We’ve rebranded FMA, C.P.A as Business Advisory and Accounting Partners. But what does this mean for you, why change our brand, and where are we headed?
We’ve made some positive changes in the firm over the last few years. These changes are all part of our goal to make us more valuable to our clients, business owners, and real estate investors, as well as our individual clients with complex planning needs.
We’d love to opportunity to tell you more about how and why our rebranding came about and to explain why our clients helped to shape our new direction.
Why re-brand the firm?
The name Business Advisory and Accounting Partners (B.A.A.P) more accurately reflects the future direction of our firm. Traditionally in the accounting field, a firm would use the initials of the managing partner in the firm’s name. We think it’s time for a change.
So, two years ago we officially changed the name to B.A.A.P, and it’s time now to fully commit to the brand and remove the FMA, C.P.A name.
One question we get asked is if it’s an indication of ownership change now or in the foreseeable future, and the answer to that is no.
So, how do these changes affect our clients?
It’s business as usual, folks. You can expect the same commitment and attention to detail that we pride ourselves on. The partners (Mark, Rose, Lisa, and Jensen) are fully committed to providing valuable planning and high-quality services to our existing and future clients.
We’ve secured the new domain busadvisory.com and we’ll be transitioning the website and email addresses to this new domain. The old fma-cpa.com domain and email addresses associated with that domain will still work, and both email addresses will for the foreseeable future.
To make sure that our emails reach your inbox, you can check your spam filtering, and whitelist the new domain.
Our past and our future
We’re proud of our experience – it makes us experts. We’ve been helping business owners and real estate investors with theirtaxplanning needs since 1989.
In 2014, Mark took over as managing partner of the firm and became more active in an industry-wide thought leadership role within the Thomson Reuters Tax and Accounting division. He has had the pleasure of interacting with and training many CPA firms on offering advisory services to clients.
Over the years we’ve heard a consistent message from small businessowners: they need more from their accountants. They need guidance and support to help make better financial decisions and run their business more efficiently. We listened to this message and remodeled our firm around business planning and guidance. We don’t just record what happened in the past.
Following that ethos has made us leaders in this industry and we’re excited to see what the future brings – for us and our clients.
The next step
This is a great opportunity to say thank you to our clients – without their support, we wouldn’t have been able to achieve all that we have. We believe in long-term relationships, and when we partner with you, we’re in it for the long haul.
We help business owners get organized, more efficient, and more strategic in the way they manage their businesses. Ask us about our solutions: compliance services, tax efficiency, organizational services, and financial strategies.
When it Comes to Understanding Financial Statements, We’ve Got the Key
For every business owner, understanding your financial statement is a necessity. And if you’re like many people, financial statements can look like a headache.
Let’s get to grips with financial statements and get an understanding of balance sheets and income statements.
What is a financial statement?
Financial statements are accounting reports that summarize a business’ activities over a period. Overall, they provide the business lenders, investors, and creditors with an idea of the business’s financial health, financial performance, operations, and cash flow. They provide key information about the company’s revenue, expenses, profitability, and debt.
Often financial statements are used to ensure accuracy for purposes of tax, financing, or investing. Financial statements are useful if you’re looking for investors, or if you want to apply for credit.
There are different types of financial statements – typically they are the balance sheet, the income statement, the cash flow statement, and the statement of the owner’s equity.
Let’s explore exactly how they work. Firstly, the one key thing to get your head around is:
What the business owns is equal to what the business owes.
A business owns assets, and a business owes liabilities to third parties and equity to those who own the business.
In other words, assets = liabilities + equity. This is known as the accounting equation. Once you’ve grasped this, you’re well on your way to understanding financial statements.
Balance sheets and income statements
The equal sign that we mentioned above is important because you must remember that the assets must always balance liabilities and equity. When you look at a business’ accounting equation at a particular point in time, this is known as a balance sheet. It’s like a snapshot of the business’ assets, liabilities, and equity. This is a summary of what the business owes and owns on a certain date.
Now for the income statement. To understand this, we need to know that equity is made up of capital contributions (the cash or assets invested into a business by an owner in exchange for a share of equity). The income statement summarises the business’ revenues and expenses over a period.
We also need to understand the business’ retained earnings (the business’ accumulated profits that they hold onto for the future.) It’s what is left over after the business has added up all the profit that the business has generated and takes away what has been withdrawn by the owners. Retained earnings are made up of opening retained earnings plus current-year profits minus current-year withdrawals.
Opening the door to your financial success
As a business owner, you’ve invested heavily in the company and deserve a good rate of return. Trust us – some basic knowledge of tax and financial compliance goes a long way, helping you to open doors to a successful future.
