Tax Strategies for Business Owners
Small Business Accounting - One of the biggest hurdles you'll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people.
The old legal saying that "ignorance of the law is no excuse" is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an "I didn't know I was required to do that" claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they're legally entitled to that can help them lower their tax bill.
Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes.
Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.
When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.
1. All Start-Up Costs Are Immediately Deductible
Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures.
Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.
For tax years beginning in 2010, you can elect to deduct up to $10,000 of business start-up costs paid or incurred after 2009. The $10,000 deduction is reduced (but not below zero) by the amount such start-up costs exceed $60,000. Any remaining costs must be amortized.
2. Overpaying The IRS Makes You "Audit Proof"
The IRS doesn't care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can't substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to "Audit Proof" yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.
3. Being incorporated enables you to take more deductions.
Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don't make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.
4. The home office deduction is a red flag for an audit.
While it used to be a red flag, this is no longer true--as long as you keep excellent records that satisfy IRS requirements. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit.
5. 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.
6. Requesting an extension on your taxes is an extension to pay taxes.
Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.
7. Part-time business owners cannot set up self-employed pensions.
If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.
A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.
And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don't hesitate to give us a call. For no obligation free consultation contact us today!
ABA Tax Accounting
Amare Berhie, Tax Advisor
amare@abataxaccounting.com
612-282-3200
866-936-0430 Toll Free
www.abataxaccounting.com
Tuesday, July 31, 2012
Monday, July 30, 2012
QuickBooks Premier 2012 offers industry-specific reports to gain deeper insights specific to your business.
QuickBooks Premier has all of the
great features you know and love in QuickBooks Pro, plus industry-specific, timesaving,
ready-to-use reports and business planning tools tailored to help your company
grow. Along with saving you time on routine accounting tasks, Premier makes it
simple to monitor business performance, build forecasts and manage payables and
receivables. Premier also includes tools for tracking inventory, creating
purchase orders and setting pricing levels. For more information visit our website or contact us
today!
612-282-3200 Toll Free
(866) 936-0430
Friday, July 27, 2012
Tax Planning For Small Business Owners
Tax Strategies for Business Owners
Small Business Accounting - Tax planning is the process of looking at various tax
options in order to determine when, whether, and how to conduct business and
personal transactions to reduce or eliminate tax liability.
Many small business owners ignore
tax planning. They don't even think about their taxes until it's time to meet
with their accountants, but tax planning is an ongoing process and good tax
advice is a valuable commodity. It is to your benefit to review your income and
expenses monthly and meet with your CPA or tax advisor quarterly to analyze how
you can take full advantage of the provisions, credits and deductions that are
legally available to you.
Although tax avoidance planning is
legal, tax evasion - the reduction of tax through deceit, subterfuge, or
concealment - is not. Frequently what sets tax evasion apart from tax avoidance
is the IRS's finding that there was fraudulent intent on the part of the
business owner. The following are four of the area’s most commonly focused on
by IRS examiners as pointing to possible fraud:
- Failure to report substantial amounts of income such as
a shareholder's failure to report dividends or a store owner's failure to
report a portion of the daily business receipts.
- Claims for fictitious or improper deductions on a
return such as a sales representative's substantial overstatement of
travel expenses or a taxpayer's claim of a large deduction for charitable
contributions when no verification exists.
- Accounting irregularities such as a business's failure
to keep adequate records or a discrepancy between amounts reported on a
corporation's return and amounts reported on its financial statements.
- Improper allocation of income to a related taxpayer who
is in a lower tax bracket such as where a corporation makes distributions
to the controlling shareholder's children.
Tax Planning Strategies
Countless tax planning strategies
are available to small business owners. Some are aimed at the owner's
individual tax situation, and some at the business itself, but regardless of
how simple or how complex a tax strategy is, it will be based on structuring
the strategy to accomplish one or more of these often overlapping goals:
- Reducing the amount of taxable income
- Lowering your tax rate
- Controlling the time when the tax must be paid
- Claiming any available tax credits
- Controlling the effects of the Alternative Minimum Tax
- Avoiding the most common tax planning mistakes
In order to plan effectively, you'll
need to estimate your personal and business income for the next few years. This
is necessary because many tax planning strategies will save tax dollars at one
income level, but will create a larger tax bill at other income levels. You
will want to avoid having the "right" tax plan made "wrong"
by erroneous income projections. Once you know what your approximate income
will be, you can take the next step: estimating your tax bracket.
