Starting Your Own Business? What You Need To Know About Your Taxes

 

starting your own business

Ditching the 9-5 world is something that most of us dream about. If you’ve been fortunate enough to leave the 9-5 world behind to start your own business, your tax outlook will change considerably. Here is what to expect in starting your own business:

Obtain an EIN (Employer Identification Number) While an EIN isn’t required if you’re a sole proprietor, it is a good idea. You’ll reduce your risk of identity theft if you use your EIN instead of your Social Security number when filing your taxes.

Choose a business structure: While it’s important to consult with an attorney prior to launching a business, there are four possible business structures to consider:

  • Sole proprietorship
  • LLC (Limited Liability Corporation
  • Partnership
  • C or S corporation

Each business model carries with it specific implications for your taxes, so it is vital that you enlist a qualified attorney or tax pro before starting out. They can advise you on the best business model to suit your needs and goals.

You can restructure your business as your needs and goals change over time.

Common deductions

As a business owner, you may have access to tax deductions that weren’t available to your in your 9-5 days. They can include:

  • Business-related meals, travel, and entertainment
  • Business-related auto expenses
  • Rent of office space or for home office use
  • Office equipment
  • Health insurance costs for your employees
  • Start-up expenses

You’ll need to keep accurate records of all income and expenses in order to claim any of these deductions. Keep all receipts related to your business deductions.

There is a variety of productivity software packages and apps that can help you keep this chore manageable over time.

Quarterly tax payments

Unlike the traditional work structure where you paid your taxes at the end of the year, as a business owner you are required to pay quarterly taxes if:

  • Your business is a sole proprietorship, partnership, or S-Corp shareholder
  • You expect to earn $1,000 or more from business activities

You are required to pay at least 90 percent of your tax balance in order to avoid significant fees and penalties. If you’re not sure how to calculate your quarterly taxes, be sure to consult with a qualified tax professional.

Starting your own business can be rewarding: no set schedules, no office politics, and the ability to perform work you truly care about.

Along with the rewards of small business ownership come a unique set of challenges: determining the ideal business structure, managing expenses and deductions, and a significant change in how and when you pay taxes.

Make the start-up phase of your business as easy as possible by consulting with a knowledgeable tax professional who can provide valuable input as you structure your business and establish yourself as a business owner.

 

Teen Taxes: What You Need To Know About Your Teen’s Summer Job

summer job

 

Taking on a summer job is a rite of passage. Most of us at one point or another in our teens worked fast food, babysat, mowed lawns or delivered newspapers to earn pocket money.

You might find your son or daughter creating their own business or taking on more traditional summer jobs. Either way, having a working teen in the family can affect your taxes.

Working in the family business

Gone are the days of kids working as free labor on the family farm. If you own a sole proprietorship or partnership, having your teen spend the summer working for you gives him or her a taste of business ownership, and gives you some tax breaks.

If your teen is younger than 18, you won’t have to withhold FICA taxes from their pay. You are also exempt from paying federal unemployment tax until your teen turns 21.

Claiming a working teen as a dependent

You can still claim your employed teen as dependent if they meet the following criteria:

  • They must live with you for more than half the year and
  • They don’t provide more than half of their own financial support year-round

If your teen files their own tax return while you are still claiming them as a dependent, they can’t claim their own personal tax exemption on their tax returns.

Self-employment

If your teen passes up traditional summer jobs in favor of self-employment, running their own business can bring them the flexibility and satisfaction typically not found with most summer jobs.

This rule also applies if they earn more than $600.00 working for someone else as an independent contractor, regardless of whether or not the employer issues a 1099 form at the end of the year.

Although a self-employed teen may not earn enough to be subject to federal income taxes, they may still be liable for self-employment taxes at the rate of 15.3% of their net profit.

Taking on a summer job is a good way for teens to save toward a car or for college. Teens aren’t just limited to babysitting or cutting lawns any longer. With the expansion of technology comes a host of job opportunities for teens, in addition to a more flexible work model.

Regardless of which path your teens takes to summer employment, being aware of the possible tax implications for both you and your child will eliminate some stressful tax-related surprises at the end of the year.

As with any tax matter, enlist a qualified tax professional who can answer questions regarding your specific tax scenario, and who can help your teen with their tax-related questions.

Top Tax Breaks For Young Adults

Young adults, tax breaks

 

If you’re currently a college student or have just started out in the workforce, you may think you’re not eligible for any tax breaks, especially if you’re single with no kids.