As your business advisors, we are here to guide you. You can talk to us about the often complex world of business strategy, tax management, accountancy, and financial advice. We specialize in everything from basic compliance to business advisory services, and from advanced tax planning to business exit planning.
Although the chances of an audit are rare, the fact is tax audits are a fairly routine business for the IRS. That said, audits can be especially scary for small business owners. After all, there are certainly horror stories in which IRS audits have resulted in company closures.
Fundamentally, an IRS audit is an evaluation of your business’s financial accounts and information. As such, you’ll find most audits are a result of discrepancies on tax returns. The IRS is simply reviewing your entries to ensure everything is in order. Sometimes an audit is random, and other times it can be based on suspected suspicious activity.
So, here are some red flags that could trigger an IRS audit of your business.
1. Data Entry Errors
The more manual your accounting and expense management functions are, the more likely you are to make errors when filing your taxes. Your accounting system is crucial to understanding business performance and is also vital to tax preparation.
While most accounting functions are digitized nowadays, data entry blunders like treating expenses as income or duplicating an entry could trigger a letter from the IRS. An audit can be triggered by something as simple as misspelling your business name. This is where e-filing comes in handy because you can load vital information from past tax returns.
If your math is a little shaky, soliciting the services of a tax preparer near you could save you the headache of an IRS audit.
2. Failing to Report Some Income
Underreporting your income on your tax return is a top audit trigger. The IRS compares your income from one tax year to the next. A noticeable discrepancy without supporting information can make Uncle Sam sit up and take notice.
The IRS wants what it’s owed and will go to great lengths to verify the reported amount of tax is correct according to tax laws. So, it’s only a question of when before it spots your omission. This is especially true for cash-heavy businesses like barbershops and nail salons.
3. Questionable Business Deductions
It’s not uncommon for small business owners to have itemized deductions on their returns, like home office deductions. While these tax deductions can reduce your taxable income, they can also raise red flags when they don’t measure up to your income. Same case if you’ve made significant contributions to charity.
The IRS also compares your tax returns to those of other businesses in your industry – anything that’s out of the ordinary may subject you to further scrutiny.
4. Excessive Business Expenses
The IRS stipulates that a business expense has to be both ordinary and necessary to qualify as a deduction. For instance, a professional painter could claim paint and paintbrushes as business expenses, but a software engineer who paints as a hobby cannot.
If you have large expenses, it’s pertinent to keep all your receipts in case you are asked for verification. However, matters get a little more complicated when it comes to entertainment, travel, and meal expenses, as they may blur the lines between personal and business expenses.
5. Earning Substantial Income
One in 100 businesses get audited each year, and usually the ones that earn more than $1 million per year, especially if they report a significant change in income. It’s not unheard of for companies to start raking in millions in revenue seemingly “out of the blue”, particularly in the age of social media when branding has a direct impact on your bottom line.
Don’t be surprised if you hear from an IRS agent when you start showing a substantial increase from year to year. That’s also a great time to bring in a business advisor to develop a growth strategy.
6. Reporting Too Many Losses on a Schedule C
If you claim a business loss each time you file a tax return, you may be due for a tax audit. While it’s not uncommon for small businesses to have losses, having many years of Schedule C losses could have the IRS questioning the legitimacy of your business. If you don’t turn a profit, the IRS may consider your business a hobby which could limit your tax deductions.
Keep all your business documentation that shows your company’s revenue and expenses throughout the year to cover all your bases.
7. Being Self-Employed
Unfortunately, the IRS tends to scrutinize self-employed individuals, especially if they fail to report a profit for at least three out of five years. This applies to freelancers and anyone working in the gig economy as well. Yet again, the IRS could claim your business to be a hobby, which would disqualify you from claiming certain business deductions.
As a small business owner, you should consider forming an LLC to lower your audit risk. Consult a tax professional near you to determine which entity would work best for you.
8. Misclassification of Employees
Some businesses intentionally misclassify employees as part-time workers or independent contractors for several reasons:
To lower labor costs
To avoid paying certain small business taxes
To reduce business insurance expenses
It’s important to classify your employees appropriately and keep documentation of any independent contractors you hire.
Avoid the Dreaded IRS Tax Audit with FMA CPA
Talk to FMA CPA about your accounting practices, income, or deductions to determine what could trigger an IRS audit. We’re a CPA firm in Clearwater offering business advisory services designed to help you understand your business better and keep you on Uncle Sam’s good side.
Contact us for comprehensive tax preparation services and any questions you might have.
