9 Tips to Save Time, Lower Taxes, & Improve Profits

Transcription

1 9 Tips to Save Time, Lower Taxes, & Improve Profits By Evie Alvarez & Ivan Alvarez, CPA Ivan Alvarez, CPA PLLC Audit, Tax, Bookkeeping, & Advisory

2 Disclaimer This notice is required by IRS Circular 230, which regulates written communications about federal tax matters between tax advisors and their clients. To the extent of this presentation is a written tax advice communication, it is not a full "covered opinion." Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. The information presented is general in nature, hypothetical, and is for illustration purposes only. By taking part in this presentation you agree to hold Ivan Alvarez, CPA PLLC free of any liability from the information presented. Further, your specific facts and circumstances, although similar, have not been fully evaluated by a qualified tax professional. Reliance on the contents of this presentation is not recommended. Consult a qualified tax professional before taking any action.

3 Agenda Introduction 9 Tips to save time, lower taxes, & Improve profits Closing

4 Introduction: One word Accoun-ta-pre-neur, noun, \ə-`kaύn-tə-p(r)ə-`nər\ 1. An accountant with an entrepreneurial mind. 2. An entrepreneur s right hand man. 3. Someone whom understands a business and puts his supremacy with numbers to good use for the business. 4. Ivan Alvarez, CPA

5 Introduction: More Certified Public Accountant Big 5 Accounting Public Accounting External Audit Corporate Accounting Adjunct Accounting Professor Army National Guard

6 Tip #1: Mileage Deduction For 2011: January 1 June 30: 51 per mile July 1 December 31: 55.5 per mile One can deduct the greater of the mileage deduction or actual expenses Break Even Analysis Rate(Miles) = Actual Expenses

7 Tip #1: Mileage Deduction Actual Expenses Lease: $250/month 1500 miles/month at 25 miles per gallon = 60 gallons/month $4.00/gallon x 60 = $240 gas Oil EOM, $25 x 6 = $150/yr $50/month insurance $200/year new tires $6,830 total Standard Mileage Rate January 1 June 30: 51 per mile July 1 December 31: 55.5 per mile 1,500 miles/month $9,585 total Commuting miles v. deductible miles

8 Tip #2: Business Use of Home Regularly and exclusively % of square footage or fraction of home Direct & indirect expenses Lowers your taxable income! Example: Area of office room: 50 square feet Area of home: 2000 square feet Percentage used for business: 3% Cost of painting office: $100 Cost of utilities: $3,000 Depreciation of $200,000 home: $154 Deductible amount: $ % of $3, = $344

9 Tip #3: Assess Your Basis of Accounting Cash-basis or Accrual Difference is what triggers the recognition of income and expenses Cash basis = When cash is exchanged Accrual = When accounting criteria are met Pay for January expenses in December Wait to invoice customers in December

10 Tip #4: Evaluate Your Choice of Entity Dividend: C-Corp double tax Corporate entities can reduce taxation by leveraging lower tax rates For Example, first 50,000 of a C-Corp is taxed at 15% (50,000 7,500 = 42,500) and dividends are taxed at 15% (42,500-6,375 = 36,125) Pay 13,875 in taxes; keep 36,125 Effective rate is 27.75% (13,875/50,000) C-Corp salary or bonus MFJ taxpayers with income between 34,001 to 82,400 are taxed at 25% FICA taxes are roughly 15.3% Pay 7,650 (50,000 x 15.3%) in FICA taxes Income taxes on 50,000 at 25% is 12,500 Pay 20,150 in taxes; keep 29,850 Effective rate is 40.3% (20,150/50,000)

11 Tip #5: Meals & Entertainment Be prepared! Itemized bill & business purpose Ordinary and necessary? Directly-related or associated? Limited or disallowed: Facility rental Country club dues Cruise ships Luxury sky boxes Hunting lodges Only 50% is allowed

12 Tip #6: Outsource Non-Essential & Support Functions Average small business spends hours performing bookkeeping function Accounting Errors & Fraud Common to small companies 30% of all fraud occurs in small companies 60% of accounting errors are relatively simple errors Internal IT Costs can exceed 5% of Gross Revenues Renting & Outsourcing can provide better value

13 Tip #7: Cost Your Products or Services Don t assume all products & services are profitable Compare the revenue generated and the resources consumed Pareto Principal or 20/80 Rule 80% of revenues will come from 20% of customers 80% of resources consumed by 20% of patients Identify variations & patterns: monitor revenues and resources

14 Tip #8: No Magic Wand Use Business Common Sense Engage in profitable transactions Example, donate your assets to gain a tax deduction Purchase a new vehicle so you can gain a tax write-off To be deductible, an expense needs to be ordinary and necessary Extravagant travel, meals, vehicles, etc.

15 Tip #9: Meet with Your Tax Advisor throughout the year Tax code is 72,000 pages and only 206 bones in the human body Tax code is always changing Meet during non-peak to save on fees December 31 st : Planning vs. Preparation Fire prevention vs. Arson Investigation

16 Interested in learning more Blog and newsletter with timely information Schedule a free consultation Main (214) Toll Free (800) info@ia-cpa.com Ivan Alvarez, CPA PLLC Audit, Tax, Bookkeeping, & Advisory