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One of the biggest hurdles you’ll face in running your own business is how to stay on top of your obligations to federal, state, and local tax agencies. A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records.
Here is a list of some common small business tax misconceptions:
1. All Start-Up Costs Are Immediately Deductible
Business start-up costs are the expenses you incur before you actually begin business operations. Your business start-up costs will depend on the type of business you are starting. They may include costs for advertising, travel, surveys, and training. These costs are generally capital expenses.
You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation. You can elect to deduct up to $10,000 of business start-up costs and $10,000 of organizational costs paid or incurred in the year that you start a business. The $10,000 deduction is reduced by the amount your total start-up or organizational costs exceed $60,000. Any remaining cost must be amortized and you must spread out the remainder of your start-up costs over 15 years (180 months).
2. Being incorporated enables you to take more deductions.
Aside from health insurance, deductions for the self-employed (sole-proprietors and S Corps) are very similar to corporate deductions. For many small businesses, being incorporated is an unnecessary expense and burden..
3. The home office deduction is a red flag for an audit.
This is no longer as true as it once was. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. A high deduction-to-income ratio tends to lead to an audit.
4. If you don’t take the home office deduction, business expenses are not deductible.
You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.
5. Taking an extension on your taxes is an extension to pay taxes.
Extensions enable you to extend your filing date only. If you do not pay taxes on time, penalties and interest begin accruing from the due date.
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Tags: myths, tas season, Tax
Posted in Accounting, Auditing, Tax, small business | No Comments » |
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Gather and organize RELEVANT receipts. Examples include:
- Charitable Contributions* – You must have a written acknowledgement from the charitable organization to support donations of $250 or more.
- Medical Expenses* – If you believe your unreimbursed medical expenses for 2011 exceeded 7.5% of your adjusted gross income, you will need to add up the receipts for all of these out of pocket costs. If your medical expenses weren’t that much, don’t bother.
- Sales Tax* – You can elect to deduct state sales tax paid during 2011 in lieu of state income taxes. The IRS provides a table for calculating your state sales tax deduction based on your income for the year. If you prefer, you can add up the actual sales tax you paid on all of your 2011 receipts to calculate your deduction. If you made a major purchase, like buying a car, the actual sales tax paid on this transaction can be added to the amount from the IRS table. So, you should at least find the receipt from your car purchase.
- Real Estate Taxes* – Keep the receipt for the real estate taxes you PAID in 2011. If your real estate taxes are paid through your escrow account, your deductible amount will probably be reported on the 2011 Form 1098 that you receive for mortgage interest.
- Unreimbursed Business Expenses – Receipts are needed to claim this deduction.
- Child or Dependent Care Expenses – Request a statement from the care provider reporting the expenses you paid during 2011. You may be eligible for a tax credit.
- Energy Efficient Home Improvements – You may be eligible for a tax credit if you made energy efficient improvements to your home during 2011. You will need the receipt evidencing payment for these improvements as well as a tax credit certification statement from the manufacturer of the improvement property. Here are more details on the credit: http://www.irs.gov/newsroom/article/0,,id=249922,00.html
*Note: These deductions are only applicable if you can itemize.
- If you are a business owner, landlord, or farmer, hopefully you have kept track of all of your 2011 income and expenses from these business activities. At the very least, you should use a separate checking account for each business you operate. There are many types of accounting software that can help you record the business activity. Talk to your CPA if you have questions about accounting for your business income and expenses.
- Keep the 2011 year end statement from your Health Savings Account and Individual Retirement Account. Your contributions for 2011 may be tax deductible. Also, you have until the due date (without extension) of your income tax return to make deductible contributions for 2011.
- If you made quarterly estimated income tax payments to the US Treasury for 2011, list the dates paid and amounts paid. These will be subtracted from your total tax liability. Remember that the fourth quarter estimated tax payment for 2011 is due January 17th, 2012.
These steps will help you whether you prepare your own return or provide this information to your CPA. Don’t hesitate to ask your CPA if you have any questions. Good luck!
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Tags: tax prep, tax preparation, tax season, ways to file for taxes
Posted in Accounting, Entrepreneurship, Tax | No Comments » |
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Ways to Prepare for Taxes
It’s that time of year again! The New Year starts the countdown until April 17th, 2012 (i.e. the due date of your 2011 individual income tax return). The best way to make the preparation of your income tax return as painless as possible is to be organized and thorough. Here are some steps for doing so:
Collect all of the tax documents mailed to you in one file. Some common forms you may receive:
- Form W-2, Wage and Tax Statement – If you were an employee during 2011, this document must be provided to you by January 31st, 2012.
- Forms 1099-INT, Interest Income, 1099-DIV, Dividends, 1099-B, Proceeds – You probably won’t receive these documents reporting your 2011 investment income until the middle of February.
