Gina's Tax Tips

Audit Risk: Reduce Yours by Hiring a CPA

2012-07-16T15:56:00.000-05:00

Filing taxes is stressful enough. Unfortunately, many choose to hastily, and sometimes inaccurately, file their taxes and end up paying for it later down the road when an audit letter arrives from the Internal Revenue Services. This doesn’t’ have to be the case, though. If tax payers take their time, understand their tax obligations and the laws surrounding deductions, there is a good chance they will never be audited.

Of course, hiring a CPA who has passed the CPA Exam can help lower the risk of an audit, as they are aware of the various tax laws that may or may not apply to you. This greatly reduces the chances of the tax return being audited, but doesn’t guarantee it. There are a few other tactics one can use to help reduce the risk of being audited.

It’s random
Many tax returns will be pulled for an audit simply at random. For some inexplicable reason, that tax return has triggered an alert in the IRS’s system and is considered likely to yield additional tax if audited. No one is entirely sure what specifically causes one tax return to be flagged over another, so always send your return as accurately and completely as possible.

Drastic income changes
One known factor that increases one’s likelihood of being audited is a big change in income. This indicates to the IRS that there is a great potential someone is trying to hide funds or has been hiding funds, thus triggering an audit. If a taxpayer is expecting a drastic change in income, a CPA can help manage the tax return and mitigate the risk of an audit.

Making too much money
It’s true, the more money one makes, the more likely they are to get audited. In the eyes of the IRS, there is a greater probability that wealthy taxpayers will try to hide income or claim extra deductions. As such, the wealthier the taxpayer, the greater the chance of an audit. Most wealthy taxpayers, however, have already hired a CPA, which will ensure that their deductions are legitimate and unlikely to be questioned by the IRS. Researching how to hire the best CPA for your situation is always a best practice as well.

Red flags
There are four red flags which can trigger an audit almost automatically. If the Earned Income Credit is claimed, there is a good chance the taxpayer will be audited. Many taxpayers falsely claim this credit, either knowingly or not, and it can cause a lot grief for all parties involved. Additionally, if the taxpayer filed a schedule C (business profits and losses) or E (supplemental income), or form 2106 (employee business expenses) there is a greater chance for an audit. This doesn’t mean a taxpayer should avoid filing these forms, it simply means that they should consider having a professional, qualified CPA look them over or fill them out.

Filing taxes doesn’t have to be stressful. Ensuring a tax return follows the laws and passes the IRS’s audit tests is one of many responsibilities of a CPA. Hiring a CPA when it’s time to file taxes is a smart way to reduce the overall audit risk of a tax return.

QuickBooks Pro 2012 for only $99.99!

2012-02-09T09:28:00.000-06:00

I know I haven't written in a long time, but I had to share this news....Amazon is having a sale on QuickBooks Pro 2012 [Download]. They are selling it for only $99.99! This package retails at $229.99 so this is really a great deal for any of you who want/need to upgrade your QuickBooks or perhaps you're thinking of trying it for the first time.

Business Auto Mileage Rate Increase

2011-06-23T11:17:00.000-05:00

The IRS has announced the following increases in the stanadard mileage rates beginning July 1, 2011:

Mileage Rate Changes

Purpose	Rates 1/1 through 6/30/11	Rates 7/1 through 12/31/11
Business	51	55.5
Medical/Moving	19	23.5
Charitable	14	14

The information is from IRS Announcement 2011-40.

Business Paid Education

2011-06-20T09:41:00.000-05:00

If you need to take a course (or courses) or class (or classes) in or to maintain or imporve your skills to maintain your status or pay level or if you need to takes these courses or classes for the purpose of meeting legal or employer requirements your employer may be able to deduct the expenses.

The business is not able to deduct expenses that enable you to be qualified for the job or that would qualify you for a new trade or business (a new job).

As with all business expenses, they must be considered "ordinary and necessary" in order to be deductible and as far as educational expenses are concerned they must also be "required". The key, as with all deductions is that you document your reasoning. The expenses must be directly related to your current employment. Just because taking the course or having this knowledge is "appropriate or helpful" does not make it "required, necessary or ordinary". Just because the employer adds a line to your employment contract stating it's a requirement does not make it "ordinary or necessary".

