of your sources of income, deductibles, basis in the property and any information you might need when filing taxes.
When tax season arrives, you’ll want to be as prepared as possible. To make this easier, throughout the year, you should keep running tabs on business expenses you might claim on your tax return.
Many business owners wonder if hiring a professional to handle their accounting is the right choice for them. Processes like applying for loans or filing for taxes become less daunting with an expert like Tsagaris & Tsagaris on your side.
Get a personal consultation.
We will take care of your accounting and administrative services.