Tax Topics Business Owners Need to Know

Being the owner of a small business can be very rewarding, but very challenging at the same time. One of the biggest challenges small business owners face is dealing with taxes. There are countless items to keep track of and monitor with small business taxes, but these are some of the most important issues to be aware of.

As an owner of a small business you should constantly be looking out for deductions. You can deduct start-up expenses, including up to $5,000 worth of certain kinds of expenses if they took place the year before. You can also deduct any car mileage that you use to conduct your business, if you use your home as a place of business.

Business travel expenses are another good source of deductions for small business owners. Any “ordinary and necessary” expenses can be eligible, which typically include lodging, transportation, laundry, baggage charges and even hospitality tips. If you are gone over night you can also deduct meals but only up to 50 percent. You cannot deduct clothing expenses even if you purchase them for work and use them exclusively for work.

Lastly, if you own a small business you need to be aware how the Affordable Care Act affects your taxes. There are all kinds of limits and restrictions but you might qualify for the small business health care tax credit if you pay at least half of your employee’s premiums and you employ no more than 24 full-time and equivalent employees who have an average annual income of less than $50,000.

Of course, if you’re a small business owner the easiest way to deal with your taxes is to hire an experienced and professional tax preparer like GROCO. Give us a call at 1-877-CPA-2006, or click here to learn how we can help you.

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How Long Does it Really Take to Prepare Business Taxes?

For most people, just hearing the word taxes is enough to cause uneasy feelings, but for business owners the thought of doing their own business taxes can be a nightmare. Filing individual tax returns can be hard enough but the process gets even more complicated for a business. Plus, even if you have a good handle on your tax situation, it can still take countless hours to complete them.

In fact, according to a survey by the National Small Business Association, taxes for small businesses can be quite time-consuming. According to the results of the Small Business Taxation Survey the average time it took to prepare taxes for a third of all small business owners was more than 80 hours. Additionally, these same businesses were paying about $5,000 or more in federal taxes.

Additionally, nearly 60 percent of small businesses reported in the survey that the biggest challenge from federal taxes is administrative burdens. Just over 40 percent said their biggest issue “was bearing the financial burden involved in the taxation process.”

Another big concern for small business owners is that the tax process continues to get worse. Many small businesses report that the process gets more difficult, takes more time and costs more money every year, which all contribute to taxes being a significant burden.

One way to help ease the burden of small business taxes is to hire an experienced firm, like GROCO to do your taxes for you. Click here or call us at 1-877-CPA-2006 to learn more.

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Money-Saving Tips for Freelancers

When you hear the term freelancer, you might think of someone working a small business out of his or her home and just doing things on the fly. However, freelancers come in all forms and many owners of small businesses or startups are also freelancers. Being a freelancer means you are self-employed and being self-employed can be tough on your taxes.

As a freelancer, because you are responsible for your own employment taxes you are both employer and employee. For taxes, that is a double-whammy. When you work for an employer both you and the employer split the cost of Social Security and Medicare taxes. As a freelancer you pay the whole amount yourself. As a freelancer you are typically required to pay estimated taxes four times during the year.

If you overpay, then you will get some back when you file your return. However, if you don’t pay enough you could end up paying penalties and interest later on. Estimated tax payments are exactly as described: an estimate. Many self-employed taxpayers don’t know in advance how each quarter will go, let alone the entire year. So how do you hold back the right amount to cover your tax bill?

The smartest practice is to set aside a portion of your income as you receive it. The amount will vary, but typically a safe number is about 15 percent of your income each time you are paid. Of course, for those business owners and freelancers with higher income the amount will need to be higher.

Being your own boss has its advantages, but being a business owner can also be more difficult when it comes to filing and paying taxes. Contact GROCO if you’re a business owner and need help with your self-employment taxes. Call 1-877-CPA-2006 or click here.

 

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Should University Donations Trigger Tax Breaks for the Wealthy?

Universities big and small receive donations from many different sources, including wealthy alumni. However, not all donations are created equal and because the wealthy donors get a huge tax break for their significant donations, some wonder if that is really fair.

