Segregation of duties

1. Segregate cash disbursements. Payment responsibilities should never rest with a single individual. One employee should review and approve vendor bills, while another processes the payment. The person preparing checks should not have the authority to sign them. Electronic payments and fund transfers require similar separation: one person initiates the transaction, another reviews the details, and a separate, authorized manager provides final approval. The same layered approach applies to purchase orders: one team member issues or requests the order, another approves it, and payment is released only after proper review. Dividing these duties ensures management has visibility into how funds are spent and significantly reduces the risk of error or misappropriation.
2. Segregate control of cash. Have an owner or manager occasionally spot-check incoming electronic transactions and tie them to the company bank account. If you receive physical checks, have an owner or manager open the mail before passing it on to accounting. That’s one way to detect unusual transactions before they’re recorded in the company books. Alternatively, you might ask someone outside accounting to open the mail and either prepare a deposit slip or perform a daily reconciliation of all transactions.
3. Segregate reconciliations. For companies with limited resources, a periodic review of bank reconciliations by someone outside accounting can serve as a mitigating control. Non-accounting personnel performing these reviews will need to be trained. They’ll need to understand the risks involved and the types of unusual or unsupported transactions needing further investigation. Cross-training staff also helps to ensure continuity of operations when accounting employees take vacations or leave the company. Or better yet, bring in an outside accounting expert to conduct periodic audits of key functions.

Safeguard your business

• Pay special attention to ACH receipts. Unlike physical checks, which leave a paper trail and involve multiple handling steps, ACH payments post directly to a bank account without anyone physically touching the money. This convenience reduces natural oversight points. If the same person has access to online banking and records receipts in the accounting system, errors or intentional misstatements may go undetected.
• Management by wandering around. As an owner, periodically review your bank accounts and their activity. Ask questions about large transactions. Even if you already know the answer, your team will know you are looking. The same goes with your general ledger. Get access to the ledger and periodically review the details for a few accounts. You may be surprised by what you find. Again, your questions will show your engagement, and the randomness of this activity will serve as a simple audit technique.

Segregation of duties can help your company track cash and prevent employee theft before it happens. Contact our RRBB advisors for more information or if you have any questions.

The post Safeguarding your business’s cash with segregation of duties appeared first on RRBB.

Commonly overlooked deductions

1. State sales tax alternative. You can choose to deduct state and local sales taxes rather than state income taxes on a return using itemized deductions. This is especially useful for residents of states without state income taxes. It can also be used if you made enough purchases during the year that your state sales tax deduction is larger than your state income tax deduction. This is especially important this year as the limit for this itemized deduction category moves from $10,000 to over $40,000!
2. Mortgage discount points. When you buy a home, you can generally deduct the cost of mortgage discount points to lower your interest rate. A point is a fee equal to one percent of the mortgage amount, and it lowers your mortgage’s interest rate. When you refinance a mortgage, you spread the cost of your points over the life of the mortgage. Many taxpayers forget that when they sell their home, they can immediately deduct the remaining points they haven’t used.
3. Re-invested dividends. Many automatically reinvest their dividends within their portfolios. These dividends are taxed when they are paid to you each year, so it is easy to forget to make this adjustment to your tax bill when you sell them at a later date. While this makes your capital gain calculation a bit more complex, knowing this helps you avoid paying too much in tax.

Additional deductions for parents

1. Student loan interest. You can deduct up to $2,500 in interest paid on student loans from your tax return. This is true even if someone else helps you pay your loans. Parents who have co-signed student loans (creating a legal obligation for the debt) often forget that they are now also eligible for the deduction on payments they make.
2. Child and dependent care. If you are working and paying for daycare, review this credit on your tax return and with your employer. Both may offer a meaningful tax benefit to you. The same holds true for married couples when both work or are looking for work. And if the benefit exists through your employer, you may still be able to take advantage of the credit through the IRS as long as the qualified expenses are not double-counted.
3. Making alimony and child support mistakes. While most people who pay alimony know it’s tax-deductible for those who pay it on divorce decrees finalized before the end of 2018, it is easy to forget that it is not taxable income to those receiving it if your divorce was after this date or there was an amendment to your divorce decree after this date. And remember, this law change also impacts the taxability and deductibility of child support payments.