There are several tax breaks available for young adults and they can help reduce your overall tax liability at the end of the year. Sure, they’re not as generous as the tax deductions available to your friends with kids, but they can still reduce your overall tax liability.

Savers Credit: If you’re stashing money away into an IRA or employer-sponsored 401K, you’re in luck. You’ll receive a tax credit of up to $1,000. You’ll get a year-end statement from your employer’s 401K administrator or your IRA administrator verifying the amount you stashed away in savings.

The Saver’s Credit  only applies if you’re earning $45,000 or less each year.

Lifetime Learning Credit: You may be eligible to deduct up to $2,000 in education-related expenses. This credit applies to any undergraduate, professional or graduate study at an accredited institution.

Taking courses for the sole purpose of strengthening your job skills? You can also deduct related expenses for these courses.

American Opportunity Tax Credit: If you’re in your first four years of post-secondary education, you’re also in luck. You can deduct up to $2500.00 of your education-related expenses each year while in school. Keep track of your receipts for textbooks, tuition, educational software and any other education-related expense.

Self-employment: Whether you’re driving for Uber or renting out rooms on AirBnB, side gigs are a great way to bring in some cash. Unfortunately, the IRS regards these activities as self-employment, so you’ll be subject to self-employment tax.

One way to reduce the sting of these extra taxes is to keep record of all of your business-related expenses. Keep all receipts for fuel, supplies, advertising materials and other business-related expenses.

If you earned more than $600.00, the employer (Uber, for example) will issue you a 1099 Misc. form at the end of the calendar year. In the event they don’t issue a 1099, you will still need to claim the income on your tax returns.

Job search expenses: If you are looking for work within your industry, you can deduct your travel, meal and lodging expenses if your job search took you 50 or more miles from your home.

The same goes for moving expenses. If you landed a new job at least 50 miles from your current address, you can deduct your moving/relocation expenses. This includes transporting your furniture, clothing, and other possessions. You can even deduct the cost of transporting your pets.

You can also deduct mileage expenses at the rate of .19 per mile.

If you’re in college or just starting out, you may think you’re not eligible for any tax breaks, but there are tax deductions that are available to you right now. Remember to keep track of any related documentation to support your deduction, such as mileage records and receipts for expenses.

As with any tax matter, if you’re not sure of the tax breaks available to you, check with a licensed tax preparation professional who can determine your eligibility and answer your questions. You’ll be glad you did when it comes time to file your tax return.

 

 

 

 

It’s Never Too Early To Get Ready For The 2017 Tax Season

tax season

 

April 18 is almost a distant memory for most of us. Tax returns or extensions are filed, documents stored, and refunds are on their way to our bank accounts if not received already.

If tax season 2016 was too hectic for your tastes, there are ways you can prepare for a smoother 2017 tax season by preparing early. Mid-year is the perfect time to assess your individual tax scenario.

Keep track of these milestones:

  • Birth or adoption of a child
  • Marriage or divorce
  • Transferring or relocating for work
  • Change in military status or activity
  • Death of spouse
  • Receiving lump sum distributions, inheritances or settlements
  • Starting or selling a business
  • Establishing a home office
  • Significant medical expenses not covered by insurance
  • Job search expenses, including mileage, lodging and relocation expenses
  • Collecting Social Security, Unemployment or Social Security Disability Insurance benefits

Each of these milestones will affect your tax status for 2017. Now is the time to consult with a tax pro who can advise you on the best tax strategy for these life events.

Understand the updated tax laws for 2017

Tax laws change frequently at the state and federal level. These changes can include:

  • State tax regulations
  • Itemized deduction allowances
  • Changes in tax credit programs, eligibility or regulations
  • Changes in trust and estate regulations
  • Retirement account contribution limits
  • Income limits for contributions to a Roth IRA

You can begin researching these changes through your state revenue department website, IRS.gov website, or community resources such as  workshops or lectures.

You’re not alone, however, if you find the language of these regulations confusing or difficult to understand. Always enlist a qualified tax pro if you need clarification on any tax matter, particularly changes in tax laws or regulations.

If you are a low wage earner, disabled, or a senior, you can access basic tax advice through the VITA program beginning in January of each year. Trained volunteers will assist you with any basic tax questions as well as provide tax filing assistance.

File early

Identity theft and tax  fraud are on the rise. Filing early in the tax season will prevent an identity theft ring from attempting to file a fraudulent tax return under your name and social security number.

Last but not least…

Organize your tax documents throughout the year. If you haven’t done so already, set up a filing system for your paystubs, receipts, freelance/side job income, medical/dental expenses, and home office expenses.