For example, Nike co-founder, Phil Knight, recently donated $400 million to Stanford, where he attended business school. That donation will give Knight a $158 million tax break. Some find that in of itself unfair, but others question why some schools, which already have deep pockets anyway, get such large sums of money without being taxed for it? Plus, the majority of the donations are given to these top schools, while other less prestigious universities are often left scrambling for much-needed resources.

However, on the flip side, many donors would argue that they make these donations for true philanthropic purposes and not for the added benefit of a large tax break. Some counter-argue that all the donation money could be used for better purposes. However, there’s no question that the nation’s top universities help the country in many industries, as well as give the economy a boost in many forms as well, including training thousands of the brightest minds.

Of course, it’s an argument that has no easy answer, but probably one that won’t get much traction, because wealthy alumni have always been able to donate their money to the universities or causes they choose. That is not likely to change any time soon.

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Who Really Qualifies as a Dependent for Taxes?

How many dependents do you really have? Who can really be counted as a dependent? These are some of the most common questions that all taxpayers have. Can you count all of your children, live-in help, or perhaps a dog or other family pet? What about a friend who decides to crash at your place and basically mooch off you the entire year; can he or she be counted as a dependent?

As far as the IRS is concerned, there are two different kinds of dependents but there are dozens of scenarios that can fall under these two categories. There are also different rules for each type. The first type of dependent is classified as a qualifying child. The second type is a qualifying relative.

A qualifying child must be related to you, either by birth or adoption, or be a step or foster child. You must also provide more than half of the child’s total financial support and you can be the only person claiming that child on your return. To be a dependent the child must also be 18-years-old or younger, or if he or she is a full-time student, younger than 24-years-old.

The rules for being counted as a qualifying relative are much different. First, if your relative is a blood relative then he or she does not have to live with you in order to be counted. However, he or she must not provide more than half of his or her own support and that person cannot make more than $4000.

For a person who is not a blood relative to qualify as a dependent – like a lifelong friend who is down on his/her luck, or just plain lazy, or even your significant other – that person must live with you the entire year and their income must be less than $4,000 for the entire year. No one else can claim the person and you have to provide more than half of his or her financial support.

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Which Tax Breaks Help High Net Worth Taxpayers the Most?

It’s no secret that the United States government generally taxes high net worth individuals at a much higher clip than those in the lower- and middle-income brackets. However, despite that fact, there are still many provisions in the tax system, if used properly, can help wealthy earners save on their taxes. So what are some of the best breaks afforded to the wealthy?

High net worth individuals use several tax breaks to ease their tax burden, and most of them use the skill and experience of a trusted accounting firm to help them maximize the tax breaks available to them. For example, the wealthy often save a bundle on taxes because tax rates are smaller for qualified dividend income and long-term capital gains. In fact the capital gains tax is probably the biggest break the wealthy employ.

Another big tax break the wealthy receive is the “wage cap” on Social Security payroll tax. The government automatically deducts 6.2 percent from employees’ paychecks, but that is only applied to the first $118,500 someone earns. After that the wealthy don’t pay any more payroll taxes.

Lastly, the estate tax offers another way for the wealthy to reduce their tax bills. That’s because the lifetime exclusion has risen from $2 million in 2008 to $5.45 million currently. In addition, heirs will now also receive a step-up in basis on the assets they inherit.

So, while the nations’ wealthiest individuals do pay more in taxes than everyone else, there are some nice tax breaks available to them that can at least help reduce their bill. Contact GROCO to learn how we can help you hold onto more of your wealth. Call 1-877-CPA-2006.

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Obama Looking to Stick the Wealthy With Even More Taxes

His second term in office is winding down, but President Obama would still like to raise taxes on high net worth individuals before he checks out of the White House at the beginning of next year. Although the president has already taken several measures to raise the effective tax rate on the wealthy, he is calling for even higher taxes on high net worth individuals, as well as big banks.

The president’s proposal includes yet another hike on capital gains. He has already raised the capital gains tax rate to 20 percent, but now he would like to push it all the way to 28 percent. The plan also calls for millionaires to pay at the very least 30 percent of their income to the government. He’s also proposing a new fee “on the largest financial firms on the basis of their liabilities.”

The reasons for the proposed tax hikes include funding the fight against ISIS, as well as supporting the president’s healthcare and education initiatives. As is to be expected, republicans have already harshly criticized the president’s proposals. In fact the budget committees from both the Senate and the House said there would be no discussion with the president’s budget director about the president’s proposed budget.

