SDB Finance Information

Finance information for you

Archive for category Taxes

How Do Taxes Apply To A Corporation

Oct 31

Posted by admin in Taxes

A corporation is a designated entity where the individuals related to it, and the company, have different legal identities. The reason most companies prefer to incorporate is asset protection ? incorporation protects your personal assets from seizure during a lawsuit.

If you decide to incorporate your small business, you can choose the S corporation, C corporation or LLC model. Before choosing any kind of corporate model, you should look at the tax rules and regulations related to a corporation.

Tax Laws for Various Corporations

Tax laws vary from country to country and state to state. You need to go through them before and after incorporating. In general, all countries have mandatory tax requirements from companies. Your corporation needs to pay taxes on the profits it earns. Even if your corporation is registered abroad, you may need to pay taxes if you reside in your home country.

1) C Corporations have to go by standard corporate tax laws. They need to pay taxes on their profits, subject to certain deductions depending on their shareholding structure.

2) S Corporations are the best option if you have a startup company or a small business. S corporations do not have to pay income tax, and get to enjoy the advantages of being a standard corporation. The eligibility condition is that your small business should have less than 75 shareholders who are all citizens of the US. To get the benefits associated with the Subchapter S Corporation, you need to file an application with the tax authorities. If you want to submit taxes under LLC structure, you need to submit another application before the current financial year-ends.

3) Limited Liability Partnerships, or LLC, are preferred by businesses that need streamlined allocation of profits and losses. This facility is not available to S Corporations. LLCs need to file form 100 ES and Form 100.

S Corporation Taxes

Since this article is primarily concerned with entrepreneurs and small businesses, it would be relevant to go into the details regarding the S-corporation. If you decide to register yourself as an S-corporation to avail tax breaks, you need to keep in mind the eligibility conditions. Apart from the conditions already discussed, you need to remember that you have to use the calendar year as the financial year of the company. In addition, any shares your company sells have to be of a single kind.

Advantages of Being an S Corporation

1) The best thing about the S Corporation status is that the shareholders shoulder the responsibility for paying the tax as their personal income tax. Therefore, the corporation need not pay income tax twice over- first as a company and secondly as individual shareholders. In fact, most S corporations do not pay any tax.

2) It reduces the need for extensive paperwork when filing tax returns or declaring income.

If you wish to incorporate your small business and need more information about tax structures of various corporations, you can consult a small business advisor or tax consultant. Choose the type of incorporation carefully, as taxes will apply to your business based on that. Get yourself educated on the advantages and disadvantages of each type of incorporation vis-vis tax laws. This will help you reap the benefits of a corporation without having to pay huge taxes.

Tags: , , , , , , , ,

No Comments

Finding Real Relief From High Taxes

Oct 31

Posted by admin in Taxes

It is the bane of citizens everywhere: high taxes that can crimp your lifestyle, even affect the way that you do business. In many areas, citizens are revolting against ever increasing taxes by insisting that lawmakers hold the line on spending. The results of these efforts are mixed and largely depend on the community’s determination to hold our elected official’s feet to the fire. Are you seeking real and last relief from high taxes? If so, read on and we’ll explore ways you can keep your own taxes in line.

Render unto Caesar the things that are Caesars, and render unto God the things that are God’s. Yes, even in Bible times taxes were a big issue. Back then, the government extracted taxes from its citizens by force, if necessary. The biblical command is clear: what the government wants, the government should get. Of course, illegal means of obtaining tax money is never encouraged but obviously the mandate is that all citizens must pay their share of taxes.

Today, modern democratic governments allow citizens to have at least some voice in how governments tax its people. In many cases this can even involve a proposition to the law, California is famous for this, where citizens can demand that the government cap taxes. By vote, citizens have the power to tell their elected officials how they must run the government.

Unfortunately, very few places empower their citizens to the point that California does. However, real relief for you can come in several different ways and the sum of each can add up to decent savings. These include:

Itemizing your tax returns. The IRS permits taxpayers to itemize their deductions to lessen their overall tax burden. Millions of taxpayers do not itemize, losing hundreds of dollars per year in potential tax savings.

Disputing property taxes. Property tax increases that are several times the inflation rate are commonplace in many northeastern states. While you may never be able to roll back taxes you can dispute an erroneous assessment. Challenge your tax bill with your tax assessor to drop your annual burden by 5 to 10 percent or more.

