Ask a CPA

Hello Frederic,

You can withdraw your Roth contribution anytime with no penalty. However, the portion of the interest earned or growth will need to remain in the account for 5 years prior to the withdrawal in order to avoid the early penalty of 10% for the federal. Please be aware that some states impose an early withdrawal penalty as well. Assuming you are over 59 1/2 years, you won't need to be concerned about the penalty on the portion of the growth as long as it stays in your account for 5 years. There is an interesting fact that the 5 year period starts counting down with the first account opening. All subsequent Roth money contributed will be part of the original contribution.

Technically you cant combine years like that. As a practical matter though, the $8000 of revenue probably results in a much lower number for taxable income after accounting for expenses so if the income is immaterial for that year, adding it to 2020 might not be a real problem. Also keep in mind if there were an audit, showing the income, even though its in the wrong period could help with negating any sort of under reporting penalty.

Of course you really should consider amending 2019 to report everything in the correct year, but if you decide not to do that, be sure everything from here on out is reported in the correct period. Combining revenue is not proper.

Yes the backdoor IRA strategy will work for you. One note of caution is that there is potential this strategy will be limited if the version of the Build Back Better Act that is about to go to the Senate for a vote passes. Consider making the move soon as some of those provisions will take effect Jan of 2022.

Additionally note that there is a possibility of the side door Roth if your plan at work allows non deductible 401k Contributions. Reach out if you want to discuss further

My Answer:

Hello, from San Antonio, Texas. First, I want to say congratulations on the business venture.

To answer your first question, if your question is strictly about applying for the Texas sales tax permit, you do not need a Tax ID (employer identification number or EIN). You can apply for a Texas sales tax permit, as a sole proprietor. When you apply for the Texas sales tax permit, Texas will assign you an 11 digit Texas Taxpayer Number.

To answer your second question, if you are going to operating the food truck in Texas (so the income will be generated in Texas), you definitely need the sales tax permit in Texas. You won’t be doing any sales in Oklahoma, so you probably don’t need an Oklahoma sales tax permit.

To answer your third question, you do not need an EIN (what I assume you’re calling a Tax ID) yet. However, the moment you hire any employees, you must have an EIN. Also, you may want to consider getting an EIN, even if you don’t need it. Why? Because if you don’t have an EIN, you’re going to be giving out your SSN to everyone. That definitely increases the risk of identity theft for you.

If you found this helpful, I would really appreciate if you could leave a Google review for me (Adam Dickreiter) by following this link https://g.page/adam-dickreiter-cpa-pllc/review?gm or doing a Google search for my name.

If we receive a positive Google review, my company will donate $10.00 to San Antonio Youth Literacy.

If you need a CPA or a bookkeeper, I am a CPA, and I also have a separate bookkeeping company (whose website address is www.bookkeepingsolutionssa.com). We have quite a bit of knowledge about sales tax, as we file sales tax reports for many clients and we are even engaged from time-to-time by companies (who are not even regular clients) to represent them with sales tax audits, as Texas loves to go after businesses for sales tax.

Adam Dickreiter, CPA

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.

If you found this helpful, I would really appreciate if you could leave a Google review for me (Adam Dickreiter) by following this link https://g.page/adam-dickreiter-cpa-pllc/review?gm or doing a Google search for my name.

Alternatively, you could leave a review on this website by following this link: https://cpadirectory.com/certified-public-accountants/texas/san-antonio-tx/adam-dickreiter/1061467 or searching on this website under Find an Accountant > All CPAs. I am ranked on top on this website, as I have answered many questions from the public, so it’s easy to find me.

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.

If you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

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.

If you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm if it is active) or through this website (CPAdirectory).

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.

Finally, if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

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.

if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

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.

if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).