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Resources

Accounting for Business

Welcome to our Resources section, where you will find articles pertaining to accounting for business, business financial planning, financial advice, and the industries of our clients. This section is a great source of information, but please contact us if you feel you need professional financial advice. Maxwell Locke & Ritter is here to offer trusted guidance.

 

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Many people who launch small businesses start out as sole proprietors. Here are nine tax rules and considerations involved in operating as that entity.

  1. You may qualify for the pass-through deduction. To the extent your business generates qualified business income, you are eligible to claim the 20% pass-through deduction, subject to limitations. The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction.
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Do you conduct your business as a sole proprietorship or as a wholly owned limited liability company (LLC)? If so, you’re subject to both income tax and self-employment tax. There may be a way to cut your tax bill by using an S corporation.

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The concept of “matching” is one of the basic principles of accrual-basis accounting. It requires companies to match expenses (efforts) with revenues (accomplishments) whenever it’s reasonable or practical to do so. This concept applies when companies make advance payments for expenses that will benefit more than one accounting period. Here are some questions small business owners and managers frequently ask about prepaying expenses.

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Audit season is here for calendar-year entities. Every audit starts with assessing “audit risk.” This refers to the likelihood that the auditor will issue an adverse opinion when the financial statements are actually in accordance with U.S. Generally Accepted Accounting Principles or (more likely) an unqualified opinion when the opinion should be either modified or adverse.

Goodwill shows up on a company’s balance sheet when the company has been acquired in a business combination. It represents what’s left over after the purchase price in a merger or acquisition is allocated to the company’s tangible assets, identifiable intangible assets and liabilities. Periodically, companies must test goodwill for “impairment” — that is, whether the carrying value on the balance sheet has fallen below its fair value. This assessment can be complicated.

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As a nonprofit organization, you might think the subject of “uncertain tax positions” (UTPs) doesn’t apply to you, but some of the basics of your operations, including your tax-exempt status, could create uncertain tax positions that trigger critical reporting obligations.

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Under current tax law, medical expenses can be deducted as an itemized deduction on your federal income tax return only to the extent that they exceed 7.5% of adjusted gross income (AGI). This AGI threshold was in place for 2017 and 2018 under the Tax Cuts and Jobs Act (TCJA). And now it’s been extended for 2019 and 2020 by the recent spending package President Trump signed into law on December 20, 2019. This article outlines what you need to know to take advantage of this tax break.

Suppose that your growing business is taking over one of your competitors. If you keep some of the company’s employees on the job, your business will be increasing its payroll tax liability. However, the good news is that payroll taxes paid by the former employer may reduce the amount owed for the year. Conversely if one employer acquires another employer during the year — and it continues to employ some of the same workers — the successor can count the wages paid by the predecessor towards its own Social Security wage base.

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This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business decreased by one-half cent, to 57.5 cents per mile. As a result, you might claim a lower deduction for vehicle-related expense for 2020 than you can for 2019.

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Some ages come with tax and financial consequences that require your attention. Included in this article are some ways you can prepare for these age-related tax and financial planning milestones as you and your loved ones grow older.