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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.
Sell drugs. Its risky, but supposedly the profits are great. The best thing is you don't have to worry about taxes, just skip them altogether. You'll be out of luck if they decide to legalize and tax it though. Jail time, risk of getting shot, etc. are all bad things as well. Then again, stick to whatever your doing. Sorry I can't help with your taxes.
Question everything.
Looking at the headline, my first though was "Wow, what special tax needs do midgets have?"
I have no revenue
The question, Alex Trebek, is:
"Who is RedHat?"
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.)
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...
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.
Libertarianism is rich wolves and poor sheep playing gambler's ruin for dinner.
And I thought the people that sought legal advice on Slashdot were nuts...
Asking for tax advice on here is taking it to another level...
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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There is a reason why accountants are highly paid professionals. Find one that is trustworthy (family/friends are helpful here) and then use them.
------- "From bored to fanboy in 3.8 asian girls" ----------
Firstly, if you gruesomely eviscerate your victims for religious purposes (instead of just on a whim) you can be a religion. You need at least three accomplices, if I recall correctly, to serve as treasurer and suchnot. If they complain on "principled" grounds about your savage murders of children, point out the tax benefits this accrues for them. This tactic works best on MBAs.
Secondly, remember to keep the children alive in cages for months in your basement. This way, you can claim them as dependents. ALSO, your house becomes a business expense.
Finally, you'll want to sell a few "insurance policies" to small farmers*. I recommend collaborating with your local Mafia Don in this, since farmers generally don't want to buy insurance from serial killers, and since the Mafia can help with the fundamentally cash-poor nature of ritually murdering children lured over the internet, which is of course a fine and laudible goal but still lacks an effective "business model."
* This is an actual tax loophole. If your primary business is selling insurance policies to farmers, and you meet some other requirements, you don't have to pay federal taxes. Recently this loophole has been heavily abused, but I can't find the reference. Anyone?
The good and new comes from no quarter where it is looked for, and is always something different from what is expected.
government gives you money
Whoa.. what a novel concept? How come you didn't include a link where I can sign up for this "free" money ????
I don't know much about the tax system, but I do know many things in life aren't free. What's the catch here?
I am over here... now I am back over here!
A friend of mine is a lawyer who also attended post-law school tax school (grad school for lawyers?).
He swears by tax programs for ordinary people's taxes and says they generally do a good job, although there are places where hand-tuning can help.
The analogy he made was programming -- tax software is like a high level language. It's great for most stuff, although there are places where hand-tuned assembly can help, and some places where its necessary.
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.
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
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.
I Can't Believe It's A Law Firm, LLP does not necessarily endorse the contents of this message.
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.
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.
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.
My wife has done taxes for H&R Block seasonally for the past eight years, so I know something of what I say here. If your tax situation is at all funky, when you go to H&R Block, ask to see an experienced preparer.
The vast majority of Block workers only work for them during tax season (January 1 - April 15), and the vast majority of them have been with the company two years or less. The tax code isn't like programming - it's internally inconsistent, because of the patch-it-and-try-again way it gets built. The only way to know what the IRS will accept is to have seen it before, and that takes experience.
BTW, this is also a reason to go to a tax wizard rather than an accountant. Accountants know a lot about designing systems that reflect financial reality - unfortunately this knowledge is a liability when doing taxes because you try to make the regulations make sense, and they don't
To a Lisp hacker, XML is S-expressions in drag.
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.
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!
Every year, my accountant does my taxes, and he gets one free maintenance visit from me for his computer in exchange.
I prefer to let him handle my taxes, because he knows all the tips and tricks to minimize my payment/maximize my refund, and I don't have to dick around with forms and receipts other than throwing them all in a folder to give to him. He prefers to let me service his computer, because I know all the tips and tricks to keep it humming along, and he doesn't have to dick around with Windows/driver/application/virus definition updates and whatnot other than to make a short list of any problems he's having.
~Philly
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.
Our nation has existed longer without income tax than with it. Why can't we revert back to just use-tax (i.e., sales taxes, tolls, etc.)? Wouldn't that be the most fair -- you pay for what you use and don't pay for what you don't?
Granted, this would significantly shrink our Federal Gov'ts budget, which would drastically reduce the military complex, social programs, things like government watchdog groups, etc., and would move us back closer to laissez-faire capitalism. This has both its advantages and disadvantages, as I'm sure you know.
Perhaps the best solution would be to have a small flat income tax rate (say 8% for everyone making over a minimum), and then just using use taxes. The income tax could pay for what military presence is needed and watchdog groups (FDA, FCC, EPA, etc.). Granted, we would have fewer bombers, and we'd be less likely to "shock and awe" folks, but maybe that'd be for the better.
I could not justify my existence if I were a turkey farmer. Would I terminate myself? Undoubtably, yes.