The I.R.S. recently announced a new tax rule for small business owners related to the 2021 American Rescue Plan Act. And as a result, any payment your business receives from a digital service or third party that accepts credit cards will appear on your income tax return if it exceeds $600. Between this rule and the coronavirus-related tax changes, you might wonder what the small business tax rate will look like in 2022.
Here’s everything you need to know.
Business Tax Changes Related to the COVID-19 Crisis
The U.S government brought in tax breaks and made specific changes to help businesses hold out during the pandemic.
Coronavirus Aid, Relief, and Economic Security (CARES) Act. This act encompasses the Paycheck Protection Program (P.P.P.), a loan meant for utility, employee payrolls, and mortgage payments. Your business may apply for loan forgiveness. If granted, this P.P.P. loan will not appear on your taxable income.
Economic Injury Disaster Loan (EIDL). The S.B.A. increased the borrowing limit for this low-interest loan.
Employee Retention Tax Credit (ERTC). Small businesses whose gross receipts decreased by at least 50% due to the pandemic qualify. If eligible, companies receive a tax credit, that is 50% of staff wages.
Families First Coronavirus Response Act (FFCRA). This act mandated particular businesses to offer sick pay and family leave arising from COVID-19. These companies would then receive 100% tax credits.
Small Business Tax Rates for 2022
Small business tax rates aren’t straightforward. This complexity is because of the non-existence of a uniform tax rate for all of them. Below are the small business tax rates by business structure.
C corporations
C corporations’ small business tax rate is perhaps the simplest form, courtesy of the 2017 Tax Cuts and Jobs Act. If you qualify, you will pay a flat tax rate of 21%. Moreover, there’s no need to worry about the alternative minimum tax (A.M.T.) as the TCJA got rid of this requirement. Note that C-corporations comprise approximately 5% of small businesses.
As for dividends, your business must pay shareholder dividends. Your shareholders must then include the dividends tax on their individual income tax returns, hence the term “double taxation.” The shareholders’ tax rate varies based on whether it’s a qualified or ordinary dividend. While C-corp experiences double taxation, their corporate tax rate is less than several personal tax bracket returns.
Pass-through entities
Pass-through businesses include partnerships, S corporations, sole proprietorships, and Limited Liability Companies(L.L.C.s).
These entity types make up about 95% of small businesses in the U.S. and don’t pay federal income tax. Instead, an employer includes business income on their individual income tax returns. Therefore, your income in a tax year will determine your federal income tax rate.
Therefore:
If you are a business owner and receive secondary income from a different job or investment, your tax rate will reflect the total income.
Also, the more your taxable income is, the steeper your tax rate.
Two primary factors determine your small business tax rates.
1. Tax credits
Tax credits are precise reductions. For businesses, these may include work opportunities and alternative car credit. Individuals also receive federal tax credits such as the adoption credit and the earned income tax credit.
2. Deductions
Deductions reduce your taxable income. Examples of business deductions include rent expenses and legal fees. Individual deductions include medical expenses and charity donations.
Other Small Business Taxes
Small businesses must pay other taxes besides federal income taxes.
These include:
State income tax. Tax rules differ by state. The only states without a state tax are Florida, Wyoming, Alaska, South Dakota, Washington, Nevada, and Texas. As for the other states, businesses are subject to a corporate income tax within the 2.5 and 11.5 percent range.
Gross receipts tax. This tax typically applies to states that don’t levy a state income tax.
Payroll tax. Payroll taxes are a requirement for any business that has employees. These taxes include federal and state unemployment taxes and Federal Insurance Contributions Act taxes ( Social Security and Medicaid).
Self-employment tax.
Excise tax. Businesses that sell specific goods and services like gasoline and indoor tanning must pay the excise tax.
Sales tax. Sales tax is a requirement in 45 states. Rules differ for each state. And in some cases, you may need to remit taxes for more than one local jurisdiction.
We, therefore, recommend working with a C.P.A. firm to help you navigate these tax rules.
Property tax. You must pay property tax if you own vehicles and real estate.
Tax-Saving Tips
Here are several ways to make tax filing more successful in the 2022 tax year.
Make use of accountable plans
Monitor your adjusted gross income as it affects your deductions
Track all business transactions
Avoid late payments
Consider business restructuring
Take advantage of technology by installing a tax preparation software
Knowing which entity type will offer better tax rates can be confusing. For instance, L.L.C.s have several options available and may pay taxes as S corps or sole proprietors. A business advisor can break down the rates to help you choose the most beneficial option.
