Category: tax tips

IRS tax tips

10 Tax Tips For Small Businesses

Come tax time, owning a small business can be even more overwhelming than it normally is. Taxes can be confusing for any business owner, but may be more manageable if you keep these ten tips in mind.

  1. Keep a log of all of your business’ expenses. This can be a daily or weekly log, but it needs to be thorough. Detail the date of the expense, whom or what the money was paid to and the exact amount of money that was spent. Should you receive any confirmation numbers or other pertinent information in regards to an expense paid, be sure to attach it to your expense log so that it is easy to find come tax time.
  2. Know what you can and cannot deduct on your tax returns. Most small business owners end up losing money because they are not taking all of the deductions that they are legally allowed. A business owner can deduct for expected things such as home offices, travel time and insurance, but most don’t know that they can also claim deductions for things such as entertainment and meals. Be sure to keep receipts for your deductions as you will need to know the exact amounts that you have spent.
  3. Although deductions are great, be sure not to trap yourself. Try not to claim more in deductions that you actually earned as income in a tax year. This raises a red flag to the Internal Revenue Service (IRS) and may cause you to be audited. In the event that you are audited by the IRS, those receipts from the above will come in very handy.
  4. Save for retirement. Nobody wants to work his life away. You must earn income every year in order to qualify for a tax-deductive small business retirement plan.
  5. Don’t forget to save information about the equipment you buy for your business. A small business that spends less than 2 million on equipment may be eligible for up to $500,000 in deductions on that equipment. Repairs can also be tax-deductible on your return.
  6. Pay your payroll taxes. This may sound obvious, but many small business owners spend the taxes they withhold on payroll for other items for the business. This could leave you with a big bill come April 15. It is best to pay taxes quarterly.
  7. Look into health insurance credits. If you provide health insurance to your employees, you may be eligible for a tax credit. Check with a CPA for eligibility requirements.
  8. Hire a veteran. Veterans are in dire need of jobs and can benefit your business in many ways, including on your taxes. Certain veterans will allow you to be eligible for an expanded tax credit if you hire them during the tax season.
  9. Donate to charity. Not only is it a great community builder, it will benefit your tax return. Keep records of any non-cash items that you donate to charity. It will earn you extra tax credits with the IRS.
  10. Don’t be afraid to ask for help. If you are at all confused, it is best to call a professional CPA. It is better to pay for a CPA now than to mess up on your tax return and pay the IRS much more than the CPA would have cost.

Taxes don’t have to be confusing. Do some research and decide if it is more beneficial for you to prepare your return yourself or hire a professional. Either way, do not hide them in a corner and hope they go away as they will not!

[photo credit]

Michele Golden is a driven blogger and artiat from Vermont. Shes loves helping people save money, and make better decisions for their future. When she isn’t blogging shes studing to be a registered financial advisor or stock broker, whatever pays the bills.

5 Tips For Self-Employed Taxpayers

When an individual works for themselves, he or she is considered self-employed for taxes, which means the individual is responsible for paying and filing taxes on a scheduled basis. These individuals will have some advantages and disadvantages at tax time.

Five Tips For Self-Employed Taxpayers

  1. A self-employed individual will have to pay income and self-employment tax. The self-employment tax includes Social Security and Medicare taxes. Normally these taxes are withheld from an individual’s wages, but a self-employed individual will have to pay these taxes by filing a Form 1040 Schedule SE. However, the individual does get to deduct half of this tax from his or her income on Form 1040.
  2. The earnings will need to be reported on a Schedule C or C-EZ Tax Form. This form will show whether an individual made money from a business or had a loss from the business. It will be used in addition to the Form 1040 and Schedule SE.
  3. Sometimes, a self-employed person will have to make estimated tax payments during the year. Even though some people work as an employee on other jobs with taxes withheld, it is still important to make these estimated taxes if an individual has any self-employed income. An underpayment of taxes at the end of the year could result in a penalty. Therefore, making quarterly estimated tax payments will save the individual from being penalized for underpaying.
  4. If an individual had business expenses, these will be listed and deducted from the Schedule C earnings. The expenses must have concurred during the current tax year to claim as a deduction. A business expense is one that is common and necessary for the operation of that business.
  5. Many common deductions can be overlooked, such as printing business cards and postage. Forgetting about a deduction can cause an individual to pay more taxes.