It is even more to your advantage to carefully document the FACTS, proving that the education is required, ordinary and necessary for your current job and not a new job, trade or business. It does not matter if you do not intend on getting a new job, or starting a new trade or business. It does not intend on your reasons for taking the new courses.

For example the tax courts have allowed taxpayers with finance degrees, management and marketing degrees to deduct the expenses related to getting an MBA, if and when the taxpayer is involved in the same aspect of the business that they were involved in prior to obtaining the MBA on the basis that the taxpayer showed that these courses "enhanced and maintained their skills".

On the other side of the coin, the tax court disallowed an aeronautical engineer the ability to deduct the cost of obtaining his commercial pilot's license even though the engineer was easily able to show that the education did improve his knowledge of aeronautical engineering. The expenses were disallowed because he was now able to get a job as a commercial pilot - it didn't matter that he didn't want to.

As with all contested expenses they are often "won or lost" based on the taxpayer's substantiation of the deduction.

5 things you should know about tax collector bonds

2011-06-13T20:34:00.000-05:00

As taxpayers, we all want to know that our taxpayer dollars are allocated appropriately rather than being mishandled by corrupt officials. Tax collector bonds help protect against potentially unruly tax officials in five key ways.

1. Tax collector bonds are legally binding contracts.

Tax collector bonds function as do other surety bonds. Each bond that's executed provides a financial guarantee that a specific job will be done according to applicable regulations. Tax collector bonds bind three separate entities together in a legally binding contract.

The principal is the tax collector that purchases the bond as a promise that work will be completed appropriately.
The obligee is the entity that requires the principal to purchase a bond as a way to deter fraud and potential financial loss.
The surety is the insurance company or specialty surety agency that issues the bond as a financial guarantee of the tax collector's ability to do the job.

2. Tax collector bonds protect consumer interests.

As a specific type of surety bond, tax collector bonds provide protection to consumers. They're primarily used to guarantee the general public that hired or elected tax collecting officials will perform their duties appropriately. Government agencies establish surety bond regulations to deter fraudulent or otherwise unethical individuals from getting the position.

3. Tax collector bonds deter unqualified individuals from getting control of taxpayer money.

Before surety providers issue tax collector bonds, they always conduct thorough background checks of all applicants. To determine a tax collector's credibility, surety providers investigate the applicant's credit scores, financial records and work histories. Negative feedback will deter sureties from issuing a bond, as they tend to avoid bonding potentially risky principals.

4. Tax collector bonds guarantee that collectors will do their job appropriately.

Because tax collectors have access to a significant amount of taxpayer money, they need to be held accountable for their actions. If a tax collector fails to complete the duties of that position according to law, tax collector bonds provide a safety net for the governing agency. This prevents tax collectors from taking advantage of their position's power.

5. Tax collector bonds provide compensation if a tax collector should break the law.

If a tax collector breaks the law or otherwise fails to perform duties, tax collector bonds allow obligees or other harmed parties to collect on the bond. This enables government agencies and the general public to recover funds that were lost as a result of a tax collector's negligence.

This article was provided by Kristen Bradley of SuretyBonds.com, a nationwide surety bond producer. Because the surety industry is often misunderstood, SuretyBonds.com provides educational resources to the general public to help them understand the benefits provided by surety bonds.

Happy April 15th!

2011-04-15T12:48:00.000-05:00

For those of you who have finished your annual duty of filing your taxes I hope it was as painless as possible. I enjoyed a successful tax season and while the busiest time of the year for me is just about over, I would like to take a moment to remind you to drop me an email any time throughout the year with any tax concerns.

Should You Switch from a C-Corporation to a S-Corporation?

2011-03-13T19:21:00.000-05:00

Changing from a C corporation to a S corporation can be beneficial, but there are numerous factors to consider. With the March 15, 2011 deadline for making this election effective January 1, 2011 fast approaching, you should seek guidance for your situation.

Basic benefits of a switch: If a C Corporation owner elects S corp status, the corporation’s income and deduction items are passed through to the owner, reported on his or her 1040 and taxed at personal rates. Significantly, switching to S status would avoid any threat of double taxation on: (1) future corporate operating profits and (2) future appreciation in corporate assets that occurs after the switch.

