During what tax preparers call the off-season — the months and weeks between April 15 and next February, when a new flurry of W-2 forms get mailed — accounting firms have plenty of deadlines to meet for their small-business clients.
So many deadlines, in fact, that the IRS puts out a calendar each year for small businesses and the accountants who handle their books and tax filings. Before the end of this month alone, the IRS expects to receive taxes for payroll, direct deposits, vehicles and federal unemployment.
With an eye on life beyond April 15, several New Jersey-based certified public accountants offered up advice for business owners. In a state with nearly 200,000 small businesses with fewer than 500 employees and another 600,000 self-employed workers, there’s plenty of work to go around for all of them.
Vinay Navani, a certified public accountant and shareholder at Wilkin Guttenplan in East Brunswick, said companies need to make sure they’re paying use tax on equipment they buy online from out-of-state vendors.
“Let’s say you go to Staples and buy office supplies. You go to the cash register and they charge you sales tax,” he said. “If you order something online, that vendor may not have a location in New Jersey and so they don’t have to remit sales tax. But then the obligation flips and now you have to pay use tax to the state.”
The issue has come up in the past when small businesses in New Jersey have complained that large online retailers, such as Amazon and Overstock, have an unfair pricing advantage because they don’t remit sales to New Jersey and therefore do not charge customers for it.
The matter was somewhat resolved when Amazon agreed to start collecting 7 percent sales tax from New Jersey customers last July in exchange for tax incentives to build two massive fulfillment centers in Robbinsville and Avenel.
When a retailer like Amazon isn’t charging sales tax at the time of purchase, consumers are unlikely to voluntarily calculate and pay use tax to the state. Navani said he routinely warns his business clients that they are more closely scrutinized.
“I tell them it’s not a matter of whether New Jersey will audit you,” he said, “it’s when they audit you.” He also advises business owners to think hard about reasons they could owe other states taxes.
If a New Jersey-based consultant travels to Pennsylvania or New York to work on a project for a client, for example, either one of those states could say the consultant has an obligation to file a tax return in addition to their New Jersey return.
Several of the tax professionals who talked to The Star-Ledger also mentioned a New Jersey Economic Development Authority program that allows certain technology startups to sell net operating losses for up to 80 percent of their value to larger, profitable companies.
The program has been on the books since the late 1990s, but it’s gotten more attention as more technology and biotechnology companies set up shop in New Jersey, Navani said.
“Say you have investors put $1 million into your company and you use that money to fuel research. So now you have this $1 million loss on your books,” he said. “You can sell that loss to a profitable company that can use that tax loss and as a startup you get more cash.”
On the road to profitability it pays to set up business accounts that will make doing taxes easier, said Stephen Reed, a Tinton Falls-based certified public accountant and shareholder at Cowan, Gunteski & Co.
Forget the headache that’s sure to come when it’s time to sort out which expenses are personal or business-related. There’s a chance the IRS will audit a business’s returns before they have a chance to fix their accounts.
“It’s tempting for small-business owners to commingle their business checking account with their personal expenditures. Under an IRS audit, not only will the personal expenditures be disallowed as not valid business expenses,” he said, “but the IRS may take the position that there is no clear demarcation between your business accounts and your personal accounts, so they may audit your personal tax returns as well.”
Reed also advises business owners, no matter how strapped they are for cash, to pay contractors, and not to delay paying their withholding or sales and use taxes.
“Those funds are what are known as trust fund monies,” he said. “As a result, those monies do not belong to the business owner. The business owner is collecting those monies and holding them in trust, until they get remitted to the appropriate taxing authorities.”
Spend money that isn’t yours to keep, he said, and the state or IRS could seize an entire business or personal property.
For business owners considering selling, merging or passing the company on to someone else, there are other tax matters to consider. If nothing else, Ed Rigby, a certified public accountant and principal at ParenteBeard’s tax department in Clark, said to work with an accountant who can find ways for the business to save money on taxes later.
“If companies are looking at major transactions, like buying or selling a company or structuring a joint venture with another firm, you want to make sure you make those decisions as tax efficient as possible,” he said. “With any related expenses, you want to make sure you can accelerate deductions.”
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