Should I be an LLC

In the day and age of side gigs, second jobs, renting out spare rooms, driving for Uber, I get asked quite often if I should set up an LLC ?  

I am going to first of all mention that I am not an attorney, and this is not legal advice.  This is an explanation of what an LLC is, and maybe what it is not.  This is more the basics how it relates to your taxes

So - The related question is, will an LLC help me save money on my taxes?  

The answer is ...  maybe

You need to know the basics

(1)  An LLC is a State level of legal protection.  In Michigan, the LLC Act was formed in 1993, and you can find it <<here>>.  

Most States also have a Corporation Act, and anyone can register a business as a Corporation.

Registering for a Michigan LLC will afford you a certain amount of legal protection from various legal challenges.  Maybe you have a roofing company, and you have an employee who falls off a roof.  The LLC Act was designed to provide a limited amount of protection from lawsuits.  

How much legal protection?  "Limited Liability" means Limited. 

If there are 3 members of an LLC, and there is a dispute about distributions, the LLC Act provides the framework for resolving those types of issues.  

In fact, that is what the LLC Act was primarily intended to do.  To provide the framework, the who can do what and who can't do what and how you properly notify someone, etc...  If you were going to play baseball, each of the players knows the rules - right?  If you are starting a business, the LLC Act provides the rule book for running a business.  

(2)  I have a LLC, what am I for Federal income tax purposes?  The answer is- nothing.  You are a disregarded entity.  The IRS has only a couple of types of businesses that are recognized:

Corporations, Partnerships and Proprietorships    <<entity comparison chart>>

If you register an LLC in Michigan and go to file your tax returns, you are not recognized.  Your tax returns are filed with the IRS.  That is Federal, not State...  

If you come to me at the end of the year and say that you registered a LLC, and nothing else, then we file you as a Sole Proprietorship if its just you, or a partnership if there is more than one of you who own it.  

(3)  So what do you do?  Well, now you know that an LLC is a State thing and that your taxes are Federal thing.  

Decide if you want to be an LLC or a Corporation then step #2 is that you need to register your business for Federal purposes.

Most people that start out, start as Sole Proprietors.  They are simple to start, there is little additional bookkeeping, and can quickly be dissolved.  Your LLC registration will enable you to open a bank account and deposit and write checks using your business entity.

As you grow to a certain level, maybe where your Sole Proprietorship becomes full time, and maybe you are applying for a mortgage or you want to hire employees, then you would move into a Corporation or a S Corporation (Small Corporation). 

Review the tax pros and cons of your choice of entity.  <<entity comparison chart>> If you elect for an S Corporation, the compliance can get expensive, but retirement planning opportunities open up.    

Most importantly, is enlist the assistance of a professional to get set up.    

Doug Zandstra CPA, CFE, EA

Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

Entity Comparison Charts

There are only a few basic types of entities, here is a comparison:

 

Doug Zandstra CPA, CFE, EA

Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

Calculator to see if your withholdings are on track for 2021

IRS has published a pretty handy calculator to see if your withholdings are on track for 2021.

I have had several inquiries where folks want to know if they are having too little or too much taken out and if they are going to have to repay some of the advance child tax payments.

This handy little calculator handles some robust calculations, give it a try

https://www.irs.gov/individuals/tax-withholding-estimator

LINK

Doug Zandstra CPA, CFE, EA

Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

Updates to the 2021 Child Tax Credit (CTC)

Should you opt in or out of the Monthly Payment Option for your CTC Payment scheduled to begin in July? 

Background

For 2021 and beyond, the Child Tax Credit (CTC) has increased from $2,000 per child to either $3,000 or $3,600 per child depending on if their age. 

IRS has promised that starting in July, you can elect to have that directly deposited into your bank account monthly as opposed to claiming it on your 1040

Are you eligible?   

Kiplinger has set up a very quick and easy site to determine if you are eligible and they also can project the credit and payment amount  <<<Click Here>>>

IRS has set up a website for you to determine if you are eligible <<Click Here>>

2020 Refunds are Taking Longer Than Usual

 

4/26/21

We have never had a year like this as far as the length of time it takes for the IRS to process a Electronically Filed income tax returns and send a refund.

You can check the status of your return using the IRS website "wheres my refund" and this year an unusual number of returns show the status "your return is still being processed" for several days even weeks.

This does not mean that your return is being flagged, this does not mean that your return is being audited.  What is means is that your return is being "processed" - exactly what it says.  

Who is to blame?  The IRS is blaming the complexities of recent tax laws for the delay in "processing" tax returns.

As of 4/23/21 the IRS was holding 29 million tax returns for manual processing.

https://www.accountingtoday.com/news/irs-sees-delays-in-tax-refunds-and-quarterly-payments

Doug Zandstra CPA, CFE, EA

Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

Home Office Expenses and Deductibility

 This year had a lot of people working from home, and of course, the question arises, can I deduct the expenses ?  After all, I have to had high speed internet, a computer, a desk, office supplies etc..

The answer until 2018 was YES, the answer after 2018 depends on if you are an employee or not.

In 2018, changes were made to the standard deduction and the standard exemption essentially doubled. Employee home office expense were classified as a Itemized Misc Deduction, subject to the 2% floor.  All if the items that were in this category were eliminated.  