Deductions for small business owners

1. Self-employment deductions. There are many benefits commonly overlooked by sole proprietors and S corporation business owners. Chief among them are:
   • 1/2 of the self-employment tax
   • Health insurance premiums: Pay special attention to your W-2 to see whether the premium was added to income and whether it is deductible in your situation
   • Contributions to retirement plans: Remember, a quick way to reduce your taxable income is to contribute to a retirement plan, such as a SEP IRA, before filing your tax return
   • The QBI deduction: Find out whether you qualify and whether your business activity is subject to income limitations for this valuable tax break
2. Other small business tax breaks. There are several other special business incentives in the tax code. This includes special depreciation rules for the now-permanent research credit.

As with any part of the tax code, certain qualifications must be met, and limits apply. Please contact our RRBB advisors for help if you think any of these ideas apply to you.

The post Don’t forget these ideas to lower your taxes appeared first on RRBB.

First, understand your small business to help it grow

1. Understand your cash flow. Create a 12-month rolling forecast of revenue and expenses to help understand your cash needs. One of the biggest causes of business failure is a lack of understanding of cash flow. At the end of the day, you need enough cash to pay your vendors and your employees. If you run a seasonal business, you understand this challenge. The high-season sales harvest needs to be sufficient to support you during the slow, non-seasonal periods.
2. Know your pressure points. When looking at your business, there are a few big items that drive your business success. Do you know the top four drivers of your financial success or failure? By staying focused on the key drivers of your business, success will be easier to come by. Look at last year’s tax return and identify the key financial drivers of your business. Do the same thing with your day-to-day operations and staffing.
3. Know who your customers or target audience are, then tailor your business to them and to what they are looking for in your offerings. Who are your current customers? Are there enough of them? Where can you get more of them? How loyal are they? Are they happy? Several large customers can drive your company’s growth or create tremendous risk should they take their business to a competitor.
4. Once you know who your target customer is, understand why they buy your product or service. Know your point of difference. What makes you different from other businesses selling a similar item? If you don’t know what makes your business better than others, ask your key customers. They will tell you. Then leverage this information to attract new customers.

Then, use your growth to thrive

1. Inventory matters. Develop an inventory system with periodic counts to prevent shrinkage or theft and to identify when you need to liquidate old inventory. If your business sells physical products, you need a good inventory management system. This system doesn’t have to be complex. It just needs to help you manage your inventory. Cash turns into inventory that becomes stuck, creating a major cash flow problem.
2. Develop a great support team. Successful small business owners know they cannot do it all themselves. Do you have a strong support team helping you? You need accounting, tax, legal, insurance, and employment help in addition to your traditional suppliers. Conduct an annual review of your resources. Be prepared to review your suppliers and make improvements where necessary.
3. Sometimes focusing on a few basic ideas can help improve your business’s outlook. Feel free to contact our RRBB advisors if you wish to discuss your situation.

The post Simple ideas to help your small business appeared first on RRBB.

How much is the IRS penalty?

The penalty is calculated for each partial month the return is late, multiplied by the number of shareholders or partners. The fine is $245 per shareholder or partner per month in 2025. So, a return filed 17 days late with no tax due could cost a married couple with an S corporation $980 in penalties.

The late filing of S corporation and partnership returns

If you have an S corporation or other partnership, either file an extension or submit your tax return on time. Remember, an extension gives you six months to file. You do not owe the tax until the flow-through tax return due date, which is typically April 15th.

If you receive a penalty, challenge it. A well-worded request for reversal of the late filing penalty may be successful. Remember, the Treasury Department is still receiving taxes owed to it on time. Contact our RRBB advisors if you have any questions.

The post Late filing of S corporation and partnership returns can be costly appeared first on RRBB.

