See the US Tax System Illustrated in One Complex Map

Not sure whether it’s worth your while to hire a tax professional to do your taxes? Thinking that maybe this year you’ll take a run at it yourself? You may want to think again after taking a look at a new graphic released by the Taxpayer Advocate Service (TAS). The organization, which is dedicated to helping taxpayers resolve tax problems,

Puts out a map every year that’s designed to help us all understand the workings of the tax system. One quick look should tell you that if you’re feeling confused or overwhelmed, it’s not you — it’s them.

To truly understand just how complicated America’s tax system is, take a look at the newest TAS chart:

Your next move after looking at this may be to go to Google and type “Why are taxes so complicated in the US?” Know what you would get for an answer? 35 million different options for pages and websites looking to give you an explanation. Reviewing the top results will make it clear that even though we were promised taxes so simple that we could send them in on a postcard, the Tax Cuts and Jobs Act of 2017 made the situation even more complicated. Even tax professionals are still scratching their heads and trying to figure the whole thing out.

Though the leader of TAS, National Taxpayer Advocate (NTA) Nina Olson’s goal is to

“recommend changes that will prevent problems,” her hopes for doing that are as dashed as the average taxpayer’s when she looks at this year’s chart. “Anyone looking at this map will understand that we have an incredibly complex tax system that is almost impossible for the average taxpayer to navigate,” she said.

In the face of increasing complexity, what’s a taxpayer to do to make sure that their taxes are prepared properly and in a way that minimizes their tax liability? The only good answer seems to be to seek professional help.

Hire a Tax Professional.

It’s always tempting to sharpen your pencil and try to make your way through your tax forms for yourself – especially with the advent of so many off-the-shelf, do-it-yourself tax programs. But in light of the mind-numbing maze that the process involves, you’re probably far better off spending the money and getting help from a tax pro.

There’s no doubt that you could look up everything you need to know about your particular tax situation – so could every other taxpayer and small business owner – but there’s a real question as to whether doing so is a good choice versus hiring a professional who has devoted themselves to staying on top of every rule change and regulation, as it is issued. Your time is worth more than that, and if you’re not sure that’s true just consider what you’d have to do to get even a basic understanding of the impact of the latest tax reform law: for instance, reading this 14-page document from the IRS. It’s a good sleep aid, but not likely to make things particularly clear or easily understandable.

When you consider the amount of studying you would have to do just to understand the basics — and not even scratch the surface of the extra deductions and credits that you may be entitled to — there’s no doubt that it’s worth your investment to use a tax professional. It’s the decision that 72% of small business owners have made, acknowledging that the money they spend on these services is worth it. According to a CountingWorks SMB survey, these entrepreneurs call CPAs and tax professionals “very important advisors over other professionals like attorneys, business bankers, insurance agents, and computer consultants.”

It’s your decision, but when you take an objective view of the amount of work you’d have to put in to doing your own taxes as compared to the advantages of using a professional, it doesn’t make much sense to put yourself through the headache. If you have any questions or would like to discuss your particular tax situation and planning options, please contact our office.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

Employee Stock Options Can be Taxing

If you are an employee of a corporation, as an incentive to continue employment, the company may offer you the option to purchase shares of the corporation at a fixed price at some future date so that you can benefit from your commitment to the success of the company by sharing in the company’s growth through the increase in stock value.

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How Business Owners Should Conceptualize Their Financial Results

 

Entrepreneurs don’t necessarily need to be numbers people in order to succeed: You need drive, passion, the ability and will to follow things through, and the hustler’s spirit that enables you to constantly try that new thing or relentlessly chase that next big opportunity.

But whether you’re a serial entrepreneur or simply looking to grow your small business to a sustainable level then reassess your goals, it’s crucial to have an understanding of your venture’s financial results. While SMBs don’t require the same horsepower in their accounting department—or even require an accounting department at all yet if you’d like to keep your scale on the small side—as large companies and quickly-growing startups, it’s still integral for entrepreneurs of all calibers to have an iron grip on their financial controls, processes, and results to prevent roadblocks.

Your business financials aren’t solely about how much revenue the company has brought in stacked up against your expenses, or how many strategic maneuvers can be deployed to minimize your business tax burden. Understanding your key ratios, terminology, and the stories behind your numbers—and having the right accountants and advisors who can help you interpret them—will take you from simple compliance to long-term stabilization and growing your business.

Where Is Your Money Coming From?

And moreover, where is it going?

It can seem like operations are running smoothly because cash is regularly deposited, the bills are paid, and imminent tax filings don’t feel like a shakedown where you have to scramble to get the funds together. But while your bottom line might look good on your next attempt to raise capital, you could find yourself in hot water if it turns out that only one revenue stream and/or client constitutes most of your revenue. If that client goes out of business or otherwise decides to stop or reduce their payments, it could be significantly harder to pay back the loan you took out or demonstrate to your investor that you’re worth going past seed stage.

