Financial Debt Taxes Advice – Locate a Trustworthy Tax Professional to Help For Finance Management

Tax payers from all walks of life can benefit from employing a tax professional. There are some main reasons as to why you need a tax accountant to help you out.

To start with, preparing your own taxes can be confusing for most of us and it takes up a lot of your time. We don’t want to give an inaccurate figure when we are filing for our tax returns. Since most of our tax situation is very complex a professional help is solicited. The tax accountants help their customers in paying as less amount of tax as possible through detailed planning and professional tips on tax management. These are some of the many reasons why most of us try to get professional help.

However, before you spend your hard earned money on a tax consultant it is necessary that you verify that the tax professional is trustworthy. There are a few tips which can be followed while searching for the right professional.

1. Referrals are the safest way of identifying a good professional. You can ask any of your friends or family members for a suggestion. Even business owners and financial advisors can guide you to the right person.
2. Since you will be held responsible for all the information provided in your tax return, you must avoid tax consultants who promise big returns.
3. If you are not comfortable with the accountant you are currently visiting then you must change your tax accountant.
4. If you are about to file a relatively straight forward tax return then you can take the tax services of retail tax franchises such as H&R Block etc.
5. For complex tax situations it is best to hire an Enrolled agent (EA).

Tax Advice For Contractors

If you are a freelancer or contractor working in the UK, then your tax issues are likely to be a bit more complicated than people who are regularly employed. We’ve put together a guide to help you through it and sort out your tax. One major thing you need to sort out as quickly as possible is whether your business means you need to register a company or if you are self-employed and working as a sole trader as this can affect what tax you pay.

Then there’s the issue of VAT. You don’t have to worry about this too much if you’re on low to average earnings, but if you earn over £64,000 a year then you need to register for VAT. This is so you can collect and claim for Value Added Tax. It can be a complicated business as it adds an extra complication to your tax return, so if you’re worried about it you could ask an accountant to help you. It can be useful to separate the VAT when sending invoices.

You also need to make arrangements to pay your National Insurance contributions as the rules are slightly different for self-employed people. Unless your earnings are extremely low, then you’ll be expected to pay Class 2 NI contributions. You can normally set up a direct debit with Her Majesty’s Revenue and Customs in order to do this easily. You can also opt to pay a higher rate of national insurance or, if you earn a lot of money, you’ll be required to pay the higher rate.

One of the biggest tax issues UK freelancers have to deal with is the yearly self-assessment tax return. In order to complete this, you should keep a record of all costs associated to your work as well as all your earnings so you can input them into the form. This helps HMRC work out how much tax you owe. The tax return is based on the previous financial year (from April – April) and the tax you pay is based on your earnings in that year.

One last thing to consider is how you’ll be paying your tax bill. It can be a good idea to have a cushion of money put by in case the following tax year is a bit lean and you don’t earn much as you’ll still be expected to pay the tax bill for the previous year. It can also be wise to put aside money throughout the year so that when tax time rolls around, you’ll have enough saved that you’ll be able to pay is easily.

Small Business Tax Advice: Paying Dividends

Directors of small limited companies in the UK are able to minimise their tax and National Insurance liability by paying themselves a small salary (usually below the income tax threshold) and then paying themselves an occasional dividend from the company profits. Payment via a dividend is not liable to National Insurance Contributions (NICs) nor to any income tax (provided the amount is below the higher rate tax threshold) because dividends are paid out of company profits after corporation tax has been accounted for and deducted. But because corporation tax is lower than the standard rate of income tax it is possible for a director to minimise their tax and National Insurance Contributions and maximise their net income. Indeed, all shareholders in a limited company are able to use this method to maximise their net income.

A dividend payment is simply the method by which a company can distribute any profits that are available to its shareholders and, providing there actually is a profit to distribute, this can be done at any time that the director(s) choose.

Even if the dividend is for an amount that takes an individual over the higher rate tax threshold there may still be a benefit to being paid partly by dividend because the additional tax due is at a lower rate than would be due if the whole amount had been paid as a salary. Furthermore, paying a dividend does not affect the eligibility of a director to a personal tax-free allowance at the current rate.