There are also many spreadsheet and basic bookkeeping programs and apps available to help you keep record of your income, expenses and deductions throughout the year.

Staying organized year round will eliminate the last-minute rush to gather paperwork and records on tax filing day, making things easier for you and for the tax pro who will be filing your return.

Mid-year is a perfect time to prepare for the 2017 tax filing season. Make note of any significant life change, stay current on changes to tax laws and regulations and file early in 2017.

Reporting Tips To The IRS

tip income

 

Most of us at one point in time or another pick up a side job. With the pressures of bills or emergency expenses facing us, it makes sense to earn some extra income.

If your side job also includes receiving tips from customers, it’s important to understand the “hows” and “whys” of reporting tip income.

The IRS requires taxpayers to report ALL income, including tips. You are required to report your tips if:

  • You earn more than $20.00 in tips. Report the initial $20.00 plus anything over and above that amount.
  • Tips are not included as a required gratuity or service charge instituted by your employer.
  • If you have a slow month and don’t earn $20.00 in tips, you don’t need to report any tip income you do receive, as long as it is under the $20.00 threshold.

If your employer has attached an automatic gratuity or service to their price structure, you do not need to report that gratuity, even if your employer distributes the service charge or gratuity to you and other employees.

For example, if you’re have a side job as a limo driver and your employer adds a 5% gratuity to their rates, you do not need to report your share of the gratuity as tip income.

On the other hand, if at the end of the night, your customer tips you $50.00 for a job well done you will need to report the cash tip.

Tips can also be in the form of credit card charges, cash, gift cards, transit or event passes, and other gifts instead of cash. You do not need to report the value of non-monetary tips.

How to report your tips

You will need to get the IRS 4070 form from your manager, payroll department or HR department. Fill it out with all the required information  and return it on or before the 10th of each month.

Your employer will then take the standard deductions for taxes and social security just as they do for your regular pay.

Why to report your tips

As with any tax matter, the IRS will assess penalties for withholding or under-reporting information, especially your income.

While it may be tempting to not report your tips in order to get caught up on expenses or to save for a vacation, it is essential that you report tip income.

If you choose not to report your tip income, you could face penalties and fines for failure to report all of your income. Consequences can include a penalty equal to 50% of the applicable payroll taxes on the tips. This penalty will be in addition to any unpaid taxes you owe.

In addition, accurately reporting your tips will ensure that you receive the correct amount of Social Security and Medicare benefits once you become eligible.

Keep accurate records of your tips since you will also need to report them at the end of the year when you file your tax return.

Fill out the IRS 4070 form, and return it to your manager or payroll department on the 10th of each month. Doing so will ensure that you are accurately reporting your income to the IRS.

 

What You Need To Know Before Hiring A Tax Resolution Firm

 

tax resolutionNot all tax resolutions firms are alike. For every legitimate tax resolution firm, there is an unethical, fly-by-night tax firm. By exercising caution, asking questions and performing some research, you can avoid the scam firms and hire a legitimate firm to represent you before the IRS.

Standing with the Better Business Bureau: Look for a firm that is in good standing with the Better Business Bureau.

Track record/longevity: You will want to hire a firm that has an established presence in the business community and a solid track record.

Fee structure: Beware of firms that insist on payment up front. In most cases, you will be asked to pay a retainer once they agree to take on your case. Ask for the firm’s written fee schedule and payment policies.

Ask for an estimate or summary of expected charges. If you are billed periodically throughout the case, all billing charges should be clearly outlined; some firms will utilize case managers, paralegals and other personnel in addition to the tax professional handling your case.

Avoid firms that charge a flat rate for all cases, regardless of their complexity. Legitimate tax resolution firms will base their fees on the complexity of your individual case and will charge you accordingly.

Beware of upfront promises: Avoid firms that promise a specific outcome or resolution of your case. The outcome of your case can’t be determined by the tax firm. The IRS has the final say in the outcome of your case, not the tax resolution firm.

Steer clear of firms that will take on our case, regardless of whether or not you qualify for their assistance. A legitimate firm will assess your case to determine whether or not they can assist   you, and whether or not you are eligible for any of the tax relief programs (OIC, installment agreements, lien releases) offered by the IRS.

Perform due diligence: Utilize tools such as Yelp, LinkedIn, and Google to research the owners and staff of the firm. If a tax attorney will be handling your case, make sure that individual is in good standing with both the bar association and the IRS.

As mentioned earlier, the firm should also have excellent ratings through the Better Business Bureau.

Facing a serious tax matter requires competent professional representation. Hiring a tax resolution firm is a solid investment that will save you time and money in the long run.