Demonstrating that you can make a profit is important for raising capital, but raising capital isn’t a be-all and end-all. The time that you spend trying to qualify for loans, grants, and outside investment might be better spent getting more clients, users, views, income-producing property, or other important revenue drivers first. This could prove to be even more important than trying to keep your burn rate (cash outflow) under control: Constrained cash flow is usually why most companies fold within the first two to three years of operation, and often gets overlooked by busy entrepreneurs focusing primarily on raising funds or posting an impressive profit.

Financial Transparency — More Than Just Compliance

In your quest for capital, your focus is likely to be directed toward the numbers investors are going to pay attention to: margins, profit generated relative to the capital you already invested, and how many users you have. But in being transparent about your finances, you’re not just being compliant with the law — you’re also giving a more accurate picture of where your business currently is and where you expect it to go.

Early stage companies are more likely to get investment less so from promising financials and more from showing promise with the actual product and business model, so you don’t need to worry about getting the best-looking numbers to show. Banks, on the other hand, have stricter requirements for loan repayment and will be more stringent concerning financial compliance. They will want to see a proven track record and put more emphasis on your profit than growth potential, especially if you’re not a very capital-intensive business with significant collateral such as vehicles or real estate to secure the loan.

Improve Cash Flow Management by Putting Profit First

Regardless of whether you go for the more dynamic risk-taking with investor funding or the predictable repayment process with a business loan, all external capital sources will want to see proof of proper cash management even more than having stellar revenue numbers.

The ability to adequately control your cash inflows and outflows is what will help your company weather any storm. And a surefire way to make that happen is utilizing Mike Michalowicz’s “Profit First” model that changes the Revenue – Expenses = Profit expression into Sales – Profit = Expenses. While this is not an official figure to report on financial statements, it’s an excellent cash flow management mindset that helps business owners prioritize their personal and business savings so that operating expenses, expansion, taxes, and personal income are always being paid.

By “paying yourself” first, it ensures that your financial results are based on having enough cash on hand before you pay any expenses.

Any small business accountant is required to furnish a cash flow statement to most investors and some banks, but you shouldn’t wait until you have one at the end of the month, quarter, or year. Go over your cash flow every week. In addition to expenses that could be cut or revenues that could be added or bolstered, you might have bottlenecks in your cash collection processes that could be eliminated and you hadn’t even realized it.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

Tax Issues Related to Hobbies

Generally, when individuals have a hobby, they have it because they enjoy it and are not involved in their hobby with the goal of making money. In fact, most hobbies never make money or don’t even create any income, for that matter. Tax law generally does not allow deductions for personal expenses except those allowed as itemized deductions on the 1040 Schedule A, and this also applies to hobby expenses.

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Life Changing Events Can Impact Your Taxes

Throughout your life there will be certain significant occasions that will impact not only your day-to-day living but also your taxes. Here are a few of those events:

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Who Claims the Children You or Your Ex-Spouse?

Who Claims the Children You or Your Ex-Spouse?

If you are a divorced or separated parent with children, a commonly encountered but often misunderstood issue is who claims the child or children for tax purposes. This is sometimes a hotly disputed issue between parents; however, tax law includes some very specific but complicated rules about who profits from the child-related tax benefits. At issue are a number of benefits, including the children’s dependency, child tax credit, child care credit, higher-education tuition credit, earned income tax credit, and, in some cases, even filing status.

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Tax Issues That Arise When Converting a Home into a Rental

Tax Issues That Arise When Converting a Home into a Rental

There are many reasons to convert a home into a rental, such as to ensure that a prior home produces income and appreciation after the owner buys a new home; to maximize the tax benefits for an elderly person who can no longer live alone by delaying the sale of that person’s home; and to ensure that a home provides value when its owner takes a temporary job assignment in a different location. Some homeowners even mistakenly think that, when a home has declined in value, converting it into a rental can allow them to deduct that loss. Regardless of why an individual makes such a conversion, a number of tax issues come into play as a result of that decision.

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Disaster-Related Tax Losses May Be Less Than Expected

Disaster-Related Tax Losses May Be Less Than Expected

The late-2017 tax-reform package changed the rules for personal casualty losses, which now are only deductible if they occur in a federally declared disaster area. As a result, if a home is destroyed in a forest fire or other disaster within a declared disaster zone, the homeowner can claim a casualty loss on that year’s tax return.

However, if a home is destroyed as a result of a normal accident – or is destroyed in a natural disaster but lies outside of a disaster zone – the homeowner cannot claim a casualty loss. These rules may not be fair, but there is nothing that can be done about them (other than calling congressional representatives to indicate your displeasure). Currently, the rules are only in effect for the years 2018 through 2025. Because of these rules, you should also make sure that your home insurance coverage is adequate.

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September 2019 Individual Due Dates

September 2019 Individual Due Dates

September 1 – 2019 Fall and 2020

September 10 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during August, you are required to report them to your employer on IRS Form 4070 no later than September 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

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What Are the Tax Advantages of Homeownership?

Housing is a big expense for everyone. The choice generally involves either renting or purchasing – and financing that purchase with a home loan. This article explores the tax benefits and drawbacks that individuals should consider when deciding whether to buy a home.

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