Small Business Profit Explosion

Tax Tip of the Week - Having Incomplete Substantiation of Donations When Filing Nixes a Deduction

For contributions, according to the Tax Court, a couple made regular gifts of $250 or more to the church that they belonged to. However, the acknowledgment from the church failed to state that no goods or services were given for the donations. After the Service denied their write-off because of the faulty acknowledgment, they got a letter from the church saying they received no benefits for the contributions.

But that came far too late. The deduction was properly denied because the donors didn’t have valid substantiation in hand before filing the tax return.

From:

The Kiplinger Tax Letter

1100 13th Street NW, Washington, DC 20005 • kiplinger.com • Vol. 87, No. 11

 

MYTH VS TRUTH: Is Receivables an Asset?

The myth most business owners believe: Just about all business owners consider it an asset. Why not? Their bankers and their CPA’s tell them it is.

Why this myth causes a problem: In a word – you can’t spend receivables! (Yes, I know you can borrow against it. But, that is getting very hard to do.) In truth – trade receivables is really potential future cash in the bank.

The truth successful business owners learn the hard way! The best sale is a cash sale. Better yet, the best sale is a sale where you get prepaid all or a part of it in advance. You have to pay your staff and your vendors. And, they want CASH!

But, business owners also know they will sell more if they can offer payment terms. In many industries this is what the customer has come to expect. So, what do you do if you must sell on terms?

Lesson learned: The following are many of the ways that smart business owners control their receivables:

1. Don’t let it become a receivable in the first place! Give a discount for prepayment. On large jobs, especially from new customers, take a substantial down payment.
2. Know your customers. Do a credit check if they are new. Or, trust them and start them off with a small credit line and let them “earn” their way to a larger credit line. This is what I did when I was the Controller for Magnolia Coca-Cola back. We often provided credit for a startup where our competitors wouldn’t. But we paid particular attention to these and called them quickly if they were late on a payment. As these customers grew they were very loyal Coke customers because we trusted them when no one else would.
3. Be upfront with your customers about your payment expectations. Don’t be afraid to discuss payment with them.
4. When possible, don’t deliver the product to the client until the bill is paid. We implemented this on tax returns a few years back and it greatly reduced our receivables.
5. Don’t hesitate to collect. The longer a balance is outstanding the higher the chance of it becoming non-collectable. Assign smaller ones to your staff. But, the owners and the sales staff should be involved in the larger balances due.
6. When a balance becomes seriously past due and there is doubt about collecting it, you should call the customer and offer a deep discount to the customer if they pay by a certain date.
7. As a last resort, have an attorney send a collection letter. I am not really a fan of suing for receivables. This often leads to a countersuit. Plus, your time is better spent getting a new good paying customer. But, a collection letter from an attorney often is enough to shake loose a payment.

Thank you for your continued support and let’s make this year our most profitable year ever!

 

TEXAS SALES TAX 101: AN INTRODUCTION

The Texas Limited Sales, Excise & Use Tax Act imposes a tax on sale, lease or rental or personal property (touchable & movable) and on certain services. In general, Texas imposes the sales tax on the on the end user based on the sales price of each item of a taxable sale.

Most business owners understand sales tax law, but are unaware of the Texas Use Tax which applies to the purchase of items out-of-state and then brought into Texas. Since a non-Texas retailer made the sale, Texas sales tax would not be collected at the time of the sale. The use tax applies to “any taxpayer who purchases tangible personal property from any retailer for storage, use or other consumption in Texas.”

In Texas, the tax law presumes that all retail sales or uses of tangible personal property are taxable. This means that unless you can find a specific exemption that specifies that a product is non-taxable (such as orthopedic products) then a product is taxable.

No such presumption for services exists. This means that unless the law states that a service is taxable then your service is not taxable. (We will cover taxable services on a future blog article.) 

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

MYTH VS TRUTH: SALES TAX IS NOT A THREAT TO MY BUSINESS

The myth most business owners believe: Most business owners never worry about sales tax after they first open their business. At that time they set up their procedures and then believed that, as long as they paid their sales taxes monthly, there was nothing left to worry about.

Why this myth causes a problem: In a word - audit! My clients have been audited at a higher rate than any time in the last 20 years. And, based on my discussion with other CPA’s, this is happening city wide.

