Knowledge center
63 questions Houston-area taxpayers and business owners actually ask — each with a direct answer, the primary source behind it, and where to go next.
Direct answer: Anyone may call themselves an accountant. "CPA" is a protected title: Certified Public Accountants are licensed by state boards of accountancy after passing the Uniform CPA Examination and meeting education, experience, and continuing-education requirements. The IRS grants CPAs, attorneys, and enrolled agents unlimited representation rights, so a CPA can represent you in an audit, a collection matter, or an appeal.
Direct answer: Fees depend on scope rather than a fixed menu: how many returns are filed, the entity type, how many states are involved, whether the bookkeeping needs cleanup before a return can be prepared, and whether year-round planning is included. Ask any Houston CPA to quote from your prior-year return and current records — that is the only way to compare two quotes accurately.
Direct answer: Texas CPA licenses are issued and published by the Texas State Board of Public Accountancy, which offers a public licensee lookup by name. Verify the license is current and in good standing before engaging anyone. A CPA who prepares returns for compensation must also hold a Preparer Tax Identification Number (PTIN), which appears on every return they sign.
Direct answer: Most people hire a CPA when the return stops being a single W-2: a business or side income starts, a rental property is bought, an entity is formed, equity compensation vests, or a notice arrives from the IRS. Hiring before the transaction is worth more than hiring after it, because most of the decisions that change the tax outcome cannot be reversed at filing time.
Direct answer: Both hold unlimited representation rights before the IRS, so either can represent you in an audit or a collection matter. An enrolled agent is a federal, tax-only credential granted by the IRS itself. A CPA is a state license with a broader scope that also covers financial statements, attestation, and business advisory work. For a straightforward return either is qualified.
Direct answer: Expect to hand over last year's return and describe what has changed — a new business, a new property, a new state, a notice. A useful first meeting is diagnostic: the CPA establishes what you actually have to file, what is missing, and what is already going wrong, then quotes from that. A price offered before anyone has seen a return has skipped the diagnosis.
Direct answer: Bring last year's filed return, every W-2 and 1099, records of business income and expenses, mortgage and property tax statements, proof of estimated tax payments already made, and any IRS or state notice received. Business owners should add year-end bank and credit card statements plus the accounting file or spreadsheet used during the year.
Direct answer: No. An extension — Form 4868 for individuals, Form 7004 for most businesses — extends the time to file, not the time to pay. Tax owed is still due on the original deadline, and interest and late-payment penalties run from that date. The usual approach is to estimate the balance, pay it with the extension, and finish the return afterwards.
Direct answer: File the missing years rather than waiting to be contacted. Failure-to-file penalties accrue faster than failure-to-pay penalties, and refunds on unfiled returns generally expire three years after the original due date. Reconstruct income from IRS wage and income transcripts, file oldest year first, then address the balance through a payment arrangement if one is needed.
Direct answer: A single-member LLC with no election files Schedule C with the owner's Form 1040. A multi-member LLC or partnership files Form 1065 and issues Schedule K-1s. An entity that elected S corporation status files Form 1120-S with K-1s. A C corporation files Form 1120. Partnership and S corporation returns are due a month before individual returns.
Direct answer: For calendar-year filers, partnership and S corporation returns are due 15 March, and individual and C corporation returns 15 April. An extension moves the filing deadline to 15 September for partnerships and S corporations and 15 October for individuals — but never the payment deadline. A deadline falling on a weekend or holiday moves to the next business day.
Direct answer: Yes. Individual returns are amended on Form 1040-X. A claim for refund generally has to be filed within three years of the original return or two years of paying the tax, whichever is later, so old corrections can expire unclaimed. Amending is worth doing when the change is material: a missed deduction, a corrected 1099, an entity reported the wrong way.
Direct answer: Preparation reports what already happened; the numbers are fixed by the time the return is opened. Planning happens while the year is still running, when entity structure, owner compensation, equipment purchases, retirement contributions, and the timing of income and deductions can still be changed. Most of the money a CPA saves a business owner is saved before December 31, not in April.
Direct answer: Income without withholding — self-employment, rentals, investments, K-1 income — is paid in four installments during the year using Form 1040-ES. The IRS generally waives the underpayment penalty if you pay at least 90% of the current year's tax or 100% of the prior year's tax, whichever is smaller. Higher-income taxpayers face a stricter prior-year test.
Direct answer: Useful planning starts no later than the autumn, while there is still time to adjust owner compensation, fund a retirement plan, time equipment purchases, or accelerate and defer income. A quarterly rhythm is stronger still, because estimated payments can be recalibrated as actual profit becomes clear instead of being guessed in January.
