Attention S Corp. Owners

IRS audits now routinely review S corp payments to shareholders to see if payroll taxes are being avoided by treating payments to shareholder-officers as loans or shareholder distributions of cash or property.  An officer performing services for a corporation is entitled to payment; those payments are to be wages.  For federal employment tax purposes, corporate officers are employees.  You must pay a fair and reasonable wage.  Avoiding employment taxes by treating compensation as cash distributions, expense reimbursements, or loans rather than wages is illegal.

Please consult your tax adviser or visit www.irs.gov for clear and complete details.

Tax Deduction for Babysitting

If you have a parent who watches your child (defined as under 13 years of age) while you’re at work, you may be eligible to deduct what is paid to them on your tax return.  There are two basic requirements that must be met in order to take this deduction:

1.  Your spouse must also work (or is a full-time student or disabled) and;

2.  You don’t claim your mother or father as a dependent on your tax return.

If you meet these requirements, you most likely can get a tax credit of between 20 percent and 35 percent, depending on your income, of what you pay your parents, up to $3,000 ($6,000 if you have more than one child).  Claim your tax break on IRS Form 2441.

Please consult your tax adviser or visit the IRS website at www.irs.gov for more information.

Not so fast!

I’m starting to feel the frustration of growth.  When it’s just a “one man operation” , things are relatively calm and under control.  I’m able to make my own decisions and pace my work at my own speed.  I could do fine just being me and working my rotation of clients for however long it lasted; however, that’s not what I want for my business.  I want to continue growing my business, so I’ve been spending the time and money networking and advertising.  Just this week, I did a rather large (for my size it’s large) direct mail campaign to small businesses in the metro Richmond area.  I feel like I’ve got a great promotion being offered to appeal to business owners to take action.  In hopes that I’m going to get a good response and add more clients, I’ve also been busy talking and interviewing potential contractors and employees to handle the additional workload.   The feedback I’m getting consistently is – “You’ve got a great concept and I think you’ll do great, BUT………”.

I’m in the accounting business.  Most everyone knows that accountants are conservative and passive by nature.  They feel comfortable with routine and seek stability in their endeavors.   My small, relatively new business appeals to them at eye level, but once they compare my offer to other corporate-type offers, they run for “safer” ground.  In the meantime, I’ve spent a good amount of my time selling my company to them – giving them access to many of my ideas and “trade secrets”.  Who knows, I’m guessing a couple of them will end up being my direct competitors now that I’ve given them a blueprint on how to start.  I don’t blame anyone for doing what they feel is right for them and their families.  I just wish they would face the realities of what they truly want in a job BEFORE they make me jump through hoops.  In the car business we would call these job applicants “tire kickers”.

After a few disappointing setbacks recently, I’ve decided tonight to sit back and take a breath.  For the last couple of months, I’ve put a lot of pressure on myself – working non-stop putting my direct mail piece together, planning my company’s expansion, and interviewing job candidates.  For all that hard work, I’m basically back at square one.  Even my ambition and hard work can’t move the needle against the backdrop of a really tough economy.  I just have to be smart, patient, and keep a positive attitude that things will come together in due time.  All of the lessons I’m learning through this growth process are valuable and strengthen my appreciation for the courage and dedication it takes to be an entrepreneur and business owner.  It also helps me better serve my clients.