The effort to come up with
crystal-ball estimates may be difficult and by its very nature will be inexact.
On the other hand, you should already be projecting your sales revenues,
income, and cash flow for general business planning purposes. The better your
estimates, the better the odds that your tax planning efforts will succeed.
- Lower your Taxes on Business Income
- Maximizing Business Entertainment Expenses
Entertainment expenses are
legitimate deductions that can lower your tax bill and save you money, provided
you follow certain guidelines.
In order to qualify as a deduction,
business must be discussed before, during, or after the meal and the
surroundings must be conducive to a business discussion. For instance, a small,
quiet restaurant would be an ideal location for a business dinner. A nightclub
would not. Be careful of locations that include ongoing floor shows or other
distracting events that inhibit business discussions. Prime distractions are
theater locations, ski trips, golf courses, sports events, and hunting trips.
The IRS allows up to a 50% deduction
on entertainment expenses, but you must keep good records and the business meal
must be arranged with the purpose of conducting specific business. Bon
appetite!
Important Business Automobile
Deductions
If you use your car for business such
as visiting clients or going to business meetings away from your regular
workplace you may be able to take certain deductions for the cost of operating
and maintaining your vehicle. You can deduct car expenses by taking either the
standard mileage rate or using actual expenses.
The mileage reimbursement rates for
2012 are 55.5 cents a mile for business, 14 cents per charitable mile and 23
cents for moving and medical miles.
If you own two cars, another way to
increase deductions is to include both cars in your deductions. This works
because business miles driven are determined by business use. To figure
business use, divide the business miles driven by the total miles driven. This
strategy can result in significant deductions.
Whichever method you decide to use
to take the deduction, always be sure to keep accurate records such as a
mileage log and receipts. If you need assistance figuring out which method is
best for your business, do not hesitate to contact us. Happy driving!
Increase Your Bottom Line When You
Work At Home
The home office deduction is quite
possibly one of the most difficult deductions ever to come around the block.
Yet, there are so many tax advantages it becomes worth the navigational
trouble. Here are a few common tips for home office deductions that can make
tax season significantly less traumatic for those of you with a home office.
Try prominently displaying your home
phone number and address on business cards, have business guests sign a guest
log book when they visit your office, deduct long-distance phone charges, keep
a time and work activity log, retain receipts and paid invoices. Keeping these
receipts makes it so much easier to determine percentages of deductions later
on in the year.
Section 179 expensing allows you to
immediately deduct, rather than depreciate over time, up to $139,000, with a
cap of $560,000, in 2012 worth of qualified business property that you purchase
during the year. The key word is "purchase". Equipment can be new or
used and includes certain software. All home office depreciable equipment meets
the qualification. Also, if you purchase more than $139,000 in equipment, you
can expense the first $139,000 then depreciate the rest. In addition, a
"Bonus Depreciation" of 50 percent is allowed on qualified assets
(new equipment only--no used equipment and no software) placed in service
during 2012.
Some deductions can
be taken whether or not you qualify for the home office deduction itself.
Consider meeting with a tax professional to learn more about home office
deductions. For no obligation free consultation contact
us today!
Amare
Berhie, Tax Advisor
612-282-3200
866-936-0430
Toll Free
IRS Looking Closely at Independent Contractors
IRS Looking Closely at Independent Contractors
Small Business Accounting - The Internal Revenue Service is casting a skeptical eye on many companies’ attempts to classify employees as independent contractors. To Read More... click the link. For no obligation free consultation contact us today!
Amare Berhie, Senior Tax Accountant
Direct 612-282-3200
Thursday, July 26, 2012
Get organized and boost productivity with QuickBooks 2012 for Mac.
ABA Tax Accounting | QuickBooks Accounting Services Page | St. Paul, MN Accounting Firm
QuickBooks
Accounting - Organize your business finances with
ease with QuickBooks 2012 for Mac. Save time completing routine tasks and
paperwork and spend more time on your business. For more
information visit our website or contact us today!
612-282-3200
Toll Free (866) 936-0430
What Kind Of Records Do I Need To Keep In My Business?
Tax Strategies for Business Owners
SmallBusiness Accounting - Complete
and accurate financial record keeping is crucial to your business success. Good
records provide the financial data that help you operate more efficiently.
