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Financial Health in 2021

Newsome & Company Gives Tips On Lowering Tax Impact on Your Money

Newsome & Company, P.C. is a veteran-owned, certified public accounting firm located in Lexington that specializes in Small Business accounting, taxes, and Individual income tax returns. 

However, we are not simply a tax preparation service. Our mission is to send kids to college, provide for retirement, and diminish the tax impact on your hard-earned money. 

The Internal Revenue Service likes to receive “their” money at least quarterly to avoid penalties. The current rule is you must pay as much tax as last year or 90% of the tax due (whichever is greater) by January 15. 

Be sure to figure sales without accounts receivable if you report on a cash basis. Calculate depreciation, mileage, and home office expenses against your revenue.  

There are basically three types of small business entities, not including Corporations.

  • Sole Proprietor – Single-member business that operates with one owner. An LLC is a legal designation for this type of entity. The owner pays income tax and FICA on all income but does receive a Self-Employed tax credit against a portion of the FICA expense.  These are filed on Form 1040 Schedule C.

  • Partnership – Two or more owners and may or may not have payroll or subcontractors.  Members pay income tax and FICA on their portion of net income, derived from a form K-1 which is generated from the Partnership Tax Return, form 1065, will file on Form 1040 Schedule C. 

  • S Corporation – Up to 100 members, active members must be on payroll for a “reasonable salary” for work performed. On income over and above the salary, you only pay income tax, not FICA. Invest this in a tax-deferred retirement plan such as a SIMPLE or SEP IRA and further save tax dollars. This entity is filed on an annual form 1120S and members receive K-1s.

If we can be of service, contact us at 803-728-1899 for your FREE consultation. Visit NewsomeCPA.BIZ.

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