Category: Article

“Best practices” are grounded in results, and they have a place in any line of work, including — and maybe especially — accounting. Adhering to them will result in your business becoming healthier and more competitive. Your recordkeeping will improve. You’ll be able to analyze your company’s progress more effectively by running reports that provide focused views of your revenue and expenses. Your data will be safer.

Here are seven best practices that could prove most valuable to keeping your business running smoothly.

Reconcile your accounts regularly

Yes, it can be time-consuming and frustrating. But it’s the only way you can be sure that what you’re seeing in QuickBooks Online matches the records of your financial institutions. If you don’t reconcile your accounts monthly, you will hit a point down the road where your financial books are no longer accurate. You’ll have to reach back and try to determine where you went wrong. Untangling an unbalanced accounting system is not something you want to attempt. Hover your mouse over Transactions in the toolbar and click Reconcile.

Categorize transactions every day

Unless you have a very small business with few transactions, you should categorize transactions every day. Accurate, thorough categorization is required so your reports and taxes are correct. Be sure to check the Billable box when it’s warranted.

Run reports every week

Two reports that you should be running in QuickBooks Online once a week are A/R Aging Summary Report and A/P Aging Summary Report. You need to keep a close eye on who is behind on paying you and which bills you may have missed.

There are two other pages that provide this information quickly. Hover your mouse over Sales and click Customers to see the status of your invoices and estimates. To see an accounting of your own bills and other expenses, hover your mouse over Expenses and click Vendors.

Another report that shouldn’t be overlooked: A weekly profit and loss report, for obvious reasons. It’s the easiest way to keep a close watch on your company’s overall performance.

Assign user permissions

If you have multiple employees working in QuickBooks Online, don’t give them all full access. This is for both your protection and theirs. Set up limited user permissions for them so they can only go into certain areas and perform specific tasks. Click the gear icon in the upper right and click Your Company | Manage users. Click Add user and proceed through the wizard to assign individuals to roles like Track time only, Accounts payable manager, and Standard limited customers and vendors.

Set reorder points on inventory items

If your business stocks inventory, you know what a balancing act it is. Too few items and you risk running out. Too many, and you have an unnecessary amount of money tie up in inventory. You certainly don’t want to run out. You’ll lose sales and maybe even customers. So be sure you’re entering a Reorder point for inventory items. Just open a product record and click Edit in the Action column to add these.

Keep your PC updated and secure

This should be your number one priority.  Windows should always be updated. Windows Defender does a good job of protecting you, but you may have your own favorite antivirus and anti-malware applications. If you get hacked and your QuickBooks Online data gets compromised or deleted, the future of your business will be in danger. If other people in your office are on a network with you, stress the importance of good PC safety protocols, like not clicking on attachments in emails.

Use your ask my accountant expense account

What do you usually do when you can’t complete an expense transaction because you’re unsure of how to categorize it, for example?  If there isn’t an account in your Chart of Accounts titled “Ask My Accountant,” you can create one. Click the gear icon in the upper right and then Your Company | Chart of Accounts.

Click New in the upper right and enter the title, then select Expense as the Account type and Other Business Expenses as the Detail type. This will put your transaction into a kind of holding tank to deal with later. When you meet with us, we can create a Profit and Loss report to find those transactions and deal with them.

© 2025 KraftCPAs PLLC

Business owners often consider financial commitment and administrative burden as obstacles to setting up a retirement plan for themselves and their employees. But there are options that come with less hassle: Simplified Employee Pensions (SEP) and Savings Incentive Match Plans for Employees (SIMPLE).

SEPs offer easy implementation

SEPs are intended to be an attractive alternative to “qualified” retirement plans, particularly for small businesses. The appealing features include the relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether to make annual contributions.

If you don’t already have a qualified retirement plan, you can set up a SEP just by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on your employees’ behalf. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are received, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS approved. The maximum amount of deductible contributions you can make to an employee’s SEP-IRA in 2025, and that he or she can exclude from income, is the lesser of 25% of compensation or $70,000. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s contributions to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

You’ll have to meet other requirements to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens associated with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination rules aren’t required for SEPs. And employers aren’t required to file annual reports with the IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund.

SIMPLE plans meet IRS requirements

Another option for a business with 100 or fewer employees is a Savings Incentive Match Plan for Employees (SIMPLE). Under these plans, a SIMPLE IRA is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a SIMPLE 401(k) plan, with similar features to a SIMPLE IRA plan, and avoid the otherwise complex nondiscrimination test for traditional 401(k) plans.