Direct answer: Section 199A lets eligible owners of pass-through businesses deduct up to 20% of qualified business income, plus 20% of qualified REIT dividends and publicly traded partnership income. It is limited by taxable income, by W-2 wages the business pays, by the basis of qualified property, and for certain specified service trades. It does not apply to C corporations or to wage income.
Direct answer: Only if you need the equipment. A deduction returns your marginal rate on the money, not the money itself, so spending a dollar to save roughly a third of it is a poor trade unless the asset earns its keep. The timing rule that matters: the asset has to be placed in service, not merely ordered or paid for, before the year closes.
Direct answer: A CPA prepares and files the business and owner tax returns, maintains or reviews the accounting records those returns rely on, and advises on the decisions that change the tax outcome — entity choice, owner compensation, quarterly estimates, and the timing of deductions. Certified Public Accountants are licensed by a state board of accountancy and hold unlimited representation rights before the IRS.
Direct answer: Yes, in practice. A dedicated business account is what makes income and expenses provable, keeps personal spending out of the deduction record, and preserves the separation between owner and entity that a liability shield depends on. Mixed accounts are the single most common reason a small business needs bookkeeping cleanup before its return can be prepared.
Direct answer: Texas imposes no personal income tax. Most entities instead fall under the state franchise tax, administered by the Texas Comptroller and reported annually on May 15. Entities with annualized total revenue at or below the no-tax-due threshold ($2,650,000 for 2026 and 2027 reports) owe no franchise tax, though information reports may still be required.
Direct answer: It depends on how the business is taxed. A sole proprietor or single-member LLC takes owner draws, which are not wages and carry no payroll tax; the tax comes from the business profit itself. A partner takes draws and guaranteed payments. An S corporation owner who works in the business must run reasonable compensation through payroll before taking distributions.
Direct answer: Three, every month: a profit and loss statement to see whether the business made money, a balance sheet to see what it owns and owes, and a cash view to see whether the money is actually there. Owners who read only the profit and loss are the ones surprised by a profitable year that never produced any cash.
Direct answer: Keep anything that supports an amount on a return: sales records and invoices, purchase and expense receipts, bank and credit card statements, payroll records, asset purchase records, and loan documents. The IRS does not prescribe a system, only that records be complete enough to identify income, deductions, and credits, and be available if a return is examined.
Direct answer: The general period is three years from the date the return was filed, because that is the normal window for the IRS to assess additional tax and for you to claim a refund. Six years applies if income was understated substantially, employment tax records are kept four years, and property records are kept until the limitation period expires for the year the property is disposed of.
Direct answer: Cleanup rebuilds the ledger so the numbers can be trusted: bank, credit card, loan, payroll, and merchant accounts are reconciled to statements; uncategorized and duplicate transactions are resolved; owner draws, loans, and reimbursements are posted correctly; and the balance sheet is corrected. Only then can a return be prepared from the books rather than from a stack of documents.
Direct answer: Cash accounting records income when the money arrives and expenses when they are paid. Accrual records them when earned or incurred. Cash is simpler and suits most small service businesses; accrual gives a truer picture when you carry inventory, invoice on terms, or seek financing, and some businesses are required to use it. The method is reported on the return and is not freely switched.
Direct answer: Income tax and FICA withheld from wages are deposited on a set schedule, reported quarterly on Form 941, with federal unemployment tax reported annually on Form 940. W-2s go to employees and to the Social Security Administration after year end. In Texas, quarterly wage reports also go to the Texas Workforce Commission. Your deposit schedule depends on the size of your payroll.
Direct answer: The IRS weighs the whole relationship through three lenses: behavioral control over how the work is done, financial control over the business side of the arrangement, and the type of relationship, including contracts and benefits. No single factor settles it. Getting it wrong is expensive, because a reclassified contractor brings back payroll taxes and penalties with them.
Direct answer: Because withheld tax was never the company's money. Amounts withheld from employees are held in trust for the government, and the trust fund recovery penalty — equal to the entire unpaid trust fund amount — can be assessed personally against any responsible person who willfully failed to pay it over. Corporate or LLC structure does not shield an owner from it.
Direct answer: By default a single-member LLC is disregarded for federal income tax: business income and expenses are reported on Schedule C with the owner's Form 1040, and net profit is subject to self-employment tax. The LLC is still a separate legal entity for liability purposes, and it can elect to be taxed as an S corporation or C corporation instead.
Direct answer: Not by itself. An LLC is a state-law liability structure; forming one does not change the default federal tax treatment of the income. Tax savings come from what you do afterwards — electing S corporation treatment where the profit justifies it, putting a retirement plan in place, and documenting deductions properly. The liability protection is the reason to form one.