As you may know, double taxation occurs when a C corporation pays corporate-level tax on its income and gains. Then the owner pays tax again at the shareholder level when those income and gains are distributed as taxable dividends.

In contrast, a business owner is only taxed once under the S corp form of doing business, while retaining other benefits such as corporate protection from personal liability.

Basic drawbacks to a switch: The decision to switch isn’t always a slam-dunk. If the owner has substantial income from other sources or if the company is quite profitable, he or she may be forced to pay the 35% maximum rate on most or all of the incremental income passed through. Rule of thumb: With the current tax brackets in effect, the owner often fares better if the company generates annual profits of less than $100,000.

In addition, beware of the onerous "built-in gains" (BIG) tax. It comes into play if the corporation owns appreciated assets when it switches from C to S status. When this corporate-level tax applies, the rate is 35%.

Form W-2 and Form 1099s

2011-01-28T06:43:00.000-06:00

This is a quick reminder that the IRS requires that you furnish your employees their W-2 and your contractors their Form 1099 by Monday January 31, 2011.

If you need assistance in meeting this deadline please contact me and I'll see if I can help you.

Best wishes,
Gina
http://GLGcpa.com

Use Tax in QuickBooks

2011-01-09T18:06:00.000-06:00

Typically when you go into a store a buy a taxable product the store collects the sales tax from you and remits that tax to the appropriate taxing authority. However, when you buy items via the internet or out of state the company you buy it from may not be required to collect the sales tax from you. If they do not collect the sales tax from you then you become responsible for remitting "use tax" to the proper tax authorities based on that purchase.

Many small businesses purchase items over the internet for their business from vendors who do not collect sales tax. When this happens it's best to immediately record it in your accounting records so you don't forget to pay it. You can usually remit this right along with the sales tax that you collect from your customers.

If you're using QuickBooks for your business, this is one approach that MAY work for your company. This approach is NOT a good approach for every company. It's best to talk to your QuickBooks ProAdvisor and/or accountant to determine if this method of tracking use tax will work for your business.

By doing the following the use tax that your company owes will show up in the "Pay Sales Tax Window":

Create a "Sales Tax Item" called "Use Tax" and use your use tax rate and your sales tax agency.
Create a "Other Charge Item" called "Reversing Items Sold" and indicate that this is a nontaxable charge and code it to an Income account. You can create a new account for this or you could code it to the one you use for your inventory parts items.
Create a "Other Charge Item" called "Use Tax Expense" which should also be nontaxable and coded to an expense account such as "Use Tax Expense".
If you don't already have an item to subtotal the invoice add that as well.
Create a customer for your business in the Customer List and for the default tax code (in the Additional Info tab) use the "Use Tax" item you created.
Write invoices to yourself for the inventory part item you purchased. Use the items cost as the selling price. This will assure that you're calculating use tax on the cost of the items. Once you are done entering the items you purchased without paying sales tax subtotal the invoice (use the subtotal item). On the next line, use the "Reversing Items Sold" item and enter the subtotal of your purchase as a NEGATIVE amount. This will zero out the cost of the pre-tax products on the invoice. On the next line use the "Use Tax Expense" item and enter the amount of the use tax that is calculated at the bottom of this invoice as a NEGATIVE amount. This will bring the total invoice to zero.

I've created this video, Record Use Tax in QuickBooks to demonstrate how to set this up, how to record an invoice and show you how it will look on your sales tax report.

Tax Planning Suggestions?

2010-12-20T10:44:00.000-06:00

Since the "new tax law" is mostly the "old tax law continued" tax planning is pretty much the same as you've been hearing for the last ten years:

Most taxpayers should try to get as many deductions in 2010 unless you have reason to believe that in 2011 you're going to have a significant increase in your taxable income next year. This will allow you to get your tax break sooner. Examples would be paying your Jan. mortgage payment in December or paying your property taxes in December or donating to charity in December.
Along the same lines as above, it’s probably also a good idea to delay income if possible.

It now looks like we're not going to have any changes regarding taxation of dividends or long-term capital gains, so you may not need to adjust your investment choices.

