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Tax Tips For Small Folks?
An anonymous "The tax deadline is fast approaching (here in the USofA). Like some of you, I have a small business on the side. Since I haven't figured out the 'step 2' yet (the one before 'step 3: profit!!!'), my revenues were zero for all of last year, and the expenses were just about zero too. What is the quickest and least painful way for a person in my situation to do his taxes? I don't want to spend 100s of dollars going to a paid professional, just to have him put all zeroes in the form. If you have done your taxes and are a small business (C-corp, don't ask why...), do you have any tips?" This is also your chance to offer all the heretofore unsolicited tax advice you've been bottling up all year.
My advice (and I, too, am the President of a very small C-Corp not quite yet generating a great deal of revenue) would have to be to get an accountant. There isn't just one form to put zeros on. There are a lot. And all kinds of other things. And penalties for messing it up.
Skip the lawyers if you have to, but don't skip the accountant.
When the IRS sends you the forms, they come inside a large book which explains line by line how to do your taxes. I suggest reading the pages explaining the Schedule C, which covers a personally owned business. If you made zero dollars, that could be good news because any business expenses become tax deductible. Unfortunately, if you don't turn a profit in three years, the IRS considers your business a hobby and will make you pay back taxes on your deductions... Also, the Publication 17 is a great tax reference. All available online or at your local library...
Libertarianism is rich wolves and poor sheep playing gambler's ruin for dinner.
Ummm.... Even if you make near zero dollars, you may want to file anyway. If you work and support children, it means you may be eligible for the earned income credit...I emphasize credit meaning the government gives you money! I worked in a a volunteer tax office for a while and a lady came in who hadn't filed for two years because she hadn't had a job. Turns out her husband's disability income counted for the EIC and she was able to claim >3K in tax credits for the two years (again, having children is a credit multiplier)... even though her income was negligible.
This is why you go to an accountant -- because it's never jut a bunch of zeroes. If your business didn't make much money and you didn't either, you're entitled to a refund. Spend the $50 or so to talk to a real person about your business, and take the time to document gas mileage, computer purchases, and monthly bills you can write off. In fact, if you have a room in your house that serves as an office (and only as an office), you can write off a percentage of your rent or mortgage every single month.
If you didn't know this stuff, it's certainly time to take your money and go straight to a tax preparer. My dad's assistant does tax returns for a living, so I always get her to do mine... but if you don't have a relative who can do them, go find someone who can! A good accountant is invaluable and will teach you the tricks of tax deductions (some of which I have outlined above.) Never underestimate how much money a professional can save you in the long run.
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I would suggest visiting the National Society of Enrolled Agents which has references to local society's in all fifty states and tax professionals there in. Alot of these society's have professionals who almost strictly deal with small business returns and would probably be willing to give you a free consultation. The Colorado society of Enrolled Agents site may also be useful, which on the left hand bar has a couple of other useful tax site links.
It's possible to file a 'zero return' with both the state and feds (check with your state tax laws). Depending on your state it's possible to file both online. You can file a zero return when there is no profit made, or when your expenses exceed your income. It should be fairly inexpensive to have a CPA prepare a zero return. It's still possible to do it on your own though. It usully requires filling out only one or two forms, sticking zeros in just about every line. My state's web site has a great section for small businesses that describe federal and state tax requirements. You might want to start looking on your state's web site.
Your income has to be low (extremely low if you don't have children), but you must have income from working. That really is about it. The Earned Income Tax Credit is really more of a welfare program than a part of the tax system; it just happens to be claimed on the same forms as other people use to pay taxes.
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Unless I'm missing some huge loophole, it's not a hobby if he told the IRS (and countless other local and state agencies) that he wanted to create a C-Corp, regardless of revenue, which is what should have happened when he created the corporation (all kinds of paper work needs to be filed like articles of incorporation, etc...).
There are all kinds of fees, dues and taxes that get paid out to multiple groups (IRS, state department of labor, city government, etc....) at various times during the year just by having a corporation, regardless of revenue. Having employees, etc... obviously complicates this, and often the officers of the company are also employees and there are legal guidelines for this as well.
It's actually a pretty good reason not to start a corporation when another business entity would have been far more appropriate. The IRS is not the only agency one has to deal with and there are very specific rules, guidelines and laws surrounding the operation of a corporation.
Unfortunately, having a corporation that makes no money is not free.
If you have a legimate business (i.e. you are intending to make a profit at some point and you put in a significant amount of hours (>100) a year) there is a whole raft of stuff you can take off the tax bill. Phone calls, internet usage, depreciation on your computer, mileage, etc. Spend the money and find an accountant who will take the time to educate you on the basics of what you need to know. Don't skimp but you should get be able to get the information you need for about $500. (which by the way can be deducted.) My wife is an accountant and she is really the one to answer this -but you should get the idea.
