The federal government recently extended the Work Opportunity Tax Credit through 2020. Business owners may be eligible for tax credits if they hire individuals from one or more targeted groups.
The Work Opportunity Tax Credit (WOTC) was set to expire on Dec. 31, 2019, but a new law passed late last year extends it through Dec. 31, 2020.
Generally, an employer is eligible for the credit for qualified wages paid to qualified members of these targeted groups:
For each employee, there’s a minimum requirement that the employee has completed at least 120 hours of service for the employer.
The credit isn’t available for certain employees who are related to the employer or work more than 50% of the time outside of a trade or business of the employer (for example, a maid working in the employer’s home).
Additionally, the credit generally isn’t available for employees who’ve previously worked for the employer.
There are different rules and credit amounts for certain employees.
The maximum credit available for the first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans.
Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15.
The maximum WOTC credit available for summer youth employees is $1,200 per employee.
No deduction is allowed for the portion of wages equal to the amount of the WOTC determined for the tax year.
Other employment-related credits are generally reduced with respect to an employee for whom a WOTC is allowed.
The credit is subject to the overall limits on the amount of business credits that can be taken in any tax year, but a 1-year carryback and 20-year carryforward of unused business credits is allowed.
Because of these rules, there may be circumstances when the employer might elect not to have the WOTC apply. There are some additional rules that, in limited circumstances, prohibit the credit or require an allocation of it.
Does the idea of being your own boss and being in business for yourself appeal to you?
Many people who launch small businesses start out as sole proprietors. However, there are tax rules and considerations to consider if you’re a sole proprietor.
Here are nine things to consider if you are your own boss
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.
The net income will be taxable to you regardless of whether you withdraw cash from the business.
Your business expenses are deductible against gross income and not as itemized deductions.
If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activity losses, and losses in activities in which you weren’t “at risk.”
For 2020, you pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment of up to $137,700, and Medicare tax only at a 2.9% rate on the excess.
An additional 0.9% Medicare tax (for a total of 3.8%) is imposed on self-employment income in excess of $250,000 for joint returns; $125,000 for married taxpayers filing separate returns; and $200,000 in all other cases.
Self-employment tax is imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.
For 2019, these are due April 15, June 15, September 15 and January 15, 2021.
If you work from a home office, perform management or administrative tasks there, or store product samples or inventory at home, you may be entitled to deduct an allocable portion of some costs of maintaining your home.
And if you have a home office, you may be able to deduct expenses of traveling from there to another work location.
This means your deduction for medical care insurance won’t be subject to the rule that limits medical expense deductions.
Specifically, you should carefully record your expenses in order to claim all the tax breaks to which you’re entitled.
Certain expenses, such as automobile, travel, meals, and office-at-home expenses, require special attention because they’re subject to special recordkeeping rules or deductibility limits.
When you hire employees, you need to get a taxpayer identification number and withhold and pay employment taxes.
The advantage is that amounts contributed to the plan are deductible at the time of the contribution and aren’t taken into income until they’re are withdrawn.
Because many qualified plans can be complex, you might consider a SEP plan, which requires less paperwork.
A SIMPLE plan is also available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements.
If you don’t establish a retirement plan, you may still be able to contribute to an IRA.
At David Mills CPA, LLC, we work with small businesses throughout the Central Illinois.
We can also help business owners understand the various business structures to ensure their business is structured to best meet their needs.
For more information, contact David Mills CPA, LLC today.
In 2020, 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 expenses for 2020 than you can for 2019.
Businesses can generally deduct the actual expenses attributable to the business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees.
In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, depreciation write-offs on vehicles are subject to certain limits that don’t apply to other types of business assets.
The cents-per-mile rate comes into play if you don’t want to keep track of actual vehicle-related expenses.
With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date, and the destination.
Using the mileage rate is also popular with businesses that reimburse employees for business use of their personal vehicles.
Such reimbursements can help attract and retain employees who drive their personal vehicles extensively for business purposes.
Why? Under the Tax Cuts and Jobs Act, employees can no longer deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.
If you do use the cents-per-mile rate, be aware that you must comply with various rules. If you don’t, the reimbursements could be considered taxable wages to the employees.
The rate for 2020 Beginning on January 1, 2020, the standard mileage rate for the business use of a car (van, pickup or panel truck) is 57.5 cents per mile.
It was 58 cents for 2019 and 54.5 cents for 2018. The business cents-per-mile rate is adjusted annually.
It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair and depreciation.
Occasionally, if there’s a substantial change in average gas prices, the IRS will change the mileage rate midyear.
There are some situations when you can’t use the cents-per-mile rate. In some cases, it partly depends on how you’ve claimed deductions for the same vehicle in the past.
In other cases, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.
As you can see, there are many factors to consider in deciding whether to use the mileage rate to deduct vehicle expenses.