For 2025, SIMPLE deferrals are allowed for up to $16,500 plus an additional $3,500 catch-up contribution for employees aged 50 or older.

© 2025 KraftCPAs PLLC

Your business can set up an educational assistance plan that can give each eligible employee up to $5,250 in annual federal-income-tax-free and federal-payroll-tax-free benefits. These tax-favored plans are called Section 127 plans after the tax code section that allows them.

Plan basics

Section 127 plans can cover the cost of almost anything that constitutes education, including graduate coursework. It doesn’t matter if the education is job-related or not. However, you can choose to specify that your Section 127 plan will only cover job-related education. Your business can deduct payments made under the Section 127 plan as employee compensation expenses.

To qualify for this favorable tax treatment, the education must be for a participating employee — not the employee’s spouse or dependent. Also, the plan generally can’t cover courses involving sports, games or hobbies.

If the employee is a related party, such as an employee-child of the owner, additional restrictions apply that are explained below.

Plan specifics

Your Section 127 plan:

1. Must be a written plan for the exclusive benefit of your employees.

2. Must benefit employees who qualify under a classification scheme set up by your business that doesn’t discriminate in favor of highly compensated employees or employees who are dependents of highly compensated employees.

3. Can’t offer employees the choice between tax-free educational assistance and other taxable compensation, like wages. That means the plan benefits can’t be included as an option in a cafeteria benefit program.

4. Doesn’t have to be prefunded. Your business can pay or reimburse qualifying expenses as they’re incurred by an employee.

5. Must give employees reasonable notification about the availability of the plan and its terms.

6. Can’t funnel over 5% of the annual benefits to more-than-5% owners or their spouses or dependents.

Payments to benefit your employee-child

You might think a Section 127 plan isn’t available to employees who happen to be children of business owners. Thankfully, there’s a loophole for any child who is:

• Age 21 or older and a legitimate employee of the business
• Not a dependent of the business owner, and
• Not a more-than-5% direct or indirect owner

Avoid the 5% ownership rule

To avoid having your employee-child become disqualified under the rules cited above, he or she can’t be a more-than-5% owner of your business. This includes actual ownership (via stock in your corporation that the child directly owns) plus any attributed (indirect) ownership in the business under the ownership attribution rules summarized below.

Ownership in your C or S corporation business is attributed to your employee-child if he or she:

• Owns options to acquire more than 5% of the stock in your corporation
• Is a more-than-5% partner in a partnership that owns stock in your corporation, or
• Is a more-than-5% shareholder in another corporation that owns stock in your corporation

Also, a child under age 21 is considered to own any stock owned directly or indirectly by a parent. However, there’s no parental attribution if the child is age 21 or older.

Ownership attribution for an unincorporated business

What about an unincorporated business? You still must worry about ownership being attributed to your employee-child under rules analogous to the rules for corporations. This includes businesses that operate as sole proprietorships, single-member LLCs treated as sole proprietorships for tax purposes, multi-member LLCs treated as partnerships for tax purposes or partnerships.

Payments for student loans

Through the end of 2025, a Section 127 plan can also make tax-free payments to cover principal and interest on any qualified education loan taken out by a participating employee. The payments are subject to the $5,250 annual limit, including any other payments in that year to cover eligible education expenses.

© 2025 KraftCPAs PLLC

Now that your 2024 tax return is likely filed and ready to process, it can be tempting to clear out old tax paperwork and delete digital files. Before you do, remember that some of those documents still have two important purposes:

1. Protecting you if the IRS comes calling for an audit
2. Helping you prove the tax basis of assets you’ll sell in the future.

Keep the return itself indefinitely

Your filed tax returns are the cornerstone of your records. But what about supporting records such as receipts and canceled checks? In general, except in cases of fraud or substantial understatement of income, the IRS can only assess tax within three years after the return for that year was filed (or three years after the return was due). For example, if you filed your 2022 tax return by its original due date of April 18, 2023, the IRS has until April 18, 2026, to assess a tax deficiency against you. If you file late, the IRS generally has three years from the date you filed.

In addition to receipts and canceled checks, you should keep records — including credit card statements, W-2s, 1099s, charitable giving receipts, and medical expense documentation — until the three-year window closes.