However, it is prudent to remember that dividends should not be used for a director to take money from the company as and when they wish. You need to be sure there is actually enough profit in the company from which to pay a dividend. It is also important to recognise the difference between raising a dividend, which transfers the amount to the company’s profit & loss account and paying a dividend which is a cashflow. This can sometimes be a useful mechanism in order to time a dividend (for example around a particular tax year end) whilst waiting for clients to pay invoices that will cover part or all of the dividend payment.

If the company has sufficient profit then it make sense to pay dividends on a regular basis, however, be aware that a monthly dividend for the same amount each month could be viewed by HMRC as a salary unless the nature of the business is consistent with a regular monthly income. In any case be sure to distinguish between salary and dividend payments by making separate payments (electronically or by cheque) and do not pay dividends through regular payments from the company bank account such as via direct debits. Note that reimbursement of expenses should also be paid separately from both salary and dividends.

The tax law known as Section 447 on Employment Related Securities (S447) was introduced by HMRC in 2004 to prevent companies deliberately paying their employees and directors using shares and dividends, rather than a salary, in order to avoid tax and NICs. S447 is typically applied to large corporations with complex remuneration schemes but its existence does mean that a director of a small business must be able to prove that the money going into their personal account is a genuine dividend and not a salary.

Therefore, ensure that all the relevant paperwork regarding dividends is accurate and up to date to avoid HMRC re-classifying the dividends as salary payments and thus incurring not only the additional tax and NICs but potentially a fine as well. Do this by writing board minutes and producing a dividend voucher every time you pay yourself a dividend and, of course, only paying a dividend when there is profit in the company. If in any doubt about the method you are using to pay yourself or if you are concerned about the accuracy of your record-keeping then talk to an accountant or tax advisor to ensure you are fully complying with the relevant tax laws.

Tax Advice For Families With Children

There is a lot to do when you have a family. Through the day-to-day endeavors of caring for your home, your spouse, and your children, tax issues can easily be relegated to the bottom of the list. So here is a little advice you might find helpful to keep in mind in order to make tax time less stressful in your household.

Save all of your receipts through the course of the year. Even if you are pretty sure that you won’t get a tax benefit from a purchase, save the receipt. Too much is better than too few when it comes to tax receipts. Keep them in a special folder in a filing cabinet or desk drawer so your receipts are easy to find when it is time to prepare your taxes. You can sort out which ones are applicable when you actually do your filing.

Stay up on changes in the tax code. Some things that happen in June or July can affect your taxes in April. This goes for all times of the year. Know about tax changes when they happen. Don’t wait until April 14 to catch up.

The college tax credit has been extended. If you have children attending college, they are now eligible for a maximum credit of $2500, which can now be claimed for four years.

You can contribute up to $2000 per year to an Educational Savings Account. While the contribution is after-tax, the funds that are withdrawn are untaxed as long as they are used for college education expenses.

If your family’s medical bills surpass 7.5% of your Adjusted Gross Income, they are tax deductible. This is particularly helpful if you have a sick family member or a recent newborn.

If you run your own business, you might want to think about hiring one of your minor children. A minor can earn up to $5000 per year without being subject to income tax.

According to the IRS, 25% of families that qualify for the earned income tax credit do not apply for it. To find out if your family qualifies for the EITC, go to the IRS website and find out.

The best way to avoid income tax problems is to be prepared. Review your financial status and accounts periodically throughout the year. Sit down with your spouse and compare opinions when making decisions about deposits into IRAs, educational savings accounts, and so on. By making smart decisions about your investments, savings, and income during the year, you can avoid confusion and trouble at tax time.

Tax Advice for People in Disaster Prone Areas

Bad weather, including storms, tornadoes, earthquakes, and hurricanes, have affected many regions of America. The weather forecasters are also predicting more bad weather in different regions of the U.S. for the future. For people who live in these areas which are prone to bad weather, the IRS has provided helpful instructions on their website to assist them with information regarding better tax preparation. Some of the advice that they give to people in disaster areas are:

Review Emergency Plans

People living in disaster prone areas are advised to regularly review their emergency and back-up plans for their businesses or homes. An emergency plan helps you to cope better in case of a disaster. New employees should be well trained on emergency requirements, like what to do in case of a fire outbreak. Businesses should also have a plan for continuity in case of such disaster. This helps both individuals and businesses manage and recover from a disaster in a much faster way.