Single 2011 Tax Brackets (Projected)

Taxable Income	Marginal Tax Rate:
$0-$8,425	10%
$8,425-$34,200	15%
$34,200-$82,850	25%
$82,850-$192,000	28%
$192,000-$375,700	36%
$375,700+	39.6%

Married Filing Jointly 2011 Tax Brackets (Projected)

Taxable Income	Marginal Tax Rate:
$0-$16,850	10%
$16,850-$68,400	15%
$68,400-$138,050	25%
$138,050-$232,950	28%
$232,950-$375,700	36%
$375,700+	39.6%

Head of Household 2011 Tax Brackets (Projected)

Taxable Income	Marginal Tax Rate:
$0-$12,000	10%
$12,000-$45,800	15%
$45,800-$118,300	25%
$118,300-$189,350	28%
$189,350-$375,700	36%
$375,700+	39.6%

Married Filing Separately 2011 Tax Brackets (Projected)

Taxable Income	Marginal Tax Rate:
$0-$8,425	10%
$8,425-$34,200	15%
$34,200-$69,025	25%
$69,025-$116,475	28%
$116,475-$187,850	36%
$187,850+	39.6%

Tax Reductions for All

2010-12-18T07:01:00.001-06:00

The world series version of the tax code ended yesterday with President Obama's signature on a tax package that provides tax reductions for all!

Most of the Bush Tax cuts were extended for TWO years AND additional tax incentives were also bundled in this package of joy including:

For 2011 only all employees will be paying in 2% less on their social security taxes without their social security income being affected in later years. The new rate for employees social security will be 4.2% on the first $106,800 of wages. For employers it will remain at 6.2%.
Teachers will get to write off the $250 of out of pocket expenses
We still have the option of writing off sales tax instead of state income taxes, if we itemize.
The credits on energy efficient appliances have been extended.
The tax rates as they were last year are extended through 2012.
AMT patch was issued for 2011 & 2012! Each year taxpayers are required to compute their tax using the regular tax rules and rates as well as an alternative method known as the AMT (Alternative Minimum Tax), which is close to a flat tax as it eliminates most itemized deductions. The original idea of this parallel system was to insure that high income taxpayers pay a minimum amount of tax. The problem is that each year as our income increases and more middle class families are hit with this tax unless Congress passes a patch. The patch is an exemption for lower income filiers. Without the patch single filers would be exempt if they make LESS than $33,750 and married filers would be exempt if they made LESS than $45,000. Thankfully this patch was included and the exemption rates have been increased to $47,450 for single filers and $72,450 for married filing joint filers.
100% bonus depreciation on assets purchased Sept. 9, 2010 through 2011.

What's different:

You have to itemize your deductions in order to deduct your property taxes.
Retroactive to January 1, 2010 estates above $5 million will be taxed at 35%, but there is an election if you wish to keep the 0% rate with minimal basis adjustments. There's also a portability clause, which makes things complicated enough that you should talk to your attorney about revising your estate plan.
For 2013 estates above $1 million will be taxed at 55%.

Social Security and Medicare

2010-10-15T09:29:00.000-05:00

There are many questions to ask and decisions to be made regarding Social Security and Medicare as you approach retirement.

How do you qualify for benefits?
Should you take social security early?
How much can you earn and still get full social security beneifts?
Who is eligible for Medicare?
Are all the Medicare plans the same?
Do you need Medigap?

If you, or someone you know, would like a free booklet that explains in plain language the basics of Social Security and Medicare I will send it to them free of charge until I run out of booklets.

Simply tell them to send me an email (HelpMe@GLGcpa.com) with their name, address and current age.

Household Worker Tax

2010-08-29T08:43:00.000-05:00

Not unlike other taxes, the household worker tax is very confusing to many people. This tax usually applies to individuals who are 18 years of age or older who you hired as a nanny, housekeeper, maid, companion, babysitter, private nurse, health aide, caretaker, butler, household manager, personal secretary or any other service to be performed in your home.

If you pay someone $1700 or more (in 2010 - this amount is adjusted each year by the Social Security Administration) for services that they provide in your home you are considered their employer by the IRS.

