Slash Your Taxes With These Helpful Tips
Let’s face it. You work hard every day in your business, finding new customers, managing expenses and hopefully earning profits. And when that happens, of course, the government will want their fair share!! And yet, with a little bit of effort and the right amount of professional guidance your tax accounting experience can go from frustrating and costly to simple and not quite so expensive.
Here are just a few areas that you’ll want to focus on to minimize the amount of money you’ll be sending to your friends at the local, state and federal taxation authorities while avoiding problems.
Deductions, Deductions, Deductions
According to the law your business can deduct all “ordinary and necessary” business expenses from its revenue to reduce its taxable income. Many of these expense deductions are obvious — business travel, mileage, equipment, salaries, or rent. But the rules governing write-offs aren’t always simple. Don’t overlook these potential deductions:
* Training for employees. several types of training for company employees may be deducted as long as the relationship between training and job roles is apparent.
* Purchases financed by business loans or credit cards. These costs can be deducted in the year the purchases are made even if they won’t be paid off until sometime in the future.
* Business Loans. The principal and interest you pay on your loan are business expenses and when classified correctly you can deduct them from your taxes.
* Startup expenditures. Only a portion of expenses related to starting up a business can be deducted — $10,000 of general startup costs, and $5,000 of organizational costs. Additional expenses must be amortized over 180 months once the company is up and running.
Pay Your Sales Tax
Generally, services provided are exempt from sales tax, while products sold are taxable. Knowing how to bundle services and products efficiently can help to save some types of products from tax. A knowledgeable tax accountant can help you manage these bundles for maximum effect.
If your business sells a product or service that is subject to sales tax, you’ll need to register with the state’s tax department. Of course you’ll need to track taxable and nontaxable sales and report them accordingly on your return.
Managing Payroll Taxes
If your business has employees, a variety of taxes will have to be withheld from their salaries. These are usually referred to as “payroll taxes”. The three primary payroll taxes are:
* Withholding. Social Security (FICA), Medicare, and federal and state income taxes must be withheld from employees’ pay.
* Employer matching. Businesses must match the FICA and Medicare taxes and pay them along with employees.
* Unemployment tax. Businesses must pay federal and state unemployment taxes.
If you use contractors in your business, make sure that they meet the specific definition of a contractor according to the federal government. A good overview can be found here: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
Make Sure Quarterly Estimated Taxes Are Correct and On-Time
Below are the most common pitfalls for small businesses, especially home-based businesses and entrepreneurs because they are easy to lose track of. However, quarterly estimated tax lapses can lead to cash flow problems and unfortunately IRS penalties, so it pays to stay on top of them.
* Do they apply to you? Probably. If your tax bill by year’s end will exceed $500 you’ll need to calculate and pay quarterly estimated taxes.
* How much is enough? As with all things related to taxation, quarterly estimated taxes can be a bit confusing as well. In general though you’ll need to have paid at least 90% of the taxes you owe or 100% of the previous year’s taxes. One caveat, if your business income is greater than $150,000 you’ll be required to pay 110% of your prior year’s tax bill.
Avoiding the Awful Audit
Let’s wrap up with one of the biggest reasons why you want a professional tax accountant on your side : Tax Audits.
If thinking about an audit is enough to make you queasy, then just try to imagine what you’ll feel like when you don’t even have the support of a professional taking care of your returns and making sure your audit goes smoothly.
There are many types of audits and they range from simple requests for specific types of information to comprehensive reviews that will examine virtually every detail of your business.
There are many types of audits, from bad to worse….:
* Correspondence Audit: essentially a request for information conducted through the mail.
* Office Audit: You report to a nearby IRS office to review and document items on your return.
* Field Audit: Meeting with an IRS agent and digging into the details of your return. This is what most think of when they hear “audit”.
* Taxpayer Compliance Measurement Program Audit: You’ll be asked to document and prove every item on your return. Participants are chosen at random and the results are used by the IRS and Congress for statistical purposes.
* Criminal-Investigation Audit: This is a very serious audit, it is used if you are suspected of tax evasion. If you are proven a tax evader… watch out.
Lexus Stimson is a plantation owner in Jackson, MS. He has gotten many tax tips from his accountant over the years. He found this site’s section on tax planning in Aurora to be helpful. For more information, click here or call 630-898-5578.
When is it Time to Involve a Professional in Your Tax Preparation?
Does just the thought of preparing taxes on your own make you sick to your stomach? Or perhaps you are just concerned about making costly mistakes on your tax prep? How many times have you read the words “Please consult with your tax advisor?”
If any of these questions resonate with you, it may be time to consider hiring a professional income tax preparation service.
As taxpayers, we are required to file accurate tax returns on time. The reality is that the tax code is extremely complicated and meeting the requirements of accurate and timely filing becomes more difficult as the taxpayer’s income and deductions rise.
Generally speaking, people with only wage and interest income who are taking the standard deduction should be able to prepare their own returns. These folks may choose to hire a tax preparer just for the ease of preparation or to ensure they are getting all the deductions and credits they can.