Accurate and complete records enable you to identify all your business assets,
liabilities, income and expenses. That information helps you pinpoint both the
strong and weak phases of your business operations.
Moreover, good records are essential
for the preparation of current financial statements, such as the income
statement (profit and loss) and cash-flow projection. These statements, in
turn, are critical for maintaining good relations with your banker. Finally,
good records help you avoid underpaying or overpaying your taxes. In addition,
good records are essential during an Internal Revenue Service audit, if you
hope to answer questions accurately and to the satisfaction of the IRS.
To assure your success, your
financial records should show how much income you are generating now and
project how much income you can expect to generate in the future. They should
inform you of the amount of cash tied up in accounts receivable. Records also
need to indicate what you owe for merchandise, rent, utilities, and equipment,
as well as such expenses as payroll, payroll taxes, advertising, equipment and
facilities maintenance, and benefit plans for yourself and employees. Records
will tell you how much cash is on hand and how much is tied-up in inventory.
They should reveal which of your product lines, departments, or services are
making a profit, as well as your gross and net profit.
The Basic Recordkeeping System
A basic record-keeping system needs
a basic journal to record transactions, accounts receivable records, accounts
payable records, payroll records, petty cash records, and inventory records.
An accountant can develop the entire
system most suitable for your business needs and train you in maintaining these
records on a regular basis. These records will form the basis of your financial
statements and tax returns. For
no obligation free consultation contact us today!
Amare Berhie, Tax Accountant
612-282-3200
866-936-0430 Toll Free
Congress Considers Changes in Tax Treatment of Charities
Congress Considers Changes in Tax Treatment of Charities
Non-Profit Organizations - The House Ways and Means Oversight Subcommittee held a hearing Wednesday to examine tax compliance issues surrounding public charities, the rules governing their profit-making activities, and whether the newly redesigned Form 990 is promoting increased compliance and transparency. To read more click the link. As always we are available to help. For no obligation free consultation contact us today!
Non-Profit Organizations - The House Ways and Means Oversight Subcommittee held a hearing Wednesday to examine tax compliance issues surrounding public charities, the rules governing their profit-making activities, and whether the newly redesigned Form 990 is promoting increased compliance and transparency. To read more click the link. As always we are available to help. For no obligation free consultation contact us today!
Amare Berhie, Senior Tax Accountant
amare@abataxaccounting.com
Direct 612-282-3200
Toll free 866-936-0430
Wednesday, July 25, 2012
ABA Tax Accounting | Tax Problems Page | St. Paul, MN Accounting Firm
ABA Tax Accounting | Tax Problems Page | St. Paul, MN Accounting Firm
Are you having problems with the IRS?
Are you having problems with the IRS?
Expanded Adoption Tax Credit Still Available for Extension Filers
Income tax Services - If
you adopted a child last year and requested an extension of time to file your
2011 taxes, you may be able to claim the expanded adoption credit on your
federal tax return. The Affordable Care Act temporarily increased the amount of
the credit and made it refundable, which means it can increase the amount of
your refund.
Here
are eight things to know about this valuable tax credit:
1. The
adoption credit for tax year 2011 can be as much as $13,360 for each effort to
adopt an eligible child. You may qualify for the credit if you adopted or
attempted to adopt a child in 2010 or 2011 and paid qualified expenses relating
to the adoption.
2. You
may be able to claim the credit even if the adoption does not become final. If
you adopt a special needs child, you may qualify for the full amount of the
adoption credit even if you paid few or no adoption-related expenses.
3. The
credit for qualified adoption expenses is subject to income limitations, and
may be reduced or eliminated depending on your income.
4. Qualified
adoption expenses are reasonable and necessary expenses directly related to the
legal adoption of the child who is under 18 years old, or physically or
mentally incapable of caring for himself or herself. These expenses may include
adoption fees, court costs, attorney fees and travel expenses.
5. To
claim the credit, you must file a paper tax return and Form 8839, Qualified
Adoption Expenses, and attach all supporting documents to your return.
Documents may include a final adoption decree, placement agreement from an
authorized agency, court documents and the state’s determination for special
needs children. You can use IRS Free File to prepare your return, but it must
be printed and mailed to the IRS. Failure to include required documents will
delay your refund.