Direct answer: Most single-member LLCs need a CPA once the business is profitable enough to owe quarterly estimated tax, once payroll or 1099 contractors are involved, or once an S corporation election is on the table. Before that point the value is mostly in setting up clean books, so the first profitable year does not have to be reconstructed from bank statements.
Direct answer: Get an EIN from the IRS, open a bank account in the entity name, decide how the LLC will be taxed, set up books from the first transaction, and register with the Texas Comptroller for franchise tax reporting. An annual franchise tax report is due each 15 May even in years when no tax is owed. Local permits depend on the city and the activity.
Direct answer: You need one if you have employees, operate as a partnership or corporation, or file employment or excise tax returns. Even a single-member LLC with no employees usually wants one, because banks generally require it to open an account in the entity name and it keeps your Social Security number off vendor paperwork. It is free and issued directly by the IRS.
Direct answer: For most owner-operated Texas businesses the LLC is the default: it provides liability separation with far less formality, and it can still elect to be taxed as an S corporation or a C corporation later. A corporation earns its extra formality mainly when outside investors, share classes, or a particular benefit plan require it. The liability question and the tax question are separate decisions.
Direct answer: Before the first transaction, not before the first tax return. Opening a dedicated bank account and choosing a system on day one costs almost nothing. Reconstructing a first year from personal bank statements costs real money and usually loses deductions that had no record behind them. It is the cheapest tax planning a new business will ever do.
Direct answer: An S corporation is a tax election, not an entity type. An eligible LLC or corporation files Form 2553 to be taxed under Subchapter S, after which profit and loss pass through to the owners' personal returns on Schedule K-1 and the entity files Form 1120-S. Election deadlines are strict, and late elections need relief under IRS procedures.
Direct answer: A sole proprietor pays self-employment tax on all net profit. An S corporation owner is instead paid a reasonable salary through payroll — subject to Social Security and Medicare tax — while remaining profit is distributed without self-employment tax. The saving is real but partly offset by payroll administration, a separate return, and the compensation requirement below.
Direct answer: The IRS requires an owner who performs services for an S corporation to be paid reasonable compensation as wages before non-wage distributions are taken. There is no formula; the standard is what similar businesses pay for similar work in the same market. Underpaying the salary is one of the most reliably examined positions on a small S corporation return.
Direct answer: Relief is often available. Form 2553 is normally due within two months and fifteen days of the start of the tax year the election should take effect, but the IRS grants late-election relief to entities that intended to be S corporations, have reasonable cause for the delay, and have otherwise behaved consistently with the election. The relief is requested on the Form 2553 itself.
Direct answer: Yes. The IRS identifies certified public accountants, attorneys, and enrolled agents as the three credentials with unlimited representation rights, meaning they may represent any client on any tax matter — audits, payment and collection issues, and appeals — whether or not they prepared the return. Representation is authorized on Form 2848, Power of Attorney and Declaration of Representative.
Direct answer: Read what the notice actually asks for and note its response date — most notices propose a change rather than demand immediate payment, and the response window is short. Do not ignore it and do not pay a proposed amount before it is checked against your records. Bring the notice, the return it refers to, and the underlying documents to your CPA.
Direct answer: A CP2000 is an automated underreporter notice: information reported to the IRS by employers, banks, or payers does not match the return you filed, and the IRS proposes a change. It is a proposal, not a bill, and it is frequently wrong when basis, offsetting expenses, or duplicate reporting is involved. Respond by the stated date, agreeing or disagreeing with support.
Direct answer: File anyway. Failure-to-file penalties accrue far faster than failure-to-pay penalties, so filing on time and paying late is almost always cheaper than doing neither. The IRS offers online payment agreements for balances within published limits and installment arrangements for larger ones. Interest keeps running throughout, so paying part of the balance still helps.
Direct answer: Generally three years from the date the return was filed. That extends to six years where gross income was understated by more than 25%, and there is no time limit at all where a return was never filed or where fraud is involved. This is precisely why supporting records should be kept for as long as the assessment period stays open.
Direct answer: Rental income and expenses are generally reported on Schedule E. Rent received is taxable when received, and ordinary and necessary expenses — mortgage interest, property tax, insurance, repairs, management, and depreciation — are deducted against it. Improvements are capitalized and depreciated rather than deducted in the year paid, which is where most self-prepared rental returns go wrong.
Direct answer: The building — not the land — is depreciated over 27.5 years for residential rental property and 39 years for non-residential property, using the straight-line method. Depreciation is not optional in effect: gain on sale is calculated as if it had been claimed, so failing to take it costs the deduction without avoiding the recapture.
Direct answer: Usually only within limits. Rental activity is generally passive, so losses offset passive income rather than wages. Taxpayers who actively participate may deduct up to $25,000 of rental loss against other income, phased out between $100,000 and $150,000 of modified adjusted gross income. Real estate professionals meeting the material participation tests are treated differently.
