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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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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!
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 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.
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.
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.