However, the assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, if no return is filed, the IRS can assess tax any time. If the IRS claims you never filed a return for a particular year, a copy of the signed return will help prove you did.

Property and investment records

The tax consequences of a transaction that occurs this year may depend on events that happened years or even decades ago. For example, suppose you bought your home in 2009, made capital improvements in 2016, and sold it this year. To determine the tax consequences of the sale, you must know your basis in the home — your original cost, plus later capital improvements. If you’re audited, you may have to produce records related to the purchase in 2009 and the capital improvements in 2016 to prove what your basis is. Therefore, those records should be kept until at least six years after filing your return for the year of sale.

Retain all records related to home purchases and improvements even if you expect your gain to be covered by the home-sale exclusion, which can be up to $500,000 for joint return filers. You’ll still need to prove the amount of your basis if the IRS inquires. Plus, you don’t yet know what the home will be worth when it’s sold, and there’s no guarantee the home-sale exclusion will still be available in the future.

Other considerations apply to property that’s likely to be bought and sold — for example, stock or shares in a mutual fund. Remember that if you reinvest dividends to buy additional shares, each reinvestment is a separate purchase.

Duplicate records in a divorce or separation

If you separate or divorce, be sure you have access to tax records affecting you that your spouse keeps. Or better yet, make copies of the records since access to them may be difficult. Copies of joint returns filed and supporting records are important because both spouses are liable for tax on a joint return, and a deficiency may be asserted against either spouse. Other important records to retain include agreements or decrees over custody of children and any agreement about who is entitled to claim them as dependents.

Protect your records from loss

To safeguard records against theft, fire, or another disaster, consider keeping essential papers in a safe deposit box or other safe place outside your home. In addition, consider keeping copies in a single, easily accessible location so that you can grab them if you must leave your home in an emergency. You can also scan or photograph documents and keep encrypted copies in secure cloud storage so you can retrieve them quickly if they’re needed.

© 2025 KraftCPAs PLLC

See a full list of valuable documents to keep and those that can be discarded.

The Trump administration’s threat of tariffs has motivated corporate giants such as Apple, Hyundai, and Eli Lilly – among others – to announce major investments in U.S. production facilities. It’s also become one of the biggest concerns by many corporate leaders, who are still trying to determine their course through an uncertain outlook.

Tariffs climbed sharply to the most pressing concern among CFOs in the first quarter of 2025, according to The CFO Survey. The survey is a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta. While roughly a third of survey respondents expressed concerns over looming tariffs, many are adopting a wait-and-see approach to hiring, capital spending, and operational changes.

Deciding how long to wait can be tricky for U.S. businesses, and even for those that operate entirely within U.S. borders, tariff hikes could significantly impact the bottom line. A proactive response, guided by supply-chain mapping and market-based financial modeling, can help position your business to withstand the turbulence. 

What’s happening with tariffs?

Tariffs are nothing new. Countries including the U.S. and its trading partners impose them as a tax on imported goods. Key reasons countries charge tariffs include:

• Generating government revenue
• Protecting domestic businesses by making imported goods more expensive than domestically produced ones
• Narrowing the trade deficit
• Counteracting unfair practices by trading partners, such as forced or compulsory labor, subsidized loans, and intellectual property violations

Over the last 50 years, the U.S. shifted towards trade liberalization, reducing tariffs to promote global commerce. According to the U.S. Bureau of Economic Analysis, in 2024, the United States imported roughly $4.11 trillion and exported about $3.19 trillion, generating a $920 billion trade deficit. This represents a 17% increase from the $784.9 billion deficit in 2023.

What makes the current administration’s proposed policy different? The 2025 tariff agenda is sweeping in scope and uncertain in detail. The Trump administration has indicated broad coverage across many goods and countries, but many aspects of the specifics — including rates, products, and exemptions — are still under negotiation. This uncertainty complicates financial planning and strategic forecasting today.

How should your business respond?

The final terms of new trade deals will likely differ across sectors and countries. Likewise, the effects of the new global trade regime will vary from company to company. Your response should depend on how exposed your operations are to global sourcing and international sales. Evaluate your situation, then develop tariff mitigation strategies that address the biggest possible side effects:

Increased costs. Tariffs directly raise the cost of imported goods and indirectly impact domestic buyers if upstream suppliers rely on foreign inputs. Even businesses that believe they’re fully domestic can be affected if their vendors source internationally.