Selecting the proper accounting method

There are two methods for recording transactions:

1. Cash basis
2. Accrual basis

In general, the cash basis method records a transaction when a payment is made or cash is received, while the accrual basis method records the transaction upon delivery of the good or service, either as a sale or as a cost. Small businesses often use the cash basis because it is easier to track. Larger businesses that buy from vendors on account (accounts payable) generally use accrual-basis accounting. The key is to understand what method your business uses and whether it uses the same method for your books as it does on your tax return. The IRS allows most small businesses to use the cash basis method for tax purposes, but once a choice is made, it can only be changed with proper IRS reporting.

How important is the matching principal to your business? This aligns revenue with related costs to get a clean picture of interim profitability. If this is important, accrual might be best. What about the importance of cash flow? If high, using the cash basis will get you answers more quickly.

Create an account structure that fits the company

The main types of accounts in a business are:

• Assets
• Liabilities
• Equity
• Income
• Cost of goods sold
• Other expenses

Each group will often have numerous accounts and sub-accounts associated with it. Having the right mix of accounts, organized and grouped, will help you properly classify transactions and prepare usable financial statements.

If there is little activity in an account, consider summarizing it with other like items. Know why you need an account before you create it…to make business decisions? to compare to last year? for tax reasons?

Enter accurate and timely transactions

The value your data provides is dependent on each transaction being recorded correctly and on time. Entering transactions in the wrong account can cause major issues down the road. Delayed financial reporting can hide problems that need immediate attention. Some transactions are relatively straightforward, while others are more complex (such as payroll, accruals, and deferrals).

Conduct a flash report on the first day of each month. This will get the ball rolling.

Establish financial statements for decision-making

The purpose of your statements should be to help you run your business and make decisions. For the bank, it’s to see whether you are a high-risk borrower. To the government, it’s to pay taxes. Or for the prospective buyer, to value your company’s worth.

Really understand the three key financial statements (income statement, balance sheet, and statement of cash flows). Know how they interrelate and understand how to read them to make better decisions. What key accounts are the drivers of your business? What is the bank looking at?

Improve your bookkeeping

If properly implemented, your bookkeeping system will produce accurate financial statements that support key financial decisions. Feel free to contact our RRBB advisors to discuss bookkeeping solutions or to improve your business’s finances.

The post Improving the usefulness of your bookkeeping appeared first on RRBB.

1. Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so.
2. Form 1099-K planning. Consider labeling business and personal accounts separately on platforms like Venmo and PayPal. Mixing funds could cause reporting errors, especially as platforms enhance their 1099-K tracking capabilities.
3. Prepare for overtime and tip headaches. While 2025 is a transition year before the tax-free tip and overtime income must be reported on reformatted W-2s and 1099s, your employees still need to prove their deduction! So be prepared to track both tips and overtime pay from your payroll system.
4. Shifting income and expenses. Consider accelerating income or deferring earnings, based on profit projections.
5. Separation of expenses. Review business accounts to ensure there are no personal expenses. Reimburse the business for any expenses discovered during this review.
6. Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit.
7. Fixed asset planning. Section 179, or bonus depreciation, is a great planning tool for expensing versus traditional depreciation. If using Section 179, the qualified assets must be placed in service before year-end.
8. Leveraging business meals. Business meals with clients or customers are 50% deductible. Retain the necessary receipts and documentation that note when the meal took place, who attended, and the business purpose on each receipt.
9. Charitable opportunities. Consider any last-minute deductible philanthropic giving, including long-term capital gain stocks.
10. Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline in a home office can be challenging, using a cell phone for business purposes can be deductible.
11. Inventory review. You must also review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction.
12. Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs.
13. Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full-year earnings. Then make your 2025 4th quarter estimated tax payment by January 15, 2026.

The post 2025 year-end tax planning tips for your business appeared first on RRBB.

The OBBBA changes

In 2024, you could only take a maximum of $10,000 as an itemized deduction on Schedule A for taxes of any kind. To make matters worse, this limit was the same for single filers and married filing jointly taxpayers, making it one of the most severe marriage penalties in the tax code. Many taxpayers who typically itemized deductions found themselves taking the standard deduction.

