ms-abram

CPA vs. Tax Preparer: What’s the Difference?

Mon, 02 Dec 2024 06:25:25 GMT

As a small business owner, knowing which professionals you need to guide your finances can sometimes be confusing. When it comes to handling your taxes, should you choose a CPA or a tax preparer? Both can assist with taxes, but they differ significantly in expertise and the range of services they provide. Let’s break down exactly what sets them apart and help you decide which is right for your needs.

What Does a Certified Public Accountant (CPA) Do?

A Certified Public Accountant (CPA) is much more than someone who files taxes. CPAs have extensive education and qualifications, along with licensing requirements that demand ongoing compliance with education standards even after passing the rigorous Uniform CPA Exam. Their training makes them highly skilled in many complex financial matters – not just tax preparation.

CPAs typically support small business owners with services such as:

Tax Strategy and Planning : CPAs look at the bigger picture and help you develop strategies to minimize tax liabilities while staying fully compliant when it comes to your tax return. For example, they may advise on the best deductions to take, review your business structure, or prepare for upcoming financial events.
Comprehensive Bookkeeping and Accounting Services : A CPA helps ensure your company’s daily financial transactions are in order, from compiling financial statements to ensuring accurate ledgers.
Audit Support and Representation : A CPA can represent your business in the event of an IRS audit, unlike most tax preparers. Their deep knowledge of tax regulations gives them the expertise to navigate the stressful nuances of an audit.
Financial Consulting : A CPA can advise on cash flow issues, help with business growth strategies, and even assist with acquiring financing or investments through comprehensive financial analysis.

CPAs also provide a range of accounting services for small business owners looking for ongoing assistance rather than just a once-a-year tax return.

What Services Does a Tax Preparer Offer?

A tax preparer focuses solely on assisting individual and business clients with preparing and filing taxes. Most tax preparers don’t have the robust training or credentials a CPA holds, though they can still be qualified to file taxes correctly and legally.

In essence, a tax preparer will:

Prepare and File Taxes : They ensure that all necessary forms are completed for federal, state, and local tax authorities and that accurate calculations replace estimates.
Provide Tax Compliance : A tax preparer will know the latest tax laws and can ensure your returns comply with current regulations. However, they may not provide more advanced guidance that pertains to long-term tax strategy.
Deductions and Credits : A tax preparer can help find applicable deductions and credits to minimize the taxes a small business or individual may owe.

Tax preparers are typically sought out for short-term, one-time needs related only to tax filing without offering more advanced accounting or strategy-focused services.

Comparing a CPA and Tax Preparer

When comparing a CPA vs. tax preparer, there are several distinctions to keep in mind.

Expertise and Education : A CPA is a licensed professional who undergoes years of study and must continue meeting educational benchmarks to maintain licensure. A tax preparer, in comparison, often has limited training. This difference directly affects the depth of their services.
Scope of Services : A CPA provides well-rounded services for businesses, encompassing tax preparation, financial advice, long-term tax planning, business consulting, and audit representation. A tax preparer focuses almost exclusively on preparing and filing taxes, offering fewer advisory services on broader financial matters.
Cost and Benefit : While a tax preparer may often come at a lower cost, this is often reflected in their more limited services. Meanwhile, a CPA represents a long-term investment in helping you manage and grow your finances – all with a much deeper level of involvement and insight into your business.

If your tax needs are minimal, a tax preparer may be enough to get the job done. However, for small business owners requiring more substantial guidance with tax strategy, financial management, or business auditing concerns, opting for a CPA may be the better long-term decision.

Accounting Services for Small Business

Small businesses often benefit the most from hiring a CPA, particularly as their financial needs expand. As highlighted, CPAs specialize in a range of accounting services for small business owners, assisting with everything from day-to-day financial management to long-term tax planning and strategic consulting for business growth. Having a CPA on your side means you don’t just get someone to check off compliance boxes – you get a partner in understanding and planning around your business’s financial future.

From planning for tax savings in advance to representing you should an audit arise, a CPA does much more than file and forget. In the debate of CPA vs tax preparer, your choice depends on whether you need a simple tax solution or whether you desire comprehensive financial support to secure lasting business development.

Contact us at MSA for a CPA tax preparer to assist in a full scope of tax and accounting services for small businesses in Hollywood, Florida.

