Slashdot Mirror
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.
I must say I've never been able to understand how the American public can put up with the convoluted US tax system. I'm not talking of people with small businesses on the side, but of ordinary folks who have a salary, some investments, maybe rent a room from their house, and have to pay a professional tax account to fill in their tax return!
Also, doesn't the IRS provide information on how to fill the forms? (For instance, the French tax services have email addresses you can send tax queries to, and they do answer.)
There is a level of activity below which the IRS will classify your attempt at a business as a "hobby". Having negative income is a prerequisite for this classification. See the IRS publication 535 for details.
The deadline for C-Corps was March 31. IANAA but I am the IT guy at a CPA firm and I must say they do know their stuff and are worth every penny. You should get an accountant for at least the first few years... later on when you understand what has to be filed and how they should look you might be ok doing it yourself. Same with sales tax payroll etc... none of it is all that difficult unless you've got bookoo bucks and need to find the loopholes.
There aren't many loopholes (probably none) that will be able to be used for the common person or small business. H&R Block, your bank etc. are not the way to go, BTW. Go to a CPA firm, heck you'd have a better chance getting decent work done at Fred's Accounting than at any of the fly-by we do taxes only places. Your bank and regular tax places have one lowly person sitting in the office for 9 months out of the year... when tax season hits they get temps, college kids studying accounting and anyone else they can find to crank out taxes. Most accounting firms are fully staffed all year with competent people and they might hire a temp or two to help out with the phones or do filing etc.
Not filing and not filing on time will get you massive penalties so don't screw around, call a CPA right after April 15. Ask the CPA if any penalties you might have already incurred will outweigh the value of your corp. You may be able to abandon the corp and just start over.
While I'm on the subject.... the urban myth says if you have an inc., you're personal stuff is protected, Incorporating doesn't do squat for your personal risk until it is able to establish it's own credit rating, many years down the road. No bank will lend a newly formed, poor corp. any money without a personal guarantee the loan will be paid off.... i.e. your house as collateral. There are other disadvantages like paying tax on your inventory etc that make a C-corp less attractive, especially at the start.
Of course I could be wrong about everything.
G
That, of course, would depend on what taxable year the corporation elected to have.
I Can't Believe It's A Law Firm, LLP does not necessarily endorse the contents of this message.
That you are asking for tax advice on Slashdot because you are too cheap to get a decent accountant? If I found out the business I was working for or doing business with was getting its advice from the chowderheads here, I would be out the door so fast Einstein would spin in his grave.
The only good advice you'll see on this board is to fork over the money and do it right: get an accountant.
Yeah, I know this is a snarky comment, but please, this question begged for it.
As deleriously easy and fantastic as that sounds, and also while that idea is semi-valid depending on what taxes you are looking to avoid or what your business is - it should be noted that Bermuda isn't the place to do that.
I am moving to Bermuda next month, have family (in-law) there, I know people that own a variety of small and large corporations there, and I will be president of a company there upon moving.
I assure you that unless your corporation is an insurance company or a reinsurance company, there isn't much tax haven to be had my "moving it there."
(for starters, unless you are either of those types of companies, at this point for the most part, they won't let you move there)
Bermuda has gotten a bad rap these days because of misinterpretation of Enron and Global Crossing going under and them having offices in Bermuda.
There are close to 2000 companies that have offices in Bermuda and there are well over 100 entirely based there - but the only ones that would see it as a "tax haven" in any signifncant part are the insurance companies. If you are a multinational company, then having some offices in Bermuda that take in foreing revenues will save you some taxes - but unless you have a large amount of foreign revenue, it isn't going to help much incroprating there (not to mention that they very likely will not let you).
When you say "tax haven" - what you really mean are the Camen Islands. There are *many* companies (esp hedge funds) that are based in Bermuda, but that is just for where they have employees - even they incorporate in the Camen Islands.
So if you really want to avoid the taxes, you would want to incorporate in the Camens, have your employees based in Bermuda, and then somehow get citizenship outside of the states and lose your US citizenship... noting that with that you will lose all of the positive civil liberties and open doors that having US citizenship nearly automatically allows you when travelling in friendly countries.
There are some odd things afoot now, in the Villa Straylight.
Personally I am in the same boat. It is possible to have no revenue hence no profit when you are first starting a business. The one thing I do have is debt and capital expenses. I have dropped nearly $3000 into my photography business, buying equipment, getting a website, and extra training. Before the year is up I'll most likely drop another $2000 on software and computer hardware upgrades. Can't keep using the stuff I "borrowed" from a friend.
Most of the work I've been doing has been for nothing more than the experience which is typically how small businesses go for the first year or two. If you break even in the first year you are doing really good. Someone who shows a big profit in the first year most likely doesn't have a long term viable concept. Usually they're riding a trend or a fad and will be out of buisness by year number two. Which brings us back to what the original guy wanted to know about and what the troll showed his ignorance of.
You can claim your start up expenses against your taxes. Office supplies, hardware, software, utilities, rent, and transportation costs. The catch is you cannot claim 100% on the first year's taxes. It must be divided up over the number of years of use. This is usually spread out over the first four years, but it depends on the equipment. A digital camera may be spread over just a couple of years, but a bulldozer may have to be claimed over ten years. After the initial start up, all the yearly costs can be deducted and only the higher dollar durable items having to be spread out over several years.
The flip side to this is you have to show a profit, I believe, by the third year or the IRS will consider you business a hobby and will no longer be able claim anymore deductions. Goto www.irs.gov. They have good information on the do's and don'ts of small business, but it'll take some digging to find. Hit Amazon.com and hunt around for small business books that have alot of good reviews from previous customers if you want something that is more geared to the layman.