But effective for tax years 2025 through 2028, this limit of tax deductions is increasing to $40,000. This will result in many individuals once again itemizing their deductions.

Itemizing your deductions

Now is a great time to conduct a quick review of your situation. You’ll want to see if next year’s tax return can be filed with itemized deductions. Here are some who should undergo this review:

1. High state income taxes. If you paid significant state income taxes, you will need to conduct this planning review.
2. High property taxes. If you have high property taxes, take the time to calculate what your total itemized deduction could be with the new $40,000 limit. You may also want to consider this if you have multiple properties that could have applicable taxes.
3. Multiple homes. If you own a cabin or applicable vacation property in addition to a primary residence, this could be enough to bring you over the standard deduction limit.
4. Small business owner. Suppose you own a small business that is a flow-through entity, like a partnership or a subchapter S corporation. In that case, your state income tax on this business activity might be limited on your personal tax return. This again would warrant a review.

Potential planning steps

If you think the higher deduction limit for taxes may be of benefit, you may want to consider ways to maximize your itemized deductions. Things to consider:

• Increasing your use of charitable giving by giving more or placing multiple years of giving into one year.
• Prepaying property taxes. Remember, your tax return is on the cash basis. So, a property tax bill due at the end of the year can apply to the year you actually pay the bill.
• Understanding your qualified interest expense. Consider any interest paid on qualified home debt and the new interest deduction on U.S.-sourced new car loans.

The key takeaway is to plan now to take full advantage of the opportunity to reduce next year’s tax obligation. Contact our RRBB advisors for more information or if you have any questions.

The post Itemizing deductions may be back for you appeared first on RRBB.

The main benefits of S corporations

• Self-employment tax savings. As a sole proprietor, you must pay a 15.3% self-employment tax (which includes Social Security and Medicare) on your entire income. However, with an S corporation, you can split your income into two parts: a reasonable salary and distributions. A reasonable salary is subject to self-employment taxes, while distributions are subject to income taxes but not self-employment taxes.
• Pass-through taxation. Similar to sole proprietorships, S corporations are considered pass-through entities. This means that the business itself doesn’t pay income taxes. Instead, profits and losses pass through the business to the owner’s personal tax return. Profits of a C corporation, on the other hand, are taxed twice. This occurs once at the entity level and again on the owner’s tax return.
• Legal protection. If there is a risk of possible legal action, an S corporation can potentially help protect your personal assets from your business assets. For example, this can be especially helpful if you are in the contractor trade and the customer makes a claim against the fulfillment of your contract.

Trade-offs to consider

While transitioning from a sole proprietor to an S corporation can undoubtedly result in significant tax savings, there are a few trade-offs to consider. Most of the trade-offs are regarding administrative requirements and potential costs, including:

• Running payroll. Even if you’re the only employee, you’ll need to set up payroll and withhold taxes. Many business owners utilize a payroll service to manage this process.
• Separate tax filing. Your business will now need to file a Form 1120-S tax return with a March 15th due date in addition to your personal tax return.
• Accountants or bookkeepers are typically used. Most S corporation owners work with professionals to handle bookkeeping and tax filings.
• Reasonable salary requirement. The IRS expects owners to pay themselves a fair market wage. Underpaying yourself to avoid taxes can lead to penalties.
• State-level requirements. Some states impose minimum franchise taxes or annual fees on corporations and LLCs, regardless of their income.

When to switch from sole proprietor to an s-corp

Switching to an S corp generally becomes worth considering when your net income (after expenses) is in the range of $75,000 to $100,000 or more per year. For example, assume you earn $120,000 in net income as a consultant. As a sole proprietor, you’d pay self-employment tax on the full amount, about $18,000. As an S corp, if you pay yourself a reasonable salary of $60,000, you’d only pay payroll taxes on that amount, roughly $9,200. The remaining $60,000 in profit would be subject to income taxes but not payroll taxes. That’s a potential tax savings of nearly $9,000 per year.

