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10 Unseen Money Losers that Impact your Small Business Capital Gains

You’ve got a small business, and it’s finally starting to turn a profit. Your capital gains are rising, and things are looking good. But you’re not out the woods quite yet. There are still multiple ways you can lose money and reduce your capital gains.

Overall, to keep more of what you make, you need to minimize your tax liability. As a small-business owner without a huge accounting department or in-house financial advisors, you’re going to need all the help you can get.

For example, one big area where you might find yourself losing out is through capital gains tax. When you sell capital assets (investments such as real estate and stocks) through your business the difference between the amount you paid for the assets and the amount you sold them for is considered a capital gain or loss. When capital gains are involved, you owe capital gains tax. Effective capital gains management leads to a smaller tax bill, which means you have more working capital and better cash flow.  Capital gains tax directly affects how small-business owners deal with assets, which makes proper handling of this tax issue important. Any slip-ups in dealing with capital gains can cost small-business owners valuable tax dollars and result in substantial legal and accounting fees.

10 Unseen Money Losers That Impact Your Capital Gains:

  1. Not holding on to capital gains for at least 12 months. Short-term capital gains refer to assets that are sold within one year of when they were acquired, and these are taxed at a higher rate than long-term gains. The capital gains tax rate for short-term capital gains is taxed at the ordinary income tax rate, which can be up to 39.6 percent for 2018. Long-term capital gains apply to assets held longer than one year and generally result in a lower tax. In fact, the current top rate for long-term capital gains is 20 percent in 2018 and can be lower, depending on the tax bracket. Due to these substantial differences in tax rates, it is beneficial to refrain from selling an asset that is going to result in a gain 12 months after you have received it so that the gain will be taxed at the lower rate.
  2. Not taking advantage of installment sales. This method of reporting for a non-dealer is available if at least one payment is to be received after the close of the taxable year in which the sale occurs. The taxpayer can then defer the gain as payments are received in subsequent years. Basically, if you can arrange for an installment payment for capital to have at least one payment to come in after the close of the year, you can defer capital gains tax on it until the following year.
  3. Not offsetting capital gains with capital losses. If you have excess capital losses of up to $3,000, they can be deducted against ordinary income, and remaining capital losses can be carried forward indefinitely.
  4. Whether a capital gain is considered capital property or dealer property. Capital property is generally held for investment, whereas dealer property is usually meant for sale. If you are considered to be a dealer in an asset, it will be considered inventory, and capital gains tax treatment won’t be available. Remember: intent is everything. Dealer property versus capital property is the subject of much litigation throughout the history of the tax courts, so much care must be exercised in determining the character of the asset being sold.
  5. Not doing a Section 1031 exchange. This involves purchasing a “like-kind” piece of property within 180 days of the sale of another. It must be property held for investment or used in the trade or business. The basis and debt of the new property must equal or exceed the basis and debt of the property sold. This law provides the opportunity to defer gains until the subsequent year.
  6. Not deferring eligible deductions. You might choose to use Section 179 deductions instead of regular depreciation for assets. Section 179 deductions can’t produce or increase a loss and will carry over to next year.
  7. Not carrying over losses one year forward. Losses in one year can optionally be carried forward to a subsequent year. If your business has a net operating loss of $20,000 this year, you can use that to offset a gain of up to $20,000 in a subsequent tax year. In this way, you can still have a business that’s profitable in one year, (meeting the IRS’s guidelines of showing a profit three out of five years) yet keep the tax advantage from the previous loss. Profit or loss from business is not limited to one year.
  8. Not taking advantage of business losses that are not deductible in the year when you have the loss. You may be required to, or choose to, deduct these losses in past or future years. It is called a tax loss carryback or loss carry forward, and — it’s something with which you must get a tax professional to help.
  9. Not structuring your business the proper way. This may be the single most overlooked aspect of tax planning. Most businesses that start out small don’t change the structure of their business when they should. For example, if you have a closely held company in which the income passes through to you, the owner, those are usually set up as an LLC or an S corporation. While there is nothing wrong with those structures, you might be able to gain tax advantages by structuring your company as a C corporation, in which the first $50,000 of your income is taxed at a rate of 15 percent as opposed to a 35 percent rate if you’re in the highest tax bracket.
  10. Not being proactive about your tax plan. One of the best ways to maximize the benefits of a business loss is to be proactive. You need to look at your business throughout the year and make decisions based on your tax situation. In some cases, making some last-minute purchases can put your business into a state of loss, especially if you’re just on the cusp of profit or loss from business. For example, if you have income from another source, you can also use that business loss to offset your tax burden and keep yourself in a lower tax bracket.

