Small Business Tax Advice
For those running small enterprises, small business tax advice is invaluable to prevent errors and ensure compliance issues are resolved. Advice can be found through local accountants nearby, or through the small business administration in the town where work activity is conducted. No owner should begin operations until all taxable issues are understood, and a good relationship has been established with the accountant or CPA. These professionals have an abundance of advice on what deductions and home business tax write offs can be taken, saving perhaps thousands of dollars.
Many entrepreneurs may not realize that how a business is structured can either save taxes or not. Small business tax advice can advise the new owner on how to structure the entity as an S-corporation, a partnership or an LLC. Each type of structure is taxed differently. Not only is choosing the correct structure important, but so is understanding what types of income are taxable and non-taxable. There are various types of income from capital, property, money or non-tangible services. An owner doesn't even have to physically possess the income to be taxed on it. Some people have third parties or agents receive the income. Generally the income is taxed at the time it is received, no matter who receives it on behalf of the individual. However, if a service is performed in one year, but the payment isn't received until the following year, then the tax would apply on the following year.
Some people may not understand, before getting small business tax advice, that there are also various types of compensation, other than salaries, commissions and bonuses. There are companies who give out stock options as a benefit and this too is taxable income. Other types of benefits are considered "fringe" such as being given something tangible like a membership to a fitness club in exchange for services performed. These too are taxable. Digressing a bit, let us revisit the type of entity structures and their taxable basis. S-corporations and Partnerships are not taxable entities. All the income, deductions etc are passed through to the shareholders or partners and are reported on individual tax returns. The owner must report earnings on a 1065 form.
If owners are considering taking home business tax write offs, be sure to first check with an accountant before doing so. The IRS is particular about some deductions, such as home office write offs. Jesus taught that Christians should pay taxes. The Pharisees wanted to know if tribute, or taxes (money) should be given to Caesar. Jesus said "Render therefore unto Caesar, the things which are Caesars; and unto God the things which are God's" (Matthew 22:21 KJV). The home office must be used exclusively for work. If any part of the room is used for any purpose other than work, then the deduction cannot be taken. However, mileage can be deducted when out running errands, but only for the first mile. So be sure to keep good records. If any type of renovation is done on the home office however, those improvements can be taken as tax deductions. Also, a portion of the mortgage or rent can be written off - just figure out the square footage of the home office, divide that by the total square footage of the house to get the percent area. Then multiply the percent area by the amount of the mortgage to get the amount of mortgage payment to be written off. Small business tax advice can be invaluable here.
Some other deductions such as capital equipment used in running the business have experienced a large increase for this year. The deduction for capital equipment went up to $250,000, more than double the amount in 2007. Also, instead of the traditional depreciation schedule, deducting only 10% per year, for example, up to 5% of the value of the equipment can be deducted for the first year, and then the normal amount in ensuing years. The above capital equipment depreciation amounts were put into effect for 2008 as a part of the stimulus package to help give the American economy a big boost, so it won't last past this year. Owners would be very wise to take advantage of it! In this scenario, home tax write-offs will pay off big!
Other types of home business tax write offs are any office supplies purchased for use in the work, internet provider costs if work is done over the internet, phone provider costs, even utilities such as electricity. Don't forget about the computer, paper, shelves, desks, chairs and lights! If a copier is used, that too can be taken off of taxes. Meal times can be deducted also, whether in or outside the home. Even taxes can be deducted from taxes if they are related to the business. The cost of doing business can be taken off of taxes too, such as the cost of insurance, the interest on loans, and any salaries the company pays to its employees.
So one can see how very important it is to carefully consider home tax write offs when working. Just be sure to keep very careful and neat records such as collecting and filing receipts, keeping logs of mileage and other expenses the tax advisor may suggest. Staying organized can mean the difference in whether or not all those deductions end up on the return, or stuffed somewhere between the cushions of the couch or under a chair! Savvy owners understand the need to keep careful accounting of all aspects of work so that if ever an audit is conducted, the whole process will run smoothly and quickly. Lose receipts and the owner may face more than just embarrassment! Keep the accountant close that provides small business tax advise, and always remain ever watchful regarding those home business tax write offs!