At David Mills CPA, LLC, our expert can help if you have questions about tracking and claiming such expenses in 2020 — or claiming them on your 2019 income tax return.
David Mills CPA, LLC has offices in Morton and East Peoria.
Video conference options mean meeting with the professionals at David Mills CPA, LLC is as easy as looking at your phone.
We utilize the Zoom software to host video conference meetings with clients. It’s an easy-to-use program, where no account or password is created.
Because most laptops, tablets and cell phones have built-in cameras, there’s no additional hardware to purchase.
We understand individuals and business owners lead busy lives. Finding time to come to either our Morton or East Peoria location can be difficult.
With a video conference, you can have a meeting wherever you are. We will send you a link to directly connect to your tax preparer. It’s the ideal solution for those out of town or with busy schedules.
Contact David Mills CPA, LLC today to learn more about video conferencing or to set up an appointment.
Starting a new business is an exciting venture, but with so many business structures, deciding the legal structure of your company can seem overwhelming. Will it be a sole proprietorship? A corporation? Is it an LLC?
The five most common business legal structures are:
In a sole proprietorship, the individual who owns the business is an unincorporated business by themselves.
This type of business structure is sometimes known as the sole trader, individual entrepreneurship or proprietorship. There is no legal distinction between the owner and the business entity.
According to the U.S. Small Business Administration, a sole proprietorship is “the simplest and most common structure chosen to start a business.”
A partnership is when two or more individuals join together to create a business. According to the IRS, in a partnership “each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.”
Within a partnership, there are two common types: limited partnerships (LP) and limited liability partnerships (LLP).
The U.S. Small Business Administration notes a limited partnership has one partner with unlimited liability and all others with limited liability.
In a limited partnership, the partners with limited liability tend to have limited control over the company. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes.
A limited liability partnership (LLP) gives limited liability to every owner. This structure protects each partner from debts against the partnership.
When a corporation is formed, prospective shareholders exchange money, property or both, for the corporation’s capital stock.
Sometimes called a “C-corp” a corporation is a legal entity separate from its owners.
The Small Business Administration notes corporations offer “the strongest protection to its owners from personal liability” but “the cost to form a corporation is higher than other structures.”
Operating a corporation requires more extensive record-keeping and reporting.
The IRS says S Corporations “are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.”
Becoming an S Corporation requires a business to meet certain qualifications including being a domestic corporation and having no more than 100 shareholders.
Businesses must file with the IRS to earn S Corporation status.
A limited liability company, more commonly referred to as an “LLC” combines the advantages of both the corporation and partnership business structures.
An LLC can protect an individual from personal liability in most instances.
Owners of an LLC are known as “members” and the members can be individuals, corporations, other LLCs or foreign entities. Most states, including Illinois, permit “single-member” LLCs, in which there is only one owner.
The professionals at David Mills, CPA, LLC, have offices in both Morton and East Peoria. They work with business clients in the Tri-County (Peoria, Woodford and Tazewell) area as well as beyond.
When establishing a business, contact David Mills, CPA, LLC to ensure the legal entity you select best matches your professional goals.
Small businesses need budgets, but too often, they don’t have one. The staff at David Mills CPA, LLC can assist with your budgeting needs.
Creating a business budget can seem overwhelming. One survey found as many as two-thirds of all small businesses don’t have a budget.
Without a budget, though, your company’s financial health is at risk. Small businesses face challenges every day. A budget helps mitigate those difficulties.
The experts at David Mills CPA will show you how budgeting can grow your profits. Interpreting the numbers is key, but we understand making sense of those figures can feel overwhelming.
We can help you answer the critical questions:
A smartly planned budget will include flexibility to help you navigate any troubled waters your business may face.
A budget should be more than just a yearly chore. It’s a tool to help you tackle short-term obstacles while planning for the long-term future.
We will teach you the questions to ask when looking at your budget versus actual numbers. In this way, your budget becomes a valuable tool to manage cash flow and build your business.
Budgets help make your business more efficient. They can help keep your company out of debt while developing a roadmap for future growth or expansion.
Planning your business budget will make it more efficient to operate your company.
Let the staff at David Mills CPA assist you with all your business budgeting needs. Contact us today for more information.
You’re the CEO of your business and an expert in your industry, but does that expertise expand to the financial side of your business? If phrases like “projected profitability” and “cash flow” make you cringe, it’s time to call the experts at David Mills, CPA, LLC.
Chances are you didn’t get into business because the idea of managing financial statements appealed to you, yet your company’s success is directly related to the quality of your financial statements and the CFO (chief financial officer)/Controller Services overseeing them.
A head-in-the-sand approach to your business finances is a disaster waiting to happen. Just like ignoring your car’s check engine light can leave you stranded, not paying attention to finances can cripple your business.
More than 28% of bankrupt businesses cite problems with the financial structure of their company as a primary reason for failure.
Businesses fail because they forget about the basics. Have you taken the time to create a budget? If you have, do you regularly analyze the results? Is your business making a profit, yet you never seem to have money in the bank?
Hiring an outsourced controller/CFO is the smart way to keep your finger on the financial pulse of your business.
If financial statements make no sense to you, you won’t use them. You need controller services you can trust to interpret the statements for you.
Just because you may not have the budget for a full-time CFO doesn’t mean you don’t have alternatives.
With our Morton and East Peoria offices, our firm can provide CFO services on an “as-needed” basis to companies in the Tri-County area.
We can take full responsibility for the financial side of your business, work part-time, or train your staff. Our services are available on a monthly, quarterly or a specific-project basis.
You’ll gain greater control over your business when the numbers make sense.
Having the staff at David Mills, CPA, LLC be your financial experts allows you to excel at the business you do best.
Contact us today about our CFO consulting and outsourced controller services.
Exciting news! David Mills CPA has officially opened our East Peoria location. We can provide your business with accounting and financial services. Our office is open Monday-Friday from 8:00 AM until 5:00 PM.
In order to best serve our customers, we offer a wide variety of services. We can assist your business with the financial aspects so you can focus on what is most important to you. A list of our services include:
Our East Peoria location is now booking appointments. For all of your financial needs, contact David Mills CPA today. We look forward to working with you and serving our customers in East Peoria.
If you are like most people when it comes to taxes, you don’t feel confident in what you are doing. A tax consultant can help relieve stress and reduce mistakes while filing taxes. Check out five reasons why you should consider hiring a tax consultant.
Have you found a mistake on a previous tax return in the past three years? You can work with a tax constant to file an amended return. A consultant can help to minimize any damage that may have been caused. It can also provide you with peace of mind in knowing that your tax return will be properly handled.
Have you gotten married or divorced in the last year? If so, your tax filing may be affected.
Filling Your taxes can be time-consuming. A tax consultant will be able to work quickly and efficiently. They will be able to save you the stress of making sure your taxes are done right.
Taxes can become confusing if you live and work in different states. If you’ve recently moved to a new state it can be confusing as well.
A tax consultant will be able to assist you in the different states’ tax rules and can help you sort out any issues that arise.
A common mistake of new business owners is waiting to hire a tax professional. How you file your taxes the first year can impact future tax filings. It is important to start off right.
David Mills is proud to assist our customers with their taxes and make recommendations that fit your needs. If you need assistance with your taxes, contact David Mills today. We look forward to working with you!
With April right around the corner, warmer days will be here before we know it. While many people associate spring cleaning with cleaning and organizing your home, have you thought about spring cleaning your finances? Spring cleaning your finances is a great way to get back on track with paying off any debt, getting organized, and evaluating your overall financial situation. By following our five spring cleaning tips, you will be on your way down a more stable financial path.
Take a look at how much total debt you owe. To truly understand your debt load, you will need to calculate how much debt you owe compared to the amount that you earn. If your total consumer debt is less than 20% of your net income, you are in fine standings. But, if your total consumer debt is above 20%, it is time to assess your debt load. Don’t let it overwhelm you though as there are many solutions to becoming debt free such as cutting expenses, creating a debt-free plan, setting goals each month, getting a second job and numerous of additional solutions.
Organizing your finances is a vital part of being able to gain control over your financial situation and to make sure that additional wealth is going to be created. A few ways to organize your finances can include consolidating accounts, filing important documents, determining your personal net worth, estate settlement, and shredding documents that you no longer need. All of these tasks will help you be on your way to better-organized finances.
Your budget is one of the most important parts of your financial planning. Without a budget, you could be at risk of overspending on items that could cause you to go into debt, or further into debt. The best way to tweak your budget is to look back at the past couple months and analyze what you spend the most and least money on. From there tweak it accordingly if you see any trouble spending areas or areas that you’re budgeting more than you need to.
It is always a good idea to check up on your insurance policies, whether it be health, property, casualty, or any other insurance policies you may need to evaluate. There are many benefits by doing this such as catching any mistakes, finding better rates, or realizing it may be time to bundle. As your life changes over the years, it is always best to ensure you are not paying for insurance you no longer need or that you are not underinsured.
Evaluating your 401k is important for a number of reasons. Many people make basic mistakes such as overlooking retirement plan fees, getting scared by market volatility or getting overly aggressive. Reasons like these are why it is important to think about retirement sooner than later so that you are able to take on an appropriate level of risk all along.
If you are looking for financial services to help get your finances in order this spring, contact David Mills CPA LLC. David Mills offers financial and accounting services to small and medium-sized businesses, as well as individuals in Peoria, IL as well as the surrounding areas. To learn more about the services we offer, or to learn more about David Mills CPA LLC as a company, contact us here. We look forward to speaking with you!