The Tax Blueprint which Financial Gravity’s team members can help you create is that proactive tax roadmap that you can use throughout the year to guide your business tax decisions.

 

So how can you avoid those money losers and put the tax code to work for you? Call one of our Financial Gravity team members today and make an appointment for a free tax assessment: Let’s Talk!

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3 Investment Strategies That Financial Planners Employ That Make or Break Small Business Growth Potential

Running your own small business isn’t easy. Your capital might be low and you’re wondering how to pull together enough resources to keep afloat, let alone figure out how to grow your business.  Although it would be ideal, you really can’t run a business on your skill and sheer determination alone. Good news–even small businesses can adopt an investment strategy that helps grow capital if done right. If your business finances are feeling a little thin, or you just want to plan ahead and strategize for growth, it might be time to consider investing. Here are 3 investment strategies financial planners employ that can be the “make or break” for small businesses: Read more

5 ways to save big on taxes for your small business

The IRS tax code actually provides many ways for small business owners to save big on their taxes–ways that many of which business owners may not be aware. Here are just five:

Lease Your Home to Your Business for the Maximum Time the IRS Allows

Your home has to be rented for less than 15 days to get the deduction. For example, if you have a board meeting every month, you could host all 12 in your home and claim the deduction. You must also rent your home at a fair rate. The IRS does not allow you to just make up an arbitrary amount to charge your company when you rent your home to your business. It must be commensurate with the average price you would pay to rent another location. You must also issue yourself a 1099 form from your company with the total rent amount paid, which you will then claim on your personal taxes. This will be offset once you list your less-than-15-days deduction. Don’t forget: you must record the minutes of any meetings you have in your home–this will provide further proof to the IRS of the validity of the business conducted there if it is called into question.

Hire Your Children to Work in Your Business as Spelled Out in the IRS Code

A business owner can hire and pay their own child under eighteen tax-free. As long as your child is doing legitimate work and getting paid a reasonable rate, you can pay them up to $6,300 per year before they have to pay a dime in income tax. However, you may still have to pay payroll taxes such as FICA and FUTA, which go towards unemployment and social security benefits. On the other hand, you don’t have to pay payroll taxes for employing your kids if your business is a sole-proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse. But if your business is a corporation, you must pay payroll taxes on income to your children. Even in this last case, there may be workarounds, but these are best discussed with a professional tax advisor.

Change Your Health Plan to a Qualified HSA Plan to Save the Most Taxes Possible

HSAs escape taxation by allowing holders to save tax-free money for medical expenses not covered by insurance. Contributions are made into such accounts by employees and/or employers, and unused funds roll over from year to year. The contributions are invested, earning returns over time, thanks to the power of compound interest. Funds can be removed tax-free to pay for qualified medical expenses, including vision and dental. HSA deposits (from an employer or individual) are federal income tax-free and not subject to employment taxes. Secondly, HSA growth from income and investment appreciation is not subject to federal income taxes. Finally, if the HSA funds are withdrawn for qualified medical expenses by the account owner, spouse and/or dependents, such withdrawals are not subject to federal income tax. There is no other place in the tax code which allows ordinary income to escape federal taxation forever. But of course, you have to know the HSA rules and follow them carefully. This is another case where it would be good to consult a tax advisor to help you create the best plan for your business and unique situation.

Maximize Retirement Savings to the Fullest (If You’re Over 50 Chances Are You Are Not)

There are many legal ways to maximize your retirement savings and lower the taxes you pay on them. For example, you could start a diversified retirement plan–the funds will help cut down your tax bill now and grow tax-deferred until you make withdrawals in retirement. In most cases, the cost of opening and administering a plan is pretty small. The four main options for small business owners are a SEP-IRA, a SIMPLE IRA, a Solo 401(k) and a SIMPLE 401(k). For all but SEP-IRAs, a business can be a sole proprietorship, a partnership, a limited liability company or a corporation.