Contesting Sales Tax Increases. A state sales tax increase from 6 to 7 percent may not sound like much to most consumers. However, if you regularly spend 10,000 per year on goods, that amount translates into a quick $100 tax increase. Perhaps your governor needs to be reminded that the fat should be trimmed before the taxpayers are bilked.

Naturally, raising your voices collectively will go added weight to your cause. If you know that government mismanagement is behind the proposed tax increase, band together with other citizens and demand some accountability. Everyone deserves relief from high taxes including you!

Tags: , , , , , , , ,

No Comments

10 Do’s and Do Not’s for Filing and Lowering Your Taxes

Oct 31

Posted by admin in Taxes

1. Do keep good records of your expenditures.

2. Do keep your receipts, even if its in a shoe box. Its better to have the backup in case IRS ask questions.

3. If you are in business and you need to purchase equipment for your business, do so, and ask your Tax Professional to 179 the property. (The provisions of Internal Revenue Code Section 179 allow a sole proprietor, partnership or corporation to fully expense tangible property in the year it is purchased )- In 2006, a business can expense $108,000 in capital expenditures.

To qualify for the section 179 deduction, your property must meet all the following requirements.

* It must be eligible property.
* It must be acquired for business use.
* It must have been acquired by purchase.

4. Do not over estimate expenses that you don’t have receipts for.

5. Do not round you number off to $50, $100, $150 $200 – allow your numbers to be “real” $51, $108, $148, $203, etc.

6. Do attach an explanation if you have an extremely large deduction.

7. Don’t try and force the software if your e-file won’t go through – take your return to a Tax Professional. There is a reason the e-file didn’t go through.

8. Do file your taxes before April 15. Extensions give IRS more time to review your return since it is not filed during the season rush.

9. Do sign and date your return. You would be surprised at how many people forget to sign and date their return.

10. Do not take the home office expenses unless you know what you are doing, especially if you are planning on selling your home in the next 3 to 5 years.

Tags: , , , , , ,

No Comments

Figuring Your Basis, Get It Right, Reduce Your Taxes, Get It Wrong and Pay Much Higher Taxes

Oct 30

Posted by admin in Taxes

The scenario is as follows
Ed purchased a house on an acre of land from Ruth. Prior to the purchase Ed has been renting the house from Ruth for $1000 per month. Ed paid the following:

$100,000 in loan proceeds to Ruth
$2,000 in points to the bank
$1,000 in real estate taxes
$1,000 in pas due rent to Ruth
$1,000 in closing costs to the bank for legal recording, title insurance and survey fees
$1,000 in escrowed Real Estate taxes to the bank

What is Ed’s “basis” in the house and land purchased from Ruth?
A. $100,000
B. $102,000
C. $104,000
D. $106,000

AND Now, Ed decides to sell the house and the land and receives $360,000 for the property 5 years later. How much of his gain will he have to pay taxes on? (Ed is single and lets say he did not invest any more money into the property)
A. 0
B. $4,000
C. $8,000
D. $12,000

Note: If you sold your house and you miss this question, you probably should NOT be doing your own Taxes. Contact your Tax Professional as soon as possible. In fact it would have been best to contact your Tax Professional “BEFORE” you sold your property, because if Ed didn’t live in the property for 3 of the last 5 years that he owned the property, then he would be exposed to Capital Gains Taxes on $258,000.

The correct answers based upon Tax Codes; are B and C

Congress votes in over 100 new Tax Laws every year. The software programs do an excellent job of implementing these changes, however, I am not sure how well they do with finding the loopholes.

Tags: , , , , , ,

No Comments

The IRS Is Coming – Are You Ready?

Oct 30

Posted by admin in Taxes

One of an American citizen’s worst fears is an audit by the IRS. The unlucky individual who is the target of an audit begins to conjure up images of penalties, fines, levies, or worst of all, jail time. Even the most honest of taxpayers, under the scrutiny of an audit, begins to think back in their mind, “Did I calculate my return correctly?”, “Did I save all my receipts for the deductions I claimed?” This is a most stressful and challenging time in a taxpayer’s life. Nevertheless, before one loses sleep over the impending audit, there is a law which protects the American taxpayer in an IRS audit situation.