Tax preparation software programs may be a good option for those who choose to prepare their own returns. They will generally be cheaper than hiring a professional tax preparer and will make the job faster and easier than doing it by hand.
However, once your tax return becomes more complicated it is usually time to bring in a professional. Any one of the following situations can complicate your returns and should tell you that it is time to see a professional.
* You own, sold or started a business.
* You have many investment losses or gains.
* You have capital asset transactions.
* You’ve bought a home or have other real estate transactions.
* You receive real estate rental income.
* You’ve had a change in marital status.
* Your income and residence are not in the same state or country.
* You have trust fund transactions.
* You’ll be completing a Schedule for self-employment income
Advantages of Hiring a Professional Tax Preparer
Your Time
In 2007, it was estimated by the IRS that the average person spent around 25 hours preparing tax returns. A professional can save you that time and the accompanying headache too!
Tax Preparation Fees May Be Deductible
Assuming you itemize, any fees you incur while preparing for your taxes can be deducted on Form 1040 as long as the sum of your miscellaneous deductions you are claiming here is greater than 2% of your adjusted gross income.
Save the Frustration
Filing tax returns is not only confusing and complicated, it is constantly changing. Every year, the Federal tax code is adjusted. Therefore, it is nearly impossible for the average person to stay up to date.
More Deductions and Credits
Even the best tax preparation software programs are not perfect in finding every single deduction and credit for your situation. The more complicated your tax situation, the more likely that something will be missed.
Audit Assistance
If you are faced with a dreaded IRS audit, only a CPA, Enrolled Agent, or Tax Attorney can deal with the IRS on your behalf. If you have self-filed, you’ll be going it alone.
Better Accuracy
Even if you are confident in your ability to file your taxes, mistakes are inevitable. Many professional tax preparers use software to double check their work and catch errors before filing.
More Convenience
The pressure of filing taxes is not to be underestimated. Many people choose to seek help for this reason alone.
In closing, you might consider that even Brad Smith, the CEO of Intuit, maker of TurboTax hires a professional tax preparer. As reported in USA Today, Smith was asked “Do you use TurboTax to file your own tax return?” He responded, “I use it every year to help my mom do her taxes and my brother. (I) have situations with trusts and things, (so) I’ve used someone to help me with my taxes the last couple of years. I do go through my own taxes with TurboTax and compare it (with my accountant’s results).”
Mercedes Johnson is a small business owner in St. Louis, MO. She spends a lot of her free time learning about running a business. She found this site, http://www.kleinhallcpa.com/taxprep.php, about tax preparation in Naperville to be helpful. For more information, call 630-898-5578.
How Forensic Accounting Can Help Your Business Prevent Fraud
Fraud is a concern for any business which employees employees, accountants or other hired professionals which have access to the business income receipt or funds. Essentially, all businesses are at risk of fraud to some degree. Fraud is most commonly committed in the form of embezzlement or skimming, acts which can be difficult to detect, even in small business settings.
What is Forensic Accounting, and What is a Forensic Audit?
Forensic accounting is a financial service which concentrates on identifying or preventing fraud in business settings; forensic audits performed by forensic accountants focus on identifying ways in which a business is vulnerable to fraud or identifying fraud which is being committed. Professionals who are qualified to perform forensic audits gather concrete evidence which is admissible in a court of law.
Common Aspects of Fraud
Embezzlement is the most common form of fraud in business settings. People who commit embezzlement typically do so systematically, in small amounts to avoid detection. Without the help of a forensic audit, embezzlement can often continue over a long period of time, adding up to significant financial losses for the company against which fraud is being committed. If tried, civil fraud cases (cases in which the victim is an individual, not the public) are often settled out of court, meaning that the person who committed fraud is able to walk free and commit fraud again.
When a forensic accountant performs a forensic audit, he or she investigates the business financial records in search of patterns which could indicate skimming or embezzlement. Forensic accountants also perform thorough background checks of employees, since people who commit fraud often have a history of doing so.
Detecting Fraud through Forensic Auditing
Forensic audits involve a very detailed, thorough investigation of every aspect of a business financial activities and history, a process which may involve detective work.
Take, for example, a restaurant owner who suspects that one of his waiters is skimming cash from his or her tables. In order to take action against the employee, however, the business owner requires proof. A forensic accountant might begin by hiring trained professionals to dine at the establishment in order to observe the employee in question take orders, place orders at the kitchen, deliver food and complete sales at the cash register. The professional might find that the employee completed credit card transactions normally, but voided the sale whenever dinner was paid in cash, pocketing the cash.
By itemizing all voided receipts, the forensic accountant could determine exactly how much money the employee was skimming, providing the restaurant owner with the evidence needed to press charges.
