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Unfortunately, I have some bad news for you. As a result of the Tax Cuts and Jobs Act (TCJA), starting with 2018, no unreimbursed employee business expenses (that would include marketing/advertising) are deductible anywhere on your individual income tax return. Prior to TCJA, if employees had out-of-pocket expenses for which they were not reimbursed, they could attempt to deduct them on Schedule A (itemized deductions) to the extent they exceeded 2% of adjusted gross income. So such expenses were tax deductible, but in actuality, it was still difficult to actually get any tax benefit because you had to clear that 2% threshold and then you still needed to have enough itemized deductions to itemize.

Instead of just leaving you with an answer but no possible remedy, I have two ideas.

First, see if you can get any business expenses reimbursed by your employer. If they reimbursed the exact amount of expenses you turned in (and substantiated with receipts), the reimbursement would be tax-free to you AND a business write-off to the employer. A win-win for both of you and a LOSE for IRS. Perhaps negotiate this instead of an increase in pay in the future.

Second, see if you can create a sole proprietorship (be an independent contractor) on the side with other clients. That opens up the possibility for you to deduct some (not all) your business expenses. It would be illegal/unethical to deduct business expenses that relate directly to your work as a W-2 employee, but you could deduct expenses that relate directly to your status as independent contractor as well as expenses that benefit both activities.

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Adam Dickreiter, CPA

First, congratulations are in order.

To answer your question, yes, it is possible to be both an independent contractor and an employee at the same time. Having said that, hopefully, you are not serving in both capacities for the same individual/company, as that would be questionable. So, if you are an employee for one company, but you’re an independent contractor serving your own clients on the side, there is no problem there.

Come tax-time, you will receive a Form W-2 for your work as an employee. You will continue to report your income as an independent contractor the same way you have done in the past (assuming you’ve been an independent contractor prior to 2021). In your question, you don’t state how you’re filing as an independent contractor, so I cannot speak to that issue.

To answer your last question, you cannot write off any of the expenses related to your work as an agent against your employee income. As long as you have income as an independent contractor, you can continue to write off your agent expenses. The only issue is that you don’t want to end up with a loss, as you could be subject to the hobby loss rules.

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First, thank you for your service! You are correct that she cannot “give” you $180 worth of service AND expect a write-off at the end of the year. This is a black and white issue. She can certainly donate her services, but she cannot get a write-off. The Internal Revenue Code never allows a donation for services or time. You can pay her, and she can donate the $180 back to the 501(c)(3); however, that’s not in the best interest of the farrier. She could end up paying more tax that way because she could be subject to both income and self-employment tax on the $180 of income. Then, she may or may not get the value of the $180 donation back to the organization. So tax-wise, it may not be a wash for her. It’s best for everyone if she simply donates her time and gets no write-off.

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Congratulations on your new business venture.

I will give you some general thoughts to help you.

First and foremost, you should open a separate bank account where you deposit all the income and from which pay your expenses. You absolutely do not want to use a personal account. Why? If you ever got audited, if any business activity went through a personal account (meaning you commingled funds), IRS can and will force banks to surrender all your bank accounts, and IRS will treat any deposits to your personal account as income (even if it’s not truly income). IRS is correct that taxpayers should never commingle funds. Taxpayers do it all the time, but it’s to their detriment because they hand the IRS the right to audit all their personal accounts. Why make it harder on yourself?

To answer your question, you should keep any records pertaining to your business. That means copies of invoices you give to customers, copies of deposit slips when you make deposits to the bank account, copies of bank statements, copies of check stubs, copies of receipts when you make purchases for parts, etc.

As far as expenses are concerned, you can deduct any legitimate business expense you pay on behalf of the business. That includes the parts you mention. You cannot deduct things like meals, entertainment, clothing (unless you pay to have a logo added to the clothing), haircuts, etc. You can deduct business mileage. That’s going to be a big deduction for you, so you need to keep a complete and accurate mileage log.

It’s best to keep all your records for seven years, in case you’re audited. If you don’t have records, IRS has the right to deny deductions.

If you need a CPA now or in the future, I am available. I’m here in Texas, but I service clients across state, across the country, and even internationally.

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You both can be right. In my opinion, the answer depends how the practice purchase/sale is structured. If you are buying the assets of the practice, then you are right, you need to get a new EIN for your LLC that is buying the practice. On the other hand, if you are buying the seller’s LLC, then you can keep the same EIN that currently belongs to the seller.

Just to let you know, if you are investing the big bucks to purchase a practice, you need to have an attorney and a CPA in your corner, to look out for your best interests. If you don’t, you could easily find yourself in a situation where you are saving a few dollars by not paying professional fees, but you could be losing much, much more because you didn’t do things right or overlooked something.

As a certified public accountant (CPA), I am available to help on a consulting basis now and an ongoing basis going forward for taxes, bookkeeping, etc.

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You’re on the right track, but you need to do a little more. Please be sure to read the instructions for Form 2553.

