Tax

When it comes to IRS audits, one of the most common reasons taxpayers lose deductions is the lack of proper documentation. 

While your credit card or bank statements prove you spent money, they don’t show what you purchased. Without supporting receipts or invoices, these records are considered “naked”—and during an audit, that’s a problem.

To fully protect your deductions, especially for business-related expenses such as meals, travel, vehicle use, and gifts, you need to keep receipts that document five key facts: the date, the amount, the place, the business purpose, and the business relationship. The best way to do this is by capturing digital copies of your receipts.

Fortunately, it’s now easier than ever. Using your smartphone, you can snap a photo of your receipt and store it securely using apps such as Shoeboxed, Expensify, Zoho Expense, and others. These tools often let you add notes, categorize expenses, and sync directly with accounting software like QuickBooks or FreshBooks.

Why go digital? Paper receipts fade—especially those printed on thermal paper. Digitizing them ensures they’re legible and accessible when needed, whether for year-end tax preparation or an unexpected audit.

Taking a few seconds now to scan or photograph each receipt can save you time, stress, and potential lost deductions later.

If you want to discuss digitizing receipts, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 15, 2025

It can cost you a bundle if you misclassify a worker as an independent contractor instead of an employee for federal employment tax purposes. 

The IRS can make you pay back payroll taxes plus penalties—in some cases, these can equal 40 percent of gross payroll or more. That’s the bad news.

The good news: hiring firms have a “get out of jail free” card—the Section 530 safe harbor. 

If your company qualifies for Section 530 relief, the IRS can’t impose assessments or penalties for worker misclassification, and you may continue to treat the class of workers involved as independent contractors for employment tax purposes. This is so even if you should have classified the workers as employees under the regular IRS common law test.

Sounds great. What’s the catch? The catch is that it can be hard for a hiring firm to qualify for Section 530.

You must satisfy three requirements to qualify for Section 530 relief:

1. You must have filed all required Form 1099-NEC returns (or other required information returns) for the workers involved.
2. You must have treated all workers doing substantially similar work consistently as independent contractors.
3. You must have a reasonable basis for treating the workers as independent contractors, such as a legal case, prior IRS audit, or long-standing practice in the industry.

For the first time in 40 years, the IRS has issued a new revenue procedure updating how it should apply Section 530. Unfortunately, the new procedure can make it harder for hiring firms to qualify for Section 530 relief.

The IRS says that in making its determination of whether a hiring firm has a reasonable basis for classifying its workers as independent contractors, it may consider whether the firm treated the workers involved as employees for non-tax purposes, such as for federal or state labor law, or for state unemployment insurance or workers’ compensation insurance coverage. 

This can be problematic for hiring firms because there are various reasons why a firm might treat a worker as an employee for non-tax purposes—reasons that have nothing to do with whether the firm reasonably believed the worker qualified as an independent contractor for IRS purposes.

The IRS’s new approach makes it more important than ever for hiring firms that use independent contractors to plan ahead to ensure that they qualify for Section 530 relief. Hiring firms must document that they qualify for relief when they classify the workers as independent contractors. You can’t wait until you are audited, and the IRS questions your worker classification practices, to think about Section 530. 

If you want to discuss independent contractors, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• May 12, 2025

Because you operate your business as a solely owned corporation (C or S) with no employees, several excellent retirement plans are available to you that can provide significant tax deductions and help you build wealth for retirement.

Some of the best options include:

• SEP-IRA. Easy to set up and allows employer contributions of up to $69,000 for 2024 ($70,000 for 2025).
• Solo 401(k). Offers the highest contribution limits, with a combination of salary deferrals and employer contributions—up to $81,250 for 2025 if you qualify for super catch-up contributions.
• SIMPLE-IRA. A great choice for modest salaries, allowing employee deferrals and employer-matching contributions.
• Profit-sharing plan. Flexible employer contributions of up to 25 percent of salary, with loan options if needed.

Each of these plans comes with different benefits and administrative requirements, so choosing the right one depends on your salary level, cash flow, and long-term financial goals. 

If you haven’t yet set up a retirement plan, there’s still time to act for the 2024 tax year, depending on the plan you choose.

If you want to discuss corporate retirement plans, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 11, 2025