Before passing along cost increases through price hikes, carefully evaluate the price sensitivity of your customer base. Modest increases may be feasible for high-demand or niche products without significant revenue loss. However, excessive price hikes could lower sales if customers shift to competitors or substitute goods — or they decide to forgo discretionary or luxury items. Where appropriate, communicate price adjustments transparently and emphasize value-added features or services to justify price increases and enhance perceived value. 

Another possible solution to offset tariff-related cost increases is finding alternative low-cost suppliers. This might include domestic vendors and those located in countries that negotiate favorable trade agreements with the U.S. For example, if you rely on imports from a high-tariff country (such as China), you might switch to a low-cost supplier in a country that’s agreed to lower its current tariffs on U.S. imports. In many cases, alternative foreign suppliers have lower labor costs than domestic suppliers.

Supply chain disruptions. Tariffs can cause ripple effects throughout your supply chain, including delays, shortages, cost overruns and logistics challenges. Companies with lean operating models may be especially vulnerable. It’s essential to create a detailed supply chain map that includes second and third-tier suppliers and assess where tariff exposure exists.

To minimize disruptions, consider increasing your buffer stock and diversifying your supply chain to avoid concentration risks (where you’re overly reliant on a few key suppliers), especially if your existing suppliers operate in high-tariff countries. Shifting to domestic producers can also help stabilize supply chains and costs, though it might involve higher labor costs.

As countries negotiate trade deals with the U.S., building solid supply chain relationships and regularly communicating with vendors is critical. Incorporating supply chain automation and data analytics can enhance visibility and responsiveness. Tools like real-time shipment tracking, supplier risk scores, and predictive modeling can help you anticipate and respond to disruptions more effectively.

Increased revenue for domestic producers. Tariffs may provide a tailwind for U.S.-based producers that compete with soon-to-be-pricier foreign rivals. As reshoring becomes more appealing, explore whether your business might benefit from shifting some operations to the U.S. To mitigate concerns about high domestic labor costs and potential workforce issues, consider leveraging automation, robotics, and AI-driven solutions that enhance productivity and make your company less reliant on human capital.

Global growth opportunities. Many countries have historically imposed high tariffs and nontrade barriers, making U.S. products less competitive overseas. To the extent that reciprocal tariffs lower existing foreign trade barriers, U.S. companies may have more global opportunities.

For instance, exporters previously subject to high tariffs overseas may find their products more competitive as certain countries lower trade barriers. And domestic companies that haven’t previously exported might consider exploring revenue-building opportunities in countries that negotiate more favorable tariff agreements.

Increased currency risk. Currency volatility often accompanies trade policy shifts. If your business has exposure to foreign currencies, work with your finance team or advisors to explore hedging strategies, such as forward contracts, options or swaps.

Additionally, the federal government offers various tax relief programs, subsidies and trade policy benefits that may offset tariff impacts. For instance, you might be able to take advantage of Foreign Trade Zones (FTZs). Although Trump recently scaled back FTZs, they can defer or reduce duties on imported materials. Another possible option is the Interest Charge Domestic International Sales Corporation (IC-DISC) structure for qualified exporters. The upcoming tax package being negotiated in Congress may provide additional tax relief.

Position your business for resilience

You can’t afford to rely on gut instinct when responding to the evolving global trade landscape. Preserving profit margins in the face of tariffs isn’t just about cutting costs or raising prices. It involves strategic foresight, deep analysis, and constant communication with internal and external stakeholders.

© 2025 KraftCPAs PLLC

Mergers and acquisitions (M&A) rightfully focus on the promise of growth, access to new markets, talent acquisition, competitive advantage, and many other upsides. However, ignoring the target’s information technology (IT) systems or cybersecurity maturity during due diligence will often lead to regret and could limit growth opportunities. Risks can be costly, and IT risks are more prevalent than ever. With proper due diligence, IT risks can be identified and remediated or integrated into the value of the transaction.

Importance of IT due diligence

IT due diligence involves a comprehensive assessment of a target company’s IT infrastructure, systems, and cybersecurity measures to help avoid costly surprises such as security risks, compliance issues, data integrity problems, and integration challenges. It is a crucial step enabling the acquiring company to make informed decisions about the target company’s IT assets.

