Staying on Top of Your Bottom Line on Top of Your Bott… · Bottom Line J’Nan L. Ensz, CPA Managing Member Accounting & Business Consulting, LLC Keeping Good Records •Separate

J’Nan EnszAccounting & Business Consulting Group, LLC

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1

Staying on Top

of Your Bottom Line

J’Nan L. Ensz, CPAManaging Member

Accounting & Business Consulting, LLC

Keeping Good Records

• Separate Checking Account

• Excel Spreadsheet

• Accounting Software


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2

Keeping Good Records

• Take advantage of every deduction!

• Stay in compliance!

• Know your bottom line BEFORE your tax appointment!

Income


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3

When is it income?

• Cash vs. Accrual

• Constructive Receipt

• Deferred Payment Contract

• When do you have the rights to the proceeds?

Deductible Expenses

Schedule F


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4

Deductible Expenses

• Mixed Expenses (personal/farm business)

• Utilities

• Telephone

• Real Estate Taxes


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Deductible Expenses

Self-employed Health Insurance

Deductible Expenses

• Prepaid Expenses – it’s not a free for all!

• Look at 3 preceding tax years

• Total prepaid for the preceding 3 tax years is less than 50% of other farm expenses for those 3 years.


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6

Farm Employment

Who is an employee?

Contract Labor

vs

Employee

Farm Employment

3 Tests


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7

Farm Employment

Behavioral Control

Training

Instruction

Evaluation

Farm Employment

Financial Control

Investment

Risk

Pay


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8

Farm Employment

Relationship

Benefits

Permanency

Farm Employment

Contract Labor?

• For 2019• Issue 1099MISC Box 7 Non-employee

compensation• Due date 1/31/2020

• For 2020 and following• Issue 1099NEC• Due date 2/1/2021


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9

Farm Employment

Employee?

Required Forms

1. W-4

2. I-9

3. New Hire Reporting

Farm Employment

The Cost of Employment

1. FICA/Medicare

2. State Unemployment?

3. Federal Unemployment?

4. Workers’ Comp?


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10

Farm Employment

WHO is the Employer?

1. Sole Proprietor

2. Partnership

3. Corporation

4. Trust/Estate

Farm Employment

For Sole Proprietors ONLY:

• Family Employees• Child•Under 18 – no FICA/Medicare/FUTA•Under 21 – no FUTA

• Spouse – no FUTA• Parent – no FUTA


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Farm Employment

• Over-time? No

• Unemployment Tax? Maybe•Cash wages > $20,000 in a quarter •Employed 10 or more workers during 20+weeks

Farm Employment

• Worker’s Compensation? No

• Non-cash wages•Not subject to FICA or Medicare•Don’t include in unemployment calculation


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12

Farm Employment

Tax deductible housing?•For the convenience of the employer•Located on the business premises•Valid business reason•Must be an employee

Farm Employment

•Who is an employee?•Sole proprietor owner - no

•S Corp > 2% shareholder/employee – no

•C Corp shareholder/employee - yes


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13

Farm Employment

Payroll Tax Returns

• Form 943

• Form 940

• W-2s

Farm Employment

Payroll Tax Payments•Less than $2,500 for the year, pay with 943•Otherwise pay tax by the 15th of following month•Pay electronically - EFTPS


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14

Business Use of Home

2 Tests


1. Regular

Not occasional or incidental

2. Exclusive Use

0% personal use

Doesn’t have to be a room


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Actual Expenses

• Mortgage Interest

• Real Estate Taxes

• Repairs

• Utilities

• Home Owners Insurance

• Security System

• Depreciation*


*WARNING!

Sale of home creates a taxable transaction


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Simplified Method

• Straight forward calculation:•$5/sq ft up to 300 sq ft•No need to keep track of expenses

Sale of home NOT taxable

Truck & Car Expenses

75% Rule

Used most of a normal business day directly in connection with farming

• No allocation required

• 100% expense


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Truck & Car Expenses

Don’t meet the 75% rule?

• Mileage log required

• Actual Expenses vs Standard Mileage Rate

• 2019 - $0.58

• 2020 - $0.575

Meals & Entertainment

Substantiation

• Who you were with

• What business discussed

• Meals ONLY; Entertainment 0%


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Deductible Meals

100% vs 50% deductible?

• Food, drink, snacks on premises for employee•No longer 100%

• Convenience-of-employer Meals•No longer 100%

• Holiday party, company picnic•Still 100%

Depreciation

• “Placed in Service” Date

• Section 179

• Bonus

• Is 100% write off always best?


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19

Conservation Expenses

• Deductible only if used currently or in the past for farming

• Prep for pivot irrigation must be added to the basis of the land

Non-Deductible Expenses

• Loss of raised livestock

• Cost of raising produce or livestock for personalconsumption

• Fines/Penalties


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20

Records Retention

• How long do you have to keep records?

• Which one is correct?

1. 3 years from the due date of the return

2. 7 years from date of transaction

3. Until the period of limitations runs out

4. As long as they are needed by the IRS

Sale of Land

What’s the basis?

• Purchase price plus improvements

• Inherited? FMV at the date of the prior owner’s death

• Gifted? Cost-basis of the donor


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Sale of Land

• Allocation of Basis between Personal and Farm

• Capital Gains Tax – 0% up to $78,750 if Married Filing Jointly

• Consider Installment Sale for possible tax savings

Reducing Your Tax Liability

• Tax Planning

• Purchasing assets

• Prepaying expenses

• What’s the BIG picture?


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22

Choice of Entity

• Sole Proprietorship

• Partnership

• Corporation – C or S

• LLC

Choice of Entity

• What IS an LLC?•Sole Proprietorship

•Partnership

•Corporation – C or S


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Sole Proprietor

• Easiest to begin

• Expensive!

• Excludable Fringe Benefits Generally Not Allowed

• No liability protection

• Easiest for recordkeeping? Shouldn’t be!

Partnership

• Fairly easy to start

• Considered self-employment income - expensive

• No wages for Partners

• Draws must be in proportion to agreement

• Pass-through entity


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S Corporation

• Reasonable Compensation

• Payroll Tax Reporting

• More IRS Scrutiny

• Tax-free Dividend Distributions

• Recordkeeping more demanding• Balance Sheet• Shareholder Basis• Separation of Personal and Business transactions• Corporate Minutes Required

C Corporation

• Taxable Dividend Distributions

• Balance Sheet

• Corporate Minutes Required

• Fringe Benefits more available

• Straight 21% tax rate


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25

Bottom Line?

Have to have

good records

to know which is best!

Documents

Staying on Top of Your Bottom Line on Top of Your Bott… · Bottom Line J’Nan L. Ensz, CPA Managing Member Accounting & Business Consulting, LLC Keeping Good Records •Separate