Being their employer make you solely responsible for remittance of the Social Security and Medicare taxes. This means that if you fail to collect this tax from the employee (usually done through payroll withholding) you just increased your taxes because now you have to pay their share of Social Security and Medicare taxes as well as your share. In addition to Social Security and Medicare taxes, depending on the state you live in, you may also be subject to State Unemployment and disability insurance taxes.

The person you hire is subject to Social Security tax, Medicare tax, Federal taxes and possibly state and local taxes as well as employee disability and unemployment taxes.

Household employees must be paid at least the minimum wage (Federal minimum wage is currently $7.25 - you are required to pay the higher of the Federal or your state's minimum wage). If your household employee does not live with you, you are required to pay them one and one-half times their normal rate when they work more than 40 hours per week per Federal law (again your state law may be different and if it requires you to pay more than Federal that's what you have to pay).

You are required to report the names and social security numbers of all newly hired workers to the state within 2-4 weeks of their hire date.

Most state require that employers report their household employee wages and remit their taxes quarterly, some allow annual reporting. In addition to these reporting requirements you are also required to provide a W-2 to your employee and submit a copy of the W-2 to the Social Security Administration as well as preparing another schedule (Schedule H) on your individual tax return. Many employers are surprised by the size of their annual employment tax liability for their household employee. This usually seems to fall in the $5,000 - $8,000 range. Most employers include this amount in their quarterly estimated tax payments.

Disregarded Entity - Single Member LLC

2010-07-13T11:28:00.000-05:00

The term "disregarded entity" as it is associated with Single Member LLCs, carries with it a lot of confusion. In simplistic terms I'm going to try and clear up some of this confusion.....

Single Member LLCs are disregarded entities which means they are:

An entity where the business, as far as legal liability is concerned, is separate from it's owner AND
An entity where the business, as far as federal employment taxes are concerned, is responsible for filing and paying all employment taxes on wages paid to its employees AND
An entity where the business, as far as federal income taxes are concerned, are reported with the owner on Form 1040, usually Schedule C.

LLCs are entities created under state law the purpose of which is to provide liability protection to it's owners. In the case where there is only one owner, we refer to this type of business as a "Single Member LLC".

When "Single Member LLCs" hires employees the LLC must obtain an EIN for the LLC and file federal payroll tax returns (Forms 940, 941, W-2s) using the name and EIN of the LLC.

Single Member LLCs do not have a separate tax return to file for federal income tax purposes. For federal income tax purposes Single Member LLCs report their income and expenses on Form 1040 of the single member owner, using Schedule C.

Is this taxable?

2010-06-09T13:06:00.001-05:00

Most of the questions I receive throughout the year are really asking this one question...Is this taxable? In this article I will discuss some of the specifics for certain items that seem to come up more frequently than others...

Gambling:

If you happen to win money while gambling (this includes raffles and lottery winnings) that income is taxable as "other income".
Video poker is also a type of gambling wherein your winnings by playing the game should be declared as "other income" and will also be taxable. Online gambling such as video poker and other online casino games are also taxable. It's not true that if you gamble online you don't have to pay its taxes. US Tax Code Section 61(a) states that gross income
means "all income from whatever source derived" and that includes gambling.
If you happen to lose money while gambling, you are allowed to deduct those losses up to the amount of your winnings, as a miscellaneous itemized deduction.
If you can prove that your gambling activity was conducted as a "trade or business" your losses (and/or winnings) would be reported on Schedule C (instead of as an itemized deduction for losses), but be careful here....your gambling losses are still limited to the extent of your gambling gains. Also, you should be very careful when completing your return as a professional gambler as the courts have a hard time envisioning gambling as not being pure recreation.

Prizes:

If you win cash (or a cash equivalent like a shopping card or gift certificate) from a drawing or contest it is considered taxable income and must be reported on your return as "other income".
If you win something that is not cash, like a TV (or car, boat, a trip, etc.) then the fair market value of your winnings needs to be reported on your return as "other income". You are allowed to report a value lower than the FMV reported on Form 1099 if you can substantiate the lower value.

Finder's Keepers:

If you happen to find a briefcase full of money and the police was not able to find it's prior owner, the money is yours and it's taxable as other income.
If you happen to find any non-cash item and the police are not able to find it's prior owner, the item is yours and the FMV is taxable as other income.

