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Do You Have a California Business That Collects Sales Tax?

California businesses that collect sales tax from customers must correctly report the sales and remit the tax on time or face a possible 25% fraud penalty. The CA Dept. of Tax and Fee Administration (CDTFA) found that one restaurant owner significantly underreported sales and underpaid the related sales tax. On that basis, the CDTFA determined that he was not only subject to the 25% fraud penalty, but that he also met the criteria for a higher penalty of 40%. That is, evidence showed he knowingly collected sales tax to be remitted and failed to remit the full tax collected; also, the amount exceeded an established threshold. The CA Office of Tax Appeals upheld the penalty. If you have questions, please contact your Linkenheimer CPA.

By Linkenheimer LLP|2020-09-03T20:03:24+00:00December 11th, 2019|business, ca, CA tax, sales tax|0 Comments

Small Businesses: Stay Clear of a Severe Payroll Tax Penalty

One of the most laborious tasks for small businesses is managing payroll. But it’s critical that you not only withhold the right amount of taxes from employees’ paychecks but also that you pay them over to the federal government on time.

If you willfully fail to do so, you could personally be hit with the Trust Fund Recovery Penalty, also known as the 100% penalty. The penalty applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages. Since the taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over.

The reason the penalty is sometimes called the “100% penalty” is because the person liable for the taxes (called the “responsible person”) can be personally penalized 100% of the taxes due. Accordingly, the amounts the IRS seeks when the penalty is applied are usually substantial, and the IRS is aggressive in enforcing it.

By Linkenheimer LLP|2020-09-03T20:03:32+00:00November 5th, 2019|business, employer, tax, tax planning|0 Comments

Thinking About Converting from a C Corporation to an S Corporation?

The right entity choice can make a difference in the tax bill you owe for your business. Although S corporations can provide substantial tax advantages over C corporations in some circumstances, there are plenty of potentially expensive tax problems that you should assess before making the decision to convert from a C corporation to an S corporation.

Here’s a quick rundown of four issues to consider:

LIFO inventories. C corporations that use last-in, first-out (LIFO) inventories must pay tax on the benefits they derived by using LIFO if they convert to S corporations. The tax can be spread over four years. This cost must be weighed against the potential tax gains from converting to S status.

Built-in gains tax. Although S corporations generally aren’t subject to tax, those that were formerly C corporations are taxed on built-in gains (such as appreciated property) that the C corporation has when […]

By Linkenheimer LLP|2020-09-03T20:03:32+00:00November 5th, 2019|business, tax implications|0 Comments

Setting Up a Health Savings Account for Your Small Business

Given the escalating cost of employee health care benefits, your business may be interested in providing some of these benefits through an employer-sponsored Health Savings Account (HSA). For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Here are the key tax benefits:

Contributions that participants make to an HSA are deductible, within limits.
Contributions that employers make aren’t taxed to participants.
Earnings on the funds within an HSA aren’t taxed, so the money can accumulate year after year tax free.
HSA distributions to cover qualified medical expenses aren’t taxed.
Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.

Who is eligible?

To be eligible for an HSA, an individual must be covered by a “high deductible health plan.” For 2019, a “high deductible health plan” is one with an annual deductible of at least $1,350 for self-only coverage, or at least $2,700 for family coverage. For self-only coverage, the 2019 limit on deductible contributions is $3,500. For family coverage, the 2019 limit on deductible contributions is $7,000. Additionally, annual out-of-pocket expenses required to […]

By Linkenheimer LLP|2020-09-03T20:03:35+00:00October 14th, 2019|business, Health care, hsa|0 Comments

The Chances of an IRS Audit are Low, But Business Owners Should be Prepared

Many business owners ask: How can I avoid an IRS audit? The good news is that the odds against being audited are in your favor. In fiscal year 2018, the IRS audited approximately 0.6% of individuals. Businesses, large corporations and high-income individuals are more likely to be audited but, overall, audit rates are historically low.

There’s no 100% guarantee that you won’t be picked for an audit, because some tax returns are chosen randomly. However, completing your returns in a timely and accurate fashion with our firm certainly works in your favor. And it helps to know what might catch the attention of the IRS.

Audit red flags

A variety of tax-return entries may raise red flags with the IRS and may lead to an audit. Here are a few examples:

Significant inconsistencies between previous years’ filings and your most current filing,
Gross profit margin or expenses markedly different from those of other businesses in your industry, and
Miscalculated or unusually high deductions.

Certain types of deductions may be questioned by the IRS because there are strict record-keeping requirements for them • for example, auto and travel expense deductions. In addition, an owner-employee salary that’s inordinately higher or […]

By Linkenheimer LLP|2020-09-03T20:03:36+00:00September 30th, 2019|audit, business, irs|0 Comments