A legitimate tax firm will have professional staff who are readily accessible, in good standing within the industry and within their professions, and who will provide an honest assessment of your circumstances and eligibility for any IRS-based tax debt relief programs.

 

 

Choosing A Top-Flight Tax Attorney

 

tax attorney

The prospect of hiring an attorney for a complex tax matter can be intimidating, particularly if you’ve never had to hire an attorney before. A top-flight tax attorney isn’t necessarily the attorney who works as part of a large big-city firm.

A top-flight attorney is an attorney who is familiar with your tax matter, and who is accessible and willing to answer your questions. Their rates are within your budget and they are willing to communicate with you during each phase of your case. Outstanding tax attorneys can be found within tax firms or as sole practitioners.

Knowing what to look for in a tax attorney is the first step in seeking the resolution you need for your tax matter.

Where to start

In addition to Yelp reviews, seek recommendations from colleagues, neighbors or friends that have retained a tax attorney. Contact the state bar association for referrals to a tax attorney in your community. The bar association can also refer you to low-cost attorneys if you are of limited means.

Once you have several referrals, contact each attorney. Some will offer a free consult, while others will charge for their time, even if you decide not to hire them.

Make the most of your free consult time. Focus your questions on the following areas besides your tax matter:

Experience: Besides length of time in practice, has the attorney worked with clients in situations similar to yours? What was the outcome? How many similar cases has he or she handled?

Knowledge: Does he or she specialize in taxation, real estate and/or small business matters? Are they familiar with the precedent cases that pertain to your case, and do they have extensive knowledge of IRS tax code and regulations?

Your attorney’s degree of knowledge will directly affect the outcome of your case, so choose wisely.

Communication, availability and rapport: Will your attorney communicate with you directly, or will your case be managed by a paralegal staff during the initial stages? Will it be easy to reach your attorney quickly if you need to?

Does their communication style and preference match your own (if you prefer email/text communications for non-secure conversations, look for an attorney who is comfortable with those means of communication).

Is your attorney willing to meet with you in person? If you prefer face-to-face interaction throughout all stages of your case, look for an attorney who will be willing to accommodate communication preference.

Are you at ease in speaking with the attorney, or do you feel intimidated or rushed? You want an attorney where there is an easy rapport with clear communication.

Fee structure/affordability

While no two tax attorneys are alike in their communication style or level of experience, there are several fee structures that are common in the legal field:

Flat fee: You will pay the attorney a set fee, based on the nature and complexity of your case.

Payment arrangements: Mutual agreement between you and the attorney whereby you pay a set amount each month until the bill is paid in full.

An ethical tax attorney realizes that legal costs can create a hardship for most consumers. To that end, ask about alternative pay structures such as reduced retainers or applying your tax refund to your legal costs.

If the attorney or law firm is unwilling or unable to accommodate your income limitations, ask for a referral to a lower-cost attorney or firm  or contact the local bar association for a referral.

Facing a complex tax issue that requires legal counsel is stressful and time-consuming, particularly if you’ve never had to hire an attorney. By contacting several attorneys and asking pointed questions, you will find the best attorney for your tax case.

 

 

 

Who Can Represent You? A Quick Guide To Tax Professionals

 

professional

When dealing with the IRS, many people prefer to have someone represent them during IRS proceedings. If you’re facing an IRS matter and wish to have a representative, here is a brief overview of the professionals who can help.

Limited representation

The following professionals can represent you before the IRS only if they prepared and signed your tax return:

  • Business partners
  • Employees
  • Relatives
  • An officer of a corporation, professional association or other organization

Limited representatives can’t represent you in matters such as IRS collections, appeals, estate closures, or in tax court.

Additionally, the people listed above can only appear before certain IRS representatives:

  • Revenue agents
  • Customer Service Representatives
  • IRS employees in similar categories

Unlimited representation

When you are facing a more complex IRS matter such as collections, appeals, tax liens, and estate closures, the following professionals can assist you:

Tax attorneys: Look for an attorney who is in good standing with the state bar association and with the IRS. Additionally, you will want to find an attorney who ether specializes in taxation, or who is a general practitioner with additional coursework in taxation.

Certified Public Accountant (CPA): CPAs have either a Bachelor’s or a Master’s degrees from an accredited college or university and have passed the state CPA exam. In order to represent you before the IRS, your CPA must be in good standing with the IRS, with no license suspensions or disciplinary actions on their record.

CPAs are especially skilled in reviewing and analyzing financial statements and tax returns.

