Gabby Parker and Chelsie Kagay discuss tax topics in a podcast for small business owners, covering required documents, IRS penalties, reasons for denial of tax returns, deadlines, and helpful deductions. They emphasize the importance of accurate records and staying informed about IRS regulations. They delve into specific tax deductions for business owners, including unreimbursed expenses, vehicle depreciation, income allocation, and state taxes like business tax in Tennessee. It also explains the standard deduction's benefits for individuals with w-2 income or small business owners with limited itemized deductions. Detailed information and tips for reducing business income to lower tax liabilities are provided.

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[00:00:09.59] - Gabby Parker

Hi. My name is Gabby Parker, and I am the executive accountant for Genovations Accounting. We're an accounting firm located in Nashville, Tennessee, operating since two thousand eighteen, serving several small businesses here in the Nashville area. We're gonna be talking about some tax topics today as it is January, and it is the season for taxes. So we've been getting a lot of questions from clients about their individual returns, their business state taxes, things like that. So we're gonna address some of those commonly asked questions here in this podcast. Our main audience is small business owners and individuals with complicated returns and even s corp owners and partnerships. I have my associate Chelsie Kagay here with me, and we're just gonna jump right

[00:00:52.89] - Chelsie Kagay

awesome. So the first question is, what documents are required for an out source firm like yourself to file my taxes?

[00:01:01.10] - Gabby Parker

That's a great question. There are, two things that I'll address here, actually. One is the documents required for an outsourced tax firm like myself Mhmm. But then also the IRS because we have to abide also by IRS regulations.

[00:01:13.70] - Chelsie Kagay

Mhmm.

[00:01:14.29] - Gabby Parker

So for a tax repair, we need things like w twos and ten eighty nines that show proof of income. If you own a business, that comes in the form of a profit and loss statement and also a balance sheet. Balance sheet will show us the equity that you have in the business, debt that you have as well, and assets that you own. So those things are required for tax repairs. Anything else like an itemized deduction, a charitable contribution, things like that, we will ask you, like, is this information accurate to the best of your knowledge and the best of your ability? And if you answer yes, we have to trust you.

[00:01:50.09] - Chelsie Kagay

Mhmm.

[00:01:50.50] - Gabby Parker

Like, we can ask for all the documentation. It's not required, but IRS just requires us to have mainly w twos, ten ninety nines, and profit and loss statements as tax repairs. For the IRS in particular, they can actually go back three years on your tax returns if they audit you or if you have any amendments to file. You can go back three years. So it's recommended to keep the documents at least three years.

[00:02:16.00] - Chelsie Kagay

Okay.

[00:02:16.69] - Gabby Parker

If you make a major mistake, like you under report your gross income by, like, twenty five percent Mhmm. They can go back six years. So you'll wanna keep documents at least six years if you've got complicated returns and you're kinda nervous about it. But if you're filing yourself, if you're filing a tax return yourself, the IRS just requires you to have supporting documentation. So receipts, check copies, bank statements. I just recommend keeping that shoe box, quote, unquote, in your closet of documents that could be asked of you Mhmm. And just tucking them away in the case that the IRS does ask for them. But as a tax preparer, those are the documents that we would need in order to file your tax return appropriately.

[00:02:58.30] - Chelsie Kagay

Nice. Yeah.  How can I avoid payment penalties from the IRS on my April fifteenth payment?

[00:03:06.59] - Gabby Parker

Yes. So a lot of people get surprised when they owe in the spring and the IRS automatically gives them a payment penalty. They're like, why do I owe hundreds of dollars of interest and payment penalties on my IRS bill? Well, it's because you didn't file quarterly payments or submit them on time. So there's this safe harbor rule that the IRS has. Safe harbor rule consists of three things. First is you can pay ninety percent of the tax you owe for the current year. Mhmm. That avoids any payment penalties by the IRS. If you're unable to calculate what you currently owe in this tax year, you can pay one hundred percent of the tax that you owed last year. So that's criteria number two. If you pay let's say you paid two thousand dollars last year, you pay five hundred dollars every quarter, so totaling two thousand dollars in this year, you will not have any payment penalties from the IRS even if you owe seven thousand dollars Okay. Just because you paid a hundred percent of last year's taxes. The third way you can meet the safe harbor rule is by owing less than one thousand dollars in taxes after you subtract holdings and other tax credits. So if you owe, like, five hundred dollars at the end of your whole return, no payment penalties can be assessed from the IRS. So for me, like, often tax clients have trouble calculating their own tax liability. Mhmm. So I recommend number two, just pay a hundred percent of the tax you paid the previous year. If you end up overpaying, you'll get a refund.  If you end up underpaying, you can just pay in the spring, but that avoids that payment penalty that the IRS can, assess.

