Ask A CPA

Our Most Commonly Asked Questions

We get a lot repeat questions from our dear customers. So we’ve grabbed a few of the most common questions with answers from our in-house experts and created this Ask A CPA feature post. Some of these will be developed into full-length blog posts in the near future.

“Do I need to pay myself from my S-Corporation?”

The IRS requires an owner of an S-Corporation to make payments to themselves and withhold payroll taxes just like any employee. Essentially, the owner of an S-Corporation has a dual role as owner and employee, and, therefore, must be paid a reasonable amount of compensation for the work that is being done. So yes, you must pay yourself from your S-Corporation, but the payments must be considered “reasonable compensation.” The IRS considers reasonable compensation to be what a business in a similar industry would pay. Reasonable compensation is sometimes considered a benefit of an S-Corporation owner compared to a sole proprietor. As previously mentioned, a sole proprietorship will pay self employment taxes on net earnings. An S-Corporation will pay payroll taxes on the reasonable compensation that is required to be paid, which, essentially, is the same as the self employment tax that must be paid by sole proprietors. In certain situations, the reasonable compensation that must be paid to the owner of an S-Corporation may be less than the amount of net earnings if the owner were to be a sole proprietor, thus creating a benefit to the S-Corporation owner. — Andrew Wynn, Broussard Poché CPA

How long do I need to keep records?”        

Generally, we stick to the rule of seven years, but we wrote a detailed blog on this exact topic a few months ago, so we’d invite you to check it out here.— Liz Moreau, Broussard Poché CPA

“Do I need to keep credit card receipts even though they are listed on my statement?”

Taxpayers are required to keep accurate records to be able to determine and support their expenses for the year. You may be able to use just your credit card statements to total your expenses for your records and to assist with preparing your tax return, because you know what the charges on the statements are for. However, if your return is chosen for IRS examination, the credit card statement may not be sufficient for the examiner, because he or she may not be able to verify what the charge was for without the receipt. For example, you may know that a charge on your credit card statement to a retail store is for a deductible business expense, but without a receipt, you cannot prove what was purchased. Generally, you should keep credit card receipts and other documentation that supports a deduction on your tax return for 3 years from the date the return was filed or the due date of the return, whichever is later. — Lauren Sonnier, Broussard Poché CPA

“I’m a small business owner. What is the best procedure I should be using to prevent theft or embezzlement?”

No one procedure will help identify theft, but the one procedure every small business owner should employ is to personally open every bank statement and review the checks that are clearing the business accounts. Ask questions on expenditures you are not familiar with and ask to review documentation for any item you believe might be suspicious. This serves a few purposes; (1) it serves as a deterrent when your staff knows you’re scrutinizing the account; (2) it will verify that the only expenditures that are approved are being paid; and, (3) it will allow you to get familiar with the vendors, types and amounts of transactions occurring in your business. For more ideas to improve internal controls over other aspects of your business, ask us.

“Can I Write Off My Vehicle As A Business Expense?”

There is no one size fits all answer. Every situation is different and must be analyzed on an individual basis. For example, when it comes to personal vs. business use, traveling to and from home to your principle place of business is commuting and the IRS views this as personal usage. Business use of a vehicle is traveling for a required aspect of your job. Examples include: traveling to see customers, picking up material, and traveling to a temporary work site. If any percentage of the vehicle is used personally, it is not deductible. The IRS also allows you to either deduct the standard IRS issued mileage or actual business expense. Note: YOU CAN’T DEDUCT BOTH. If you use the standard mileage rate, you can’t depreciate the vehicle and you can’t take actual expenses incurred for the vehicle. The tax implications of purchasing a vehicle may decide what type of vehicle is purchased and when. Knowing the tax rules can help you save a significant amount in taxes. Always consult with your CPA to develop a strategy that will specifically benefit your situation. —Trae’ O’Pry, Broussard Poché CPA

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