6. If
you filed your tax returns for 2010 or 2011 and did not claim an allowable
adoption credit, you can file an amended return to get a refund. Use Form
1040X, Amended U.S. Individual Income Tax Return, along with Form 8839 and the
required documents to claim the credit. You generally must file Form 1040X to
claim a refund within three years from the date you filed your original return
or within two years from the date you paid the tax, whichever is later.
7. The
IRS is committed to processing adoption credit claims quickly, but must also
safeguard against improper claims by ensuring the standards for receiving the
credit are met. If your return is selected for review, please keep in mind that
it is necessary for the IRS to verify that the legal criteria are met before
the credit can be paid. If you are owed a refund beyond the adoption credit,
you will still receive that part of your refund while the review is being
conducted.
8. The
expanded adoption credit provisions available in 2010 and 2011 do not apply in
later years. In 2012 the maximum credit decreases to $12,650 per child and the
credit is no longer refundable. A nonrefundable credit can reduce your tax, but
any excess is not refunded to you.
For
more information see the ‘Adoption Benefits please contact us today for no
obligation fee consultation.
Amare Berhie, Senior Tax
Accountant
Direct 612-282-3200
Toll free 866-936-0430
Celebrities and Their Tax Troubles
ABA Tax Accounting | Private Accounting Page | St. Paul, MN Accounting Firm
Private Accounting - Hollywood and the music industry have at least one thing in common: run-ins with the IRS. To Read More... We are available to help! For no obligation free consultation contact us today!
Private Accounting - Hollywood and the music industry have at least one thing in common: run-ins with the IRS. To Read More... We are available to help! For no obligation free consultation contact us today!
Amare Berhie, Senior Tax Accountant
amare@abataxaccounting.com
Direct 612-282-3200
Toll free 866-936-0430
Tuesday, July 24, 2012
QuickBooks Accounting
ABA Tax Accounting | QuickBooks Pro Page | St. Paul, MN Accounting Firm
QuickBooks Accounting - QuickBooks Pro 3 allows multiple users to work simultaneously in your company’s QuickBooks, helping to ensure more accurate and efficient data collaboration. QuickBooks software is ready to grow with your company. For more information visit our website or contact us today!
612-282-3200 Toll Free (866) 936-0430
Why Outsource Bookkeeping Services?
ABA Tax Accounting | Outsourced Bookkeeping Services Page | St. Paul, MN Accounting Firm
Outsourced Bookkeeping - Reduce overhead cost; grow your business revenue; increase level of quality and eliminate the impact of employee turnover. For no obligation free consultation contact us today!
Amare Berhie, Managing Member
Direct 612-282-3200
Toll free 866-936-0430
Study Estimates $21Trillion Stashed in Tax Havens
Study Estimates $21Trillion Stashed in Tax Havens
International Tax - A new study estimates that at least $21 trillion and up to $32 trillion of unreported private financial wealth has been hidden by wealthy individuals in secret tax havens at the end of 2010, a sum equivalent to the size of the U.S. and Japanese economies combined. To Read More... click the link. For free consultation contact us today.
Amare Berhie, International Tax Advisor
Skype id "amareberhie"
Direct 612-282-3200
Toll free 866-936-0430
Monday, July 23, 2012
Independent Contractor (Self-Employed) or Employee?
ABA Tax Accounting | Blog Page | St. Paul, MN Accounting Firm
Small Business Accounting - It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. To read the details click the link http://www.abataxaccounting.com/blog.php. As always we are available to help. For no obligation free consultation contact us today!
Amare Berhie, Senior Tax Accountant
amare@abataxaccounting.com
Direct 612-282-3200
Toll free 866-936-0430
QuickBooks Accounting
ABA Tax Accounting | QuickBooks Accounting Services Page | St. Paul, MN Accounting Firm
QuickBooks Simple Start is the easiest way to track sales and expenses. All your finance information is organized in one place, so you can easily stay on top of your business and be ready for tax time. For more information contact us today!
Authorized QuickBooks Affiliate
612-282-3200 Toll Free (866) 936-0430
Renting Your Vacation Home
Tax
Services - Income that you receive for the rental of your vacation home
must generally be reported on your federal income tax return.
However, if you rent the property for only a short time each
year, you may not be required to report the rental income.