To be more specific, in 1998 the IRS passed the third installment of the Taxpayer Bill of Rights (TaBOR). The bill was passed as a byproduct of numerous complaints to Congress concerning the abusive behavior by IRS auditors. The Taxpayer Bill of Rights also requires the IRS to inform a taxpayer of his rights and what effect of the tax action the IRS is pursuing. The audit itself is traditionally thought as a meeting between an agent of the IRS and the taxpayer. However a good percentage of tax audits come in the form of a letter asking for clarification or substantiation of items on the tax return. Careful and organized record keeping usually make these types of audits resolve rather smoothly.

The IRS may choose to audit a portion of the filed return, or on some occasions an agent may request a closer examination of the entire return. If the auditor merely asks for documentation for a specific part of your return, it would be a good idea to give the auditor only that piece of information that is requested. Bringing additional documentation or information not requested could subject the taxpayer to wider scope audit, that is if something else on the return looks irregular. In other words, only bring what is requested. Do not volunteer any information to the tax auditor, and answer their questions with simple, direct answers.

Since most people are not experts at tax law, it is highly recommended that a CPA, tax lawyer, or tax advisor represent them in a meeting with the IRS. Contact the person who prepared the return. They will have specific advice on how to prepare for the audit. In most cases they can attend the audit in place of you to gather information from the field agent. This puts the taxpayer at an advantage and may buy valuable time to prepare the necessary documentation.

The audit will conclude with the IRS agent citing any irregularities noted with the return. They will then formally notify the taxpayer of any monetary adjustments that need to be made. In some cases some lucky citizens have received additional refunds after an audit. Unfortunately, in most cases, the IRS will be asking for a check. An agent’s decision can be appealed to a supervisor, or the Appeals Division of the IRS. If the Appeals Division decision is still unsatisfactory, a final appeal can be made to the US Tax Court.

Tags: , , , , , , , ,

No Comments

Practical Tips for Filing Taxes Online

Oct 30

Posted by admin in Taxes

Tax season can be a very stressful time for many people. It can be frustrating trying to understand complex tax codes, deductions and earned income credit. Some people become so intimidated by their taxes that they simply chose to ignore them. Although this can be a tempting solution, it is never the right answer.

With a little common sense, a calculator, a few hours and a pot of coffee, you can file your own taxes from the comfort of your own home with very little stress. It is really not as difficult as you think and can actually have quite a few advantages.

The first thing you should do is decide how you will be filing your taxes. Will you file taxes online? Will you go to an accountant? Perhaps you will use the free e-file programs that are available. Filing taxes online is rapidly becoming the most common way of filing taxes. Even if you go see a tax professional, they are likely to file your taxes online because the process is quicker. In addition, those who file online typically receive a refund quicker than those who file through regular mail. Many tax preparation software packages include the option of storing your information from last tax season which allows you to quickly complete information that hasn’t changed.

There are some things to remember when filing your taxes online. First, you will want to read your W-2. Find out what each of those boxes mean and be sure to read the back of your W-2 as well before you begin. You will want to print out copies of your tax forms, even when you file them online, for your records. Most online filing services will provide you with a confirmation that the IRS has received your taxes. You will want to print that out as well.

Online tax filing programs typically will offer tax advice as you work through the programs. It is a good idea to go through the tax information that is given, even if you do not think it applies to you. You might be surprised by something you are able to deduct or an additional credit you are able to claim. That is one advantage of opting to file taxes online.

The IRS website, in addition to offering a tremendous amount of tax information, will provide you with different options you have to file taxes for free. There are different criteria for each organization that files taxes for free. You will most likely be able to find one that applies to you. There are also many tax preparers that will file your taxes online for free if you pay them to prepare your taxes for you. Many commercial software packages allow you to file online for free as well. Once you purchase the software, you can file your federal taxes for no additional cost. Some programs will allow you to file taxes for free in your particular state. Others charge an additional fee.

Filing your taxes online can eliminate a lot of the stress from taxes. The programs have error checkers and calculators built in so you have a much smaller chance of making an error. With so many options to file for free, it is no wonder that many Americans are choosing this route to file their taxes.

Tags: , , , ,

No Comments