[00:04:43.89] - Chelsie Kagay

What are some reasons the IRS denied my initial tax return?

[00:04:48.39] - Gabby Parker

yeah. So this one is an interesting one for me because the IRS came out with this new thing called an IP PIN. Okay. So there's a few reasons why they could deny it, but this IP PIN has become the most complex for us tax repairs. So a couple years ago, they came out with this. It's a six digit number that's assigned to whoever voluntarily signs up for the program. It's a new thing to make sure that whoever's filing the tax return is actually that person Okay. Because the IRS has seen a heightened amount of Social Security theft and identity theft. Yeah. So they have created this this PIN, this IP PIN that they assign to you, and it's a different PIN every year.

[00:05:30.69] - Chelsie Kagay

Oh, wow.

[00:05:31.10] - Gabby Parker

So once you sign up for the program  you have to go online, you have to sign in to your IRS account, and you have to get your new PIN and give it to your tax repairer or use it on your return. And that is in addition to your EIN for your business or your Social Security number for yourself.

[00:05:47.69] - Chelsie Kagay

Okay.

[00:05:48.19] - Gabby Parker

The IRS also, funny enough, gives this out to people anonymously. Like, they assign people who they think are at risk for identity theft. You have no idea you've been assigned a pin, except if you get that one document in the mail that they sent with your six digit code. So, like, last year, I had a client. I filed their return, and it kept getting denied once, twice, three times. I could not figure out why. So I called the IRS, and they let me know it's because he needed a PIN, an IPIN, IP PIN, on his return. He had never received it in the mail. He never got a notification about it. So he had to call into the IRS and get the IP PIN, and then we had added the return, and then it got accepted. But, like, you just don't know when you get selected for this program, and currently, there's no way to opt out. The IRS is trying to figure that out, but there's no way to opt out of this program. So once you're assigned an IP PIN, you have to get your new one every year, even if you chose it or not. Some other common reasons why the IRS might deny your return is if they received a ten ninety nine that doesn't match what you put on your tax return as income received in a, contractor form. Or if your personal information is incorrect, so your Social Security number has an incorrect number or something like that. Those are the other two things that I've seen the most commonly. So just making sure that your personal information is correct and that the income you're filing matches any other documents, Ten ninety nine, w two, things like that.

[00:07:18.00] - Chelsie Kagay

Okay. Yeah. There are so many deadlines. So what are they, and how do you keep them all straight? 

[00:07:25.50] - Gabby Parker

There are so many deadlines. Thankfully, I'm a type a personality, and I abide by my calendar to a t. Love my calendar, but some people are not that way. So, hopefully, I can summarize the four main deadlines here on this podcast. So March fifteenth is when partnerships are due. So partnerships returns are due March fifteenth. At the same time, the business taxes, and the franchise and excise taxes are due on March fifteenth as well.

[00:07:54.30] - Chelsie Kagay

Okay.

[00:07:54.60] - Gabby Parker

That's something that business owners often miss, is that the state taxes, for Tennessee at least, are due the same day as their federal return for their business. April fifteenth is a big one that everyone knows. It's when your individual 10:40 or yours, LLCs are due. And at the same time, again, business tax and franchise excise tax are due if you have a single member LLC. So April fifteenth is the big one. September fifteenth and October fifteenth are the other two.

[00:08:23.00] - Chelsie Kagay

Okay.

[00:08:23.69] - Gabby Parker

September fifteenth is for any partnerships that were extended. So you get exactly six months from March fifteenth to September fifteenth Mhmm. To file your partnership return. And then if you extend your personal return, you have from April fifteenth to October fifteenth. So those four dates are the most key to the IRS. And then if any of those dates fall on a holiday or a weekend, it is the following business day. I think we hit this last year where in twenty twenty three, the twenty twenty two taxes were due on April eighteenth due to the fifteenth being, I think, Easter or the weekend or something.

[00:09:01.60] - Chelsie Kagay

Gotcha.

[00:09:01.89] - Gabby Parker

So it's the following business day. One last thing to note on this is if you extend your federal return Mhmm. If you're a business owner and you extend from April fifteenth and you go to October fifteenth, The Tennessee state taxes do not get extended as well. Okay. You still have to file a return within the, Ten TAP portal, the Tennessee Department of Revenue, on April fifteenth. Mhmm. You have to estimate what you're gonna report, and then you have to file the accurate one when you file your IRS return. At that point, if you owe less or more to the state, they credit you or you just submit your last payment, at that time, but you have to file an estimated return still on April fifteenth. Otherwise, you get to October fifteenth, you file your state taxes, and you have six months of payment penalties that you have to pay. Yeah. It can rack up pretty quickly. We've been able to get some, like, reimbursed or refunded by the state, but oftentimes, they're like, no. You just you paid late, so you have to pay these penalties. So that's something to note as well. Nice.