Actually, studies have long shown that the best time to submit your taxes to avoid audits is right on the cusp of the deadline. Your return has a larger chance of getting 'lost in the shuffle' this way.
;), the accountant is unlikely to have enough time to know your business well enough to 'find' more deductions, other than the 'obvious' ones.
On the other hand, there *is* a ~2% random audit process which can still result in your return being looked at in more detail - sometimes months or years after it is filed.
As for best tax filing tips -- and despite the piss poor attempts at DRM in this year's version -- skip the accountant and use TurboTax.
The other tax programs may be on a par with TT - I started using TT with its first release and have never looked back - but TT *is* a first-rate accountant - and one that never gets sleepy, overworked or makes mistakes.
Unless you're completely clueless about taxes, and can not understand the govt instructions (which are no worse than, say, the average dot-matrix printer user's manual from 1983
If you have a corporate accountant on-staff / on-call, then absolutely let them handle the taxes. You DO trust them, right?
Finally, a comment regarding filing in general: If you are owed a refund, you do NOT have to file by the deadline. If you consistently refuse to file, after a few years the IRS will file on your behalf, using stock #s from your employer-submitted W2s. At that time you can file 1040-X forms showing the real numbers and claim your refund. (Refunds expire after 5 years!)
I don't recommend this practice, but I have used and have known others who have used it.
If you're not living on the edge, you're just taking up space!
You said you were in the USA, so this is of no help to you, but could be for others in the UK.
p l.htm within around three months of starting being self employed.
Over here, as just about everybody knows, the official tax-collecting body are the Inland Revenue. As it happens, they have an official web site: http://www.inlandrevenue.gov.uk.
If you go to the site, click on 'Individuals' (left panel), scroll down and click 'Self Assessment' (under features), and then scroll down again and click 'Self Employed'.
A few key points (No warranty - I'm an amateur - check these for yourself rather than relying on a random slashdotter if you're going to use any of this):
- You need to fill in the form which can be accessed at http://www.inlandrevenue.gov.uk/startingup/selfem
- You'll have to keep records of all your income and expenses, including all receipts of expenses wherever possible.
- Anything you declare as expenses isn't taxable. So if you bring in £20,000 and justify £5,000 on expenses, you'll be taxed on the remaining £15,000.
- You'll probably have to pay two lots of National Insurance: one currently at £2/week, and the other at 7% of everything you earn between around £5,000pa and £29,000pa.
- Tax rates are roughly:
10% of your first £2,000pa. ("Starting Rate")
22% of your next £27,000pa. ("Basic Rate")
40% of anything above that ("Higher Rate")
- You'll have to fill in a self assessment form for every tax year, after the year is complete. Tax years run from April to April. For the tax year ending in April 2003, you can expect to receive your tax return for that year in April 2003, and you'll have until 30th September 2003 or 31st January 2004 to return it, filled in. If you send it in for the first deadline, the IR will calculate your tax for you.
- Once the tax return is processed, you'll be sent a bill for the amount of tax to pay.
- Tax returns can be filled in online at the Inland Revenue site.
1. File an extension, so you can legally postpone your tax return filing beyond April 15th. You can download one in PDF form from the IRS and you can even telephone it in. The extension form takes less than 2 minutes to complete.
2. Talk to a tax accountant. It will cost you anywhere from $100-$500 and it can save you upwards of $1000. The first year I used one I saved myself $1400 over what I had computed for myself. The next year, benefitting from the free advice he had given me the first year, I saved over $5k. After that $11k, and so on.
3. They are not just there to fill in the form for you. They will also tell you what to do to save money, both on your current return and your future ones. In my experience, and the experience of people I know in our situation, it is very rare that the accountant costs you more than they save you. Think of them as a free money, that should be incentive enough to get you moving.
4. Don't use the corporate chain accountants. Talk with the old greybeard who has been an independant his whole life. This is very important. Get a referral, use the yellow pages, but do not go to H&R Block. Granted, the solo tax guy is swamped at this time of year, and you are too late to see him now before April 15th, but that is what step #1 is all about. He has plenty of time to help you out between 4/15 and 7/15.
Look, if you had practically zero revenues offset by practically zero expenses, don't even file schedule C and schedule SE.
I make my living completely by estimated tax payments through the year along with schedule C, forms 4562 and 8829, and schedule SE. But if all you did was on the side and resulted in no profit, the IRS won't give a flying fuck.
Unless a client of yours sends you a 1099.