Forensic Auditing and Fraud Prevention
Forensic audits are not only used for detecting fraud; a forensic accountant may also investigate a company to find any areas in which the company may be vulnerable to fraud. By identifying these areas with a thorough forensic audit, companies can take action to prevent fraud by following recommendations such as using video camera monitoring, increasing management involvement, segregating duties or performing random spot audits.
Maggie Segundas is an assistant to West Michigan forensic accountant Doug Zandstra. Mr. Zandstra is a CPA, EA and CFA with over 15 years’ experience. Based in Grand Rapids, Michigan, Mr. Zandstra provides expert forensic accounting services in cases involving fraud. To enlist Mr. Zandstra’s forensic auditing services, visit www.forensiccpaservices.com
IRS Gears Up to Business-to-Business Information Reporting Requirement
While an excise tax on tanning services was the first health care reform revenue raiser to hit the books, the Patient Protection and Affordable Care Act of 2010 also includes new Sec 6041 requirements with respect to reporting of payments made in the course of a payer’s trade or business.
For those of you running to your trusty copy of the IRC, Sec 6041 generally requires information returns to be made by every person (payer) engaged in a trade or business who makes payments (as defined in Sec 6041(a)) in the course of the payer’s trade or business that are in aggregate $600 or more to another person. Broadly, the new requirements (as reported in E@lert earlier this year) expand Sec 6041 information reporting requirements to apply to payments made to corporations and to include certain payments of gross proceeds with respect to property.
In order to provide guidance for the new law, which applies to payments made after December 31, 2011, IRS issued Notice 2010-51 requesting public input. While it proposed regs exempting payment of credit card purchases otherwise reportable under Sec 6050W, the Service did not issue proposed regs for the entire new law; instead opting for an approach that allows more flexibility. The notice allows for a 90-day comment period closing on September 29, 2010.
While the National Association of Enrolled Agents will be providing comments on behalf of the enrolled agent community, individual EAs are also welcome to provide individual comments. Should you be interested in providing comments, IRS has posted the following instructions on its website illustrating three methods of submission:
Email comments to: [email protected] Include “Notice 2010-51″ in the subject line. Mail comments to: Internal Revenue Service, CC:PA:LPD:PR ( Notice 2010-51), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Hand deliver comments to: CC:PA:LPD:PR ( Notice 2010-51), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.
Also, the government relations team would be interested in receiving a copy of your comments. Please copy them at [email protected] One suggestion, your response will be most effective if you focus on two things: the five specific questions on page four of the notice and real world examples. IRS attorneys, by and large, do not have the wealth of practical experience that enrolled agents have and that’s why the real world examples are so welcome.
Rizzolo Group has many years experience helping small business owners decrease taxes and improve profitability. You need the right financial data and the right tax preparer who knows accounting bookkeeping, payroll services and gives you timely advice. Rizzolo Group does that!
Audits, Are You Safe From One?
As of February the Internal Revenue Service has stepped up audits in an effort to increase its collections from taxpayers. Among the scheduled increase is a plan to audit 6,000 US companies in an effort to determine whether they have paid all of their required payroll taxes. These taxes fund Social Security and Medicare.
The audits, a component in the first statistical analysis since 1984, are designed to investigate the frequency with which companies misclassify workers in order to save money by not paying their share of FICA taxes, failing to pay taxes on fringe benefits such as bonuses and employee personal use of company vehicles and other payroll related obligations. IRS says that the companies will be randomly chosen.
“We think that businesses have changed significantly over the last 25 years,” said John Tuzynski, chief of employment tax operations at the IRS, in an interview on September 18, 2009. “This will help us find out where there are real issues that we have to address.”
Based on the 1984 data, the Treasury Department estimated in 2005 that US companies underpay employer taxes by around $14 billion annually. A particular area of concern is the classification of workers as independent contractors rather than employees.
Echoing the IRS’s sentiment, the Government Accountability Office said in August, 2009 that employee misclassification could be a significant problem with adverse consequences because it cheats the government out of tax revenue and employees out of labor protection. Typically, independent contractors do not qualify for benefits such as health insurance, overtime pay and unemployment insurance.
Mr. Tuzynski has aid that the audits are to be undertaken over a three year period and would also focus on S corporation officer salaries, company cars and corporate owned vacation properties. Most of the audits will be held in person; however IRS will also use internal information as a supplement. Mr. Tuzynski also said “We’re going to try to make it as least burdensome as we can.”
Employers are required to pay half of their employees’ FICA taxes which translate to 6.2% for Social Security and 1.45% for Medicare. These percentages are generally calculated using the employees’ gross wages. Employers are also required to pay both federal and state unemployment taxes on behalf of their workers. Independent contractors are required to pay the entire levy themselves.
The Bureau of Labor Statistics reported that 10.3 million workers, or about 7.4% of the workforce, were classified as independent contractors in 2005. It is unknown how many of these were misclassified.
Rizzolo Group has many years experience helping small business owners decrease taxes and improve profitability. You need the fight financial data and the right tax preparer who knows accounting bookkeeping, payroll services and gives you timely advice. Rizzolo Group does that!