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.
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.
Special Tax Treatment for Family Employees
Wages of children under 18 years of age who are employed in the family business are not subject to social security or Medicare taxes. However, this holds true only if the family business is a sole proprietorship or a partnership in which both partners are parents of the children.
If the children are under 21 and perform only domestic services, they are not subject to social security taxes or Medicare taxes. These domestic services must be performed for the parents though and be provided in the parents home only.
In addition to not being responsible for social security and Medicare taxes, the income of children who fall under either of the categories above is not subject to federal unemployment tax. However, this income may still be subject to federal income tax withholding.
Who is an employee?
When starting a business, there are many questions you need to ask yourself. One that you probably haven’t thought about is who is an employee of the business. It is important to know who the IRS considers an employee because the business needs to pay payroll taxes on all income that individual earns as well as federal and state unemployment tax. While these may not seem very expensive when the employee only earns minimum wage, however, if you make the mistake of claiming the individual is an independent contractor when the IRS determines he is an employee, not only do you have to pay the back taxes, you will also be required to pay interest and penalties, which can quickly add up.
When determining whether or not a person is an employee or an independent contractor, the IRS looks at financial control, behavioral control, and the relationship between the parties. When looking at financial control, they will look at whether or not the person had a significant interest in the his work. For example, if the person was paying his own expenses or has a significant investment in his work, he is likely to be an independent contractor. When looking at behavioral control, the IRS look at the extent of instructions the person is given to fulfill his job or the training the job provides. The more instruction or training the company provides, the more likely that the IRS will find the person is an employee. When looking at the relationship between the parties, the IRS looks at whether or not the business pays the person benefits or whether there is a written contract between the parties stating their intent that the person be treated as either an independent contractor or an employee.
The IRS says that not one of these factors is controlling, They look at the totality of the facts. If you still have questions about whether or not the person walking for you is an employee or an independent contractor, you can file Form SS-8 with the IRS requesting that they make a determination whether the person is an employee or an independent contractor.
Expensive kids? Not anymore!
School just started. The kids all needed back to school clothes, winter is coming so they are going to need new winter clothes as well since they keep growing. Oh, and they need fuel (food) so they can keep growing. All these expenses can really add up quickly, however, there are ways to keep the costs down.
1. Pack lunch instead of buying lunch.
By taking a few minutes each morning to make your kids a sandwich and throw in some fruit or give them the leftovers from dinner the previous evening, you can know what your kids are eating and save a few dollars in the process.
2. Buy school clothes smart.
Instead of buying clothes at the peak of back to school at the department stores, instead check out the clothes at Target or Wal-Mart. My secret, I buy 95% of my clothes at the outlet malls. But going to the mall alone isn’t enough, ask the mall people about additional discount booklets to save even more at the stores.
3. Start saving for college now.
College is expensive. Maybe your kids will get a full ride, most likely not . . . so start saving now. It isn’t going to get cheaper. Consider putting away that money you save by making your own lunches and shopping for bargain into a college savings account for your kids. It will help save a lot of headaches when your kids are juniors and you realize just how much it will cost when your daughters says she just has to go to Cornell. Believe me, you will be thanking yourself for putting money away for all those years.
Recession over, what now?
People are starting to say that the recession is over, or finishing up. So if it really is over, what should we do with our finances? Even though consumers are starting to spend some money and again feel comfortable with their money, there is still a long way to go before we are at the employment rates we had before this mess started. So how can we keep something like this from happening again?
The first thing that people need to remember and continue working on is maintaining a small savings. Traditionally Americans have not been savers, however, if we had more savings prior to the economic meltdown, the unemployment troubles and foreclosures would not be as bad.
The second thing to consider is divesting their portfolios. Social security isn’t enough for people to retire on, they need money of their own if they are going to live comfortably during retirement unless they plan on working at least part time for their entire life. Thus, the earlier you start saving for retirement the better. IRAs and 401ks are great ways to start saving towards retirement. However, as we have learned from the financial situation these past few years, nothing is sure. Stocks may go up but they may also go down. Thus, you need to put your money not just in stocks, but also have some in bonds, mutual funds, and other investments such as a family home.
Starting your own business? Remember to pay your taxes!
Many small business owners start making a profit, take a salary, and then get a huge surprise when tax day rolls around. Most small business owners do not have a tax or accounting background, however, it is extremely important that you not neglect this side of your business. If as a self-employed person you are not taking employment taxes out of your paycheck each payperiod, you can be in for a shock when you complete your 1040 tax returns.
Employment taxes are actually two parts, the part that the employee sees taken out of his paycheck when he receives it and the part that the employer pays for each of his employees. If a person is considered self-employed, he mush pay both the employer and the employee portion of taxes. At the end of the year when he files his taxes, he will get a credit for a portion of the taxes he paid, however, if he hasn’t been making these payments throughout the year, he will have a huge bill to pay when he files his taxes.
Planning for Retirement
Many people just starting out in the workforce might not be thinking about retirement planning just yet, however, the earlier you start planning and saving for retirement the better off you will be.
Even if you start out putting only a few dollars a week into an IRA or 401k it can still make a difference when compounded over forty or fifty years. The website below allows you to calculate how much you would have when you retire if you put away a certain amount of money each year for retirement. For example, suppose you start with $500 in your retirement account and put in an additional $4,800 a year (only $400 a month) for 40 years. At the end of 40 years when you are ready to retire, the money would grow to $806,000 when you earn an annual interest of 6% on the money.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Play around with the calculator and see how much you need to invest each year to have what you think you will need to live on when you retire.
Florida Real Estate Auction
http://www.condo.com/Auctions/
I just discovered a great new website. This site has info on condos for sale around the country, including auctions.
Check out the auction in Orlando coming up next month. The bank is auctioning off 179 condo units in 3 different complexes around the city. The condos are FHA approved and there is no minimum bid reservation.
Multi-family Investments - Great options for this economy
Yes it is difficult to get a mortgage right now. Banks are loaning money but they want more downpayments and they are taking more precautions to protect their investments. As such, I would recommend that couples looking to purchase a home consider a multi-family.
Multi-families are great because it allows the couple to purchase a home, thus saving them from paying those pesky association fees you get with condos and many townhouses. In addition, the couple becomes the landlord rather than paying someone else.
If a couple purchases a 3-family home, they can rent out two of the levels and will likely make enough money doing that to cover most if not all of the mortgage for the entire property. In addition, if the couple can get people to sign a lease to move into a level of the home prior to closing on the property, that might influence the bank because it will show that you are getting additional income. As banks are very concerned about debt to income ratios right now this can really help you get the mortgage you need at an interest rate you can be happy with.