Start a Private Foundation

Establishing a private foundation is a great way to use family funds and property tax-free, all while engaging in charity. However, under the IRS Code, a not-for-profit is not exempt per se from federal income tax. In fact, a private foundation is fully taxable unless and until it applies to the IRS for recognition of its status as a tax-exempt organization; even then, it may lose its tax-favored status if it fails to file annual tax returns with the IRS.

It pays to do your homework–consulting with a tax or financial planner can greatly help with setting up tax savings strategies properly. Find out more about how you can bring on a financial advisor who will truly assist you in not only saving on your taxes but give you a solid plan for the future. Speak today with a Financial Gravity team member, Let’s Talk!

What Is the Tax Blueprint and Why Should I Care?

It’s safe to assume that most business owners and individuals are overpaying their taxes without even realizing it. Without a clear tax plan to guide you through the year, you’re probably one of them. That’s why Financial Gravity created its unique tool known as the Tax Blueprint in order to help its clients navigate the complex maze of the tax code. Read more

Photo by Allef Vinicius on Unsplash

As a small business owner, you probably don’t have enough time to think about what you’re having for dinner let alone what your New Year’s resolution might be. That’s why we’ve created this list of resolutions for busy small business owners like you and then provided you with Financial Gravity-tailored solutions!

New Year’s Resolutions for Small Business Owners

1. Spend more time with my family.

“I am working 12 hours a day. I leave one hour before my kids wake up and usually make it home an hour before they drift off to sleep. Every day, I am torn between providing for my family with a comfortable life and spending quality time with them.”

Financial Gravity Solution: Having a good work/life balance is not only important, it’s imperative. While we can’t flip your flapjacks for you in the morning, we can customize a clear tax reduction plan (better known as our Tax Blueprint®) for you. Paying less in taxes means you’ll have more money to hire a middle manager, thus relieving you of your long work days and allowing you more time to build blanket forts with your kids.

2. Take more vacations.

“I thought being an owner meant I’d have more freedom, time, and money, but I am currently experiencing some growing pangs, aka chaos. Stepping away from my business at this time, even for a few days, isn’t really an option for me, everything would fall apart!”

Financial Gravity Solution: We get it. You built your business with your own two hands. The success you’ve achieved up until now is entirely due to your hard work, can-do attitude, and resilience. But even heroes need a break sometimes. According to this article in Time magazine, 94% of research respondents had MORE energy after coming back from vacation. And in this Inc.com article, vacations have been proven to reduce stress, prevent heart disease, improve productivity and improve sleep patterns. Implement our Tax Blueprint®, and you’ll be able to ship less money off to the IRS and sink more money into your cruise fund.

3. Hire more employees and maybe open up another location.

“My business is experiencing rapid success and I am a bit uncertain about my next step. I don’t really have a lot of time to think about big picture stuff because I am too busy keeping up with the daily ins and outs. I also get discouraged because it feels like the more successful I become, the more taxes I owe. Sometimes I wish I could just go back to my 9-5, when life was much simpler.”

Financial Gravity Solution: You shouldn’t be punished for having a successful business and the tax code (all 70,000+ pages of it) is there to make sure you aren’t! There are plenty of legal, moral, and ethical ways to reduce your tax liability located in that thing, you just need to know where to look! If you choose to implement our Tax Blueprint®, we will develop a strategic tax plan that will reduce your tax liability for years to come. Our experts know and understand the complex rules attached to the laws located within the tax code. Because we let the tax code call the shots, you can be sure that you’re getting unbiased financial advice. You can read more about our “product agnostic” approach to financial advice on this blog post.

Financial Gravity exists so that we can help small business owners (legally) pay less in taxes, increase their profit, and attain greater wealth. If these sound like resolutions your willing to commit to in the coming year, give us a call today. After a simple 15-30 minute no obligation assessment, we’ll determine if we can substantially reduce your tax burden.

