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.

Comments

Get an Accountant

[inbox]

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.

Re:Get an Accountant

[dr_dank]

I work as an accountant for a large payroll firm and most of my job is to weed out clients that are not running payrolls and are getting free nil filing on our tax filing service, generating cost with no return. If you're using a payroll service, don't expect them to file for you if you are not active.

The parent comments advice is probably the most important advice you'll get on this thread.

Re:Get an Accountant

[kerskine]

Great idea - especially since you've missed the deadline for filing corporate taxes - March 31. You're going to need some professional advise at this point.

Re:Get an Accountant

[scrotch]

I worked as an S-Corp for two years, and I whole-heartedly agree: get an accountant.

The IRS will give you incorrect information. Their forms, and booklets, and other books (and tax software) on the market all assume that you know what you must declare and what you can write off. Can you write off paper clips? Can you write off your phone bill? Gasoline? Last year's taxes? They won't tell you. If you're not absolutely-bet-your-business-on-it positive, get an accountant. Mine charged about $200.00 to do my business and personal taxes. Some of the best money I've ever spent.

I don't know why taxes have to be so freaking difficult, but they are. It's very hard to get correct, complete information, especially if your situation is at all unusual - like you made $0.00.

RTFTM

[sheemwaza]

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...

Re:RTFTM

[joshtimmons]

You obviously don't have a C corporation. The Schedule C is for sole proprietorships. A corp C is much different and as far as I know, there is no fine manual (FM). Every year, our accountant generates a stack of forms about an inch thick for our corporation C taxes, then gives us about 10 more pages to go with our 1040. We don't use schedule C at all.

That said, this person (with no sales or revenue to speak of) should not have incorporated yet. He should have been a sole prop or LLC. Then he could use the schedule C and he would reasonably have been able to do it himself. IMHO, there's no need to own a corporation unless you are making enough for it to be worth the bother.

Gotta love the tax system! No, really, you gotta!

Re:RTFTM

[Lionel Hutts]

How does this post deceive us? Let me count the ways.

1. Schedule C, and the rest of Form 1040, are for individuals only. A C corporation will be filing Form 1120. The Service does provide publications "explaining" this form, but we are talking about a lot more complexity.

2. The individual cannot deduct the corporation's business expenses. The corporation just wouldn't owe any taxes, and could (potentially) carry the net operating loss forward to future years, but the losses of a C corporation cannot reduce its shareholders' taxes.

3. It's not 3 consecutive years, it's 3 years out of 5 (except that it's 2 out of 7 in the case of certain horse-related businesses).

4. It's not up to the IRS. The Code uses this as a presumption only. It is always a question of fact: if an individual has an honest subjective intent to make a profit at an activity, the expenses are deductible; if not, they are not (with many exceptions, as usual).

5. None of that matters, since it's the corporation's taxes. You can't possibly reduce your taxes by forming a corporation to pay the costs of your hobby. Deductions would be disallowed if, hypothetically, the corporation did not have a profit motive, but a bigger worry would be the almost certain constructive dividend treatment of payment of the shareholder's expenses. But the deduction is worthless to a corporation with no income anyway.

Tips

[namespan]

1. Call the IRS help line. The first two years that I did contracting work, calling them and asking questions probably added $500 to my return. They were friendly and helpful -- more so than in many interactions I've had with private corps who you'd think would have a greater incentive to keep the customer satisfied. This year I haven't had such great luck talking to them, though. Wonder if that congressional inquiry is wearing off. But you might try calling and asking them for advice.
   
2. Tax software. Two years ago I used Turbo Tax for the first time, and it was worthwhile. While I'm glad I slugged through the paper forms and publications for a while so I could understand some things, the software takes a fair bit of the tedium out of things. Some preparers I'm aware of out there seem to simply use tax software to do the lions share of the work.
   
3. If you find yourself tangled up even with these helps, it's time to talk to a pro. Use and consider retaining the services of an accountant and/or tax lawyer.
   
4. File for an Extension. You're already close to the wire... give yourself more time. If you're sure you own money, make a payment. You can get a refund on it later, and won't have to pay interest and fees on the outstanding balance.
   

Re:Why it's easy...

[sheemwaza]

It's a good point... if you have zero income, you don't really have to pay any taxes now do you? :)

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.

You must have SOME deductibles.

[SlashChick]

I run a small business as well, and though it didn't make an incredible amount last year, I had a lot of startup expenses. If you say you don't have any business expenses, you aren't looking hard enough.

• Did you perform upgrades to your computer? Is your computer used by you for business purposes? Write the upgrades off! Last year, I wrote off a bunch of stuff, including an Adobe Photoshop 7.0 upgrade, a RAM upgrade, and several other things. I already have a hard drive upgrade to write off for this year.
• Did you purchase books to better your business knowledge? Deduct them! O'Reilly books count too!
• Did you travel to a client site? That's 36 cents per mile in your pocket, bud. I travel to client sites 4-5 times a week, so I deduct several thousand miles a year.
• Did you purchase servers? A router or switch? How about a printer or a scanner? Those are all business expenses.
• How about your phone bill? DSL or cable modem? Cell phone? If you use them for business, these are all deductible.
• Did you take a client out to eat or send a client a gift? That's tax-deductible too.
• Did you donate to the EFF or even to Goodwill? Deduct it!

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.

how doy you know your expenses are at $0?

[patmoore]

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.

Zero expenses and zero revenues: DON'T FILE!

[YetAnotherName]

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.