Keys to effective IT due diligence

Thoroughly evaluating a target company’s IT assets and processes and understanding risk includes:

• Evaluate IT infrastructure: Assess the hardware, software, and network infrastructure to understand their current state and future needs.
• Analyze contracts: Review existing IT contracts to identify potential liabilities or obligations.
• Assess data management practices: Ensure data is managed securely and complies with relevant regulations.
• Evaluate cybersecurity measures: Examine a target company’s cybersecurity protocols to identify vulnerabilities.
• Determine IT strategy alignment: Ensure a target company’s IT strategy aligns with your own.
• Consider legacy systems and technical debt: Identify outdated systems and potential technical debt that could impact integration.
• Identify key systems: Determine which systems are critical to a target company’s operations.
• Assess IT staffing and skills: Evaluate the skills and capabilities of a target company’s IT staff.

Collaborating with IT experts and advisors

Collaborating with IT experts and advisors during the due diligence process is crucial for a smooth and successful transition. Experienced IT auditors and advisors can quickly identify issues or gaps and provide insight into the associated impact recommendations for correction. These experts can assist with comprehensive risk assessments, compliance audits, vulnerability assessments, and strategic guidance to uncover hidden pitfalls, assess the scalability of current IT infrastructure, and develop a roadmap for secure and efficient integration.

Selecting the right IT advisor

Engaging a qualified advisor, such as KraftCPAs, to conduct thorough IT due diligence allows acquirers to gain insight into a target company’s technology landscape, assess potential risks and opportunities, and develop a strategic IT integration plan that supports overall success.

© 2025 KraftCPAs PLLC

Summer is approaching, and you might consider hiring young people at your small business. If your children are looking to earn extra money, why not add them to the payroll? It could produce tax credits on your personal income and business payroll taxes.

Here are the three biggest benefits.

1. You can transfer business earnings

Turn some of your high-taxed income into tax-free or low-taxed income by shifting business earnings to a child as wages for services performed. For your business to deduct the wages as a business expense, the work done by the child must be legitimate. In addition, the child’s salary must be reasonable. Keep detailed records to substantiate the hours worked and the duties performed.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 17-year-old daughter to help with office work full-time in the summer and part-time in the fall. She earns $10,000 during the year and doesn’t have other earnings. You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your daughter, who can use her $15,000 standard deduction for 2025 (for single filers) to shelter her earnings.

Family taxes are cut even if your daughter’s earnings exceed her standard deduction. That’s because the unsheltered earnings will be taxed to her beginning at a 10% rate, instead of being taxed at your higher rate.

2. You may be able to save Social Security tax

If your business isn’t incorporated, you can also save on Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent aren’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

There is no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work that you’d pay someone else to do.

3. Your child can save in a retirement account

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for up to 25% of your child’s earnings (not to exceed $70,000 for 2025).

Your child can also contribute some or all of his or her wages to a traditional or Roth IRA. For the 2025 tax year, your child can contribute the lesser of his or her earned income or $7,000.

Keep in mind that traditional IRA withdrawals taken before age 59½ may be hit with a 10% early withdrawal penalty tax unless an exception applies. Several exceptions exist, including to pay for qualified higher-education expenses and up to $10,000 in qualified first-time homebuyer costs.

Tax benefits and more

In addition to the tax breaks from hiring your child, there are nontax benefits. Your son or daughter will better understand your business, earn extra spending money, and learn responsibility. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change, too.

© 2025 KraftCPAs PLLC

Some tax sins are worse than others. An example is failing to pay federal income and employment taxes that have been withheld from employees’ paychecks. In this situation, the IRS can assess the trust fund recovery penalty, also called the 100% penalty, against any responsible person.

It’s called the 100% penalty because the entire unpaid federal income and payroll tax amounts can be assessed personally as a penalty against a responsible person, or several responsible persons.

Determining responsible person status

Since the 100% penalty can only be assessed against a so-called responsible person, who does that include? It could be a shareholder, director, officer, or employee of a corporation; a partner or employee of a partnership; or a member (owner) or employee of an LLC. To be hit with the penalty, the individual must:

• Be responsible for collecting, accounting for, and paying over withheld federal income and payroll taxes, and
• Willfully fail to pay those taxes

Willful means intentional, deliberate, voluntary, and knowing. The mere authority to sign checks when directed to do so by a person who is higher-up in a company doesn’t by itself establish responsible person status. There must also be knowledge of and control over the finances of the business. However, responsible person status can’t be deflected simply by assigning signature authority over bank accounts to another person to avoid exposure to the 100% penalty. As a practical matter, the IRS will look first and hard at individuals who have check-signing authority.