At the time, this had a big impact on sales professionals.  Sales people who normally reach into their own pocket to cover expenses found out the only way that they were going to get credit for out of pocket expenses was to get reimbursed by their employers.

This is still the case.  Employers are still able to deduct employee business expenses, so if you find that you are spending your after tax money on your work, you may want to consider asking your employer for assistance!!! 

Below is a link to the IRS newsroom that gives additional information.

https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-home-office-deduction-rules-during-small-business-week

Doug Zandstra CPA, CFE, EA

Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

Highlights of the American Rescue Plan

There new American Rescue Plan is all about your tax return.  There are 3 major items that impact most Americans

1.   $1,400 stimulus payments to taxpayers and dependents under 17.  AGI limits are 80k for Single, 120k for Head of Household and 160k for Married filing joint.

2.   Up to $10,200 of unemployment benefits for 2020 will be non-taxable if your AGI is below $150k (on your Federal return)  Each State then has to decide if they are going to follow the Federal rules or not. 

4/1/21 UPDATE - Michigan Department of Treasury advises Michigan taxpayers to "wait"

https://www.michigan.gov/treasury/0,4679,7-121--556084--,00.html

"The Department is waiting on further guidance from the IRS with respect to potential data sharing that may allow the Department to expedite Michigan income tax refunds to Michigan taxpayers.  Taxpayers should not file amended Michigan income tax returns until the Department issues further guidance."

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3/31/2021 UPDATE - IRS will recalculate and amend affected returns 

https://www.irs.gov/newsroom/irs-to-recalculate-taxes-on-unemployment-benefits-refunds-to-start-in-may

3.  Child Tax Credit is expanded (presently 2,000 per child under 17, and 500 for 18+) to be $3,600 for each child under 6 and $3,000 for all others.

Also, note that the way that this new Child Tax Credit works is that it is intended to be paid out on a monthly basis, and the push is for the start date to be July 2021

These computations are going to be based on the most current information that is available, 2019 or 2020.  

Doug Zandstra CPA, CFE, EA
Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gm

Links to Business Registration in Michigan

 Here are some helpful links for your Michigan LLC or your Michigan Corporation

Here is a link to various types of entities and the various pros and cons <<CLICK HERE>>  

Search for a business - or check to see if a name is available : <<CLICK HERE>>

Pay your annual fees to keep your Corporation or LLC STATUS ACTIVE   <<CLICK HERE>>  

Register a NEW LLC or a NEW CORPORATION   <<CLICK HERE>>

Get a FEIN Number <<CLICK HERE>>

S Corporation Election  <<CLICK HERE>>

Remember your S Corporation is NOT registered until you receive CP261

Doug Zandstra CPA, CFE, EA
Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

IRS Form 1444 and your Economic Stimulus Payment

 

One of the more confusing things for this particular tax season is reporting your economic stimulus payments on your tax return.

Last April, checks were mailed or deposited directly into taxpayer bank accounts.  The information that was used to generate those payments were based on information that was available to the IRS at the time, usually 2018 income tax returns.

If you had children, got married, got divorced, or your income moved you either in or our of income eligibility, you may get more or have to return some on your 2020 income tax returns.

The form that was used to report  your initial payment was called Form 1444 and is below.  

So, is this form necessary to prepare your income tax return?  No, it is the amount that is necessary.  

The payment from last April was called the Economic Impact payment.  It was based on income, and number of dependents at a certain age.  But last April, most people had not yet filed their 2019 income tax returns, so the most current information that was used to calculate and send those payments was based on 2018 income tax data.  So if between 2018 and 2019 your circumstances changed such that you were not eligible for the payments, well a recent decision indicates that it will not have to be repaid.  But if you did not get the payments, and were eligible, you can apply for it on your 2020 income tax returns.

In late December, it was decided to generate a second stimulus check, "The Recovery Rebate Check" (RRC), and again it was broadly based on income and number of dependents under 17 years old.  Congress and the IRS wanted to avoid the same problems as the first check and using old data, so the checks were generated in early January 2021 and are reconciled with 2020 income tax returns.  

What changed between 2018, 2019 and 2020 data that would change your EIP and RRC payments? 

Did you have a new baby?   Did you get married?  Did you file under your parents as a dependent in 2018 and then independent in 2019?  Did you get a divorce?  Did you experience a custody change?  Did you adopt?  Do you have a Foster Child?   Did your EIP payment get deposited into an expired debit card typically used for your refunds?  Is your income in 2018 the same as 2019 and 2020?  Did you throw away your EIP payment?  The paper checks did not look at all like checks from the IRS.

It is very important that you tell your CPA what the amounts for BOTH of your checks were, so that if you were entitled to more, you can apply for it.

The bottom line is that preparing 2020 income tax returns requires taking a look back and a look forward.  There are a lot of other nuances related to Covid-19 and the preparation of your 2020 income tax returns.  

  

Doug Zandstra CPA, CFE, EA
Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com

IRS Links to helpful information

 

Here are some helpful links for the current 2021 income tax preparation season

IRS Delays the start for the 2021 tax season until 2/12/21

Where can you file your tax returns for free?

Now you can get an Identity Protection PIN - but you must apply

Where is my refund?

Where is my Coronavirus Stimulus Payment?

I have a federal Balance Due - what are my payment options?

I need to file 1099's for my small business 

Our 2021 Tax Preparation Pricing Guidance

Doug Zandstra CPA, CFE, EA
Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI  49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com