What Does Tax Planning for Small Business Owners Look Like?

Tue, 19 Nov 2024 06:04:49 GMT

Many think that effective tax planning for small business owners revolves simply around meeting deadlines – but that isn’t enough. It’s about leveraging every opportunity to reduce liabilities, preserve your hard-earned income, and contribute to sustainable business growth. Here’s what diligent tax planning should encompass according to financial services firm Matthew S. Abrams – from corporate structure evaluations to personalized income management strategies and more.

Review Corporate Structure and Tax Status

The first step in tax planning involves evaluating your business’s corporate structure and tax status. Your choice between forming an LLC, S Corp, C Corp, or maintaining sole proprietorship status is essential in determining your tax obligations. For instance, LLCs and S Corporations allow profits to pass through to the owner’s personal income tax, avoiding double taxation, while C Corporations could benefit from the lower federal corporate tax rate but may face double taxation on dividends.

The right choice largely depends on how you intend to scale your business, what kind of deductions or incentives you’re looking to tap into, and your long-term tax planning goals. Regular reassessment of your business structure ensures that it is still the best fit as your company grows and your income profile shifts. Your CPA can help determine if a change in your corporate structure will reduce your current tax burdens.

Review Retirement Plan Options

Small business owners often overlook retirement plans as a tax-saving tool. However, contributing to a retirement plan can significantly reduce taxable income. Whether you opt for a SEP IRA, SIMPLE IRA, or a self-employed 401(k), choosing the right retirement plan can ensure both you and your employees enjoy solid retirement savings alongside meaningful tax savings.

Each retirement plan option offers different benefits for deduction and contribution limits. The maximum contributions allowed under certain plans could make a noticeable difference in your tax calculation. Aligning your retirement planning with your overall tax strategy can help you set aside pre-tax dollars and reduce taxable profits. Additionally, programs like defined benefit plans or profit-sharing plans can allow sizable contributions, ideal for small businesses looking for large tax deductions.

Consider Income Deferral or Acceleration

Income timing strategies—such as income deferral or acceleration—are vital for effective tax planning. Deferring income to a future tax year, particularly when your business anticipates lower profits, can push taxable income into a period with lower tax liabilities. On the other hand, accelerating income might be wise if you foresee higher profit and tax rates in the coming years.

Both income deferral and acceleration require careful assessment of your cash flow projections. Timing is critical, and the decision to push income into the future or bring it forward should be well-coordinated with other tax planning tactics. Consulting with your CPA on your business’s earnings projections and how economic or regulatory environments might shift helps tailor your approach to match your financial goals.

Further Guidance for Tax Planning with a CPA

Tax planning for small business owners is a multifaceted process that demands professional input for optimal results. With the right CPA offering tax preparation services for small businesses, you can think beyond end-of-year filings and instead tackle holistic strategies that drive down tax liabilities year-round. Our firm provides valuable insights into areas like corporate structure, income deferral, and retirement plan options, all to ensure you pay only what you need to.

Matthew S. Abrams is here to alleviate your tax concerns through an individualized approach backed by decades of experience. Let us guide your tax strategy and get ahead of your liabilities so you can focus on growing your business. Contact us today to ensure you have an expert partner in your corner who knows all the ins and outs about tax planning for small business owners and beyond!

$10,000 penalty for not filing US Treasury Reports Most People Don’t Know About -BOI and FINCEN Reports

Thu, 17 Oct 2024 15:43:48 GMT

The U.S. Treasury Department has requirements to report information about LLCs, corporations and partnership entities that you have formed and can impose a $10,000 fine for failure to timely file. Many people form LLCs for new or potential businesses that are never actively operated, and they do not realize that they have an obligation to file with the U.S. Treasury information as to who owns the entities.

U.S. citizens, legal residents, and any foreigner who is present in the U.S. for a certain period of time is required to file a FINCEN report with the U.S. Treasury if at any time during the year the combined balance of they own of all bank accounts exceeds $10,000.

