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!

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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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Paying for College: Student Loan Interest Deduction Explained

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet certain criteria related to annual income, a legal obligation to pay interest, and the amount of interest actually paid during the year one is filing.

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet criteria related to annual income, a legally-observed obligation to pay interest, and the amount of interest actually paid during the year in which one files.

Married couples can claim the interest deduction only when filing jointly. The IRS allows one to deduct up to $2,500 annually for any interest paid on student loans which meet federal requirements. Any amount of interest above the threshold of $2,500 doesn’t count, nor can any deduction exceed the actual amount of interest paid.

Interest generated via the various types of educational loans can qualify for the deduction, including: interest on the loan itself, interest on any consolidations, and interest accumulated via lines of credit. The most important qualifier for determining eligible interest involves the intention of money borrowed, any money was used for educational expenses is generally applicable.

Deductions Versus Credits

Tax deductions differ from credits. Credits reduce the total of tax owed whereas deductions reduce the amount of income which can be taxed. The Student Loan Interest Deduction can be taken for up to $2,500 of any interest actually paid in the previous tax year. Deductions lower one’s revenue by the amount of the deduction. Therefore, the actual amount of income tax is lowered along with the tax burden and total bill which one pays.

Forms

Appropriate filing procedures for the Student Loan Interest Deduction are claimed as an adjustment to income, and therefor do not need to be itemized. Filers cannot take such deductions on Form 1040EZ. However, the deduction can be taken on line 18 of Form 1040A or on line 33 of Form 1040, both of which can be submitted via the free IRS efile process.

The cost of college seems never-ending to someone in the doldrums of student loan debt. However, interest paid can often be replenished via a tax return for those who qualify, which helps ease the burden. As with most tax scenarios, understanding the proper filing procedures and following the correct protocol can contribute to a much larger tax reimbursement.

Citations:

Katei Cranford is a writer who shares her expertise of financial situations for students and graduates.

Tax Tricks for Homeowners

Tax Tips & Tricks for Homeowners

Although gaining the status of homeowner can be a monumental moment in your life, the responsibility and excitement can often overshadow one of the most appealing aspects of owning your home: tax deductions and savings! In fact, every bit of your property taxes and mortgage interest can be itemized on your taxes and result in impressive savings.

Savings that accompany homeowner-ship can pave the way for allowing you to afford a home they you may not otherwise be able to even consider. In addition to property taxes stemming from mortgage interest and property taxes, you can also deduct some of your closing costs. Profits that are gained after a home is sold are tax deductible, highlighting yet another benefit you can experience through the purchase of a home. Saving money and taking advantage of being a homeowner is easy with these simple tax tips and tricks:

You Got to Itemize

While you may ultimately discover that accepting the standard deduction provides you with the greatest tax benefit, it is worth the effort and time to insure that itemizing does not provide greater savings. Itemizing can give you a way to compare what you could receive with the standard deduction you may have always taken when filing taxes in the past. Whether you are using tax software or completing your taxes by hand, take the time to itemize and insure you will receive the highest benefits possible accompanying your status as a homeowner.

Home Office Deductions

It can be an obvious fact that deducting a home office on your taxes can provide savings, but it is important to weigh the benefit of annual home office deductions with capital gains taxes. Capital gains taxes are only exempt for residences, making the deduction of a home office a problem if you hope to receive such exemptions if you sell your home in the future. Seeking the help of a tax professional can be a great way you can discover whether the deductions that come with a home office are worth taking in contrast with capital gains exemptions.

Foreclosures, Short Sales and Loan Modifications

One of the risks of buying a home is the high levels of foreclosures and other struggles homeowners can run into. But while losing one’s home is a risk we take when purchasing property, the current housing outlook gives us some protection if you do ever have to endure such hardships. Although a mortgage may be erased if foreclosures, short sales or modifications occur, the mortgage amount will still be taxed as a Cancellation of Debt Income, according to the IRS. Losing a home to foreclosure can be trying enough, but after 2012, exemption from paying taxes on lost property or modified loans will come to an end. The Mortgage Debt Forgiveness Relief Act is only good until 2012, making it much less risky for you to purchase a home before the act expires.

Is Refinancing for You?

Refinancing has been a hot topic as of late. In fact, you may have friends and family rushing to refinance their home in order to take advantage of historically low interest rates. While refinancing can be a good option, it can result in some lost tax savings that could have outweighed the interest rate savings you expected. A lower interest rate that results from refinancing your home can actually result in lower tax savings. The bottom line: paying lower interest as a result of refinancing your home will result in less tax savings.

Closing Costs

With the excitement of home ownership and purchasing property, it can be easy for you to overlook the closing costs that can be deducted from taxes, just as mortgage interest and property taxes can. Whether you paid the closing costs for the home you bought or plan on purchasing or the seller paid them, closing costs are tax deductible. How much you paid, or the seller paid, for closing, can be found on your HUD-1 form or by calling your realtor.

Anastacio Mindiola is an accomplished attorney and business owner. His company helps home and business owners protest property taxes in Houston and the surrounding counties. For more information on how you can lower your property taxes visit http://www.republicpropertytax.com.

Tax Deductible Expenses for Small Businesses

Small business expenses are those expenses that you incur every other day as you run your business. These expenses are usually allowed as deductibles when filing your tax returns. The IRS has defined business expenses as those expenses that must exist and are therefore necessary and ordinary in the business.

In a business that produces goods, any costs that are incurred in the production of a good are considered to be deductibles. A business that deals in the production of quilts is expected to incur expenses in fabric, thread or even batting. Other expenses that it may encounter include freight charges as it receives the materials, storage costs, costs to the factory and even labor costs.

There are rules that are used to determine the expenses that need to be deducted as direct in a business as tax returns are being filed. In order to effectively identify the deductible expenses you should consider hiring a tax accountant who can guide you and determine the IRS laws and regulations that apply to your business. In the midst of all the costs you incur in your business, there are those that can not be included as expenses. The best example of such costs includes the capital expenditures which fall under different classes: Assets Start up costs and Improvements.

A common practice found in small business owners is the fact that they use their own personal income to operate their business. They also incur personal expenses as they run the business, such expenses are not deductible. Your tax accountant can guide you on how to differentiate these expenses and deduct them appropriately. You should follow the advice given as you also keep all the records of your business so that you have an easy time when filing your tax returns.