What courts examine

The courts have examined several factors beyond check-signing authority to determine responsible person status. These factors include whether the individual:

1. Is an officer or director
2. Owns shares or possesses an entrepreneurial stake in the company
3. Is active in the management of day-to-day affairs of the company
4. Can hire and fire employees
5. Makes decisions regarding which, when and in what order outstanding debts or taxes will be paid
6. Exercises daily control over bank accounts and disbursement records

Real-life cases

The individuals who have been targets of the 100% penalty are sometimes surprising. Here are three real-life situations:

Case 1: The operators of an inn failed to pay over withheld taxes. The inn was an asset of an estate. The executor of the estate was found to be a responsible person.

Case 2: A volunteer member of a charitable organization’s board of trustees had knowledge of the organization’s tax delinquency. The individual also had authority to decide whether to pay the taxes. The IRS determined that the volunteer was a responsible person.

Case 3: A corporation’s newly hired CFO became aware that the company was several years behind in paying withheld federal income and payroll taxes. The CFO notified the company’s CEO of the situation. Then, the new CFO and the CEO informed the company’s board of directors of the problem. Although the company apparently had sufficient funds to pay the taxes in question, no payments were made. After the CFO and CEO were both fired, the IRS assessed the 100% penalty against both for withheld but unpaid taxes that accrued during their tenures. A federal appeals court upheld an earlier district court ruling that the two officers were responsible persons who acted willfully by paying other expenses instead of the withheld federal taxes. Therefore, they were both personally liable for the 100% penalty.

Don’t be tagged

If you participate in running a business or any entity that hasn’t paid federal taxes that were withheld from employee paychecks, you run the risk of the IRS tagging you as a responsible person and assessing the 100% penalty. If this happens, you may ultimately be able to prove that you weren’t a responsible person. But that can be an expensive process.

© 2025 KraftCPAs PLLC

Customers may be the lifeblood of your business, but they wouldn’t exist without the products and services you sell. It doesn’t matter whether you’re a mineral specimen dealer who does one-off sales, a reseller who sells items you make or buy wholesale in large lots, or a provider of services. You must always know what you have available to offer buyers – goods, designing websites, or offering lawn care services in your community, for example.

QuickBooks Online can keep you in the know about what you have available to sell, and it can manage the forms and transactions you need to do business with your buying audience. If you were doing your accounting and customer management manually, you might be using index cards and large wall calendars and file folders stuffed with product lists and schedules.

You’d spend a lot of time digging through item drawers and closets, counting your inventory by hand, and shuffling paper invoices and sales receipts and payment documentation. Instead, what if all of that is automated, saving time, reducing errors, and increasing your chances of success? Here’s a quick look at some of the basics.

Are you ready?

We’ve written about product and service management a lot. So you should know that to get ready to sell, you have to have made sure QuickBooks Online is set up to handle any inventory you might have. Click the gear icon in the upper right corner and then click Account and settings under Your Company. Click Sales in the toolbar and scroll down to Products and services. Make sure the first, fourth, and fifth options are turned on (the other two are optional). If they’re not, click the pencil icon in the upper right corner and change them. Be sure to click Save when you’re finished, then Done in the lower right corner.

Have you created your product and service records? You can do this on the fly as you’re entering transactions, but it’s much better to do it ahead of time. That way, too, you’re not as likely to skip the details, which will be important later on when you’re running reports, for example. We’ve gone over the steps before. Click New in the upper left corner, then Add product/service under Other. A vertical panel slides out from the right, and you simply select from options and enter data. Be very precise when you’re dealing with inventory information. If you haven’t gone through this process before, it might be worth scheduling a session with us to go over this important step.

Using your records in transactions

Let’s go through the process of entering a sales receipt. Click New in the upper left corner, and then Sales receipt under Customers. Choose a Customer from the drop-down list and complete any other fields necessary in the upper section of the form. Select the Service Date in the first column by clicking the calendar, then select the Product/Service in the next column (or click+ Add new). The Description should fill in automatically.

The QTY (quantity) defaults to 1. If you mouse over or click in that field, a small window will pop up containing numbers for Qty. on hand and Reorder point, as pictured above. If you know that you have more in stock that is showing, you can cancel out of the transaction, find the item record in the list on the Products & services page, and click Edit at the end of the row. You’ll be able to adjust the quantity or the starting value.

