Payroll Taxes – Don’t Mess Around

I have seen more clients get in trouble with their business and the IRS because they did not pay their payroll taxes on time.  It’s a tricky thing, because you do have some leeway in the timeliness of your payments, and so often business owners and managers make the decision to forego paying the taxes right away, thinking that they will catch up later.  Then later never comes and before they know it, the IRS is after them.  So what’s the best approach with payroll taxes? First let’s talk about the difference between an employee and an independent contractor.  Again, I have heard lots of folks say “we’ll just pay him contract”, then they don’t have to worry about payroll taxes.  It’s true, independent contractors are responsible for paying their own payroll taxes.  Just be sure this person meets the definition of independent contractor.  If the person working for you does not fit the definition, they are an employee and as such you are required to pay payroll taxes on their behalf. So here’s the distinction between an employee and independent contractor: Employee – You control the job (what, where, when and how) and provide the employee with the tools and supplies to do the work. Independent contractor – The contractor controls the job (what, where, when and how) and provides his own tools and supplies (or may charge you for supplies as part of his contract). Let’s look at some examples: You hire your friend’s brother to install lighting in your grow space.  He tells you when he can do it, brings his own tools, but charges you...

Documentation – the what, why and how

Being in business means keeping up with a lot of varied information.  Oftentimes business owners are confused as to what they should keep, for how long and how to store it.  This short blurb should take the mystery away and give you a few simple rules to follow.  The What – here is a list of items that should be kept and for how long Contracts – Contracts, licenses, signed agreements, corporate and partnership documents, corporate meeting minutes, should be kept indefinitely. Expired contracts that are not relevant to the business any longer, such as a lease from a previous location, can be shredded after 4 years. Transaction documentation – Documentation of transactions that occur on your financial records, including sales receipts, deposit slips, checks, bank statements, vendor invoices, purchase orders, mileage logs, petty cash records, payroll records, all of these should be kept for a minimum of 4 years. Income tax returns – both federal and state, should be kept indefinitely. Financial statements – including general ledger, balance sheet and profit and loss statements, should be kept indefinitely. The Why Contracts and other agreements should be kept as long as they remain in effect. You never know when you might have to support the way something was handled, or refer back to determine how something should be handled. Transactions that support your financial statements and tax returns are kept for at least 4 years because of the potential for an IRS audit. The IRS can audit tax returns up to three years after the date you filed the return.  At audit, you will be required to produce supporting...

Surprise! The IRS Trick (there is no treat)

By now most, if not all of you, are aware of IRS Code Section 280E that prohibits the deduction of expenses for any business that is trafficking in controlled substances.   If you aren’t aware of this law, you need to be, but more importantly, you need to plan your cash flow (there’s that term again) to be prepared for higher than expected federal income taxes. Currently, marijuana is considered a Schedule I drug per the Controlled Substances Act and as such is treated as a federally illegal drug.  Income from the sale of illegal drugs is taxable for federal income tax purposes but expenses related to the sale of illegal drugs are not deductible.  This is Section 280E in a nutshell.  You must pay tax on the income of your cannabusiness and your associated expenses are not deductible from that income. There is one tiny glimmer of light in this dark IRS tunnel and that is that expenses associated with cost of goods sold i.e. your inventory costs, are deductible.  Perhaps now you understand why I have devoted so many words in my blogs to the subject of inventory.  Since currently it is the only deduction available to you for federal income tax, it’s hugely important.  I’ve touched on what can be included in inventory/cost of goods sold in previous blogs, that’s not the focus here.  The focus in this writing is to help you plan for the tax liability you will ultimately face. So far this doesn’t sound that bad.  But here’s what happens.  Your income statement may indicate that your company has made $130,000 for the year,...