The truth successful business owners learn the hard way! Sales tax audits are a bigger threat to your business survival than almost anything else. The sales tax audit from my last three client audits resulted in an average bill of over $100,000. (Of course, after appeal we expect to pay much less).

Lesson learned: As a business owner it is your responsibility to do a threat assessment annually. You should learn the sales tax laws that apply to your business and do an annual self audit to determine your potential exposure.

To help you, I will be writing a series of blog articles titled TEXAS SALES TAX 101. Look for the first installment tomorrow.

 

Client Question – I Do Non-Compensated Work For A Charity. Can I Deduct Auto Expenses?

Answer: Not exactly. If you use your own car, you may deduct actual gas expenses plus related tolls and parking fees attributable to charitable related travel. Instead of keeping detailed records, you may choose the IRS-approved flat rate deduction of 14 cents per mile in 2012.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week – YES, We’re Still Here!

We’ve been working so hard on tax returns these last few weeks that we’ve neglected our poor little blog. 

Just a reminder, if you haven’t brought in your tax information you need to do it, and soon! The deadline this year is April 17^th.

We can only guarantee we can get your tax return done by the deadline, is if you bring you COMPLETE tax information to the office by April 4^th. After that, we can no longer guarantee it will be done by the deadline. Remember, if you owe money this year and do not meet the deadline you will be charged interest and penalties. If you need an extension, please call our office at 915-857-8158 so we can submit one for you.  Again, if you owe money and file an extension you will still be charged interest and a penalty for not paying your taxes by April 17^th.

Now back the tax tip of the week. We read this article regarding which deductions never to take. A lot of the deductions are questions that we get often. Click on this link, http://yhoo.it/GWLXAM. We hope it helps clarify any questions. 

 

Client Questions - Can I Deduct My Spoiled Inventory?

Question: A florist called our office this week asking if she can deduct the cost of flowers that didn’t sell over Valentine. I get this question often from restaurant owners also.

Answer: Since flowers and food have a short shelve life, it is very rarely held in inventory. Normally the business owner deducts the cost of the flowers or food when they are purchased. Accordingly, they cannot be deducted again when they are thrown out.

Larger retailers, wholesalers or manufacturers who have an inventory on their tax return will get a deduction when they write items of inventory off as worthless.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Client Questions - Can I Deduct an Invoice that My Customer Refuses to Pay?

Question: Can I deduct an invoice that my customer refuses to pay?

Answer: Like many tax questions, the answer is maybe.

It all depends on when your company records income. A company can choose between recording the sale at the date of the invoice (on the accrual basis) or when the invoice is paid (on the cash basis).

If the company is on the accrual basis then the bad invoice can be deducted.

But, if the company uses the cash method of recognizing income, then you cannot deduct the bad debt since you never recorded the income. You will, of course, be able to deduct any material or labor that you used on the job.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week: New tax return 1099 filing question poses danger to taxpayers and preparers

Two new questions on tax returns for businesses are giving tax preparers fits and exposing taxpayers to potentially large penalties.

The IRS wants to know if self-employed, farmers, landlords, partnerships, regular corporations and S firms made payments that must be reported on 1099s.

If so, they must also check a box stating whether they filed or will file all 1099s.

Preparers of their returns fear they’ll have to act as IRS agents to be sure their clients followed the information reporting rules. And they worry that the IRS will hit them with a preparer penalty if it turns out that clients messed up the 1099 filing rules.

Filing tip: The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 repealed the 1099 rules for landlords. Since 1099 requirement never went into effect, the question on Schedule E of whether landlords made any payments that required the filing of form 1099’s should be answered “no”.

                                                               

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week- Employee Discounts

Discounts on your business’s goods or services may be given to employees and their families tax-free. You can provide anything your business makes or sells at a reduced price, but never below cost.

Services may be provided at a discount of up to 20%.

Discounts must be given across the board to employees and families (or even retired employees), not just to higher paid employees.

There are a few items specifically prohibited from being discounted without being taxed to employees – primarily, real estate and investment property.

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Lessons Learned – Paying your payroll taxes is not an option!