Back Up Tax Documentation

The IRS is also advising taxpayers to have proper back up for tax documentation. The IRS can audit a tax return of any taxpayer up to three years after the filing date. Therefore, every taxpayer is expected to keep tax documentation for at least 3 years from time of filing. For this reason, people who are living in disaster prone areas are advised to keep their tax records properly backed up. The best way of creating a back-up is scanning the tax support documentation and keeping it in electronic form in a back up CD or external hard disk. You can also save the electronic documentation in a remote location on the internet, such as in your web email account.

Pictures of Personal Belongings

Besides the tax documentation, people living in disaster prone areas are also advised to take clear pictures of their belongings. They should also make a list of their belongings and keep pictures of such possessions. The pictures and lists can be stored electronically in a remote location or with friends or family in another location in both paper and electronic form. The pictures will assist in claiming for the casualty loss tax credit, a credit that is given to taxpayers who have lost personal belongings in a disaster. The pictures will also help in cases of insurance claims.

Payroll Fiduciary Bond

A payroll fiduciary bond is a financial precaution that is taken by a payroll service provider to protect its clients from any losses that they may incur if the payroll service provider is unable to make payroll payments. Employers are advised to ensure that their payroll outsource company has the bond in place. This helps in disaster time, when the payroll service providers are limited from running payroll due to the impact of a disaster.

IRS Disaster Hotline

To assist any victims affected by a disaster, the IRS has set up a telephone line that is managed by IRS disaster specialist staff, trained to assist and process disaster situations. Therefore, if you need any form of tax help during or after a disaster, you can always call the IRS disaster number at 1-866-562-5227.

Tax Advice For New Or Failing LLCs

So you recently launched an LLC and are not sure how to report your federal taxes or what to do if the company doesn’t take off?

Well, I got news for you. You are not the first person to have these concerns. Actually, this is common for newbie single owner LLCs. Most of the confusion arises because single member LLCs are considered an LLC from a legal perspective but in most cases are treated as a sole proprietor for tax purposes.

How Should Your LLC be Treated For Tax Purposes?
You can be classified as either a disregarded entity (i.e. sole proprietor) or corporation for tax purposes BUT legally maintain LLC status. Legally, this means that there is a clear separation between you and the LLC if a lawsuit should be filed. As a disregarded entity you are treated as a sole proprietorship for tax purposes and would report income and expenses on Schedule C of your 1040 personal income tax return. To be treated as a corporation you need to file Form 8832 and elect to be classified as a corporation. You would be required to file tax form 1120 as a corporation.

What Happens if The Business Fails?
Well, it is wise to think ahead in case things don’t work. Keep in mind that the dissolution process can be timely and costly and you will want to consult with a tax consultant & legal counsel. Make sure you do an extensive search because this is one of those tax matters that can get complicated. The last thing you would want to happen is to become part of a tax audit. Also, note that each state has its own process for what is required to effectively terminate the existence of a LLC, you will want to refer to your specific state laws.

For Filing purposes, the IRS requires a Corporation to file Form 966 30 days after a planned dissolution. Also, there is specific dissolution process for each state which requires filing an article of dissolution. There can be changes each year to the process so be sure to inquire with your state.

Ryan S. Himmel is the founder of the website BIDaWIZ – the online marketplace for trusted answers from licensed business professionals (i.e. CPAs, CFAs, CFPs & More).

Tax Advice For Job Hunters

Many Americans have recently found themselves in the position of hunting for a job.  There are several deductions and tax credits that benefit those searching for a job.  Many of these can be very helpful to those already experiencing the economic hardships that go with such a hunt.

Keep well-organized records.  Even though you are engaged in a job hunt rather than keeping records associated with a job, documentation of all your expenses related to your job search will be needed when you file for tax benefits against your hunt.  Keep anything you believe pertains to your search for employment in a well-organized record.

Travel costs associated to interviewing for a job can be deducted, as can air fare, car rental, and lodgings.  Up to 50% of meal costs are deductible as well.

If you post a listing on a job board or do any other type of advertising in an attempt to gain employment, you can deduct these expenses on your income tax return.

Costs associated to hiring a career counselor are deductible on your taxes.  Keep records and receipts of your counseling sessions.

If you are offered a contract and hire an attorney to review your employment contract, the attorney fees are a tax deduction.