Enrolled Agents (EA): An EA is a licensed tax practitioner who has been authorized by the U. S. Department of the Treasury to represent taxpayers in tax matters. The EA designation is the highest credential awarded by the IRS, and there are over 48,000 EAs in the United States.

Facing an IRS proceeding on your own can be intimidating. By hiring a qualified professional to represent you before the IRS, you’ll have someone who will ensure your rights are being upheld and who can negotiate with the IRS on your behalf.

By understanding the difference between limited and unlimited representation, you will be better prepared to find the tax pro who is best suited to your needs.

Always look for a licensed tax pro who is in good standing with the IRS as well as with their professional association. Speak to several within the same level of representation. Doing so will ensure you have the best person to represent you before the IRS.

 

DIY Tax Defense: The Installment Agreement

 

installment agreement

If you’re facing the end of tax season with a large tax bill that is beyond your means, the IRS installment agreement is one possible option available to you. In addition to the Offer In Compromise or the CAP program, the Installment Agreement is available to taxpayers who can’t pay their tax bill in full.

Eligibility

You must owe less than a total of $50,000 in taxes, penalties and fees. Businesses must owe less than $25,000 including penalties and fees.

How it works

  • Complete IRS form 9465
  • Complete IRS form 433F
  • Call the IRS number shown on your tax bill and follow all instructions
  • You may also apply online
  • Pay the minimum monthly payment
  • File all requested tax returns and pay taxes in full and on time. If you are unable to do so, contact the IRS immediately.
  • All future refunds will be applied to your outstanding tax bill.

If at any time you are in danger of defaulting on your installment agreement, contact the IRS right away to make alternate payment arrangements.

The IRS will not initiate collection actions against you if:

  • An installment agreement is being considered
  • While an installment agreement is in effect
  • 30 days after an installment agreement request is denied
  • During the IRS review period for an appeal of a denied or terminated installment agreement

As with any IRS payment arrangement, it is crucial that you provide all requested documentation within the timeframe established by the IRS, and adhere to the agreement if it is approved.

If you experience any changes in your financial circumstances, notify the IRS right away to see if you are eligible to have your installment agreement amended to reflect your current financial scenario.

If for any reason you don’t receive your monthly statement, send your payment to the IRS address as stated on your installment agreement. Never skip a payment.

Dealing with the IRS on your own can be intimidating particularly if you’re unaccustomed to handling your own complex financial transactions.

When in doubt, enlist a licensed tax professional to help you determining your best course of action. Your tax pro will discuss all of your available options, negotiate with the IRS on our behalf, and ensure that your rights are upheld in any IRS tax proceedings.

 

 

What You Need To Know About The Offer In Compromise

offer in compromise

If you’re facing a large tax bill with the IRS but lack both the means and the assets to satisfy your debt, the Offer In Compromise (OIC) is one option to consider.

The OIC program allows you to pay a lesser amount while permanently settling your tax account.

You’ll first need to complete IRS For 433-A, in which you’ll need to fill out completely. The IRS will take the following into consideration when evaluating your request for the OIC program:

  • Ability to pay
  • Income and expenses
  • Overall value of any existing assets

It’s a good idea to utilize the IRS’s pre-qualifier tool before completing the OIC packet. You’ll gain a clearer understanding if the OIC program is suitable for you.

If you decide to move forward with the program, you will need to submit the following:

  • Your completed 433-A form, along with IRS Form 656.
  • The $186.00 application fee, along with your initial payment.

If you  meet the Low Income Certification guidelines (refer to your OIC booklet for guidelines), you are exempt from both the application fee and the initial payment while the IRS evaluates your application package.

Payment options

If you are required to make an initial payment, it will vary based on the payment option you choose:

Periodic Payment: Submit your initial payment along with your application packet, and continue to pay toward the remaining balance in monthly installments while the IRS evaluates your case. If your OIC proposal is accepted, continue with the monthly payments until your balance is paid in full.

Lump sum cash: Submit an initial payment of 20 percent of the proposed balance under the OIC proposal, in addition to your completed application packet. Wait for the IRS to make a determination, and pay the remainder in five or fewer payments.

By understanding the OIC process, you will get a clearer picture of your options in the face of a sizable tax bill.

Not sure if the OIC program is for you? We have licensed tax professionals on staff who can assist you and answer your questions.

Get started today by clicking the “Contact” button on the top menu bar on our website, and choose the best communication method that meets your needs and busy lifestyle.

You don’t have to face a large tax bill by yourself. We’ll help you get the resolution you need and within a timeframe you can live with.