Direct answer: Two clocks start on the day the relinquished property closes: replacement property must be identified in writing within 45 days, and the exchange must be completed within 180 days, or by the due date of that year's return if earlier. Since 2018 like-kind exchange treatment applies to real property only, and the exchange is reported on Form 8824.
Direct answer: Depreciation lowers your basis while you hold the property, which increases the gain when you sell. The part of that gain attributable to straight-line depreciation on real property — unrecaptured section 1250 gain — is taxed at a maximum rate of 25% rather than the lower long-term capital gain rates. It applies whether or not the depreciation was actually claimed.
Direct answer: An independent contractor is taxed as a business, not an employee. Net profit is reported on Schedule C and is subject both to income tax and to self-employment tax, which covers the Social Security and Medicare contributions an employer would otherwise split with you. Because nothing is withheld, quarterly estimated payments are usually required.
Direct answer: Expenses that are ordinary and necessary for the business: supplies, software, professional fees, business insurance, advertising, business travel, the business share of vehicle use, and a qualifying home office. The test is business purpose plus documentation. Deductions fail in examination far more often for missing records than for being the wrong kind of expense.
Direct answer: A business that pays an unincorporated service provider for work during the year generally files Form 1099-NEC and sends the recipient a copy in January. Collect a Form W-9 before you pay anyone, not in January — that is when the taxpayer identification number is easy to get. Filing thresholds have changed recently, so check the current-year instructions.
Direct answer: The space has to be used regularly and exclusively for business, and generally must be your principal place of business. Two methods are available: a simplified per-square-foot calculation, and an actual-expense method that allocates a share of rent or mortgage interest, utilities, insurance, and depreciation. Exclusive use is where most claims fail — a desk in a shared family room does not qualify.
Direct answer: You can deduct the business-use share, using either the standard mileage rate or actual expenses including depreciation. Both require a contemporaneous mileage record: date, destination, and business purpose. Commuting between home and a regular workplace is never deductible. The choice between the two methods is constrained once made for a given vehicle, so decide it in the first year.
Direct answer: The common options are a SEP-IRA, a SIMPLE IRA, and a one-participant ("solo") 401(k). A solo 401(k) usually allows the largest contribution at moderate income because the owner contributes both as employee and as employer, but it carries more administration. Which plan wins depends on profit, whether you have employees, and cash flow.
Direct answer: No. A deductible retirement contribution by a self-employed person reduces income tax but is taken after self-employment tax is computed, so the 15.3% self-employment component is unaffected. Reducing self-employment tax generally requires a structural change, such as an S corporation election with reasonable compensation — a decision to model, not to assume.
Direct answer: For some plans, yes. A SEP-IRA can generally be funded up to the due date of the return including extensions, which makes it the usual choice when planning happens after year end. A solo 401(k) has earlier deadlines for the employee deferral election, so it normally has to be in place during the year it applies to.
Direct answer: Mary Ann Hair, CPA works with clients across the Houston metropolitan area, including Cypress, Katy, Spring, Humble, Sugar Land, The Woodlands, Pearland, Clear Lake, Friendswood, Conroe, and League City. The practice is a service-area business rather than a walk-in office: documents are exchanged through a secure client portal and meetings are held by phone, video, or in person by arrangement.
Direct answer: No. Documents can be uploaded to a secure client portal and meetings held by phone or video, which is how many Houston-area clients work year-round — particularly those outside the immediate north-west Houston area. In-person appointments remain available by arrangement for clients who prefer to review a return face to face.
Direct answer: No. Texas imposes no personal income tax, so most individuals file only a federal return. Business owners still face the state franchise tax reported to the Texas Comptroller each May 15, and anyone with income sourced to another state may have a non-resident filing requirement there — a common situation for Houston consultants and remote workers.
Direct answer: Possibly. Texas has no personal income tax, but other states tax income sourced to them, and a Houston consultant, contractor, or remote employee working across state lines can create a filing obligation there. The rules differ by state and by whether you are an employee, a contractor, or an entity. Check before the work starts rather than after.
Direct answer: Yes. Every taxable entity formed in or doing business in Texas has an annual franchise tax obligation reported to the Comptroller by 15 May. Entities at or below the no-tax-due revenue threshold — $2,650,000 for 2026 and 2027 reports — may file an information report rather than a tax report. Missing the filing can put the entity's right to transact business at risk.
General information for Houston-area taxpayers and business owners. It is not tax, accounting, or legal advice — your own facts, records, deadlines, and filing history change the answer.
Reviewed by Mary Ann Hair, CPA. Last updated May 9, 2026.
General answers only go so far. Bring your prior-year return and we will tell you what actually applies to you.