F.M.A. C.P.A. is a C.P.A. firm in Clearwater with a team of professionals who understand state tax rules. Our business advisory services include tax planning and accounting. Tax season doesn’t need to be stressful. Contact us at 727-530-0036 to learn how our team can make your small business tax planning stress-free.
Income Tax Brackets—How is Your Income Tax Calculated?
The United States operates under a progressive tax system that imposes a higher tax rate on taxpayers who have higher incomes. Generally, you’ll pay more tax as you move up the pay scale, which is accomplished by creating income tax brackets that group taxpayers based on income ranges.
Seven tax brackets exist for the 2021 tax year or taxes due in April 2022 or October 2022, with an extension. These are 10pc, 12pc, 22pc, 24pc, 32pc, 35pc and 37pc. The bracket you fall under depends on several factors such as your taxable income, credits, deductions, and your filing status: single taxpayer, married couples filing jointly, or married filing separately.
Upcoming Tax Brackets & Tax Rates for 2021-2022
The IRS tends to adjust tax rates, allowances, and thresholds every year based on inflation.
Here’s a look at the brackets and tax rates for taxes due in April 2022.
Income Tax Rate
2021
Single Filers
Married Filing Jointly and Qualifying Widow(er)s
Head of Household
10%
$0 – $9,950
$0 – $19,900
$0 to $14,200
12%
$9,951 – $40,525
$19,901 – $81,05
$14,201 – $54,200
22%
$40,526 – $86,375
$81,051 – $172,750
$54,201 – $86,350
24%
$86,376 – $164,925
$172,751 – $329,850
$86,351 – $164,900
32%
$164,926 – $209,425
$329,851 – $418,850
$164,901 – $209,400
35%
$209,426 – $523,600
$418,851 – $628,300
$209,401 – $523,600
37%
$523,601 and above
$628,300 and above
$523,601 and above
For married couples filing separately, the tax brackets are similar to single filers, with deviations coming in for incomes above $209,425. The tax rates for married couples filing separately become:
35%, for incomes between $209,425 and $314,150
37% for incomes over $314,150
In November 2021, the IRS provides tax inflation adjustments for tax year 2022. As such, here are the tax brackets for taxes due April 2023 or October 2023, with an extension.
Income Tax Rate 2022
Single Filers
Joint Filers
Heads of Households
10%
$0 to $10,275
$0 to $20,550
$0 to $14,650
12%
$10,275 to $41,775
$20,550 to $83,550
$14,650 to $55,900
22%
$41,775 to $89,075
$83,550 to $178,150
$55,900 to $89,050
24%
$89,075 to $170,050
$178,150 to $340,100
$89,050 to $170,050
32%
$170,050 to $215,950
$340,100 to $431,900
$170,050 to $215,950
35%
$215,950 to $539,900
$431,900 to $647,850
$215,950 to $539,900
37%
$539,900 and above
$647,850 and above
$539,900 and above
How Federal Income Tax Brackets Work
Almost everyone agrees that the current tax system is too complicated. Tax brackets are not as intuitive as they seem at first glance because odds are you’ll have to look at more than one tax bracket to figure out your effective tax rate. That’s why most people opt to work with a CPA firm for tax planning and business advisory services.
The tax bracket your top dollar falls into is your marginal tax rate. However, not all your income is levied at this rate across the board. Let’s say you’re a single taxpayer with a taxable income of $80,000 in tax year 2021. Your marginal tax rate is 22%, but here’s how your taxes will be broken down.
The first $10,275 will be taxed at 10% resulting in a tax of $1,027.50.
The next $31,500 ($41,775-$10,275) will be taxed at 12% resulting in a tax of $3,780.
The last $38,225 ($80,000-41,775) will be taxed at your marginal tax rate of 22% resulting in a tax of $8,409.50.
Therefore, your total tax returns will amount to $13,217, or the sum of $1,027.50 +$3,780 + $8,409.50. As you can see, the last dollar you earn is taxed more than the first dollar you earn – this is technically the principle of a progressive tax system.
How To Get Into a Lower Tax Bracket
No one wants to pay higher taxes than they need to. Fortunately, you can lower your tax bill through tax credits and tax deductions.
Several tax credits exist to help low-income and middle-income households reduce the amount of taxes they owe. Some examples include:
Earned income tax credits to offset the burden of Social Security taxes
Child tax credit to defray the costs for childcare for dependents under age 13
Lifetime learning credit to offset the costs of post-secondary education
You can also lower your income using tax deductions. For instance, you can deduct property taxes and the mortgage interest paid on a home loan. Additionally, there’s a defined dollar amount that lowers your taxable income.