And I hate to sound like a character from Gilliam's Brazil, but a 1099 establishes a paper trail, and then the IRS will want to know why you didn't make an estimated tax payment on that income.
That leads to all sorts of ugly things like the annualized installement method on form 2210 which is complex but approachable with a spreadsheet program.
The upshot is, don't bother if you're not on even IRS's radar (which is like under $600 for most contractor/client relatioships). If you are on the radar, then do all the section 179 deductions you can for your tangible property (computers, etc.) on form 4562, do business expense of your home on form 8829, and, of course, do schedule C for profit/loss and schedule SE for self-employment tax.
And this year, start doing esitmated tax payments using form 1040-ES . Remember they're due four times a year (4.15, 6.15, 9.15, and 1.15 of the next year). The IRS likes to see the amount of each payment be the same and if they're not (because your income through self-employement throughout the year is not the same) then file form 2210 (underpayment) even if you didn't underpay. It's basically where you get to explain why your payments aren't the same throughout the year.
Finally, don't give H&R Block the time-of-day. If you can follow instructions, add, subtract, multiply, and divide, and, most importantly, be patient, you can file your own taxes. I used to pay a professional to fill out mime. Problem was, I filled them out ahead of time to see if we got the same answers. We did. After that, I said "Fuck you H, fuck you R, and most certainly fuck your Block!" It really is not that hard to file income tax.
And never forget: IRS sucks.
Even more disturbing is the fact that some of the IRS resources have a disclaimer that if they give you bad advice, you will still be liable for the penalties and consequences involved. I am not making this up.
As a small business owner, and son of accountants, I must agree that you need an accountant. In fact, I was discussing this the other with a few local businessmen the other day. Accounts are vital not only because they know where to put the zero's on your forms, but they also know things like the filing date (not April 15) for businesses. They also know how to approach write-offs and tax credits so that you can not only avoid paying excess taxes now, but in the future (you knew you could write off past tax losses right?). And if you find a good one, they won't charge you too much, especially if your form is as easy as you claim. Some tips (at least from my experience): 1.) don't get an accountant that has television or radio ads, they charge too much. 2.) Don't use H and R Block (they don't help you with write offs so that when you get your refund it looks bigger). 3.) If your taxes aren't a lot of work, find a small one or two person shop, make sure they've been licensed and around for a while. There are several good, cheap accountants in any city. Go to the Chamber of Commerce, look some up, ask them about their rates. If they quote an hourly figure for "consultation" they're probably too expensive. Finally, if you provide a valuable product or service, some small accountants are willing to barter. I know this sounds crazy, but I know several, good and experienced accountants that trade their services for things like computer repair and help, construction work, dental care, etc. So if you can help them, they can certainly help you.
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Lost Sheep to Shepard, you got your ears on?
You can lose your shirt every year for as many years as your money holds out.
You must just meet several requirements to be considered an ongoing concern:
1. Keep the business funds separate from personal funds. (Separate bank accounts)
2. Advertise
Can't rememer the rest cause I'm not a CPA.
Get an accountant!!!! Consult with them regularily!!!!!
always hire a professional.. not one of these H&R block creeps either.
-- I am. Therefore, I think!
I am also the President of a Delwware C-corp with no revenues for teh tax year 2002. Here's what you need to do:
1. File and pay your state franchise tax. In my case, it's Deleware and $50. Easy to do, but if you haven't already you will have to pay a $50 fine plus 1.5% interest per month. See ecorp.state.de.us for details.
2. For U.S taxes, file form 1120-A. With zarro revenue, you skip filling out Parts III and IV. See www.irs.gov for details and accompanying instructions.
2a. You may need to fill out some accompanying schedules (4797 for sale of business property, Other Deductions schedule, etc).
2b. YOU WILL NOT HAVE TO PAY A PENALTY. Yes you are late; however, because you have zarro revenue you will have zarro US tax to pay. Hence, you will not be penalized or fined. See the instructions for Form 1120 and look in the payment submission fine print to get the exact quote.
2c. You can deduct business startup expenses.
2d. Amortizing depreciable assets is a pain - get an accountant if you want/need to do this (have a lot of business computers?)
2e. If you paid yourself anything that does not constitute business expense reimbursement, get an accountant to sort out the details. My rule of thumb is to self-file and do all the accounting UNTIL I begin paying wages to myself. Then it is time to bring in a professional CPA (especially if you hire anyone other than yourself to work for the corp).
3. Send EVERYTHING to the state and federal authorities via CERTIFIED, RETURN-RECEIPT REQUIRED, mail. Trust me - they've lost mine before and you will want proof that the IRS received the package.