Enter any additional items and/or services needed and save the transaction.

The products and services page

QuickBooks Online offers numerous reports related to products and services and inventory tracking (you’ll find them under Reports | Sales and customers), but you can learn a lot from the Product and Service page (Sales | Products and Services). At the top of the screen (where you can’t miss them) are two colored circles containing the number of items that are Low Stock or Out of Stock.

Click on either of these, and the list below will change to only display these items. You can get a lot of information about your products and services on this page, including Sales Price and Cost, Qty On Hand, and Reorder Point. You can also create new records or import databases of records in CSV, Excel, and Google Sheet format.

© 2025 KraftCPAs PLLC

Before the Tax Cuts and Jobs Act (TCJA) became law, businesses could claim a tax deduction for most business-related interest expense. The TCJA created Section 163(j), which generally limits deductions of business interest, with certain exceptions.

If your business has significant interest expense, it’s important to understand the impact of the deduction limit on your tax bill. The good news is there may be ways to soften the tax bite in 2025.

The nuts and bolts

Unless your company is exempt from Sec. 163(j), your maximum business interest deduction for the tax year equals the sum of:

• 30% of your company’s adjusted taxable income (ATI)
• Your company’s business interest income, if any, and
• Your company’s floor plan financing interest, if any

Assuming your company doesn’t have significant business interest income or floor plan financing interest expense, the deduction limitation is roughly equal to 30% of ATI.

Your company’s ATI is its taxable income, excluding:

• Nonbusiness income, gain, deduction, or loss
• Business interest income or expense
• Net operating loss deductions
• The 20% qualified business income deduction for pass-through entities

When Sec. 163(j) became law, ATI was computed without regard to depreciation, amortization or depletion. But for tax years beginning after 2021, those items are subtracted in calculating ATI, shrinking business interest deductions for companies with significant depreciable assets.

Deductions disallowed under Sec. 163(j) may be carried forward indefinitely and treated as business interest expense paid or accrued in future tax years. In subsequent tax years, the carryforward amount is applied as if it were incurred in that year, and the limitation for that year will determine how much of the disallowed interest can be deducted. There are special rules for applying the deduction limit to pass-through entities, such as partnerships, S corporations and limited liability companies that are treated as partnerships for tax purposes.

Small businesses are exempt from the business interest deduction limit. These are businesses whose average annual gross receipts for the preceding three tax years don’t exceed a certain threshold. (There’s an exception if the business is treated as a “tax shelter.”) To prevent larger businesses from splitting themselves into small entities to qualify for the exemption, certain related businesses must aggregate their gross receipts for purposes of the threshold.

Ways to avoid the limit

Some real estate and farming businesses can opt out of the business interest deduction limit and therefore avoid it — or at least reduce its impact. Real estate businesses include those that engage in real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage.

Remember that opting out of the interest deduction limit comes at a cost. If you do so, you must reduce depreciation deductions for certain business property by using longer recovery periods. To determine whether opting out will benefit your business, you’ll need to weigh the tax benefit of unlimited interest deductions against the tax cost of lower depreciation deductions.

Another tax-reduction strategy is capitalizing interest expense. Capitalized interest isn’t treated as interest for purposes of the Sec. 163(j) deduction limit. The tax code allows businesses to capitalize certain overhead costs, including interest, related to the acquisition or production of property.

Interest capitalized to equipment or other fixed assets can be recovered over time through depreciation, while interest capitalized to inventory can be deducted as part of the cost of goods sold. You also may be able to mitigate the impact of the deduction limit by reducing your interest expense. For example, you might rely more on equity than debt to finance your business or pay down debts when possible. Or you could generate interest income (for example, by extending credit to customers) to offset some interest expense.

Weigh your options

Unfortunately, the business interest deduction limitation isn’t one of the many provisions of the TCJA scheduled to expire at the end of 2025. But it’s possible Congress could act to repeal the limitation or alleviate its impact.

© 2025 KraftCPAs PLLC

If you’re an individual taxpayer coming off a year of substantial business losses, unfavorable federal income tax rules can potentially come into play and affect your tax filing. Here’s what you need to know as you assess your 2024 tax situation.