Gifts:

When someone gives you a gift of cash it is NOT taxable to you.
When someone gives you a non-cash gift, it is NOT taxable to you.
The sale of a gift may produce a capital gain, which would be taxable.

Inheritances:

Inheritances are usually not taxable to you.
Inheritances that would have been taxable income to the decedent is taxable to you.
Income earned from the inherited property is taxable to you after transfer to you.
The sale of inherited property may produce a capital gain, which would be taxable to you.

Multiple Non-Incorporated Businesses

2010-05-26T09:55:00.000-05:00

If you, alone, try to sell your services or a product for profit this venture is usually considered a business (in certain circumstances the hobby-loss rules may apply). The income and expenses of this business operation are reported to the IRS on Schedule C of your Form 1040, with you being the sole proprietor (only owner) of this business. This is true even if you are a LLC (single member).

Many individuals attempt to sell unrelated services or products. When the activities are not related the reporting of those activities on your tax return must be kept separate. This means you will prepare a separate Schedule C for each business activity. If you combine unrelated or separate business activities onto one Schedule C you may be facing negligence penalties (Rev. Rule 81-90).

If two or more people work together in the non-incorporated activity with the intent of sharing the profits, then the activity is considered a partnership and not a sole proprietorship. In this case, the activity would report it's income and expenses on a Partnership Return, Form 1065. The exception to this is if the partnership is between a husband and wife. When this is the case, if both the husband and wife materially participate in the business and intend on filing a joint tax return, they may each elect not to be treated as a partnership and file their respective income and expenses regarding the business on their own Schedule C. This exception does not apply if the husband and wife business is organized as a LLC. If the husband and wife business has organized as an LLC they must file a partnership return.

C-Corporation vs. S-Corporation

2010-05-20T20:46:00.000-05:00

When considering a C-Corporation vs. a S-Corporation there are many legal items to consider which are NOT discussed in this article, please see an attorney regarding these matters.

Aside from legalities here are some things to consider:

If you plan to take out significant amounts of profits (cash) above what you would consider a "reasonable salary" for the work that you are doing for the corporation (as officer), an S-Corporation may be more beneficial because once a reasonable wage is paid, excess profits can be taken out of the corporation as a distribution free from self-employment taxes. If you did this in a C-Corporation the money taken out would be considered a dividend and be doubled taxed.
C-Corporations often pay high wages rendering the corporation to have no profits and thus pay no taxes. This is perfectly fine as long as the wages paid are considered "reasonable". The IRS can challenge the wages if they believe they are in excess of a reasonable salary and reclassify them as dividends. Having said this, the IRS can also challenge a S-Corporation's officer's salary if they believe the wage was too low and then they will want to reclassify the distributions taken as salary.
Many retirement plan maximum contributions are based upon your salary. This usually negates the negative of paying payroll taxes on more wages.
If you plan to retain profits in the corporation remember that in an S-Corporation you still have to pay taxes on that money - some shareholders may need a distribution in order to pay these taxes.
There are many restrictions placed on S-Corporations that have not been discussed such as who is allowed to be a shareholder of a S-Corporation, how many shareholders, only one class of stock is allowed, etc.

Advantages of S-Corporations

2010-05-20T19:56:00.000-05:00

Note: All references to corporations in this blog post are referring to S-Corporations.

Corporations are formed under state law so you will need to refer to your state for specific, but in general the following are some of the advantages of establishing a S-Corporation:

A S- corporation is a separate legal entity, which generally means that the shareholders are not liable for the corporation's debts; however many banks have the owners of S-Corporation's personally guarantee the loans of the corporation. When you do this then you become personally liable for the corporation's debts.
A shareholder can generally take losses up to their tax basis in the corporation.
All profits and losses are passed through the corporation to the shareholders and taxed on the shareholder's individual return thus avoiding the potential of double taxation (please note shareholders are taxed on any profit whether or not the profits are distributed)
Distributions from S-Corporations are not subject to self-employment taxes. {Officers are required to take a reasonable salary and pay self-employment taxes on that salary.}

Advantages of C-Corporations

2010-05-14T14:11:00.000-05:00

Note: All references to corporations in this blog post are referring to C-Corporations.