These reports can easily be filed online through the Financial Crime Enforcement Network (FINCEN Network) which can be accessed online at ( here )

Donating Stock to Charity Creates Double Tax Savings

Thu, 17 Oct 2024 15:39:42 GMT

Donating an investment, such as stock, mutual fund or real estate, that has significantly gone up in value creates a double tax saving. First, you get a tax deduction for the value of the investment donated; second, you also avoid paying taxes on the investment when you eventually sell it. People often sell a stock, and then donate the proceeds to a charity, which creates a tax bill for selling the stock. In these cases, it’s a no-brainer to donate the investment directly to charity, since you avoid paying tax on the capital gain. If you donate the investment directly to a charity and have the charity sell it, the charity does not pay taxes on the gain since the charity is tax exempt. It's a win-win!

The trick is to help the charity receive the investment . Generally speaking, most large charities have an investment account, while many smaller charities do not. I work with clients to help their favorite charities (e.g. church or synagogue) set up a low-cost investment account, using popular brokerage accounts such as Vanguard, to facilitate the donation. The brokerage account won’t charge you anything to transfer the stock, and the charity will most likely pay an estimated $20 to sell the donated stock, so cost is not an issue.

Another tip: Ensure the charity is a U.S. charity , since foreign charity donations are not eligible for you to take a tax deduction.

Please email matthew@msabrams.com with any questions you have.

Converting Non-Deductible IRA to ROTH

Thu, 17 Oct 2024 15:27:49 GMT

If your income is low this year, your itemized deductions and exemptions might be more than your income. If this is the case, you are losing the tax benefit of any deductions over over your income. But there is an upside! This scenario creates an opportunity to make a distribution from your IRA by December 31st with no tax impact, since the distribution will be offset by all of the deductions that otherwise would exceed your income. E.g., if your income is $20,000 and your itemized deductions and exemptions total $30,000, $10,000 of your deductions are not being used.

In this example, you would make a traditional IRA distribution of $10,000, or convert $10,000 of your traditional IRA into a ROTH IRA, in order to increase your income to $30,000 (distributions from a traditional IRA or a conversion to a ROTH are counted as income on your tax return) thereby allowing that extra $10,000 of deductions to be applied. The IRA distribution or conversion to ROTH is tax free since you have enough deductions to offset the additional income.

Important Tips

If you are not 59 ½ years old, you should only choose the conversion to a ROTH option. At your age, a distribution from a traditional IRA will be subject to the 10% early withdrawal penalty, but a conversion to a ROTH is not subject to a penalty. ROTH conversions can be reversed by the extended due date of your return, so when your return is prepared, if you find that the ROTH conversion created more income than your deductions, you can simply “recharacterize” (a.k.a., reverse) part or all of your ROTH conversion, so that you can adjust how much of your traditional IRA will ultimately be reported as “converted”

Before considering a Roth conversion or IRA distribution, check with your tax preparer to be certain you are not creating an unexpected tax event for yourself. Remember, your IRA custodian or advisor are generally not the best sources for tax advice, so consult the right professional!

Have questions about this article? Please email matthew@msabrams.com or reach us through our Contact Us page .

Year End Donations of Clothing and Household Items Can Save Taxes Significantly

Thu, 17 Oct 2024 15:23:45 GMT

Maximizing tax deductions before the end of the year can save you taxes. An often overlooked deduction is donation of clothing and household items. It’s important to know how to do this to both maximize your tax savings, and follow the tax rules. This deduction for many taxpayers often can range between $500-$1,000, which could save a taxpayer between $150-$300 in taxes, assuming a tax rate of 33%. This is an easy tax break to take advantage of if you know the tax rules and how organize your documentation. If you can’t make the donation by year end, make it a New Year’s resolution to do this in January , and get the deduction next year.

The tax deduction is the fair market value of the donated items, or their original tax basis (cost) if lower. Inherited items that are donated have a tax cost of their value when inherited, so donating inherited items can result in a significant tax deduction.

Documentation of donations is needed for donations of any dollar amount. Donations in excess of $500 require an additional tax form to be included in your return, but the rules for donations less than $500 are basically the same. Therefore, it’s best to learn the rules that apply to donations over $500 to keep it simple. In addition to a receipt from the organization you make the donation to, you need to demonstrate how you calculated the value of the donated goods.

Valuing Your Donation

IRA distributions can be tax free if you are older than 59 ½ and have low income this year, but you need to take action fast before year end. Your itemized deductions and exemptions might exceed your income, which creates the opportunity to take a taxable IRA distribution tax free. But if you are younger than 59 ½, there’s a tip for you too!

