Bauknight Pietras & Stormer, P.A.

We are pleased to announce that Robert James "Jay" Brietz, Jr., CPA, CIA has been named a principal at BPS. #congratulations #bpscpa #columbiasc #publicaccounting

AICPA standards require public accountants to be independent in fact and appearance when providing auditing and other attestation services. This allows them to act with integrity and exercise objectivity and professional skepticism. In short, auditors can’t provide any services for an audit client that would normally fall to the company’s management to complete. In addition to maintaining independence, auditors must comply with an ethical code of conduct. Auditor independence and ethics matter to the entire business community. The production of audited financial statements helps public and private companies establish and maintain stakeholder confidence. Contact us for more information.

Let’s say you plan to use a C corporation to operate a newly acquired business or you have an existing C corp that needs more capital. Be aware that the federal tax code treats corporate debt more favorably than corporate equity. So for shareholders of closely held C corps, it can be a tax-smart move to include in the corporation’s capital structure some third-party debt (owed to outside lenders) and/or some owner debt. The reasons have to do with the income tax rate, the capital gains / dividend tax rate and the double taxation that occurs when a corporation pays tax on its profits and shareholders pay tax again when the profits are distributed as dividends. Contact us about your situation.

It’s not unusual for a partner to incur expenses related to the partnership’s business. This is especially likely to occur in service partnerships such as an architecture or law firm. When a partner can be reimbursed for business expenses under a partnership agreement or standard operating procedures, the partner should turn them in for reimbursement. Otherwise, the partner can’t deduct the expenses on his or her tax return. On the partnership side, the business should have a written firm policy that clearly states what will and won’t be reimbursed, including home office expenses if applicable. (This applies to members of LLCs that are treated as partnerships for federal tax purposes.)

There are several financial and legal implications when adding a new partner to a partnership. Although the entry of a new partner may seem simple, you should plan properly to avoid tax problems. For example, if there’s a change in the partners’ interests in unrealized receivables and substantially appreciated inventory items, the change is treated as a sale of the items. That means the current partners will recognize gain. For this purpose, unrealized receivables include accounts receivable, depreciation recapture and certain other ordinary income items. To avoid gain recognition on those items, they must be allocated to the current partners even after the entry of a new partner.

Unfortunately, late spring and summer mark the natural disaster season. Most years, the number of federally declared disaster zones rises at this time. The good news is that eligible residents and businesses can receive tax relief, including extended filing deadlines. In the past two months, the IRS has announced relief for severe storm victims in Oklahoma, Maine, Rhode Island and Alaska. Areas recently designated “major disaster areas” by the Federal Emergency Management Agency (FEMA), and that could become eligible for tax relief, include Nebraska, Ohio, Kansas and Washington. Visit the IRS (https://bit.ly/3UU9WO5 ) and FEMA (https://bit.ly/3wtiv9q) websites for more information.

Many people dream of turning a hobby into a business. You probably won’t have any tax problems if your new business is profitable over a certain period of time. But what if the venture consistently generates losses (deductions exceed income) and you claim them on your tax return? In an audit, the IRS may say it’s a hobby (an activity not engaged in for profit) rather than a business. Then you can’t deduct losses. There are 2 ways to avoid the hobby loss rules: 1) Show a profit in at least 3 out of 5 consecutive years (2 out of 7 years for certain horse businesses). 2) Run the venture in a way that shows you intend to turn it into a profit maker rather than a hobby. Contact us to learn more.

Interim financial reporting is essential to running a successful business. Monthly, quarterly and midyear reports can provide valuable insight. For example, you might evaluate year-to-date revenue, gross margin and working capital accounts for potential problems and take corrective actions before year end. However, when reviewing these reports, you should recognize their potential shortcomings.They might not be as reliable as year-end financials unless a CPA prepares them or performs agreed-upon procedures on specific accounts. Once your staff generates your business’s midyear financial reports, contact us to interpret them and for tips to help your business finish the year strong.

If you’re selling a vacation home at a profit, what will you owe in taxes? It depends on whether you’ve used the home as your principal residence for a time or whether you’ve rented it out. If you haven’t done either, the principal home sale gain exclusion tax break (up to $250,000 or $500,000 for a married couple) is unavailable. Your vacation home sale profit will be treated as a capital gain. If you’ve owned the property for more than a year, the gain will be taxed at no more than the 20% top federal rate on long-term capital gains, plus the 3.8% net investment income tax, if applicable. Other rules apply to a home used as a rental or principal residence. Contact us about your situation.

A popular way for young people to earn money is through the “gig economy.” That means they provide on-demand work, goods or services, often through an online platform. Many fully employed people also do gig work to supplement their income. The IRS wants gig workers to know that any money they earn this way is taxable income, regardless of the form of payment. Taxpayers who earn more than $600 may be sent a Form 1099. They may need to make estimated quarterly payments on the income and pay employment tax. For gig workers to stay on the right side of tax issues, good recordkeeping is essential.