Corporations are formed under state law so you will need to refer to your state for specific, but in general the following are some of the advantages of establishing a C-Corporation:

A corporation is a separate legal entity, which generally means that the shareholders are not liable for the corporation's debts.
A shareholder can generally only lose the amount of money they invested in the corporation's stock.
Hobby loss rules do not apply to corporations
The corporation can loan you money
You can loan money to the corporation and receive principal and interest payments from the corporation.
C-Corporations can generally deduct a percentage of dividends received during the year.
Small corporations are exempt from alternative minimum tax (AMT)
Dividends to shareholders are reported on Form 1099 and taxable up to the amount of the corporation's "earnings and profits" after that the dividends are nontaxable up to the shareholder's basis.
Shareholders who sell their corporation stock at a loss are potentially eligible to deduct up $100,000 of that loss (this applies to small business corporations only)
Shareholders who sell their corporate stock at a gain can potentially either postpone the gain if they use the proceeds to purchase another small business stock or exclude up to 75% of the gain if certain restrictions have been met.

Profit Sharing Plan

2010-05-06T18:45:00.000-05:00

A profit sharing plan is a defined contribution retirement plan that businesses should consider when they're ready to offer a retirement plan to their employees. A profit sharing plan allows the employer to share the business profits with their employees.

Generally businesses come up with a definite formula for figuring the amount of profits to share with their employees. Employers are free to change this formula each year.

A definite formula is required for the following:

determining how to allocate the contributions among all the participants
determining how to distribute the funds accumulated after a fixed number of years, the attainment of a certain age, or upon the prior occurrence of some event such as a layoff, illness, disability, retirement death, or severance of employment.

Forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way or they can be used to reduce employer contributions.

Company Provided Qualified Retirement Plans

2010-05-05T16:52:00.000-05:00

Your company may decide to offer it's employees a qualified retirement plan. Sole proprietors, partnerships and corporations can set up qualified retirement plans. A qualified retirement plan is one that meets certain IRS provisions and either:

provides retirement income to employees or
provides a deferral of income to employees.

Qualified Retirement Plans are either:

Defined Contribution Plans (like profit-sharing plans or 401(k) plans) or
Defined Benefit Plans

Defined Contribution Plans provides benefits to the participant in the plan based largely on the amount contributed to that participant's account.

Defined Benefit Plans are any plans that are not defined contribution plans. The employer would make contributions in the amount needed to provide certain future benefits to participants.

Qualified Plans have the following things in common:

Employers can deduct the contributions they make and employee elective deferrals, subject to limitations.
An employee must be vested in benefits under a minimum vesting schedule.
The plan is for the exclusive benefit of employees or their beneficiaries.
Participants pay no current income tax on amounts contributed.
Earnings from contributions accumulate tax free until they are withdrawn.
Some withdrawals may qualify for tax-free rollover treatment into another qualified plan or IRA

Employer Provided IRA Plans

2010-05-02T16:47:00.000-05:00

As I stated in my previous post employers should consider offering a retirement plan to their employees. In this post I'm going to provide an overview of the following IRA plans:

Simplified Employee Pension (SEP-IRA)
Savings Incentive match Plan for Employee (SIMPLE-IRA)
Payroll Deduction IRA (Traditional IRA)

	SEP	SIMPLE	Payroll Deduction IRA
Eligible Employer	Any employer	· 100 or fewer employees with $5,000 or more in compensation · No other qualified retirement plan is maintained	Any employer
Employee Eligibility	· At least 21 years old · Employee for at least 3 of the last 5 years · Has received at least $550 in compensation in 2009	Any employee who received at least $5,000 in compensation during any two years preceding the current year and is expected to receive at least $5,000 in the current year	All employees
How to Set Up	1. Prepare IRS Form 5305-SEP 2. Provide each eligible employee with information about the plan 3. Establish a SEP-IRA for each eligible employee	1. Prepare IRS Form 5305-S 2. Prepare IRS Form 5305-SA 3. Establish a SIMPLE IRA for each eligible employee	The employer arranges for the payroll deductions and transmits the employee’s contributions to their IRA.
When to Set Up	Anytime up to the due date of the employer’s return including extensions	Effective on any date from January 1 through October 1 of a year for which contributions will be made	Employee decides
Contributions	· Employers must contribute a uniform percentage of pay for each employee · Employers do not have to contribute each year · Contributions must be based on a written allocation formula that does not discriminate in favor of highly compensated employees	Employer is generally required to match each employee’s elective deferrals on a dollar-for-dollar basis up to 3% of the employee’s compensation	Employee decides whether to contribute and when to contribute
How much to Contribute	For 2009, contributions cannot exceed the lesser or 25% of the employee’s compensation for $49,000	· Employee may defer up to $11,500 in 2009 and 2010 · Employers generally match the employee deferral up to 3% of the employee’s compensation	Employee decides