Many entrepreneurs may not realize that how a business is structured can either save taxes or not. Small business tax advice can advise the new owner on how to structure the entity as an S-corporation, a partnership or an LLC. Each type of structure is taxed differently. Not only is choosing the correct structure important, but so is understanding what types of income are taxable and non-taxable. There are various types of income from capital, property, money or non-tangible services. An owner doesn't even have to physically possess the income to be taxed on it. Some people have third parties or agents receive the income. Generally the income is taxed at the time it is received, no matter who receives it on behalf of the individual. However, if a service is performed in one year, but the payment isn't received until the following year, then the tax would apply on the following year.
Some people may not understand, before getting small business tax advice, that there are also various types of compensation, other than salaries, commissions and bonuses. There are companies who give out stock options as a benefit and this too is taxable income. Other types of benefits are considered "fringe" such as being given something tangible like a membership to a fitness club in exchange for services performed. These too are taxable. Digressing a bit, let us revisit the type of entity structures and their taxable basis. S-corporations and Partnerships are not taxable entities. All the income, deductions etc are passed through to the shareholders or partners and are reported on individual tax returns. The owner must report earnings on a 1065 form.
If owners are considering taking home business tax write offs, be sure to first check with an accountant before doing so. The IRS is particular about some deductions, such as home office write offs. Jesus taught that Christians should pay taxes. The Pharisees wanted to know if tribute, or taxes (money) should be given to Caesar. Jesus said "Render therefore unto Caesar, the things which are Caesars; and unto God the things which are God's" (Matthew 22:21 KJV). The home office must be used exclusively for work. If any part of the room is used for any purpose other than work, then the deduction cannot be taken. However, mileage can be deducted when out running errands, but only for the first mile. So be sure to keep good records. If any type of renovation is done on the home office however, those improvements can be taken as tax deductions. Also, a portion of the mortgage or rent can be written off - just figure out the square footage of the home office, divide that by the total square footage of the house to get the percent area. Then multiply the percent area by the amount of the mortgage to get the amount of mortgage payment to be written off. Small business tax advice can be invaluable here.
Some other deductions such as capital equipment used in running the business have experienced a large increase for this year. The deduction for capital equipment went up to $250,000, more than double the amount in 2007. Also, instead of the traditional depreciation schedule, deducting only 10% per year, for example, up to 5% of the value of the equipment can be deducted for the first year, and then the normal amount in ensuing years. The above capital equipment depreciation amounts were put into effect for 2008 as a part of the stimulus package to help give the American economy a big boost, so it won't last past this year. Owners would be very wise to take advantage of it! In this scenario, home tax write-offs will pay off big!
Other types of home business tax write offs are any office supplies purchased for use in the work, internet provider costs if work is done over the internet, phone provider costs, even utilities such as electricity. Don't forget about the computer, paper, shelves, desks, chairs and lights! If a copier is used, that too can be taken off of taxes. Meal times can be deducted also, whether in or outside the home. Even taxes can be deducted from taxes if they are related to the business. The cost of doing business can be taken off of taxes too, such as the cost of insurance, the interest on loans, and any salaries the company pays to its employees.
So one can see how very important it is to carefully consider home tax write offs when working. Just be sure to keep very careful and neat records such as collecting and filing receipts, keeping logs of mileage and other expenses the tax advisor may suggest. Staying organized can mean the difference in whether or not all those deductions end up on the return, or stuffed somewhere between the cushions of the couch or under a chair! Savvy owners understand the need to keep careful accounting of all aspects of work so that if ever an audit is conducted, the whole process will run smoothly and quickly. Lose receipts and the owner may face more than just embarrassment! Keep the accountant close that provides small business tax advise, and always remain ever watchful regarding those home business tax write offs!
Small Business Tax Advice
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