The myth most business owners believe: There are really two things that many business owners do that can, and often does, lead to a visit to the bankruptcy attorney. First, they hire an employee and either they ignore the filing and paying of their payroll taxes or they hire someone and never check to ensure that everything is being done correctly. 

The second serious mistake many business owners make is to delay paying their payroll taxes when they are short of cash.

Why this myth causes a problem: You, as the business owner, are personally responsible for any unpaid 941 taxes – even if your business is a corporation! So, if you are not personally reviewing that your returns and payments are done correctly you are putting your business survival in someone else’s hands.

And, when a business owner “borrows” from their payroll tax returns they are driving straight into quicksand. This leads to high penalties that can often add up to 50% to the original taxes. And, since the business owner is short of cash, the ability to” borrow” from the IRS allows the them to ignore the real underlying problem that is causing them to be short of cash. Until they address the real problem they will continue “borrowing” from the IRS until the IRS closes the business down.

The truth successful business owners learn the hard way! Experienced business owners know that they must take personal responsibility for making sure that payroll tax returns are filed and paid correctly and on time. They do this by:

• Electronicaly paying their 941 taxes on line after every payroll. Those companies that pay their 941 deposits after every payroll, even if they are not due, never get into trouble.
• The owner checks that the 941 taxes are paid every pay period. Even if you outsource the preparation of your payroll, you must check that they are paying the taxes to the IRS. There have been many cases where the taxes were taken out by the payroll company but not paid to the IRS. The owners have been held responsible even though they had already paid them. You can do this easily now by signing in yourself to the EFTPS system and checking that the payments are made.
• Outsource the preparation of the payroll returns and W-2s to an expert. I have seen too many times where a business owner tried to save money by preparing required payroll reports themselves or by trusting their bookkeeper. Many of them have ended up paying penalties for errors they have made that were many times the price of hiring an expert.

Lesson learned: DON’T MESS WITH TAXES! (Bad pun intended.) You, as the business owner, must make sure that your payroll tax returns are filed and paid correctly and on time.  

7.5 Year-End Ways to Slash Business Income Taxes

There is still time to cut your business income tax bill for 2011. Here are 7.5 tax cutters that you should consider implementing before year-end:

1. Buy equipment this year. For 2011, the maximum 100% deduction of equipment under Section 179 is $500,000. This is scheduled to be reduced to $125,000 for 2012. There is also a bonus 100% depreciation on new equipment (not used) will be in place for both 2011 and 2012.
2. Write-off your bad debts. If your business uses the accrual method, you should write-off any receivables that you deem to be uncollectable. Document your good faith effort to collect these debts. Remember, if you later collect an account that you wrote-off you will need to pick up the total amount as income. 
3. Write-off old inventory. Review your inventory and write-down old inventory to market value. Research what you could sell it for on the internet. (Better yet, sell it at a deep discount. Better some cash than just throwing it away!)
4. Donate old inventory.  Better even than throwing away old inventory – donate it. You will be able to deduct an amount equal to ½ the difference between market and the product cost. Assume you normally sell your product for $100 and it costs you $50. Your deduction would be $75.
5. Prepay 2012 expenses in December. Pay property taxes in December rather than January. Pay your January 2012 rent or building payment in December. Look for other expenses that you can pay early. If you are short of cash charge it to a credit card. Even if you are on a cash basis you can deduct these expenses in 2011.
6. Donate computers and other equipment you no longer use. You can write-off one half of the difference of the fair market value less your remaining basis (original cost less depreciation). Since most of the equipment you replace is likely to have been written off, your charitable deduction will most likely be half of the market value. Take digital pictures to prove the deductions and keep proof of what you could have sold the equipment for at the time of the donation.  
7. Look into creating a retirement plan. The vast number of tax deductible retirement plan options makes this a subject that is well beyond the scope of this blog. Call your CPA for more information on how this can help you. 
   
   7.5  Check out my FaceBook page for daily tax savings tips that we have been posting since 10/21/11 (http://www.facebook.com/#!/pages/Wayne-J-Belisle-CPA/185259446999).

