Tax day is almost here, what if you aren’t ready?
Taxes are due this Thursday, April 15th. If you have already files and spent your refund, congratulations. Normally I have already filed by this time, however, this year has been crazy so I am in the latter group. With tax day fast approaching, I am going crazy trying to get my taxes and business info together enough that I can have a decent estimate to file with the IRS when I file for an extension.
Since I, like many Americans, started a business this year, I not only have to file an extension for my personal taxes, I also have to file an extension on my business information return. Depending on the structure of your business, you may have additional returns and extensions to request as well. Solely owned businesses that are not incorporated are not required to file separate informational returns, instead all the business income and deductible expenses are listed on the owner’s personal income tax return. However, if your business is incorporated, an LLC, or a partnership, you are probably going to need to file a separate return. This may only be an informational return or it may be a full income tax return. For example, corporations are treated as separate entities and pay their own income taxes just like a person. Partnerships, however, are only required to file informational returns on what the partnership earned and spent and the taxes are actually paid by the partners based on their % of income and expenses from the partnership.
Yes, this all sounds very complicated, and if you don’t know what you are doing, it can be very scary. However, there is plenty of excellent tax software out there to help you or you can go to a paid tax preparer or your accountant to ensure that everything is done right the first time.
Unemployment Compensation
The Internal Revenue Service (IRS) is helping unemployed workers out a bit. While all unemployment compensation received in 2008 is taxable, the first $2,400 in unemployment that each taxpayer receives is not subject to federal taxes. If both spouses are unemployed, each spouse can deduct the first $2,400 of unemployment compensation they received during the year from their taxable income.
Short Sales - What you need to know about mortgage debt forgiveness.
With the value of properties dropping over the last couple of years many people have been forced to sell their homes for less than they owe on the property. When this happens, the bank can require that the people who owe the mortgage still owe the outstanding balance or it can forgive the outstanding amount, called mortgage debt forgiveness. While having the bank forgive the outstanding mortgage balance sounds great, there are other considerations that you need to think about first.
Generally, any debt that has been forgiven is considered taxable income by the IRS. However, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 which forgives taxes on the amount of mortgage forgiveness if a few conditions are met. First, the property sold on which mortgage forgiveness was given must have been the taxpayers primary residence. Second, if the debt forgiven was for a refinance, the income from the debt forgiveness can only be forgiven if the refinance was used to improve or repair the primary residence. Thus, if you refinanced and used the money to pay off credit cards or other debt, the debt forgiven would still be taxable as income for IRS purposes.
Free Income Tax Preparation
Did you make less than $49,000 last year? Are you 60 years or older? If so, you qualify for free income tax preparation from the Internal Revenue Service.
VITA and TCE are two programs implemented by the Internal Revenue Service to help low income and elderly taxpayers file their income taxes for free. There are thousands of sites throughout the United States where taxpayers can come and get their taxes prepared.
To see a place near you, stop by www.irs.gov and search for VITA or TCE to see where the closest tax preparation location is.
If you decide to get your taxes done at one of these places, you need to gather together your documents for the preparers. So what do you need to bring with you? First, you need to bring your social security card and the social security card for all your dependents and your spouse. You also need to bring your W-2, 1099s, and any other statements you received that show the income you earned last year. If you have a mortgage and paid interest last year, you also need to bring in the year end statement your mortgage company mailed you. This will show the interest you paid on your mortgage, your property taxes, and also the insurance you paid on the property last year.
If you don’t qualify for having your taxes prepared by one of these programs, check out www.irs.gov/freefile to see if you qualify to file your taxes for free using online software.
Have you tried e-file?
Tax time is quickly approaching. While many people dread this time of year, it isn’t that scary if you know what you are doing. One way to make tax time less scary is to prepare your taxes with software. There are plenty of great softwares available that will walk you through the steps to prepare and file your taxes. In fact, you can find several online software options on the IRS website, www.irs.gov.
If you don’t want to do your taxes yourself, you can also check out the irs website to find your local VITA. VITA is volunteers who will do your taxes free of charge, but you must be check to see if you will qualify for the free service.
Tax time may seem scary, but there are plenty of great options available to make the process a bit easier.
Saving your business money
Money is tight for everyone now, but this is especially true for small businesses. Because of the economy, banks are not lending or make it extremely difficult to get a loan. In order to succeed, small businesses need to find ways to stretch their dollars. Check out these great ways to make your dollar stretch a bit further.