Retirement Plans for Small Businesses

2010-05-01T18:11:00.000-05:00

If you own a small business you should consider setting up a retirement plan for yourself and your employees. If you're an employee of a small business you should ask your employer about the possibility of setting up a retirement plan.

In short the benefits to the owners of the small business include:

Any contributions employers make to retirement plans are deductible from their business income.
Contributions made into the plan grow tax free.
Their business may be able to get a tax credit or other incentive for starting the plan
Having a retirement plan may make it easier to retain their employees

Benefits to the employees include:

You don't have to pay taxes on the monies you put into the plan until you take the money back out
You don't have to pay taxes on any earnings inside the plan until you take it out
Once vested the money is yours, even if you leave this employer
Contributions can be made through payroll deductions

In my next article I'll provide overviews of IRA based retirement plans.

Why Do You Need a Business Plan?

2010-04-29T19:08:00.000-05:00

From my experience the main reason you need a business plan is because many people decide to either:

not go into business OR
go into a different business OR
wait to go into business

after they write their business plan. Wouldn't you rather know this before you opened your doors than after?

So, what is a business plan anyway? A business plan is a written document that explain in detail all aspects of your business. A business plan usually includes:

Executive Summary - a summary of the entire plan
Mission, Vision A& Description - why the business will exist, the expected or intended future of the business, the business goals & objectives, philosophy, target marget, etc.
Products & Services - what your business plans to offer
Marketing Plan - how to best market the business, barriers to entry and how to overcome them, features & benefits of your products & services, how much of each product & service you believe you can sell in a year
Operational Plan - explains the day to day operations of a business
Management and Organization - who will be in charge and how the business will survive it's managers/owners
Personal Financial Statement - the financial resources of the owners - a balance sheet or list of all assets and liabilities of each individual owner of the business.
Start-up Costs and Capitalization - List of expenses you will incur before your business begins (like consulting costs, attorney fees, utility deposits, furniture & fixtures, rent, etc.), the amount of cash the owners or investors intend on putting into the business, loans and lines of credit the business intends on obtaining, etc.
Forecasted Profit and Loss - A detailed 12-month forecast of your anticipated income and expenses. It's also helpful to have a forecasted cash flow statement and breakeven analysis.

Yes, it's a lot of work to create a good business plan, but you'll be glad you did it. In addition, there's a lot of resources out there to help you, such as:

SCORE's free online business workshop: http://www.score.org/Develop_Business_Plan.html and
SBA's Small Business Planner: http://www.sba.gov/smallbusinessplanner/index.html

The Day After

2010-04-16T10:38:00.000-05:00

‘Twas the day after Tax season and all through the land,
Most of the people had filed, and paid more than they could stand.
Tons of deductions and credits galore,
Had everyone hopeful as they dropped to the floor.

Even God was amazed at the praying yesterday,
Everyone pleading that THEY shouldn’t pay!

With a nod of my head I pointed at the wall

For there hangs a plaque, written for all….

“You have to pay taxes, so we can take care

of those who don't work, don't save or claim that life is unfair.

We're a self-governing nation so we have only ourselves to blame.

Complain to your Congressman or we'll have more of the same.

When that doesn't work then there's only one recourse.

Vote them out of office so we can stop this remorse."

When night turned to day, my eyes did behold
Tax season was over, or so I was told.

Looking left, looking right and seeing the sight…

Confidential papers to be shred; mail to be read.

Files to store; and cleaning glore.