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

11.5 Year-End Ways to Slash Personal Income Taxes

There is still time to cut your income tax bill for 2011. Here are 11.5 tax cutters that you should consider implementing before year-end:

1. As long as it makes financial sense, sell any of your stocks that are in a loss position to offset any capital gains you may have from the sales of other assets.  But, if you have losses from 2010 or from prior years, consider selling stocks that you have build-in gains in order to use the loss and shelter the gain.
2. Install energy savings improvements in your personal home in order to reduce your taxes by up to $500 (Some improvements are limited to 10% of qualified expenses and amounts taken in prior years).
3. Secure deductions for charitable gifts by keeping excellent records. If you donate clothing or household items to charity, be sure to take digital pictures so you can prove the properties condition and worth. If you charge a donation to a credit card in 2011 you can deduct it even if the bill isn’t paid until 2012.
4. Pay your property taxes by year-end in order to deduct them in 2012. In El Paso, property taxes are not due until 01/31/12. Paying them early will allow you to double up your deduction for 2011 (assuming that you paid 2010 taxes were paid in January 2011).
5. If you are going to buy a car in early 2012, consider buying the car before the end of the year so that you deduct the sales tax paid on the auto in addition to the sales tax amount calculated from the IRS tables.
6. Bunch out-of-pocket medical expenses into one year. Medical deductions are only allowed to the amount that exceeds 7.5% of your adjusted gross income.
7. Reduce or, in some cases, even eliminate the estimated tax penalties by paying at least 100% of your 2010 tax (110% if your AGI exceeded $150,000 in 2010). Alternatively, try to estimate your 2011 tax liability and make payments equal to (or greater than) 90% of your estimated 2011 tax.
8. Divide tax on real estate gains. If you sell property before the end of the year consider receiving the proceeds in two payments – one in 2011 and one in 2012. This very easily could result in dropping you into a lower tax bracket.
9. Review your alternative minimum tax (AMT) liability. You may be able to reduce or eliminate the damage by postponing tax preferences to 2012. However, if you definitely will pay the AMT in 2011, you might accelerate taxable income into this year if the extra income will be taxed at a lower rate than your normal rate.
10. Lock in higher-education tax breaks. The tax law provides some relief to parents who put their kids through college and grad school. But the tax benefits phase out for certain high-income taxpayers. Strategy: Pay the tuition bill before Jan. 1^st as long as the related education will begin in the first three months of next year.
11. Consolidate personal loans with a home equity loan and deduct the interest. Normally, you cannot deduct interest payments made on personal loans. (There is a limited exception for student loans.) Convert non-deductible personal debt into deductible home equity debt. This way, you can deduct the interest on up to $100,000 of the home equity debt, regardless of how you use the borrowed funds. With interest rates at an all time low this is the best time you will ever get to refinance your home.

11.5  Check out my FaceBook page for daily tax savings tips that we have been posting since         10/21/11 (http://www.facebook.com/#!/pages/Wayne-J-Belisle-CPA/185259446999).

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Client Question: Can I still make an IRA deduction if I am retired?

Answer: Normally no. But, if your spouse is still working you will qualify for a “spousal IRA”. If you are both over 50 you can deduct up to $6,000 each for a total of $12,000 (assuming either of you earned at least that much during the year). You have until your tax return due date to make the annual contribution.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Lessons Learned – Six Ways Smart Business Owners Cut Their Income Taxes

The myth most business owners believe: Hiring a good tax preparer is the secret to paying lower taxes.

Why this myth causes a problem: The normal business owner believe that their work is done once they hire a tax preparer. They don’t do anything to control tax costs. This leads to them being surprised when they get their tax return and paying a much higher tax liability than smart business owners.

So, they blame their tax preparer and find a new one. Of course, this doesn’t change anything since they took the source of the problem with them to the new tax preparer.

The truth successful business owners learn the hard way! Uncle Sam is your partner. And, he is a bad partner! He does little work in the business and demands a third or more of the profits. Smart business owners also understand that income tax is an expense like any other. Thus, it can be planned for and managed.