1. Shop around to ensure you get the best price.
I like to use http://riveroffers.com/?cogid=frend&refid= to check out prices for internet and phone service. They have great offers for cellphones, calling cards, and credit cards as well. Shopzilla is also a great site for comparison pricing.
2. Check to see if your bank offers additional savings programs.
Many banks offer savings programs or cash back options when you use your business card to purchase items online. When ordering Christmas gifts for your top customers, you can get a nice gift and cash back for your company by ordering with your business card or through your banking website.
3. Company Loyalty Programs
These can also provide additional savings for small businesses. Staples and Office Depot are great examples of companies with loyalty programs that can help your business save.
There are many ways to save money and stretch your dollar further. Take a few minutes and let me know how you save your business money.
Where are your records?
Tax time is rolling around again so what can you do now to ensure a less painful tax preparation this year? The easiest thing to do is keep a record of your transactions. Sounds easy but we all forget to save those receipts or print out those statements.
What records and receipts should you be keeping? Well, did you purchase a car in 2009? If so, keep that receipt as you may be able to deduct the sales tax you paid. Did you buy or sell stocks? You need to know what your basis was in those stocks, which again means that you need to know what you paid for the stock, the commission you paid to purchase the stocks, and any stock dividends you received that were reinvested in stocks. This might not be too bad if you only make one or two stock purchases a year, however, once you reach the level where you buy and sell stocks several times a month, this can be a nightmare.
Other receipts that you might want to save are your medical receipts. For example, you need evidence to show how much you paid for the year in after tax dollars for your medical premiums. You also want to save receipts for copays, prescriptions, and other medical expenses. Many stores make this easier now by showing you at the bottom of the receipt the amount that qualifies as a medical expense.
Do yourself and your tax preparer a favor and keep your receipts and print out and save your monthly statements. You can make life even easier by sorting the receipts and statements out by category, at least you can do that if your New Year’s resolution was to get organized.
Gambling Gets Expensive
The Internal Revenue Service issued a decision this week that casual gamblers recognize wins or losses when they redeem their tokens. This means that if you go gambling for the weekend and have a win on the first day and then lose money on the second day, each time you cash in your tokens is a separate recognition event for income tax purposes. Thus, if you turn in $200 for chips and then walk out with $800, the $600 is your win and must be added as income when you complete your taxes, even if you gamble other times throughout the year for a loss.
Tis the Season to Save . . . On Taxes!
Everyone hates paying taxes. We all accept it as inevitable but look for ways to reduce our tax liability. Luckily for us, the IRS offers incentives in the form of tax deductions. Some common deductions include charitable contributions, interest on your home mortgage, and interest on your student loans. While you may have no control on when you pay your mortgage and interest, you do have control on when you make charitable contributions.
Basically we are talking about the time value of money. You get the same tax deduction for your charitable donations whether you make them all in January, throughout the year, or all on December 31. This allows you to use your money throughout the year instead of letting someone else use it.
Some people might want to make charitable deductions but are afraid that if they don’t make them in little contributions throughout the year, the money will be spent come December and they will lose out on the deductions. If you are really serious about making charitable contributions but also not wasting your money, put aside the money you want for charitable contributions each month in a savings account. This allows the money to collect interest, which you can use for yourself, or you can add it to your charitable contributions at the end of the year and get even more tax deductions. Either way, you have the money to make your charitable contributions, you got the value of having the money for the entire year, and you still get your tax deductions.
Financial Fortunes
Understanding finances and how to keep track of your finances can make or break your business. Keeping track of your finances is especially important for small cash based businesses. It is very easy to forget or lose track of what you make, the taxes you need to pay on your sales, and what was sold if you don’t develop a system to keep track of everything. This can land you in hot water not only with the IRS and your state, it will also make it hard when you need investors or try to get a loan from a bank.
Many small businesses don’t realize the importance of keeping good records. They want to try and hide some of their income in order to keep taxes down. However, while this might save them a few dollars in the short term, this gamble could really hurt in the long run. If the IRS finds out that you are not properly reporting all your income, including any cash tips or sales from other items that are not the main part of your business, they will not only collect the back taxes for that income, they will also impose fines and charge interest on the back taxes owed.
There are plenty of good accounting systems available that will help you keep track of your inventory, sales, invoices, expenses and income. I frequently use Quickbooks. Ask your accountant or other business owners for what they recommend.