If you are filing the Form 2553 now (not as an attachment to the Form 1120S), you must write “FILED PURSUANT TO REV. PROC. 2013-30” in the top margin of the first page of Form 2553.

For your explanation, I would not plead ignorance. IRS doesn’t take that well, as they say that everyone should read the law and be aware of the requirements. Instead, it’s better to give them a tangible reason or reasons why you did not timely file. If COVID played a role, explain that. Or, if you or someone in your family had medical issues, death, etc., explain that. I think even the narrative you explain (finding employees, finding a building, build-out, etc.) could be part of an explanation.

Also, you should mail the form certified mail with return receipt requested, to have proof that you mailed the form and that the Internal Revenue Service received it. IRS still has a backlog of several months. Plus, they are losing things. So you need to protect yourself.

Trying to think outside the box, you may ask yourself if filing the S election with an effective date back to 09/15/2020 is the best thing to do. For example, did you timely file an extension back on 03/15/21? Also, the deadline for the 2020 Form 1120S just passed on September 15, 2021. You may wish the effective date to be 01/01/21. Just something to consider – not trying to add to your stress.

As a CPA, I am available for consulting, tax preparation, bookkeeping, payroll, etc.

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It sounds like you could do with some tax planning! Unfortunately, these are too many unknowns for a specific answer here.

First - setting up an LLC (or perhaps taking an S-Corp election?) would depend on a variety of factors. How high is your 1099 compensation? Would you prefer the "hands off" route and possibly ask for a W-2 instead of a 1099 from your second job (if possible, and if I understood that part of your question correctly), or would you like to set up an LLC and expense various things yourself, in addition to any other tax savings that come with having an LLC? Usually, the LLC route can offer more tax savings, but a more "hands on" approach from you - e.g. a possible additional S-Corp tax return + putting yourself on payroll (if the S-Corp route makes sense); accounting for your LLC (with or without an S-Corp election), etc.

If you'd like to schedule a (no-strings/complimentary) consultation with my firm (we work predominantly with medical service providers and specialize in tax planning), let me know. You can email my business partner, Paulina S., for more information or to set up a call - her email address is paulina (at) ratio.cpa - she handles all initial client inquiries and can help steer you through your options. We do our best to have the consultations be as transparent and informative as possible.

Apologies that I could not help more - but taxes are never straightforward, more information is needed, and making mistakes now can cost you in the future.

Yes and no.

Technically, I would code it to a contra-revenue account, something like Sales Returns and Allowances (that would be a general ledger account for a business that sells products). So you would debit or increase that account on the income statement and credit or decrease your bank balance on the balance sheet.

The effect would be that it would lower your profit (bottom line). So in that sense, it’s like a business expense, but it’s not actually an expense, it’s a reduction to overall revenue.

Seeing that there was no paperwork to document the loan, I assume no interest was ever paid. While the intention may have been for it to be treated as a loan, neither party behaved like it was a loan (by having a written promissory note, periodic payments, interest to be paid, etc.).

If your father every got audited and this issue arose in audit, he would first have to prove that the receipt of the $30,000 was not income to him. Again, it’s difficult for your father to assert it was a loan when it was never treated as such. Assuming that you could prove it was not income, then the IRS might argue that it was a loan (if that was in the IRS’ best interest). If the IRS could win on that front, they’d go after your father’s friend for imputed interest income, as you can’t have a loan with no interest. However, if it ended up being treated as a gift, I recommend the following.

To keep things simple, your father should repay the $30,000 in two pieces, making sure not to exceed the annual exclusion (presently $15,000) by giving no more than $15,000 each calendar year. So it would take two payments – one for $15,000 this year (2021) and the second for $15,000 next year (2022). By doing it this way, your father would not need to file a gift tax return for the total transfer of $30,000 back to his friend. Also, your father would not need to pay any tax.

To summarize, I would assume it was a gift all along and take the aforementioned steps to do damage control. Of course, it would have been better to simply have done things right from the beginning, rather than try to find a legal way out of the mess later.

First, congratulations on your decision to form your own practice!

To answer your question, I will make a few comments.

First, a PLLC and an LLC are both creatures (creations) of state law. I practice as a CPA in Texas, so I cannot speak to Washington state law. From my experience in Texas, if you have a license (such as a CPA license), you are required to form a PLLC instead of an LLC (if you choose to operate through a limited liability company).

Second, from a federal income tax perspective, there is no difference in federal income tax treatment between a PLLC and an LLC. Why? Because for federal income tax purposes, there are generally only four (4) ways to get taxed – as a disregarded entity, partnership, C corporation, or S corporation. If you will be the sole owner of the company, your choices are really disregarded entity, C corporation, or S corporation. You can’t have a partnership with just one partner.

Third, I think you’re asking which is better (a PLLC or an LLC) in terms of federal income tax treatment. If that is your question, then they are treated the same. Again, the actual federal income tax treatment depends on how to choose to treat it – going back to the four choices I listed above. So the treatment doesn’t depend on whether it’s a PLLC or LLC.

I hope that answers your question. Feel free to contact me if you wish to engage me to help.