Frequently Asked Questions


I have a small business and need a retirement plan. I don’t want the cost of a 401k plan. Should my new retirement plan be a SEP or a SIMPLE?

You want to work with your tax advisor on this one because it is complicated, however, there are a few general rules to understand.  If you can add a retirement benefit to your payroll service, then a good plan is the Simple IRA which allows you to defer a portion of your net pay ($16,000 in 2024 if you are under age 50).  The company has a matching requirement, so it also needs to pay in a small % of your wages.  If you do not want to go through payroll then the option is to do a SEP IRA which is all company paid.  The maximum is 25% of your salary.

For example, if you have a $75,000 salary in 2024 and add in a Simple IRA then you can defer up to $16,000 of your $75,000 into the plan and the company would also match $2,250 for a total of $18,250.  If you have a SEP IRA and a $75,000 salary then the company can pay up to $18,750 into the plan on your behalf.

If you hire any other employees then you have to make the same matching/SEP contributions into their plans so the SEP.

The place to start is with these three questions:

  1. how much you want to defer
  2. does your payroll service provider handle retirement plan deferrals
  3. do you have, or do you plan to have employees in the near future?

What is an easy step for a beginner to do to save on taxes?

Participate in employer sponsored benefits. When you participate in an employer retirement plan you, not only save taxes but you also receive free money from the employer match. Participating in FSA or HSA plans will also provide tax savings.

Can I write off the purchase of a bike if I use it to ride to work?

No, the purchase of a commuter bicycle is not tax deductible, but it is likely still good for your overall health.

I filed my 2020 tax return in early March, and I just received an extra refund. Why?

The tax law for 2020 changed in late March 2021 when Congress passed the American Rescue Plan Act. This law change provided tax savings for some individuals who received unemployment benefits and/or an advance toward health insurance premiums. The IRS issued refunds automatically for these law changes and did not require an amended tax return.

What is an S-Corporation?

An S-Corporation is a “small business corporation” that has elected to pass net income, deductions, and credits to the shareholders. To become taxed as an S-Corporation or Subchapter S, the business must file an election and meet other qualifications.

How can my business become an S-Corporation?

Qualifying businesses that have fewer than 100 shareholders who are all domestic (US) individuals (not businesses) with the same type of ownership and are not otherwise precluded from electing S-Corporation status can file Form 2553 timely with the IRS to make the election.

Are S-Corporations taxed the same as Partnerships?

The S-Corporation and the Partnership are both business structures that pass income through to the owners. Income from a Partnership could be more expensive to the owners if that income is subject to self-employment taxes. Income from an S-Corporation could be less expensive to the owners if that income is not subject to self-employment income, however, the S-Corporation is required to pay a salary to the shareholders so it could have more compliance (paperwork).

Is a retirement plan a good employee benefit?

Yes.  A retirement plan allows the employer to provide tax free benefits to the employee through the employer matching option.

What type of retirement plan should I start for my small business?

The Simple IRA is a relatively easy plan to set up for your small business. Other common options would include the SEP IRA and the 401(k). See our blog post on this topic for additional information.

How do I calculate the sales price of my product?

To calculate your sales price be sure to evaluate your overall costs. These include indirect and direct expenses such as materials, labor, insurance, taxes, travel, supplies and occupancy.

What is the point of tax planning?

Tax planning helps to avoid surprises. Taking the time to review your paystub or your small business profit and loss mid-year will help to eliminate large tax bills or refunds when you file.

Why doesn’t xxxxx corporation have to pay taxes?

Every US corporation is subject to the same tax laws, no matter how large or small. Some of the larger corporations are funded by large loans from shareholders and banks. When the corporation has a loss, that loss stays with the corporation and carries forward to offset future profits. Many corporations have substantial losses available to offset taxable income for years to come.

Should I buy a new truck to save tax this year?

Buying a business vehicle can provide tax savings in the year you purchase and place in service if you will use the vehicle more than 60% for business trips, not including commuting to and from the office.

I need a new car. Should I buy it personally or should l have my business buy it?

Your business can buy a business automobile if the business has the credit required to get a loan and if you plan to use the automobile more than 60% of the time for business, not including commuting.

How do I build credit for my business?

A business can build credit by taking on debt such as a business line of credit or a business credit card.

Why aren’t my loan payments a business deduction?

A business can take out a loan to provide cash flow for the business. The loan proceeds are not taxable to the business but, when you repay that loan, the payments are not deductible.

Why aren’t my credit card payments a business deduction?

A business can use a credit card to pay for business expenses. When the card is charged, the expense is deducted. If the business carries a balance and later pays off the balance on the credit card, the payment of that credit card balance is not deducted because the original charge provided the deduction.

Do I have to pay tax if my credit card balance is forgiven?

Yes, most likely, you will have taxable income if your credit card balance is written off by the credit card company.

Do I pay tax on a gift?

No, you do not generally pay tax when you receive a gift.

Do I get a tax deduction when I donate money out of my IRA?

Yes, you get a tax deduction when you donate limited amounts of your IRA if you are over age 72 and have the donation paid directly from your bank to the charitable organization. See our blog post on this topic.

Do I need an accountant?

No, most people can file their own tax return using an online service however the service providers generally require the user to have some tax knowledge. See our blog post on this topic here. 

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