[00:10:04.79] - Chelsie Kagay

Yeah. Yep. Thanks for the clarifications on that. What are some helpful tax deductions that you found business owners are not aware of?

[00:10:14.20] - Gabby Parker

Yeah. So to clarify first, these are related to business owners, not necessarily employees or individuals. So these are specific to business owners. There's one called UBE, unreimbursed business expense. So you're in a rush. You're at a restaurant. You're meeting a client, and you forgot the company card. You have to put it on your personal card. Those things that are normal, necessary, ordinary business expenses Mhmm. Potentially not on a business account, are called UBEs, unreimbursed business expenses. You can report those on your tax return and still get a deduction for those Okay. Even if it's not on the business card. So even if you bought a computer and it was beneficial for you to use your personal credit card, you can get that added to your return, and that is used as a deduction. Vehicle depreciation. So many times clients are like, here's my mileage. Let's just take the the, deduction for that. Nine times out of ten, mileage is going to be less advantageous than actually taking the whole vehicle on the business as an asset. So for instance, you have a vehicle. You put on your business. You depreciate it ten thousand dollars in the first year. Mhmm. By doing that, you also get to take the fuel, the repairs and maintenance, any expenses associated with the vehicle. And all of those, maybe they total up to ten thousand five hundred dollars on the year. Mhmm. Your mileage at sixty five cents a mile, you'd have to drive close to sixteen and a half thousand miles on that same year to get the same deduction, and you have to track them. You have to have documentation of those. Mhmm. So by putting the vehicle on the business, you don't have to worry about it. You just get to drive your car, use it for business, and not have to worry about tracking your mileage. You can put your business or your vehicle on your business if you use it more than fifty percent for your business. So if you use it fifty five percent of the time for business, you can do that. So that's one thing that I would recommend as well to business owners. If you're pretty close to a tax bracket, so let's say a business owner is reporting three hundred and eighty thousand dollars of income Mhmm. On their tax return. They are in the thirty two percent tax bracket. Moving just down to the three hundred and sixty four thousand dollar gross income level, they go into the twenty four percent tax bracket. So that's an eight percent difference. Mhmm. And that, you know, fifteen, sixteen thousand dollars can equate to five thousand dollars of taxes because you're at the thirty two percent bracket. So if you can spend fifteen thousand dollars, get down to the twenty four percent tax bracket Mhmm. That saves you five thousand dollars. Yeah. So I also recommend it's not necessarily a deduction, but just watching how close you are to a tax bracket. Mhmm. Let's say you need a new vehicle. Let's say you have a nonprofit you wanna support. You wanna give them fifteen thousand dollars in their endowment fund, things like that. That will save you five thousand dollars of taxes. And I don't know about you, but for me, I'd rather donate to a charity fifteen thousand dollars

[00:13:22.89] - Chelsie Kagay

Yeah.

[00:13:23.29] - Gabby Parker

Than pay the IRS five. Yeah. Oh, yeah. So it's something to look out for because it can change your tax bracket significantly Mhmm. If you're in the right level. Yeah. Yeah. The last thing that I would recommend is income allocation. So they are called guaranteed payments on the tax return. Mhmm. But income allocations are basically a salary for business owners.

[00:13:44.39] - Chelsie Kagay

Okay.

[00:13:45.10] - Gabby Parker

So even though you're not a w two employee, you can make an agreement with the business that you get x amount per month, you get x amount of the percentage of the net profit, however you wanna word it. Mhmm. You can make that an income allocation agreement. You get paid that as the owner. Mhmm. And the business gets to write that off as a deduction as a as a payroll expense. Now the advantage to that is you get to reduce your business income Mhmm. Which gets taxed an additional fifteen percent for self employment tax. Wow. And you move it to your own personal return, which has more options for itemized deductions, any other business losses you have, things like that.

[00:14:26.29] - Chelsie Kagay

Okay.

[00:14:26.89] - Gabby Parker

Also, you only get taxed, you know, at the IRS federal level there. Whereas if you had it on the business, you get taxed the self employment tax of fifteen percent. Plus, that income pushes to you as the only owner of the business Mhmm. And you have to pay, well, let's say, thirty two percent on the income again. So you're actually paying forty seven percent taxes on your business income Yeah. Instead of paying yourself and only paying thirty two percent  On your personal return.

[00:14:56.50] - Chelsie Kagay

What are the state taxes that businesses have to file and when are they due?