Organize the items you are donating into similar items

(in this example we assume clothing is donated)

Add up each category of clothing donated, such as men’s or women’s pants, shirts, suits, dresses, shoes, etc.
Count the number of items in each category, add up the number of items for each category, and multiply the quantity by the value of each category. For your convenience, I have posted an Excel worksheet that will make this task easier (above). The worksheet is complete with calculations that will automatically total the values if you enter the quantity and value for each line item.
Take a picture using your cell phone or a camera of the stacks of clothing.
Pick up a receipt from the charitable organization when you donate your items, and attach your worksheet calculating the deduction. The receipt should include the wording “no services or item of value received”. Since many organizations often give you a blank receipt that they expect you to fill out, write down a basic description of the donation and this phrase on the receipt, and ask the attendant to sign it. Documentation should be obtained prior to the extended due date of your tax return.

There are slightly different rules to what information needs to be documented depending on whether the donation is under $250, under $500 or more than $500, so to keep things simple. I would stick with the rules that apply to donations valued at over $500; this will help keep you in compliance when addressing smaller donations:

Name and address of organization you make the donation to.
Description of items donated.
Date of donation, and date of purchase or acquisition (“various will generally suffice for date of purchase).
Value and cost (value at date of inheritance, or if a gift, original cost of the gift).
Method of valuation (generally “fair resale value”).

Special Rules to Know

Clothing and household items must be in good condition (no junk), unless the item has appreciated in value.
Donations must be made to a qualifying charity. Although a donation to a needy individual doesn’t qualify, you could make an arrangement with a local charity you are associated, such as your church, to donate the items to the organization, and then agree to deliver the items to the intended recipient on behalf of the organization. This would require something in writing authorizing this. Foreign charities do not qualify either, but often have a US-based associated charity than can handle the donation.
Appreciated items have special rules.
A donation worth more than $5,000 requires an appraisal.
Deductions for cars worth more than $500 are limited to the amount for which the organization sold the car, and requires certain written documentation from the organization.
A donation worth more than $5,000 requires an appraisal.

Please email matthew@msabrams.com with any question you have

Repair Expense Deduction Rules

Thu, 17 Oct 2024 15:07:16 GMT

Repair deductions are often claimed on rental properties or office in home deductions. However, repairs that replace a component of a property with something new is not deductible as a repair expense but must be added to the cost of the property and depreciated over time. A common example is replacing a roof on a building with a new roof. On the other hand, repairing a leak in a roof is deductible as a repair.

Other building components that are replaced are not considered repairs are anything structural or something that cannot be removed without damaging the building. Walls, doors, windows, floors, electrical and plumbing are all considered part of the building structure, and if replaced cannot be deducted as a repair and must be added to the cost of the building. Replacing carpeting, linoleum floors, appliances, cabinets and fixtures are also added to the cost of the building but can often be expensed under special depreciation rules.

When remodeling or renovating a building it is important to categorize the costs by these categories and not by the part of the building being repaired. E.g., a kitchen remodeling has components that are both structural that will be deducted (depreciated) over 27.5 to 39 years, but also includes appliances and fixtures that are added to the cost of the building but can often be expensed in one year.

Fraudulent Phone Calls Claiming to be from the Internal Revenue Service

Thu, 17 Oct 2024 15:07:16 GMT

Criminal enterprises are attempting to defraud taxpayers by calling people claiming they are from the Internal Revenue Service. They often are polite and professionally speaking, and will say that they are from the Internal Revenue Service (IRS) and are initiating a lawsuit to collect taxes you owe. This should alert you that this is a fraudulent call because the IRS does NOT call taxpayers, they only will mail letters if you owe any taxes.
If you get such a call, ask the caller for their name and IRS badge number. Never provide the caller any information. I have found that they immediately hang up if you ask this. They will even hang up if you simply ask for their name. Should they give you a name and a badge number, write the information down and call the IRS fraud division at 800-366-4484 and ask to speak to someone who will verify that the name and ID is valid. If you are concerned that the phone call is valid, it would be best to give me a call and have me contact the IRS for you to ascertain if you have any tax issues to be resolved. Because the IRS policy is not to contact taxpayers by phone, you should consider the call fraudulent, and not call the person back.
Should you receive one of these calls, you can file a complaint with the IRS by going to the Treasury Inspector General for Tax Administration and clicking on “IRS Impersonation Scam Reporting”.