- Form 1099-MISC, Miscellaneous Income – If you were an independent contractor during 2011 or received rents, royalties, etc., this document must be provided to you by January 31st, 2012.
- Form 1099-R, Distributions from Retirement Plans, IRAs, etc. – This document must be provided to you by January 31st, 2012
- Form SSA-1099, Social Security Benefit Statement – This document must be mailed to you on or before January 31st, 2012.
- Form 1098, Mortgage Interest State – This document must be furnished to you by January 31st, 2012.
- Schedule K-1 – These forms are issued to S Corporation shareholders, beneficiaries of trusts, and partners in partnerships/LLCs. You could receive these forms anytime from February through October. It just depends on when the tax return for the S Corporation, partnership, or trust is prepared. Thus, you may need to extend your individual income tax return if you are waiting on a Schedule K-1.
These steps will help you whether you prepare your own return or provide this information to your CPA. Don’t hesitate to ask your CPA if you have any questions.
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Tags: business owners, prepping for taxes, tax prep, tax season
Posted in Accounting, Entrepreneurship, Tax | No Comments » |
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Vacations are something that most people look forward to every year. But people taking vacations can make it difficult to maintain the operations of a business. How do you fill in for the person on vacation for the week? How does a business owner take a vacation without constantly checking in?
Cross Train Employees
Just because an employee goes on vacation does not mean that the work can stop. A company has to have the ability to shift the responsibilities of the person to others in the department. The best way to ensure that a person going on vacation does not impact your business is to cross train your employees. It is also a good idea to have a trial run. Have a week where everyone will perform other people’s jobs.
Enable employees to make decisions
As a business owner you will also need to get away at some point. Just as you cross train employees you will have to enable your employees to make the critical decisions necessary while you are gone. Giving employees the skills and ability to make these decisions will also benefit the company even when the owner is not on vacation. As an owner you will not be present on every phone call, customer visit or meeting with a supplier. Your employees will be is situations where a quick response will be very beneficial to the company. Read the rest of this entry »
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Tags: holidays, make money, travel, vacation
Posted in Entrepreneurship, small business | No Comments » |
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Late on December 22, House and Senate leaders agreed to end their stalemate over extending the payroll tax break.
Under the agreement, for the first two months of 2012, a 4.2% Social Security tax would continue to apply to workers’ pay (10.4% OASDI tax for self-employment income).
However, the agreement calls for new language to be inserted into the tax relief bill to prevent a potential payroll tax problem for employers. According to information provided by the House Ways & Means Committee, the revision would allow employers to withhold employee payroll taxes at 4.2% (instead of 6.2%) on all wages paid during the two-month extension period, subject only to the full 2012 wage base ($110,100) and without regard to the $18,350 cap (two-twelfths of the wage base of $110,100) on wages earned through the end of February, 2012. If an employee’s wages during the first two months of 2012 exceed $18,350, and the payroll tax reduction is not extended for the remainder of 2012, an amount equal to 2% of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012.
Both the Senate and House approved the bill on the morning of December 23. It will now be sent to the President for his expected signature.
Under the agreement, both Republicans and Democrats in the Senate and House will immediately appoint negotiators to a conference to forge a full-year extension of the payroll tax reduction.
Detailed Update to Post below:
Payroll tax cut temporarily extended; employers instructed on how to implement new rate
IR 2011-124
On December 23, Congress passed, and President Obama signed into law, H.R. 3765, the “Temporary Payroll Tax Cut Continuation Act of 2011” (the TTCA). The tax provisions of the TTCA consist of a two-month temporary extension of the payroll tax cut that’s in place for 2011, plus a parallel extension of a lower Self-Employment Contributions Act (SECA) tax rate on self-employment income. In a related news release, IRS also provided guidance to employers on how and when to implement the new rate. Read the rest of this entry »
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Tags: bill, house and senate, Tax
Posted in News, Tax, small business | No Comments » |
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In general, taxpayers may deduct ordinary and necessary business-related expenses for traveling away from home, and entertaining clients and customers. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business.
Taxpayers who deduct these expenses must exclude personal expenses when computing their deductions and must have documentation for the expense, including statement of the business purpose, names of the persons being entertained, date and location. In addition, generally only 50 percent of business meal and entertainment expenses can be deducted.
Travel
Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable.
Entertainment
Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Read the rest of this entry »
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Tags: benefits, entertainment, life, savings, Tax, travel
Posted in Financial Planning, Miscellaneous, Tax | No Comments » |
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As we all head home from our Thanksgiving feasts with family and friends, our minds quickly shift to the Christmas season. How will we handle the busiest time of year both with our time and financially? In addition to our normal daily responsibilities at home and work, we also will have to manage the parties, shopping, and stress of the season.