[00:15:01.70] - Gabby Parker

Yeah. So Tennessee is really fun. It has one of the most, amount of state taxes of all the states in the United States. Like, they're they have so many taxes. So boil it down to these two that are the most important for business owners. First is business tax. It has the, lesser amount of all the taxes, so it's easier to handle and swallow. But they impose it based on gross receipts of a business. Okay. So it varies between point one and point five percent of your gross receipts, which I actually had a client who reported a hundred and eighty four thousand dollars, a couple weeks ago. I was filing his return, and he only paid a hundred and eighty four dollars of business taxes. So it's very minimal. Yeah. Thankfully, it was point one percent in that scenario, but it just varies. At minimum, you have to pay twenty two dollars for every location that you have in Nashville. So it's twenty two dollars at minimum. The state actually sent out notification recently to all business owners in Nashville, hopefully, that if you do under a hundred thousand dollars of gross receipts in a year, you are now exempt from this business tax.

[00:16:18.20] - Chelsie Kagay

Okay.

[00:16:18.89] - Gabby Parker

So you don't have to pay a business tax. It's a nice twenty two dollars you get to keep. You know? But in finding out what you have to do for this, exemption, we actually are going to make another podcast on it because there's a whole step by step process you have to go through in order to qualify for the exemption.

[00:16:37.60] - Chelsie Kagay

Okay.

[00:16:38.20] - Gabby Parker

Yeah. But you don't have to pay that twenty two dollars anymore if you make under a hundred thousand dollars. The second tax and they're kinda lumped together by the state, but it's franchise and excise tax. Mhmm. So franchise tax is based on the, net worth calculated by the book value of the company's tangible property assets. So construction companies often have this tax imposed on them because they own several, like, large vehicles Mhmm. Or they even may own some buildings that they rent out to people. Mhmm. But let's say the book value is a hundred thousand dollars, you'd have to pay taxes on a hundred thousand dollars even if you only made, let's say, five thousand dollars that year.

[00:17:22.00] - Chelsie Kagay

Oh, wow.

[00:17:22.40] - Gabby Parker

It's based on the net book value of whatever you own within your company. The rate is twenty five cents per one hundred dollars of your net worth.

[00:17:32.29] - Chelsie Kagay

Okay.

[00:17:32.70] - Gabby Parker

So it's it it's pretty minimal, but it can rack up if you have larger assets. Yeah. The minimum is a hundred dollars. So you have to pay a hundred dollars no matter what.

[00:17:41.29] - Chelsie Kagay

Okay.

[00:17:41.70] - Gabby Parker

If you are a very, very small business, at minimum minimum, you're gonna pay a hundred dollars for franchise and excise tax Mhmm. Twenty two dollars for your business tax, and then three hundred dollars for your annual report, and then any other fees you have, like, if you have an external tax repair or things like that. Yeah. So, thankfully, it's not too bad for small businesses, but ones that have higher net incomes or higher amounts of assets, it can rack up. The excise tax is assessed based on, doing business in Tennessee and calculated on the net earnings of your business. So let's say you made a hundred thousand dollars. Mhmm. You'll pay six and a half percent on that hundred thousand dollars. Wow. So you'll pay six thousand five hundred dollars to the state. Wow. Just by making that money. So that's another reason why I recommend income allocations or other things that you can utilize to reduce your business income Mhmm. And push it to your federal income tax return because your business income will be taxed both with self employment on the federal level and this excise tax, six and a half percent. That's, like, so much. Yeah. Yep.

[00:18:51.50] - Chelsie Kagay

What is the standard deduction, and how does

[00:18:53.90] - Gabby Parker

it help me? Standard deduction is an amount allocated by the IRS that any individual can take no matter how much income they make in the year. It is most commonly used by people who only have w two income. Business owners, if they're small business owners, also utilize this. But I have several people who several clients who make enough in their business where they can have itemized deductions because they have funds. They have capital to spend on their personal deduction deductions. Mhmm. So the standard deduction for twenty twenty three is thirteen thousand eight hundred and fifty dollars for a single filer. If you're married filing jointly, it's just double that. Twenty seven seven. Now twenty twenty four, it will increase seven hundred and fifty dollars up to fourteen six per individual filer. So it gets higher as time goes on. And even in twenty twenty three, the IRS increased it about nine hundred dollars. It was a pretty big jump. Yeah. But it is advantageous for anybody who, you know, doesn't have enough itemized deductions to make it past that. They automatically get fourteen six back in their pocket. Itemized deductions are comprised mainly of mortgage interest, state and local income taxes, property taxes, medical expenses, and charitable contributions. So So those are the most common, like, expenses you can have

[00:20:17.79] - Chelsie Kagay

Mhmm.

[00:20:18.70] - Gabby Parker

To accumulate up to more than twenty seven seven

[00:20:21.59] - Chelsie Kagay

Yeah.

[00:20:21.90] - Gabby Parker

For at least twenty twenty three. If you can do that, it's good to itemize. If you cannot, you should take the standard deduction on your personal return. Okay. Thanks for joining. We'll see you next time for our other tax topics.