Smart business owners cut their income taxes in the following six ways:

1. Smart business owners take year-end tax planning seriously. After the first of the year there is very little that can be done to reduce taxes. Before year-end is the only time where a business owner can effectively reduce their tax liability.
2. Smart business owners call their tax advisor before doing any major transactions. They call before selling assets, opening a business or taking money out of retirement accounts. Since they know in advance the tax consequences of their actions they don’t “Shoot-the-messenger” when they get their tax return and discover how much they owe.
3. Smart business owners keep good accounting records. They don’t drop off shoe boxes full of receipts to their tax preparer and they understand that good accounting records ensure that they deduct everything they spend in their business. With the current technology there is no good reason not to have good records in order to prepare your tax return.
4. Smart business owners get their records to their tax preparer early. I prepared close to fifty returns in the last two weeks. There is no way that they received the same amount of attention to helping them reduce their taxes that I was able to spend with clients earlier in the year. Smart business owners understand this and make time to meet with their tax preparer as early as possible.
5. Smart business owners save for taxes as they earn the income. Uncle Sam’s motto – pay me now or pay me more later. Smart business owners make their estimate payments. The smartest business owners put an amount into a savings account weekly that represents how much they will owe. (Hint: divide your total tax liability last year by your total sales from last year. Put this percentage amount in a savings account weekly.)
6. Smart business owners get a basic understanding of the income tax law. They don’t become experts. But, they do learn how the system works and how to use it to their advantage.

Lesson learned: Income taxes can be reduced like any other expense with proper management and planning. This allows the smart business owner to use the savings to grow their business, or support their family, plan for retirement, take a vacation, etc.  

Tax Tip of the Week: Year-end tax planning time is here!

Yes, I survived the 10/17/11 personal extension deadline. Barely! I, like most CPA’s, hate this deadline. We are dealing with the clients who have bad records, don’t plan, are surprised that they owe taxes and complain about how we must have missed something. (Obviously, I'm not talking about any of my clients!)

I tell them all the same thing, “After the first of the year we write history not fiction.”

Now we are entering a time most CPA’s enjoy - Tax planning season!

This is the time that smart business owners work to reduce their taxes for 2012. No surprise that the business owners who hire me to help them reduce their taxes are the same business owners who are expanding even during this economic downturn. They try not to be surprised by anything in their business and they understand that income tax is an expense that can be controlled just like any other cost.

I just recently finished initial tax planning for two of my clients. Together, we identified legal ways to cut their taxes by over 60% (Savings of $108,000 for one and $124,749 for the other). If you are in business you should be tax planning. Yeah, you might only cut your bill by a few thousand dollars. But, if you are like me, you can think of a few things your business or your family could use the savings for.

Tax planning starts by projecting your income to the end of the year and then exploring different tax strategies, loopholes and opportunities that are available to you. This can be intense and time consuming if you have a large business. So call your tax preparer for help.

I will be sending out a year-end tax savings tip each day from now to the end of the year. Signup for these daily tax planning emails by going to www.wjb-cpa.com and entering your email address in the box in the upper right hand corner. I will also be posting these to my FaceBook business page, Linked In account and Twitter account. So search for me there.

Finally, I have only a few tax planning spots available. Email or call so I can discuss with you if this is something that will help you and your business cut your taxes.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: How long am I required to keep my tax records?

Question: How long am I required to keep my tax records?

Answer: “Audit-proofing” your return means having the proper documentation to proof a deduction if you are audited. We have written in the past about what documentation is required (see our ‘Surviving an IRS Audit Series link under categories on our blog).

But, how long you should keep records depends on various factors:

1. If you owe additional taxes, and situation 2, 3, and 4 do not apply – then 3 years.
2. If you do not report income that you should report and it is more than 25% of your gross income shown on your return – then 6 years.
3. If you file a fraudulent income tax return – No limit.
4. If you do not file a return – No limit.
5. If you file to amend a previous return – Then the later of 3 years or 2 years after the tax was paid.
6. If you amend your return due to a bad debt deduction or loss from a worthless investment security – then 7 years.
7. If you have employees – then your employment tax records must be kept for 4 years.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: When should I incorporate my business?

Question: When should I incorporate my business?

Answer: This week I had an appointment with the owner of a small trucking company who wanted to know if he should incorporate. He has been in business for about five years and had grown the company to about $700,000 in revenue but was still having small losses due to high fuel costs and a slow economy.

