ALL THINGS ACCOUNTING, TAXES, AND RELATED TOPICS

As a tax professional, when discussing LLC taxation with clients, I emphasize several key points:   1. Flow-through vs. Corporate Taxation:   ·          By default, LLCs are flow-through entities. This means the LLC itself doesn't pay taxes, and the profits (or losses) "flow through" to the individual members' tax returns. This avoids double taxation, which occurs when a corporation pays taxes on its profits and then shareholders pay taxes on dividends received.   ·          However, LLCs can elect to be taxed as C corporations if they meet certain requirements. This can be advantageous in some situations, but it's important to carefully weigh the pros and cons before making the election.   2. Number of Members Matters:   ·          Single-member LLCs: They are treated as disregarded entities for tax purp...

Properly classifying workers as employees or independent contractors is crucial for both businesses and individuals, with significant implications for taxes, rights, and responsibilities. Let's delve into the key aspects: For businesses: Employees:  Businesses must withhold income taxes, pay Social Security and Medicare taxes (FICA), and likely unemployment taxes for employees. They are also responsible for paying their own share of FICA taxes. Failure to do so can lead to significant penalties and interest. Independent contractors:  Businesses generally do not withhold taxes or pay FICA for independent contractors. However, they are required to issue Form 1099-NEC to report payments exceeding $600.   For workers: Employees:  Employers withhold income taxes from employees' paychecks, making tax filing easier. Employees also benefit from FICA contributions, which contribute to Social Security and Medicare benefits. Independent contractors:  They are res...

As an S corporation owner, you wear many hats. You're the CEO, the marketing team, the janitor – and, most importantly, your own chief financial officer. That means when it comes to retirement planning, you've got some decisions to make. Two popular options are the solo 401(k) and the SEP-IRA, each offering unique advantages and tax implications. Let's dive into the details: Contribution Limits: Solo 401(k):  You can contribute as an employee (up to $22,500 in 2023, plus $7,500 catch-up if over 50 for a total of $30,000 for employee contributions) and as an employer up to 25% of employee compensation (W2 compensation) capped at a combined grand total employee plus employer contributions of $66,000 ($73,500 if age 50 or older). Note, S corporation income is not self-employment income so Solo 401(k) applicable to self-employment income is not discussed for this purpose. SEP-IRA:  A Simplified Employee Pension (SEP) plan provides business owners with a simplified method to...

Cost of Goods Sold (COGS) and Cost of Goods Manufactured (COGM) are two important accounting concepts for businesses that produce or sell physical goods. While they are related, there is a key difference between the two. As mentioned in our previous blog Cost of Goods Sold: Only for Inventory-Based Businesses , COGS (Income Statement line item) comes from Inventory-on-hand (Balance Sheet line item) and typically it simply is the wholesale cost of the merchandise or inventory that was sold to customers. It includes the cost of direct materials, direct labor, and overhead costs. COGS is deducted from revenue to calculate gross profit, which is a key measure of profitability. COGM is the total cost of producing all finished goods during a given period. COGM then becomes part of the Inventory-on-hand (Balance Sheet Item) dollar amount. A COGM report is an internal management report. It is not part of the external financial statements presented to the public, investors, banks, and other...

Cost of Goods Sold (COGS) is an important accounting concept for businesses that sell physical goods. It represents the direct costs associated with producing or acquiring the goods that were sold during a given period. COGS is deducted from revenue to calculate gross profit, which is a key measure of profitability. What is COGS? COGS (Income Statement line item) comes from Inventory-on-hand (Balance Sheet line item) and typically it simply is the wholesale cost of the merchandise or inventory that was sold to customers. Taking a deeper look, you can also say that COGS includes the following costs: Direct materials: The cost of raw materials that are directly used in the production of goods. Direct labor: The cost of labor that is directly associated with the production of goods. Overhead costs: Certain indirect costs associated with the production of goods, such as factory rent and utilities. Why COGS is important for inventory-based businesses COGS is impo...

In-kind donations are non-cash gifts made to nonprofit organizations. They can include goods, services, time, and expertise. Individuals, corporations, and businesses can all make in-kind donations.   For donors, in-kind donations can be a great way to support the nonprofits they care about, even if they don't have the financial resources to make a cash donation. In-kind donations can also be a more tangible way to give, as donors can see the direct impact of their donation on the nonprofit's work.   For nonprofits, in-kind donations can be essential to their operations. They can help nonprofits to save money on goods and services, expand their services, and reach more people in need.   Here are some of the benefits of in-kind donations: Flexibility:  In-kind donations can be more flexible than cash donations. For example, a nonprofit that provides food to the hungry may need specific types of food at a particular time. A donor can donate those specific items...

Nonprofit and governmental organizations often receive donations and grants that are restricted to being used for specific purposes. These restricted funds can be a valuable source of funding for organizations, but it is important to understand the different types of restrictions and how to manage them properly. Types of Restricted Funds There are two main types of restricted funds: temporarily restricted funds and permanently restricted funds . Temporarily restricted funds  must be used for a specific purpose, but the restriction expires after a certain period of time or when the purpose is achieved. For example, a donor may give a gift to a nonprofit organization to be used for a specific program or project. Once the program or project is completed, the organization can use the remaining funds for any purpose. Permanently restricted funds  must be held in perpetuity and used for a specific purpose. The principal of the fund cannot be spent,...

Fundraising events are a great way for nonprofit organizations to raise money and awareness for their cause. However, planning and executing a successful event can be a challenge. Here are some best practices for hosting and accounting for fundraising events: Planning Set SMART goals.  What do you want to achieve with your event? Do you want to raise a certain amount of money? Increase awareness of your organization? Attract new donors? Once you know your goals, you can develop a plan to achieve them. Choose the right event type.  There are many different types of fundraising events, such as galas, auctions, dinners, and walks/runs. Choose an event type that is appropriate for your target audience and that will help you achieve your goals. Create a budget.  How much money do you need to raise to cover the costs of your event? Be sure to include all of your expenses, such as venue rental, food and drinks,...

Nonprofit organizations are exempt from paying federal income tax, but they are still required to file annual tax returns with the Internal Revenue Service (IRS). The specific tax form that a nonprofit organization is required to file depends on its size and type of activities.   Which tax form to file   Most nonprofit organizations are required to file Form 990, Return of Organization Exempt from Income Tax. However, there are a few exceptions: Form 990-EZ : Small nonprofit organizations with annual gross receipts of less than $200,000 and total assets of less than $500,000 may be eligible to file Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. Form 990-N : Nonprofit organizations with annual gross receipts of less than $50,000 may be eligible to file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required To File Form 990 or Form 990-EZ. When to file   Nonprofit organizations are required to file ...