Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with @taxmama. Eva Rosenberg, BA, EA, known as the Internet’s TaxMama®, publishes the popular TaxMama.com® website, cited by Consumer Reports magazine as a top tax advice site, and a LIFE Magazine Editors Pick. Eva has a BA in Accounting and an MBA in International business, and many years of experience in national CPA firms and Fortune 500 companies, as well as working with and advising many small businesses. She is regularly featured in publications as diverse as The Wall Street Journal and U.S. News & World Report, Rolling Stone and Women’s Day. TaxMama® is the author of the ever popular Small Business Taxes Made Easy, named one of the best tax books of 2005 by Entrepreneur Magazine and silver medal winner of the 2011 Axiom Business Awards. You can also catch TaxMama® on the radio all over the country and online. You can find her at www.TaxMama.com
SmallBizLady: What are some of the most important new tax issues affecting businesses this year?
Eva Rosenberg: There are two big issues small business must face this year.
1) As we’ve all been hearing, health care coverage is on everyone’s mind – covering yourself, and your workers.
2) Depreciation issues. The IRS is expecting most businesses to include a Form 3115 with their tax returns opting in to the new rules.
Let me elaborate.
Tax Issue 1 – The Health Care Issue
The IRS is tasked with administering the new program. But they are under-budgeted & under-staffed. Don’t worry about audits this year. Some tax pros have reported that THEY cannot get their own regular insurance because they have staff. Their rates rose dramatically. You may no longer pay your staff’s insurance directly. Add the cost to their payroll, & withhold all taxes. They will pay their premiums. Their W-2s for 2015 (& 2014, if you’ve been doing this correctly) will show a code DD in box 12 with the total premium amount. Here is more information – http://www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-Provisions. Consider getting professional assistance.
Tax Issue 2 – Depreciating and Capitalizing assets – and Form 3115
The problem that the IRS needed to resolve is: should we expense purchases and repairs, or treat them as assets to be depreciated? What was their answer? A set of complicated, semi-clarifying rules – CCH covers in 11 pages http://tax.cchgroup.com/downloads/files/pdfs/legislation/repair-capitalization-regulations.pdf
What is the bottom line?
1) New asset purchases costing under $500 per unit may be treated as expense
2) Review your depreciation on all assets and real estate. If you have not used all the expenses you could have, you may catch up now.
3) Review your depreciation on all assets and real estate. If you have used too much depreciation, pay it back now, without penalties.
4) You can correct your depreciation method this year, without penalties or requesting approval.
IRS says they expect to audit on this issue. The fact is – they don’t have enough staff.
Many accountants are still confused about these provisions. But having them prepare your tax returns will protect you from penalties.
SmallBizLady: You mention tax professionals, and you are an Enrolled Agent. Could you explain what that is?
Eva Rosenberg: Enrolled Agents, or EAs, are the best-kept secret in the tax industry. EA is the highest credential the IRS awards. They call us “elite.” We have been around since the Civil War. The U.S. Treasury Department created this designation because it wanted to prevent people from filing phony claims for reimbursements after the Civil War.
Today, Enrolled Agents are authorized to represent taxpayers before the Internal Revenue Service and all states in all tax matters.
SmallBizLady: This sounds like a great home-based business opportunity. How can you become an EA?
Eva Rosenberg: You’re right, Melinda. This IS a terrific career for someone wanting to work from home. No MLM. Lots of respect. And – good money.
You can become an EA two ways – the easy way is to work for the IRS for 5 or more years in certain positions.
The hard way is to pass a set of 3 very rigorous IRS examinations. I teach the course to help tax pros do that at www.irsexams.com. In fact, in 6 months, I teach my students more than they can learn in 3 years of college studying accounting. (There is no BA in tax.) When it comes to tax matters, EAs can do everything that CPAs can do – and, believe it or not, often we can do it better. Why? Because all of an Enrolled Agent’s continuing education must be tax related. We must absolutely be up-to-date on all tax issues. EAs have special training in tax issues. We must take an average of 24 hours of tax classes each year. 30 if we belong to NAEA. CPAs must also take continuing education courses. But there is no requirement that any of their education must be on taxation or tax matters.
SmallBizLady: Who can become an Enrolled Agent? And why is this so great for single mothers, college students, and disabled folks?
Eva Rosenberg: This will surprise you. Anyone can become an EA if you can pass those three nasty exams.
You do not need a college degree. Heck, you don’t even need a high school diploma or GED – for those of you who are smart and self-taught. You must be 18 years old. You must be able to read and write English (American). Though many IRS publications are in Spanish, the exam is in English.
You must have filed all your tax returns and paid all your taxes for the last 10 years (unless you’re a kid or immigrant just starting out). Speaking of immigrants, you don’t need to be a US citizen, or even live in the United States. You do need a Social Security number or ITIN if you live in the United States. There are arrangements for people overseas.
You may work entirely from home – but be careful about the strangers you invite into your home. You can set your own hours, scheduling appointments around classes, or around baby/child schedules. As a student, you can do tax returns for your schoolmates. As a mom, you can be a huge help to other mothers and families. That’s why this is ideal for young moms, and college students.