An independent contractor or sole proprietor of a business will have different tax obligations than an employee. For instance, the self-employed individual will pay more Social Security and Medicare taxes than an individual who is not self-employed. An employer will pay part of these two taxes for their employees, but a self-employed individual will be responsible for all of the taxes.

How to Estimate Self-Employment Payments

  • An individual can use the income tax return from the previous year to get an estimate for payments.
  • Look at the income and the self-employment taxes to figure the payments.
  • If this is the first year for self-employment, the taxes can be estimated based on the income that an individual plans to earn that year.
  • Adjustments can be made to the estimated payments after the first quarter if the estimate appears to be too low or too high.

Self-employed individuals need to file accurate tax returns with the proper deductions. Keeping good records throughout the year will ensure that no deduction is overlooked. At the end of the year, the taxes will be easier to file when the information is accessible along with estimated payments.

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Some States Are Also Dreaming Of A Mega Millions Jackpot

People who are lining up to purchase tickets for the Mega Millions Jackpot are not the only ones who are dreaming of the astronomical $540 million lottery prize that someone might win on Friday. Several state governments are also hoping to get lucky because the win would result in a big tax bonus for them.

A single winner of the Mega Millions Jackpot could generate taxes of tens of millions of dollars to some lucky state if the lump-sum payout is chosen. This could mean funding some important social service programs that are currently scheduled to be chopped. This kind of tax money coming in to a state could pay for low income housing, more state troopers, or it
could keep keep taxes lower for everybody.

The prize for the Mega Millions Jackpot is now the largest in the history of the country. A single winner who chose the lump-sum payout could get nearly $390 million.

If the winner is from Rhode Island and chooses the single payout, the state would collect more than $23 million in taxes on the win.

Each state sets its own individual tax rate on lottery wins. For example, in New York, the state charges 8.82 percent. There are some states such as California that do not tax lottery wins.

Joe Testa, the tax commissioner of Ohio, says he is not  holding his breath, but he is rooting for an Ohioan to win.

State Senator David Lewis in Montana said he would use a tax windfall from the Mega Millions Jackpot to pay for spending on infrastructure.

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Millions In Cayman Islands Investment Funds For Romney

Republican presidential candidate Mitt Romney has disclosed that he has millions of dollars worth of investment funds set up in the Caribbean tax haven of the Cayman Islands. Romney, who has an estimated personal wealth of $250 million, has been paying a much lower tax percentage than most U.S. citizens: approximately 15% of his yearly income. He has previously kept his tax returns private, but financial transparency is now an expectation of presidential candidates.

Romney has a minimum of twelve investment funds containing as much as $8 million which are listed on the registry of the Cayman Islands, together with another investment on the securities records which he says has a worth of between five and twenty five million dollars which is also housed in the Caymans. Offshore banking and taxation authority, Washington lawyer Jack Blum has stated that Romney’s finances are an illustration of the faults of the tax system in the United States, calling them, “a poster child”.

However, Romney campaign officials insist that he follows full U.S. tax legislation and that wherever the investment funds were based he would still be paying the same amount. They maintain that the major reason for locating the investment funds offshore in the Cayman Islands was to attract foreign investors who would pay less tax, but that Romney himself has paid full U.S. taxes on the income that he received from the investment funds.

Rebecca J. Wilkins who is an expert on tax policy said that there is an estimated loss to the treasury of $100 billion each year as a result of investment funds situated in tax havens. However, she also added that the setting up of such offshore investment funds was neither illegal nor improper.

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