Photo by Allef Vinicius on Unsplash

Tax-centric Financial Advice

It’s that time of year again, a time to reflect on all the things you are most grateful for. Similar to raising a child, starting and maintaining a successful business can’t be done unless you enlist the help of an entire village. By implementing some of Financial Gravity’s tax-centric financial advice, small and medium-sized business owners (like you) will receive two things you can be grateful for, for years to come,  1/ time to think about big-picture issues, and 2/ money to invest back into your business.

Below are three clients who are thankful for Financial Gravity’s tax-centric financial advice:

1/ Jeanne Johnston and Bobbie Parker, co-owners of Johnston, Parker & Associates (JPA), are thankful for their retirement plans.

Thanks to Financial Gravity, both Jeanne Johnston and Bobbie Parker, co-owners of JPA associates, now have retirement plans that make sense. In addition to retirement plans, JPA also decided to implement Financial Gravity’s Tax Operating System®, bookkeeping, and payroll services. Outsourcing those functions cleared up their schedules, allowing them more time to “develop their people.”

2/ Dr. Ron Perkins, owner of Perkins Orthodontics, is thankful for real investment diversity without commissions.

Though Dr. Perkins first came to us for investments, he quickly jumped at the chance to save money on taxes with our various tax planning services. Unlike other advisors who are product, commission, or transaction driven, all of our financial advice is tax-centric, meaning we let the tax code call the shots. 

3/ Kim Holmes, owner of Holmes Service Company, LLC, is thankful for lower taxes.

Kim Holmes was experiencing excellent success and increased revenue as a small business owner. Unfortunately, that also meant she was experiencing an increased tax liability. By implementing our tax and financial planning services, we prevented Holmes from paying $12,000 too much in taxes.

Receiving good financial advice can be hard to come by when you consider all that is currently wrong with the financial system. Your CPA isn’t trained to help you save money on your taxes, and your financial advisor is more concerned with selling you a product or making a commission than giving you advice that positions your company for success. At Financial Gravity, we are thankful for the Tax Code. It’s over 70,000 pages of “green lights,” or legal, moral, and ethical ways to lower your personal income taxes. If understood and implemented correctly, the Tax Code will save you thousands of dollars in taxes a year.

Having doubts if Financial Gravity can help you? Read these case studies, featuring real customer experiences.

Photo by Chris Lawton on Unsplash

Tax Savings

As a small business owner, finding legal and ethical ways to increase your tax savings shouldn’t be a full-time job in itself. Unfortunately, most accountants, attorneys, or business consultants aren’t taught to master the myths standing between you and your money. In fact, the financial industry benefits from small business owners not understanding tax myths.

Wait, my accountant can’t help me with tax planning and tax savings?

The CPA exam is focused on General Accepted Accounting Principles and has nothing (absolutely NOTHING) to do with taxes. Your accountant may be a lovely human being, but they aren’t the ones you should be consulting about tax savings.

So if I can’t turn to my CPA to help me find ways to pay less tax, who can I turn to?

Well, you have a couple of options. You could read all 70,000+ pages of the Tax Code. (Though this option will likely be zero fun for 99% of the people on the planet.)

Who is this option for?

People who have too much time on their hands and a passion for onerous, complicated, and bloated text.

No, thanks. I’ll pass. Any other options?

You could download the Tax Myth eBook, a book that our CEO, John Pollock, put together outlining 10 of the most damaging misconceptions about taxes — and then read it. This free eBook will help you prevent further loss (in taxes) or prevent you from losing money in the first place.

Who is this option for?

Do-It-Yourself-ers who want to lower their tax liability…quickly, legally and ethically, and who make under $100,000 gross income. 

What if I make more than that, what should I do?

Get in touch with us. At Financial Gravity, we have expert tax planners and tax specialists who not only understand the tax code and the available “green lights” you can use to reduce your taxes but who will help you engage in proactive tax savings and tax planning.

Who is this option for?

Business owners who have a shortage of time, zero desire to learn about the Tax Code and either pay $20,000+ in personal income taxes or make $100,000+ gross income.


If you’re a small business owner, taxes are your single biggest expense and they will get bigger if you don’t have a sound strategy in place to mitigate them. 

*Photo by Ante Samarzija on Unsplash