With all of the added responsibilities and stress it is easy to lose focus and miss a customer or client deadline, a child’s Christmas party or program, or forget a present for that special someone. Also, for more on how to swing the Christmas Holiday financially please see – 6 Ways to Budget for the Holidays. Here are some ideas on how to manage everything on our plate and still hit those targets at work.
1) Scheduling – We all try to work from a schedule at the office or workplace, and do a pretty good job of planning and putting all the projects/tasks on a schedule. Whether it’s a sales meeting, customer or client deadline, or month-end financials are due; we schedule our time to get these things done accordingly. You should include your personal items on the schedule as well. Block out specific time for all of your tasks both work and personal and stick to the schedule. A calendar or schedule helps us to stay efficient because we only have a limited amount of time for each task/project. You don’t want to be doing work or all of your shopping once your Christmas vacation starts.
Read the rest of this entry »
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Tags: budgeting, christmas, holidays, vacation
Posted in Accounting, Uncategorized | No Comments » |
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 It is that time of year again, and many of us are starting to think about Christmas shopping. Instead of grinding out those last second, last resort ideas (nobody enjoys getting useless junk, but it is the thought that counts, right?), or going into credit card debt over a second cousin, twice removed, here are 6 ideas to help you budget for the holidays.
1) Start Early
Starting early gives you the flexibility to choose the gifts you want to give (rather than picking through the leftovers that remain the week of Christmas). This will also give you the time to shop smart – the more time you have, the more patient you can be, the more opportunities you will have to find the best deals.
2) Make a List
By making a list of people you are buying for, you can make sure you stick to your plan. This will allow you to stay on task and not purchase unnecessary gifts. Make sure your list is complete – you don’t want to be on Aunt Helen’s naughty list.
3) Set a Limit
Before you head out into the “lion’s den,” figure out the amount you want to spend. Make sure your budget is sufficient to allow for your planned spending. Once you have settled on a total (this should be a negotiation with yourself…do not go with the first number that comes to mind. TRIM THE FAT), allocate the total against the list of people you want to buy for.
4) Cut out Unnecessary Spending
Leading up to Christmas shopping, it is helpful to cut out unnecessary spending to soften the blow of the Christmas splurge. Try cutting out your daily skinny cinnamon dolce latte from Starbucks, protein bar, or your stop at the local Baskin Robbins. Five dollars a day is five dollars a day.
5) Use Coupons
Don’t be ashamed…no one will know. It is ok to open the Sunday paper to peruse for coupons. Groupon is also a great option for cost cutting for Christmas gifts. Also, many coupon sites online offer gift cards for discounted rates.
Read the rest of this entry »
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Tags: budget, christmas, holidays, saving, shopping, trimming
Posted in Financial Planning, Miscellaneous | 1 Comment » |
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When should I retire? How much do I need to save before I retire? Where will I live during retirement? All of these questions are a concern for our aging population.
The answers to these questions are dependent upon several factors, such as:
- What does it cost to meet my basic needs?
- Will my health hold out until my expected retirement age?
- Will my job be more demanding as I age and will I be able to deal with the additional stress?
- Are my co-workers counting the days until I leave? I feel that I am productive, but when will I no longer be able to produce quality work?
- Will I have enough money to travel and to enjoy other luxuries? Read the rest of this entry »
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Tags: estate, retire, retirement, when retire, when to retire
Posted in Miscellaneous, Tax | No Comments » |
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5 Misconceptions Small Business Owners Have About Their Returns
One of the biggest hurdles you’ll face in running your own business is how to stay on top of your obligations to federal, state, and local tax agencies. A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records.
Here is a list of some common small business tax misconceptions:
1. All Start-Up Costs Are Immediately Deductible
Business start-up costs are the expenses you incur before you actually begin business operations. Your business start-up costs will depend on the type of business you are starting. They may include costs for advertising, travel, surveys, and training. These costs are generally capital expenses.
You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation. You can elect to deduct up to $10,000 of business start-up costs and $10,000 of organizational costs paid or incurred in the year that you start a business. The $10,000 deduction is reduced by the amount your total start-up or organizational costs exceed $60,000. Any remaining cost must be amortized and you must spread out the remainder of your start-up costs over 15 years (180 months).
2. Being incorporated enables you to take more deductions.
Aside from health insurance, deductions for the self-employed (sole-proprietors and S Corps) are very similar to corporate deductions. For many small businesses, being incorporated is an unnecessary expense and burden..
3. The home office deduction is a red flag for an audit.
This is no longer as true as it once was. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. A high deduction-to-income ratio tends to lead to an audit.
4. If you don’t take the home office deduction, business expenses are not deductible.
You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.
5. Taking an extension on your taxes is an extension to pay taxes.
Extensions enable you to extend your filing date only. If you do not pay taxes on time, penalties and interest begin accruing from the due date.
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| Posted in Accounting, small business | No Comments » |
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