If you are interested in taking TaxMama’s® EA Exam Course, we have a very special discounted price that will only be available until January 15th. This is the lowest price we will offer this year – http://irsexams.com/registration-florida/ – please enter MELINDA in the “referred by” field.
SmallBizLady: Getting back to business tax issues…what should you do right now?
Eva Rosenberg: If you don’t already have one, set up your bookkeeping system immediately. Start the year out right. You have lots of choices. Select a system that allows you to make entries online, via your phone, and allows you to swipe credit cards. Depending on the complexity you need, reliable options include QuickBooksOnline.com, Outright.com (now GoDaddy), FreshBooks.com
Once you have your system set up, use it daily – upload your receipts/purchases, enter your cash purchases throughout the day.
Write down the beginning mileage on all the vehicles you use for business as of January 1st (estimate if you are not certain). Track your business mileage and log the information about the business purpose of the drive – who, what, when, where, why. If you’re making money and paying at least $10,000/ year in taxes, set up an EFTPS account with the IRS. It’s mandatory. The Electronic Federal Tax Payment System (EFTPS) account is also mandatory if you have to pay payroll taxes. EFTPS is free. It links to your bank account. You get proof of paying the right tax for the right year on the right date.
Also, see if your state has a similar payment option. Many states do. Incidentally, even if your profits are lower than that, the EFTPS accounts are great to use. Set one up for your business. Profitable businesses need to make quarterly estimated tax payments in April, June, September and January of the following year. Not making estimated tax payments causes you to waste money on penalties. Who needs those?!
Do your tax planning early in the year. There are things you can set up to save you lots of money. Like what? Employer provided child care facilities (huge credit) – even if it’s just for your own child. For the self-employed (SE), fully deductible medical bills, not just insurance premiums. There are a variety of ways to accomplish this – like HSAs, BizPlan system (Sec 105 plan), special rules apply for the SE. Tax professionals know about these things. Believe it or not, a 2-hour consultation saves you more in taxes than the cost of the meeting.
SmallBizLady: TaxMama, your clients seem to do well, even in recession. Why is that?
Eva Rosenberg: I encourage my clients to set up a business plan and to review their business plans each year, then tweak them to improve their profits. By setting up a plan, you have a To-Do checklist of things to do for the year (or the quarter). You don’t need to wonder what to do next. You know which customers or clients to target, when, and how to reach them. All that is part of your plan – ask Melinda!
By planning, you define your needs and know what to look for. You determine which vendors, software suppliers and tools and systems to use. It may be time to dump certain services or software you’re using because there are more reliable (and cheaper) tools available. Perhaps by looking at your problems and issues, you realize there’s an app you need that isn’t available. If you need it, perhaps others do. So…create it and sell it.
Understanding how the world is changing, you can avoid the buggy-whip syndrome – building your business life around something obsolete. For instance, several years ago, I warned my textile clients that they either need to get out of the business, or find suppliers in China. One brother followed my advice and did very well. The other brother followed half my advice (no quality control) and lost his a…
One client was doing well, but didn’t have the funds to grow. His cash was tied up in accounts receivable. Know how to get your cash out. This guy’s sales went from about 2 million to nearly 10 million in 2 years because he was able to put his receivables to work for him.
Another fellow was doing really, really well selling a software service. He wanted to move his business to a rented office. I suggested he buy a home instead, with space for his business & staff. Instead of paying rent, he paid himself–by paying off his mortgage.
Having a business plan helps you identify and define your problems. You cannot solve problems until you know what they are.
See what a difference this can make?
SmallBizLady: What’s the best thing about being in business, instead of having a job?
Eva Rosenberg: The freedom to control my own time. I decide when to see clients. We meet with clients only two days a week. The rest of the time we get work done with few interruptions. I schedule the dates and times of my classes. I schedule the dates and times of my webinars. I get to save one day just for myself – without answering any phones, or committing to any responsibilities. A day to yourself is truly important for your own sanity – especially if you have children. Hire a baby-sitter or take your children to child care for the day or an afternoon or a morning. You MUST have some time for yourself.
I like the freedom to choose my own clients. If I don’t like someone, I don’t have to take them. Believe me this applies to you, too. You don’t have to be rich and successful to turn away unpleasant people or horrible projects. Keep the terrific people and projects only and you will always do a brilliant job. You will never get complaints – only compliments.
SmallBizLady: Any final thoughts?
Eva Rosenberg: Yes. This year will be a tough year when it comes to dealing with the IRS and tax issues. You won’t be getting answers from the IRS – their information lines will have long waits. Business owners will need to work with good tax professionals. We can get through to the IRS and state in ways the public cannot. AND…more importantly, we know how to research issues. Good tax pros are always talking to each other and learning ways to save you money.
You can always come to TaxMama.com® to get free answers to your questions. Just click on “ask a question”.
“Taxes Calculator Shows Income And Business Taxation” courtesy of Stuart Miles / www.freedigitalphotos.net
If you found this interview helpful, join us on Wednesdays 8-9 pm ET; follow @SmallBizChat on Twitter. Here’s how to participate in #SmallBizChat: http://bit.ly/1hZeIlz
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.