Disallowance rule

The tax rules can get complicated if your business or rental activity throws off a tax loss — and many do during the early years of business. First, the passive activity loss (PAL) rules may apply if you aren’t very involved in the business or if it’s a rental activity. The PAL rules generally only allow you to deduct passive losses to the extent you have passive income from other sources. However, you can deduct passive losses that have been disallowed in previous years (called suspended PALs) when you sell the activity or property that produced the suspended losses.

If you successfully clear the hurdles imposed by the PAL rules, then you face another hurdle: You can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards explained below.

Deducting NOLs

You generally can’t use an NOL carryover, including one from an excess business loss, to shelter more than 80% of your taxable income in the carryover year. Also, NOLs generally can’t be carried back to an earlier tax year. They can only be carried forward and can be carried forward indefinitely. The requirement that an excess business loss must be carried forward as an NOL forces you to wait at least one year to get any tax-saving benefit from it.

Example 1: Taxpayer has a partial deductible business loss

David is unmarried. In 2024, he has an allowable loss of $400,000 from his start-up AI venture that he operates as a sole proprietorship.

Although David has no other income or losses from business activities, he has $500,000 of income from other sources (salary, interest, dividends, capital gains and so forth).

David has an excess business loss for the year of $95,000 (the excess of his $400,000 AI venture loss over the $305,000 excess business loss disallowance threshold for 2024 for an unmarried taxpayer). David can deduct the first $305,000 of his loss against his income from other sources. The $95,000 excess business loss is carried forward to his 2025 tax year and treated as part of an NOL carryover to that year.

Variation: If David’s 2024 business loss is $305,000 or less, he can deduct the entire loss against his income from other sources because he doesn’t have an excess business loss.

Example 2: Taxpayers aren’t affected by the disallowance rule

Nora and Ned are married and file tax returns jointly. In 2024, Nora has an allowable loss of $350,000 from rental real estate properties (after considering the PAL rules).

Ned runs a small business that’s still in the early phase of operations. He runs the business as a single-member LLC that’s treated as a sole proprietorship for tax purposes. For 2024, the business incurs a $150,000 tax loss.

Nora and Ned have no income or losses from other business or rental activities, but they have $600,000 of income from other sources.

They don’t have an excess business loss because their combined losses are $500,000. That amount is below the $610,000 excess business loss disallowance threshold for 2024 for married joint filers. So, they’re unaffected by the disallowance rule. They can use their $500,000 business loss to shelter income from other sources.

Partnerships, LLCs, and S corporations

The excess business loss disallowance rule is applied at the owner level for business losses from partnerships, S corporations, and LLCs treated as partnerships for tax purposes. Each owner’s allocable share of business income, gain, deduction, or loss from these pass-through entities is considered on the owner’s Form 1040 for the tax year that includes the end of the entity’s tax year.

© 2025 KraftCPAs PLLC

If you made significant gifts to your children, grandchildren, or other heirs last year, it’s important to determine whether you’re required to file a 2024 gift tax return. And in some cases, even if it’s not required to file one, you may want to do so anyway.

Requirements to file

The annual gift tax exclusion was $18,000 in 2024 (increased to $19,000 in 2025). Generally, you must file a gift tax return for 2024 if, during the tax year, you made gifts:

• that exceeded the $18,000-per-recipient gift tax annual exclusion for 2024 (other than to your U.S. citizen spouse)
• that you wish to split with your spouse to take advantage of your combined $36,000 annual exclusion for 2024
• that exceeded the $185,000 annual exclusion in 2024 for gifts to a noncitizen spouse
• to a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($90,000) into 2024
• of future interests — such as remainder interests in a trust — regardless of the amounts
• of jointly held or community property

You’ll owe gift tax only if an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($13.61 million in 2024). As you can see, some transfers require a return even if you don’t owe tax.

Filing if it’s not required

No gift tax return is required if your gifts for 2024 consisted solely of tax-free gifts because they qualify as any of the following:

• Annual exclusion gifts
• Present interest gifts to a U.S. citizen spouse
• Educational or medical expenses paid directly to a school or healthcare provider
• Political or charitable contributions

You should consider filing a gift tax return (even if not required) if you transferred hard-to-value property, such as collectibles, artwork, jewelry, or interests in a family-owned business. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 15

The gift tax return deadline is the same as the income tax filing deadline. For 2024 returns, it’s April 15, 2025. If you file for an extension, it’s October 15, 2025. But keep in mind that if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension.