woman wearing a mask at a computer doing small business bookkeeping

Getting Through COVID | Outsourcing Your Bookkeeping Can Help

COVID-19 has affected small businesses in ways they never could have imagined. It’s more important than ever to have an up-to-date and accurate understanding of your business financials. Outsourcing your bookkeeping to the experts at David Mills, CPA, LLC is the answer.

When the clock struck midnight on Jan. 1, few people could have envisioned the year that 2020 would become. The worldwide COVID-19 pandemic has upended businesses and forced companies large and small to re-evaluate. 

COVID-19 Changed How Small Businesses Operate

Some businesses have struggled during COVID-19 with lost business, redacted productivity, disrupted supply chains and more. Others have found their niche during the pandemic and have experienced business growth.

Businesses on both ends of the spectrum have realized now, more than ever, accurate financial data is key.

With offices in Morton and East Peoria, we’re Central Illinois small business bookkeeping experts. We understand most business owners don’t have the time to learn the skills necessary to accurately keep their set of books. That’s especially true in 2020 when business owners are faced with hundreds of additional decisions and challenges. Outsourcing your bookkeeping is the solution.

Our bookkeepers are current and up-to-date on all bookkeeping and payroll laws, so there’s no need to train your staff. This is especially vital in 2020 where cuts to payroll taxes, PPP loans and other COVID-related government programs have made the year unlike any other.

Up-To-Date & Accurate Financial Information is Vital

When you use David Mills, CPA, LLC to provide your small business bookkeeping services, you know you’ll receive timely financial information, allowing you to make sound decisions. 

Will you need to take out a small business loan? Should you refinance existing loans? The business climate in 2020 means many are re-evaluating their finances. Up-to-date information gives you the knowledge you need to make the best decisions for your business.

The pandemic has forced Americans to change their habits and spending. Perhaps your business has been one that’s benefitted from COVID-19. Trying to manage your bookkeeping while also staying on top of business demands can be a daunting task.

Running your business and catering to your customers’ needs is what you do best. Leave the bookkeeping to us. 

Every month, we will:

  • Record revenue and expenses
  • Reconcile your bank accounts
  • Generate income statements and balance sheets
  • Record any special journal entires
  • Provide an optional cash flow statement
  • Electronically file and pay your state sales tax
  • Generate current vs previous period profit-to-loss statements

All of the information is entered into a QuickBooks file, which can be easily retrieved whenever information is needed.

COVID-19 has made 2020 much more challenging, however, your business bookkeeping doesn’t have to be part of that challenge. Contact David Mills, CPA, LLC today.

Learn more about the small business bookkeeping services we offer.

Illinois Fair Tax red and green choice signs

Illinois Fair Tax Bill | A Few Thoughts

Illinoisans are being asked to vote on a “Fair Tax” in November. Most of the information being provided is focused on taxing higher-income individuals while opponents are worried that the Illinois Fair Tax Bill opens the door for higher taxes for all.

While this is a valid concern, I think we need to ask more questions. What will the estimated $3.6 billion to be raised from the additional tax be used for? When you and I go to the bank to ask for more money, the lender wants to know how the funds will be used.

While we are not “lending” Illinois money, we certainly have a vested interest in how the money will be spent. 

How will funds be spent?

The largest liability the state has is underfunded pension liability. The deficit is over $137 billion, yet the Fair Tax proposal requires less than 10% of revenue to pay down this liability. Where will the other 90% be spent?

This will be toward current programs and any new programs our legislators deem necessary. 

Does this mean our elected officials think there is no waste that can be eliminated or savings found in our state? Illinois has over six thousand separate taxing units, the most in the nation.

The Chicago region has more than 1,226 local governments. The New York metro area has fewer than 200. Can’t there be savings in the combination or elimination of some of these agencies? Where is the 5, 10 or 15-year plan for Illinois? We live from year to year.

The answer is always more taxes. As I have written before the state receives more than $50 million monthly in new marijuana taxes. Only 10% is earmarked for debt reduction. 

Is it any surprise that any tax increase is seen with scorn, even when the increase may be justified?

If Illinois shows the bond rating companies they are serious about addressing debt and the pension under-funding borrowing interest rates could be lowered. This means less money for interest payments and more funds for state programs that need the money. 

Illinois taxpayers deserve to know how additional tax money will be spent. So far neither side has addressed this issue. Tell voters how the money will be spent and then we can make an informed decision. 

For more information, contact David Mills, CPA, LLC.

Piles of cash represented by $100 US bills

File Cash Transaction Reports For Your Business

Does your business receive large amounts of cash or cash equivalents? You may be required to submit forms to the IRS to report these transactions.

Cash Filing Requirements

Each person engaged in a trade or business who, in the course of operating, receives more than $10,000 in cash in one transaction, or in two or more related transactions, must file Form 8300.

Any transactions conducted in a 24-hour period are considered related transactions. Transactions are also considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.

To complete a Form 8300, you will need personal information about the person making the cash payment, including a Social Security or taxpayer identification number.

You should keep a copy of each Form 8300 for five years from the date you file it, according to the IRS.

Reasons For The Reporting

Although many of the transactions are legitimate, the IRS explains that “information reported on (Form 8300) can help stop those who evade taxes, profit from the drug trade, engage in terrorist financing and conduct other criminal activities. The government can often trace money from these illegal activities through the payments reported on Form 8300 and other cash reporting forms.”

What’s Considered “Cash?”

For Form 8300 reporting, cash includes U.S. currency and coins, as well as foreign money. It also includes cash equivalents such as cashier’s checks (sometimes called bank checks), bank drafts, traveler’s checks and money orders.

Money orders and cashier’s checks under $10,000, when used in combination with other forms of cash for a single transaction that exceeds $10,000, are defined as cash for Form 8300 reporting purposes.

Note: Under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier’s checks, treasurer’s checks and/or bank checks, bank drafts, traveler’s checks and money orders with a face value of more than $10,000 by filing currency transaction reports.

E-filing And Batch Filing

Businesses required to file reports of large cash transactions on Form 8300 should know that in addition to filing on paper, e-filing is an option.

The form is due 15 days after a transaction and there’s no charge for the e-file option. Businesses that file electronically get an automatic acknowledgment of receipt when they file.

The IRS also reminds businesses that they can “batch file” their reports, which is especially helpful to those required to file many forms.

Setting Up An Account

To file Form 8300 electronically, a business must set up an account with FinCEN’s BSA E-Filing System. For more information, interested businesses can also call the BSA E-Filing Help Desk at 866-346-9478 (Monday through Friday from 8 am to 6 pm EST) or email them at BSAEFilingHelp@fincen.gov.

At David Mills, CPA, LLC, we’re small business tax experts. Contact us with any questions or for assistance.

Computer and packing boxes at a start-up business

Launching A Business? How To Treat Start-Up Expenses On Your Tax Return

While the COVID-19 crisis has devastated many existing businesses, the pandemic has also created opportunities for entrepreneurs to start-up new businesses.

Computer and packing boxes at a start-up business
The way you handle initial start-up expenses can make a difference in your tax bill.

For example, some businesses are being launched online to provide products and services to people staying at home.

Entrepreneurs often don’t know that many expenses incurred by start-ups can’t be currently deducted. You should be aware that the way you handle some of your initial expenses can make a large difference in your tax bill.

How Expenses Must Be Handled

If you’re starting or planning a new enterprise, keep these key points in mind:

Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.

Under the Internal Revenue Code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t get you very far today!

And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.

No deductions or amortization deductions are allowed until the year when “active conduct” of your new business begins.

Generally, that means the year when the business has all the pieces in place to begin earning revenue.

To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as:

  • Did the taxpayer undertake the activity intending to earn a profit?
  • Was the taxpayer regularly and actively involved?
  • Did the activity actually begin?

Expenses that qualify In general, start-up expenses include all amounts you spend to:

Investigate the creation or acquisition of a business

  • Create a business
  • Engage in a for-profit activity in anticipation of that activity becoming an active business.

To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began.

One example is money you spend analyzing potential markets for a new product or service.

To qualify as an “organization expense,” the expenditure must be related to creating a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing a new business and filing fees paid to the state of incorporation.

Thinking ahead If you have start-up expenses that you’d like to deduct this year, you need to decide whether to take the elections described above. Recordkeeping is critical.

At David Mills, CPA, LLC we’re here to help answer your business start-up questions and to offer advice. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.

COVID Charitable CARES Contributions graphic

Business Charitable Contribution Rules Have Changed Under CARES Act

In light of the novel coronavirus (COVID-19) pandemic, many businesses are interested in donating to charity. In order to incentivize charitable giving, the Coronavirus Aid, Relief and Economic Security (CARES) Act made some liberalizations to the rules governing charitable deductions.

The Limit on Charitable Deductions for Corporations has Increased 

Before the CARES Act, the total charitable deduction that a corporation could generally claim for the year couldn’t exceed 10% of corporate taxable income (as determined with several modifications for these purposes).

Contributions in excess of the 10% limit are carried forward and may be used during the next five years (subject to the 10%-of-taxable-income limitation each year).

What changed? Under the CARES Act, the limitation on charitable deductions for corporations (generally 10% of modified taxable income) doesn’t apply to qualifying contributions made in 2020.

Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of taxable income (modified). No connection between the contributions and COVID-19 activities is required.

The Deduction Limit on Food Inventory has Increased

At a time when many people are unemployed, your business may want to contribute food inventory to qualified charities.

In general, a business is entitled to a charitable tax deduction for making a qualified contribution of “apparently wholesome food” to an organization that uses it for the care of the ill, the needy, or infants.

“Apparently wholesome food” is defined as food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations, even though it may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.

Before the CARES Act, the aggregate amount of such food contributions that could be taken into account for the tax year generally couldn’t exceed 15% of the taxpayer’s aggregate net income for that tax year from all trades or businesses from which the contributions were made. This was computed without regard to the charitable deduction for food inventory contributions.

What changed? Under the CARES Act, for contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations.

For other business taxpayers, it increases from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

CARES Act Questions

Be aware that in addition to these changes affecting businesses, the CARES Act also made changes to the charitable deduction rules for individuals.

Contact David Mills, CPA, LLC if you have questions about making charitable donations and securing a tax break for them. We can explain the rules and compute the maximum deduction for your generosity. 

2021 HSA Amounts letter blocks

IRS Releases 2021 Amounts for Health Savings Accounts

The IRS recently released the 2021 inflation-adjusted amounts for Health Savings Accounts (HSAs).

HSA Basics

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.”

An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.”

In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident, and specific disease insurance).

In general, a high deductible health plan (HDHP) is a plan that has an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage.

In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) cannot exceed $5,000 for self-only coverage, and $10,000 for family coverage.

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA.

This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation Adjustments for 2021 Contributions

In Revenue Procedure 2020-32, the IRS released the 2021 inflation-adjusted figures for contributions to HSAs.

For calendar year 2021, the annual contribution limitation for an individual with self-only coverage under an HDHP is $3,600. For an individual with family coverage, the amount is $7,200. This is up from $3,550 and $7,100, respectively, for 2020.

For calendar year 2021, an HDHP is a health plan with an annual deductible that isn’t less than $1,400 for self-only coverage or $2,800 for family coverage (these amounts are unchanged from 2020).

In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) can’t exceed $7,000 for self-only coverage or $14,000 for family coverage (up from $6,900 and $13,800, respectively, for 2020).

Variety of Benefits

There are many advantages to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax free and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care, and premiums for long-term-care insurance.

In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce.

For more information about HSAs, contact your employee benefits representative or a tax advisor at David Mills, CPA, LLC.

PPP Loan written in letter blocks

Received a PPP Loan? Forgiven Expenses Aren’t Deductible

The IRS has issued guidance clarifying that certain deductions aren’t allowed if a business has received a Paycheck Protection Program (PPP) loan.

Specifically, an expense isn’t deductible if both:

PPP Basics

The CARES Act allows a recipient of a PPP loan to use the proceeds to pay payroll costs, certain employee healthcare benefits, mortgage interest, rent, utilities, and interest on other existing debt obligations.

A recipient of a covered loan can receive forgiveness of the loan in an amount equal to the sum of payments made for the following expenses during the 8-week “covered period” beginning on the loan’s origination date:

  1. Payroll costs,
  2. Interest on any covered mortgage obligation,
  3. Payment on any covered rent, and
  4. Covered utility payments.

The law provides that any forgiven loan amount “shall be excluded from gross income.”

Deductible Expenses

So the question arises: If you pay for the above expenses with PPP funds, can you then deduct the expenses on your tax return?

The tax code generally provides for a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business.

Covered rent obligations, covered utility payments, and payroll costs consisting of wages and benefits paid to employees comprise typical trade or business expenses for which a deduction generally is appropriate.

The tax code also provides a deduction for certain interest paid or accrued during the taxable year on indebtedness, including interest paid or incurred on a mortgage obligation of a trade or business.

No Double Tax Benefit

In IRS Notice 2020-32, the IRS clarifies that no deduction is allowed for an expense that is otherwise deductible if payment of the expense results in forgiveness of a covered loan pursuant to the CARES Act and the income associated with the forgiveness is excluded from gross income under the law.

The Notice states that “this treatment prevents a double tax benefit.” Two members of Congress say they’re opposed to the IRS stand on this issue. Senate Finance Committee Chair Chuck Grassley (R-IA) and his counterpart in the House, Ways and Means Committee Chair Richard E. Neal (D-MA), oppose the tax treatment.

Neal said it doesn’t follow congressional intent and that he’ll seek legislation to make certain expenses deductible.

For more tax advice or information, contact the experts at David Mills CPA, LLC.

Business man sitting at a computer thinking about 2020 taxes

Thinking About Taxes? Things to Consider in 2020

At the moment, tax rates are at historic lows. We have record deficits and are looking to add more. Where do you think tax rates will be at in 1 year? 3 years? 5 years or more? Here are a few things to consider when thinking about taxes in 2020.

While everyone’s situation is different, we believe this is a serious consideration in tax planning for many individuals.

Is this a good time to convert funds from a traditional IRA to a Roth IRA?

Most IRA fund balances are at a low point and many taxpayers may see lower income in 2020. This may be a good time to convert some or all your funds to a Roth IRA.

You can manage the tax brackets. For example, an estimate of income can be prepared to find out how much more income you can have to stay in the same tax bracket. This way you can effectively manage your tax burden.

What do you need to know about Roth IRA contributions?

If your modified adjusted gross income in 2020 for married filing jointly is $196,000 or less you can contribute directly to a Roth IRA. Income at $206,000 cannot make a Roth contribution.

Our income exceeds the Roth limits, what can be done?

You can contribute to a traditional IRA. You can then convert to a Roth IRA. There are other limitations so be sure to discuss this with your financial adviser or make an appointment with us to discuss how this works and if a conversion will help you in retirement.

For 2020 there’s a new charitable deduction available

The IRS has a $300 cash (not non-cash such as a Goodwill donation) charitable deduction for 2020 which can be used whether you itemize or not.

Required Minimum Distributions

If you have not begun taking required minimum distributions (RMD’s) in 2020 you can wait until age 72 to start. The previous rules were at age 70 ½. Note that if you have already started your RMD’s you cannot skip them until age 72-you are bound by the previous rules.

There is a COVID-19 law that allows all taxpayers to waive their 2020 Required Minimum Distributions

There are other considerations for this so it is best to consult your financial adviser.

If you have questions, please talk to the experts at David Mills, CPA, LLC, today. We would be happy to help! Contact us today.

Independent Contractor wearing mask

Make Sure Independent Contractors Are Properly Classified

As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But you should be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be an expensive mistake.

The question of whether a worker is an independent contractor or an employee for federal income and employment tax purposes is a complex one.

If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax.

Often, a business must also provide the worker with the fringe benefits that it makes available to other employees. And there may be state tax obligations as well. These obligations don’t apply if a worker is an independent contractor.

In that case, the business simply sends the contractor a Form 1099-MISC for the year showing the amount paid (if the amount is $600 or more).

No Uniform Employee Definition

Who is an “employee?” Unfortunately, there’s no uniform definition of the term. The IRS and courts have generally ruled that individuals are employees if the organization they work for has the right to control and direct them in the jobs they’re performing.

Otherwise, the individuals are generally independent contractors. But other factors are also taken into account. Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530.

In general, this protection applies only if an employer:

  • Filed all federal returns consistent with its treatment of a worker as a contractor
  • Treated all similarly situated workers as contractors
  • Had a “reasonable basis” for not treating the worker as an employee. For example, a “reasonable basis” exists if a significant segment of the employer’s industry traditionally treats similar workers as contractors.

Note: Section 530 doesn’t apply to certain types of technical services workers. And some categories of individuals are subject to special rules because of their occupations or identities.

Asking For A Determination

Under certain circumstances, you may want to ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee.

However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors.

Businesses should consult with the staff at David Mills, CPA, LLC before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and inadvertently trigger an employment tax audit.

It may be better to properly treat a worker as an independent contractor so that the relationship complies with the tax rules. Be aware that workers who want an official determination of their status can also file Form SS-8.

Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities. If a worker files Form SS-8, the IRS will send a letter to the business. It identifies the worker and includes a blank Form SS-8.

The business is asked to complete and return the form to the IRS, which will render a classification decision.

Contact the small business experts at David Mills, CPA, LLC if you’d like to discuss how these complex rules apply to your business.

hands discussing PPP business loan

Part of the Paycheck Protection Program? Know This

The Paycheck Protection Program (PPP) established by the U.S. Government as part of the CARES Act is designed to help businesses during the COVID-19 pandemic.

For businesses who are part of the Paycheck Protection Program, there are a few tips and guidelines to know and understand:

  • Your bank gives the final recommendation on how much of the loan is forgiven. Be sure you understand their reporting requirements for forgiveness of the loan.
  • The SBA forgiveness rules are not finalized as of this date. Further guidelines should be available in the next few days.
  • What we do know is that at least 75% of the loan must be used for payroll expenses. This is gross payroll (with exceptions for employees earning over $100K yearly), state unemployment tax, health insurance premiums and retirement plan payments.
  • There is a second requirement for payroll and that is with full-time equivalent employees. This means that certain levels of employment must be maintained to get full forgiveness.
  • If you received the Economic Injury Disaster Loan (EIDL) you cannot use these funds for the same expenses as the PPP.
  • The remaining 25% of the loan can be used for rent, mortgage interest, and utilities which includes telephone and internet service. The rental agreement must be in place on or before February 15, 2020.

For more information, contact the experts at David Mills, CPA, LLC.