The IRS offers these tips on reporting rental income from a
vacation home such as a house, apartment, condominium, mobile home or boat:
•Rental
Income and Expenses - Rental income, as well as certain rental
expenses that can be deducted, are normally reported on Schedule E,
Supplemental Income and Loss.
•Limitation
on Vacation Home Rentals - When you use a vacation home as your
residence and also rent it to others, you must divide the expenses between
rental use and personal use, and you may not deduct the rental portion of the
expenses in excess of the rental income.
You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
•Special
Rule for Limited Rental Use - If you
use a vacation home as a residence and rent it for fewer than 15 days per year,
you do not have to report any of the rental income. Schedule A, Itemized
Deductions, may be used to report regularly deductible personal expenses, such
as qualified mortgage interest, property taxes, and casualty losses. For no obligation free consultation contact
us today!
Amare
Berhie, Senior Tax Accountant
Direct
612-282-3200
Toll
free 866-936-0430
Friday, July 20, 2012
IRS Voluntary Disclosure Program
ABA Tax Accounting | Expatriate Tax Services Page | St. Paul, MN Accounting Firm
Taxpayers with unreported income relating to offshore transactions who wish to voluntarily disclose, click this link: http://www.abataxaccounting.com/blog.php. Looking for an experienced International Tax Advisor? For no obligation free consultation contact us today!
Amare Berhie, International Tax Advisor
ABA Tax Accounting
Skype id "amareberhie"
Direct 612-282-3200
Toll free 866-936-0430
Thursday, July 19, 2012
ABA Tax Accounting | Authorized QuickBooks Affiliate Page | St. Paul, MN Accounting Firm
Intuit QuickBooks Accounting Solutions - the smartest, easiest way to help your business succeed. For more information contact us today!
Authorized QuickBooks Affiliate
Toll Free (866) 936-0430
ABA Tax Accounting | Authorized QuickBooks Affiliate Page | St. Paul, MN Accounting Firm
ABA Tax Accounting | CPA Outsourcing Solutions Page | St. Paul, MN Accounting Firm
100% U.S. Based & Reliable Outsource Tax Preparation For Tax Professionals, CPA Firms, Tax Attorneys and other businesses at Incredibly Low Rates. Call 612-282-3200
ABA Tax Accounting | CPA Outsourcing Solutions Page | St. Paul, MN Accounting Firm
ABA Tax Accounting | CPA Outsourcing Solutions Page | St. Paul, MN Accounting Firm
Wednesday, July 18, 2012
IRS chief counsel: Self-employed taxpayers can deduct Medicare premiums
The Internal Revenue Service's Office of Chief
Counsel on Friday explained that self-employed taxpayers can deduct Medicare
premiums in the same way they can deduct health insurance premiums. The letter
clarifies a little-noticed change in the IRS position on this. The 2010 Form
1040 instructions and Publication 535 started permitting self-employed
taxpayers to take the deduction, but at that time the IRS offered no guidance
on the change. The chief counsel's letter states that eligible taxpayers can go
back and deduct Medicare premiums for tax years that are still open. JournalofAccountancy.com (7/16)
To read the details click the link. Looking
for an experienced and licensed by IRS tax preparer? As always we are available
to help. For no obligation free consultation contact us today!
Amare Berhie, Senior Tax
Accountant
amare@abataxaccounting.com
Direct 612-282-3200
Toll free 866-936-0430
Wednesday, July 11, 2012
Tuesday, July 3, 2012
Overseas Groups Applaud IRS Response to Expats
Overseas Groups Applaud IRS Response to Expats
Do more with ABA Tax Accounting International Tax Services
ABA Tax Accounting can assist you determine your facts, develop alternatives, quantify the affect of each of the viable alternatives and make a recommendation based on our understanding of your facts and our experience.
For more information please contact:
ABA Tax Accounting
Amare Berhie, Senior Tax Accountant
Direct 612-282-3200
Toll free 866-936-0430
NAEA | Powering America's Tax Experts
NAEA | Powering America's Tax Experts
Strategic Outsourcing Solutions for CPA firms
ABA Tax Accounting offers premier domestic outsourcing of tax return preparation and bookkeeping services for CPA firms and other businesses as well as general accounting and back office solutions. For more info, please contact us today.
ABA Tax Accounting
Amare Berhie, Managing Member
Direct: 612-282-3200
amare@abataxaccounting.com
Toll free 866-936-0430
www.abataxaccounting.com
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