The key to monetary success for your business is doing proper research and following sound financial guidelines.
Thinking of taxes is enough to send most of us into a tailspin. It can paralyze us with fear and bring our businesses to a grinding halt. But it doesn’t have to.
Know what you are willing and capable of handling and devoting your time to. If taxes aren’t your thing, outsource! Just because you are a master of your craft doesn’t mean you are a specialist in all aspects of running a business.
You don’t have to be a tax professional to have a solid understanding of your unique tax situation. The fine print and legalese around taxes and finance can be daunting. Don’t let that stop you from obtaining clear and concise information.
The internet has become an invaluable resource for understanding and managing our finances. When it comes to you taxes, be forewarned — use the internet wisely. There are many sites offering tax advice and information. Not all of them are reputable, accurate or reliable.
With hundreds of sites offering advice, whom should you trust? Go directly to the source. Most U.S. government agencies have comprehensive websites. Our country encourages entrepreneurship. In fact, the U.S. Small Business Administration was formed in 1953 to assist us. They have kept with the times and currently manage www.business.gov. Their site contains everything from information about licensing and permits to industry specific information. It even contains links to all state government websites.
Keep up with changing tax laws. Join your industry’s professional associations and organizations. They keep their members informed about the most current issues affecting their businesses. They often represent members in negotiations with federal agencies and taxing authorities and have the latest news regarding your profession.
Don’t forget the IRS. Their website is massive and navigating it can be tricky. Look to the section for small business owners. Its portal provides links to some of the most commonly used areas. Use the search field to help you find exactly what you are looking for. Also refer to the forms search page to find specific forms and publications. The IRS also offers an e-newsletter for small businesses. While not all of the information will pertain to you, much of it will be helpful.
Taxes cannot be discussed without mentioning record keeping. This should be your solid ground — your foundation. Keep records organized in a way that is logical and simple. The more organized your are, the less time you’ll spend, the less frustrated you’ll feel, the more empowered you’ll feel, and it’ll save you money! Keep your bank and credit card statements along with supporting receipts. How you do it isn’t as important as being consistent. A little work each month makes the year-end easier to bear. If you are comfortable with computer software try financial tracking software like QuickBooks or Peachtree. Most offer demo versions to help you determine which will work best for you.
If your business has employees, your tax responsibilities change. Before issuing your first paycheck you should acquire an Employer Identification Number (EIN) from the IRS. This is a simple, one-page form that provides instant gratification. Fill out the form and call the IRS toll free. An agent can issue the number immediately. Or register online and print your confirmation and identification number. Check with your state taxing authority to see if they require a state ID as well.
It is the employers’ responsibility to withhold federal and state taxes from each paycheck issued. Depending on reporting requirements, you will send the money withheld to the proper taxing agencies at regular intervals. There will be added layers of paperwork, including annual reporting.
The IRS takes payroll taxes very seriously. When reporting payroll taxes, employers transfer money to the IRS and their state taxing agency. Some of the money transferred belongs to the employee — it is their personal withholding. Many new employers ignore the fact that they should set that money aside the minute the check is issued. It is easy to overlook. Their bank account balances are subsequently higher than they expect and it is easy to use the money elsewhere. At the end of the reporting period, the employer is left with a large debt and little cash. Penalties are steep for failure to pay these payroll taxes as the IRS considers this stealing from your employee.
If your business has employees, consider hiring a payroll service. There are many small business owners specializing in payroll taxes and reporting. Internet based payroll companies may be a viable option for you. They offer ease of approving payroll from any computer at anytime. Make sure the one you choose is user friendly and secure with layers of passwords and encryption. Outsourcing payroll should save you time, money and hours of frustration.
Every business is required to issue 1099’s to any person it pays at least $600 in rents, services or other types of income. It indicates how much they earned and any amounts withheld. You will need to include the person’s name, address and Social Security Number or tax ID number. To obtain this information, use IRS form W-9 on the forms portion of IRS.gov.
Plan in advance. This is one specific form you must order from the IRS. They offer the forms free of charge. But if you are in a pinch your local office supply store may carry them. You cannot use a version printed from the Internet. The forms have scanable features to aid the IRS in gathering the data quickly. Prepare your 1099’s and postmark them by Jan. 31. You will then be required to file a summary form, indicating the quantity and total dollar amount of the 1099’s. This is due to the IRS by Feb. 28.
With tax season right around the corner, you may be considering hiring a tax professional. There are multiple reasons for calling upon a specialist. From saving time and relieving your tax headaches, to helping you plan for the future and handling notices from the IRS, a tax professional may be the best option for you. Changes in tax position often send clients to tax preparers. Becoming self-employed and launching businesses are risks. A tax pro can help you minimize the risks and navigate potential hazards. The decision relies heavily on the complexity of your tax situation. Follow your instincts. If you think you need help, look into it. Many tax preparers’ websites offer useful information like tax calendars, financial calculators and tax articles.
Only two states require tax preparers to be licensed, California and Oregon. Verify credentials and make sure your preparer is reputable, educated about taxes, bonded and insured. The most important aspect is that you are comfortable with them. If you are intimidated by them, they might not be the best person to confide your deepest money issues with. Remember — intimate, not intimidate. Interview your tax pro before handing them your figures and social security number. Ask questions about how they set their fees, if they represent you in an audit, and ask for references.
For many of us, self-preparing our returns is the best route. If no one knows your finances better than you and the fine print isn’t too daunting, consider self-preparing your returns. Use tax preparation software to streamline the process. Some are formatted to walk you through, interview style, automatically plugging your figures in where they belong. Make sure your software provides for federal and state filing, free updates for the filing season, and e-filing.
If your filing status is self-employed, submit Schedule C with your personal federal return. This is where you report business income and expenses. Your excellent record keeping will make this part a breeze. Include all your income. There are steep penalties for underreporting income. Likewise, report all your expenses, including a home office if applicable. Your expenses will help offset your income, lowering your tax liability. If you have more expenses than income you have a net operating loss. While we want our business to be profitable, a net operating loss can be helpful. You may be able to carry it back two years or forward twenty years. By revising previous year returns you could favorably change your tax return. Or, save it to shift your tax position in a later high-income year.
Breathe deep and stay calm this tax season. Dealing with your taxes while frustrated will only lead to more confusion and errors. Take your time and however you accomplish the goal of filing your taxes, avoid common errors.
Triple check your Social Security Number. Look for typos and transposed numbers.
Confirm your address is correct. More than 115,000 refund checks were returned in 2007 because they could not be delivered.
Review prior year returns and familiarize yourself with those documents. They may help you identify items missed on your current return.
Be punctual. The penalties for late payments are steep. Those for filing late are even steeper.
File electronically! It removes one layer of potential error. If you file a paper return, a person actually types your return into the IRS system.
Choose to have your refunds directly deposited into your bank account. Obtain your refund several weeks faster than a check arriving via snail-mail!
— Allison Einbinder is a collaborating writer at www.Queercents.com. Allison’s business, Dollars and Sense Taxes and Accounting, is located in Oakland, Calif.