As I told him, there are really only four reasons to incorporate:

1. If you are in an industry that has a high legal exposure such as doctors, construction and trucking (due to possible accidents by his drivers). But, this may not be enough of a reason. A business owner’s first line of defense should be their liability insurance. Also, many startup business owners have very few personal assets so they are in effect “judgment proof”.
2. To save taxes. About 87% of small businesses who incorporate are formed as S-Corporations. The ability to save social security taxes is the big reason. The idea can be illustrated by considering a small business that has a schedule C (sole proprietor) income of $100,000. They would pay self employment (SE) tax of $15,300 (15.3%) on this business income. If they are an S-Corporation and the owner pays themselves a salary of $60,000 then the remaining $40,000 would be not subject to the SE tax for a savings of $6,120.
3. If the business has more than one owner. For these businesses I highly recommend that they start off incorporated and structured as a S-Corp. A partnership has shared liability by the partners. This basically means that your partner can borrow money or sign agreements that you are also personally liable for even if you don’t agree with it.
4. To look bigger then you really are. The idea here was that having the words “President” on your card made you look more attractive to your prospects. In the world of the internet and social media this really just doesn’t work anymore.

These reasons must be compared to the following extra costs related to incorporating. These include:

• The cost of having a good accounting system. For a schedule C all I need to prepare the income tax return are its income and expense items for the business. Once you incorporate I will also need good numbers for your assets and liabilities. This means spending the time and money to have a real accounting system. Something that I strongly believe every business owner should have anyways.
• You have the cost of incorporating. If you do it yourself online this will cost you around $500. If you hire an attorney to incorporate you this will cost you about $1,000 to $1,500.
• You will need to file a separate corporate return that will cost you at least $750 per year.
• In Texas, you also may have to pay a franchise tax return of 4.5% on your gross profit.

So what did my trucking company owner decide? Well, he decided I had given him a lot to think about and he probably will wait until the company starts to make money before he incorporates.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: Why did the IRS penalize me 10% for sending them a check to pay my payroll taxes?

Question: Why did the IRS penalize me 10% for sending them a check to pay my payroll taxes?

Answer: Beginning January 1, 2011, the Treasury Department eliminated the system that processed the yellow coupon books (Form 8109) that most small business owners brought to the bank in order to pay their required federal tax deposits for payroll, income tax estimates & extension payments. Now, taxpayers are required to make all of these tax deposits using the Electronic Federal Tax Payment System (EFTPS). Failure to do so can result in a 10% penalty.

In order to enroll in the EFTPS system small business owners should go to www.eftps.gov or by calling 1-800-555-4477.

New businesses that indicate a federal tax obligation when requesting their Employer Identification Number (EIN) will automatically be pre-enrolled in EFTPS. They will then be mailed instruction on how to activate their enrollment.

If you must pay by check in order to avoid a late payment penalty (due to problem with EFTPS or while waiting for the temporary PIN#) must be able to prove that they mailed in at least two days before the due date and mail it to the following address:

                Financial Agent

                FTD Processing

                P.O. Box 970030

                St. Louis, MO  63197

 

Be sure to write your company’s EIN# and print the tax period being paid.

 

If you receive a penalty notice you should 1) enroll in the EFTPS and 2) write a letter responding to the penalty notice requesting abatement. Be sure to enclose proof that you enrolled. Even though we have had success doing this I won’t promise that they will abate the penalty. The IRS is seldom consistent in their treatment of taxpayer penalty abatement requests. But, I know it won’t work if you don’t at least try!

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: If I Sell Copies of My Kindle Book on Amazon do I Owe Sales Taxes?

The short answer is – maybe. OK I know that’s not very helpful. The basic rule is you must collect and pay sales taxes on goods or services in the state you sell the product or provide the services. Since my client lives in Texas they would owe sales tax for any sales where the customer is also located in Texas. Sales to out of state customers are not taxable in Texas.

But, the days of no sales tax sales on internet sales are under attack in many states. Especially in New York and California where Amazon is having a well publicized battle over whether they should be required to collect sales tax (http://www.newrules.org/retail/rules/internet-sales-tax-fairness for a discussion on the subject).

As a practical matter, there is no easy way for the states of California or New York to collect from the seller in Texas whose customer is in their state. That is why these states are going after Amazon & E-Bay to collect and pay the tax. They know that once they force them to cave-in they will have no choice but to force their users (or as they call them – affiliates) to pay the sales tax. So in the future, it appears my client will most likely end up collecting & paying sales tax on all sales to all states.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.