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Entrepreneur? Think Deductions, Deductions, Deductions

Are you an entrepreneur looking for a tax break? Entrepreneurs have a lot on their plate, including living with the financial risk of their entrepreneurial efforts. That’s why it’s so important for any entrepreneur to be aware of any and all deductions come tax time. There are dozens of deductions to be had, but the tax code is no picnic to go through. So what kinds of things should you look for if you’re an entrepreneur filing your taxes?

The first thing to keep in mind is that your business expenses are deductions. That means your expenses reduce your overall profit. If your revenue was $500,000, but your expenses – including marketing, equipment and travel, among other things – add up to $200,000 then your net profit is only $300,000. That is the amount you owe taxes on.

Unless you have a C-Corporation you will most likely be responsible for self-employment taxes as well, which is 15.3 percent. Your total tax bill could easily end up being close to 40 percent, depending on how much profit you make and which tax bracket you end up in. It could be even higher than 40 percent. Therefore, any deduction you can get will be helpful. Essentially, at a 40 percent tax rate, every deduction worth $1,000 will save you at least $400 in taxes.

That being said, you must actually run a business and your deductions must be legitimate business expenses. You have both operating expenses and capital expenses to work with but whichever kind you have, make sure to keep careful records and receipts of all your expenses. Don’t overlook the power of deductions as an entrepreneur. They can bring big returns to your overall bottom line.

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Tax Preparers Get Busted for Fraudulent Practices

Every tax season is full of stories and tales of people who go to great lengths to avoid paying taxes. In addition there are dozens of reports of unscrupulous tax preparers that get caught trying to cheat the system: either their clients or the IRS, or both.

We want to share a few of those stories with you, which come from Accountingtoday.com. The first tale comes from Latham, NY, where a 52-year-old tax professional has pleaded guilty to false returns. The preparer admitted to preparing 16 returns that contained all kinds of false information, from false deductions for unreimbursed employee expenses to energy efficiency credits. The false returns were submitted between 2008 and 2011. He could face as much as three years in prison and a fine of $100,000.

Elsewhere, the Justice Department has asked a federal judge to permanently bar three Liberty Tax Service franchises in South Carolina after they allegedly prepared false returns in order to give their clients’ refunds a boost. According to the complaint, one franchise filed returns that included a “bogus ‘arts and crafts’ business on one of its client’s return and a bogus ‘hair care’ businesses on another’s.”

Meanwhile, another preparer, in Louisiana, will be spending two years behind bars and another year of supervised release, along with paying a hefty fine of more than $225,000 after he was convicted of filing a false personal income tax return and preparing bogus returns for many of his clients.

These are just a few examples of dishonest tax preparers that are out there. So now that tax season is in full swing, make sure you choose a tax preparer you can trust.

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Don’t Forget About These Important Tax Write-Offs

The saying goes that it’s the small victories that count. That saying can be especially true during tax time when for many taxpayers any chance to save even a few dollars more is considered a positive. Plus, when you add up enough of the small victories they can equal a significant reward. With that in mind, let’s look at some of the little tax deductions and write-offs that can make a difference when you file.

Most people are aware of some of the more common write-offs at tax time, like charitable donations, mortgage interest and real estate taxes, but there are many others and you should look into every possible write-offs you can find. One example is bad debt. This is debt incurred when you extend credit to someone with a payment plan agreement but that someone never pays you off. However, you must show that the debt really exists and that you have done enough to try to recover it in order to use it as a write-off.

Moving can be another write-off, so long as your move is more than 50 miles away and it was for a new job. That means any reasonable moving expenses, not counting meals, can be written off. Even if you didn’t move, your house can be another place to find deductions. Any eco-friendly upgrades you make to your home could qualify you for certain tax credits.

Two other write-offs that many people can use are business meals and mileage expenses. If you use your car for business, not counting your commute, then each mile is worth 57.5 cents for your 2015 taxes. Likewise, if you take a client or a job candidate out to lunch to discuss business then you can write that expense off as well.

These are just a few of the possible write-offs available to taxpayers. For more possibilities contact GROCO at 1-877-CPA-2006 or contact us online.

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