Switching from a sole proprietor to an S corp can offer real tax advantages, but it’s not a one-size-fits-all solution. It’s generally best practice to review your situation annually to ensure proper organization of your business. Contact our RRBB advisors for more information, if you have any questions, or are ready to take the next step.

The post From sole proprietor to s-corp: Consider a switch appeared first on RRBB.

SALT deduction increase requires planning

The itemized deduction limit for taxes, commonly known as SALT, available to those who itemize their deductions on personal tax returns, moves from $10,000 to $40,000 through 2029. The bill also confirms the ability for businesses that are flow-through entities (to pay their business tax on their personal tax return as a sole proprietor or through a K-1) to pay their tax directly on a state tax return (otherwise known as PTET).

This change now requires some planning. Therefore, we recommend that you review the impact of this change on your business’s taxable income. The SALT increase may change your decision to pay your business taxes directly to a state that is leveraging the PTET process.

Forecasting your business tax obligation

The qualified business deduction (QBI) is now permanent with the current legislation. Without the change, this deduction was going to end in 2026. When you combine this change with the unchanged C-Corporation tax rate of 21%, it presents a bit of certainty in the tax horizon for businesses. So, with much of the uncertainty in business tax rates now resolved, it might be a good time to review your entity choice.

Additionally, the continuation of expense options for capital purchases is something to consider. 100% bonus depreciation and expansive amounts for Section 179 expensing of capital purchases provide a helpful way to manage your business’s tax obligations. Please contact our RRBB advisors to discuss forecasting, compliance, and other provisions from the new tax bill that may affect your business.

The post Multiple changes make forecasting your business tax obligation more important than ever appeared first on RRBB.

Form 1099 compliance

The reporting threshold for Form 1099-NEC and 1099-MISC moves from $600 to $2,000 after December 31, 2025. This threshold is to be indexed for inflation starting in 2027. Prepare to update your accounting software to track vendor payments against the $2,000 threshold. This avoids unnecessary 1099 preparation and aligns with the new requirement. Although the reporting threshold is now higher, it’s still a good practice to collect W-9 forms from all vendors and contractors before issuing payments. This ensures you’re ready if payments exceed the threshold.

For Form 1099-K, the $600 reporting threshold, scheduled to take effect in 2026, is rolled back to the old threshold of $20,000, along with the dual requirement of 200 or more transactions. So, don’t rely solely on receiving a 1099-K to report income. Many businesses won’t meet the new reporting threshold but are still legally required to report every dollar earned. If your transaction count is high, however, be aware of how quickly you might approach the 200 transaction mark. Also, consider labeling business and personal accounts separately on platforms like Venmo and PayPal. Mixing funds could cause reporting errors, especially as platforms enhance their 1099-K tracking capabilities.

Deductions for small businesses

The Qualified Business Income (QBI) deduction of 20% is now permanent. There’s also a minimum deduction of $400 for taxpayers who have at least $1,000 of qualified business income. Most independent contractors and gig workers who receive Form 1099 are eligible for the QBI deduction. However, suppose your business is classified as a Specified Service Trade or Business (businesses in health, law, accounting, financial services, and others). In that case, this tax break begins to phase out when your income exceeds $197,300 (single) or $394,600 (married) in 2025.

In addition, businesses can use the Section 179 deduction to write off up to $2.5 million of qualifying property in 2025, up from $1.25 million under the previous law. If you’d rather use bonus depreciation, the ability to write off 100% of qualified property is reinstated as of January 19, 2025, through the end of 2029. Businesses can often use both Section 179 and bonus deductions in the same year. Section 179 is generally applied first, followed by bonus depreciation for any remaining balance. However, remember that this deduction only pertains to the timing of the deduction, not the total amount of the deduction.

These are some of the new tax bill’s provisions that will affect most businesses across the U.S. Please contact our RRBB advisors to discuss compliance and other provisions from the new tax bill affecting small businesses.

The post New tax law lightens compliance for small businesses appeared first on RRBB.