Let’s look at the 2021 and 2022 tax years, where the standard deduction is as follows:
Filing status
2021 tax year
2022 tax year
Single
$12,550
$12,950
Married, filing jointly
$25,100
$25,900
Married, filing separately
$12,550
$12,950
Head of household
$18,800
$19,400
The IRS allows you to take the standard deduction on a no-questions-asked basis. But taking the standard deduction means you cannot deduct home mortgage interest, medical expenses, plus charitable donations from your tax bill. If your standard deduction is less than your other deductions combined, it’s best to itemize your deductions and save money.
The Bottom Line for Income Tax Brackets
FMA CPA is a CPA firm in Clearwater, specializing in helping individuals and small business owners with all matters of tax preparation and tax planning. As business advisors, we can help you get your house in order when filing taxes to ensure you don’t have to pay Uncle Sam more than what’s necessary.
Business Development Strategy: Boost Your Performance & Optimize Your Processes
Having a business development strategy is critical to the growth and success of your business. It’s a process that ensures everyone in your company is working toward a common goal and is used to identify and nurture new business opportunities.
Most small businesses, no matter how niche-specific their products and services, operate in a competitive business environment. Working with a strategic business advisor can help align your short-term operations with your long-term vision to drive growth and profitability. Although most organizations have the same overarching goals of increasing revenues and building strategic partnerships, the scope of business development is wide-ranging and varies from one corporation to another.
In brief, business development is all about identifying the initiatives and business operations that will make your business better. Not all businesses get strategic planning straight away. It’s a complex process that spans a multitude of departments, from sales and marketing to project management and vendor management. A business advisory firm will help you develop a framework that aligns the different departments to create a competitive advantage and prevent your teams from losing sight of the company’s objectives.
Grow Your Business with Small Business Advisory Services
Small business owners wear many hats and take on many different roles, including that of chief executive officer, hiring manager, and sales representative. Taking on these roles and dealing with the occasional crisis can take up too much of your time and, in turn, derail the growth and the sustainability of your enterprise. This is where business advisory services come in.
Business advisors are experts in financial planning and forecasting and can provide the insights needed to guide your operations and decision-making. They do this by identifying redundancies and inefficiencies in the way you do business and providing strategic solutions to unlock growth and elevate your business to the next level.
That doesn’t mean you should only bring in a business advisor when you have a fire to put out; their advice and expertise are fundamental for business growth, whether you’re just starting out or looking to expand your business.
Here’s what you stand to gain from small business advisory services.
Understand Your Competitive Landscape
The success of your business is dependent on far more than your internal processes. You must have a solid understanding of the competitive landscape in your industry and keep up with a constantly evolving business environment. Getting a crystal-clear perspective on the changing factors in your market and industry is how you differentiate your brand and gain an edge over your competitors.
For business advisors, keeping up with changing trends, methodologies, and business strategies is just part of the job. Leveraging their services means you’ll always have the latest research at your fingertips.
Strategic Planning
The day-to-day requirements of running a business don’t leave enough time to plan for the future. Without a clear plan, you risk stagnation or, worse, obsoletion. A business advisory firm provides you with a board of experts from diverse industries and fields whose aim is to help you develop a strategic plan and roadmap for the future.
They can advise on how to enter a new market, acquire a new business, or whether to drop a certain department or product from your portfolio.
Accounting and Bookkeeping services
Typically, businesses seek advice from a CPA firm at least once a year when organizing their books. However, an accountant can provide advice on a myriad of matters, including tax filing and audits, business investment strategies, payroll management, and financial legal advice.
With a business advisor, you get a clear and unbiased perspective on your finances as well as the best possible advice that will help you achieve your business objectives.
Financial Planning and Forecasting
From tax planning to improving cash flow and financial modeling, a business advisor helps you better understand your financials and take measures to improve your company’s financial health. Financial planning allows for increased productivity and stronger business decisions. Having a financial plan sets forth a process to ensure your business goals are achievable from a financial point of view.
Create a Social Media and Digital Marketing Strategy
It takes a lot of research to keep pace with the latest marketing trends. Today, every business needs a business marketing strategy to remain competitive. A business advisor can equip you with the knowledge and tools to launch and maintain a successful marketing strategy.
Working with a business advisor helps in creating an organizational plan and marketing strategy that caters to the needs of your customers. It also allows you to prioritize your products and services in a way that maximizes profitability.
Contact FMA CPA for Business Advisory Services and Business Development Strategies
FMA CPA is a CPA firm in Clearwater specializing in helping small businesses create business development strategies to increase their bottom-line revenues and sustain long-term growth. Contact us today to schedule your free consultation for our business development strategy services.
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