Whatever it costs to organize, produce, and distribute your resume to potential employers are all tax-deductible charges.  This includes everything you need to mail out your resume, such as stamps and envelopes.  If you purchase resume-building software in order to create your resume, save the receipt because the expense is tax deductible.

If you have to pay fees to an employment agency or headhunter to help you find a job, most of those fees should be tax deductible at return time.

Moving costs associated to transferring to take a job are deductible as well.  There are restrictions involving distance and other compliance issues with moving deductions, but if you move to get work, definitely look into the tax breaks available to you.

Hopefully, by the time tax season has come around, you will have found your new job.  In the meanwhile, do not forget to keep records and to save receipts for everything regarding your job hunt.  When tax time does come, you will want to be able to claim every legitimate deduction associated with your search for a new job.

When the tax return is prepared be sure to tell your tax professional, if you hire one to prepare your income tax return, about your job hunt and provide them with all the receipts and documentation of your search expenses.  They may be aware of additional exemptions and credits pertaining to your job search that will help to even further lower your tax liability.

When you are required to look out for a job, you spend a lot in the tension of getting a good one. The good news is, most of these expenses are deductible on your tax return. What all expenses are deductible and how to claim them? Chintamani Abhyankar explains.

Tax Advice For S Corp Compensation

This topic is often misunderstood and the penalty could be as high as getting audited. The amount a corporate officer is compensated in the form of wages is very important and is considered a high audit risk area.

Why Compensation is Important?
If a corporate officer is being compensated with an unreasonably low salary to avoid paying employment taxes and instead is being paid out large distributions, there is high risk for a tax audit. A lot of S corporations face this audit risk if the corporate officers have little to no wages.

What Are the Rules on S Corporation Officer Compensation?
The Internal Revenue Code states that corporate officers rending services are considered employees. Therefore payments in the form of compensation to the corporate officers are treated as wages and are subject to employment taxes such as FICA (Federal Insurance Contributions Act). Distributions are not subject to these same employment taxes. So the question often arises, “How do you determine reasonable compensation?”

How do you Determine Reasonable Compensation?
there is no specific guidance from the Internal Revenue Code as to what is considered reasonable compensation since compensation varies by industry. But, they do list factors as detailed below which the court system has used to determine appropriate compensation.

* Training and experience
* Duties and responsibilities
* Time and effort devoted to the business
* Dividend history
* Payments to non-shareholder employees
* Timing and manner of paying bonuses to key people
* What comparable businesses pay for similar services
* Compensation agreements
* The use of a formula to determine compensation

Ryan S. Himmel is the founder of the website BIDaWIZ – the online marketplace for trusted answers from licensed business professionals (i.e. CPAs, CFAs, CFPs & More).

Practical Tax Advice for Non-Profit Organizations

Are non-profit organizations exempted from taxes? Are they required by the government to pay mandatory taxes? To know more about it, read this article below.

Most often, people get confused as to the difference of “for profit” and “non-profit” organizations and payment of taxes for these companies and organizations. Sometimes, they even mistakenly identified for profit as non-profit organizations.

What is a non-profit organization (NPO)?

It is one type of organization which does not distribute profits to shareholders. Instead, it uses its funds to pursue specific and public purposes. It is different to other organizations because it can file tax exemptions as long as it complies with certain requirements of the government.

An organization is deemed as tax-exempt or non-profit if it does not pay taxes. It is different from companies or businesses because these companies are required to pay taxes. Can we still make money in non-profit organizations? Yes, you still can. Bear in mind that even if it is known as NPO, it does not mean losses for you. The primary different between for-profit and non-profit business is where your money goes. You should remember that for organizations to remain viable, they should have more income than expenses. This is where the difference between the two organizations comes in. In commercial business, the revenue is distributed to shareholders or stockholders, while in NPO, the income stays inside the organization to fund programs geared in achieving its goals and missions. You do not have to worry about the status of your investment in NPO because you can still make money in it.

How can an organization achieve its tax exemption status?

To obtain their tax exemption status, it should fit in any of the following categories:

  • Educational
  • Charitable
  • Literary
  • Scientific
  • Religious

To be exempted from paying taxes, the organization’s purpose must be provable and tangible, even if it’s categorized as scientific or religious. Some organizations do not qualify to become tax-exempt or non-profit because of their unfeasible purposes. Tax exemption connotes that organizations do not pay state or federal taxes on activities related to their organizational purpose, thus they have to demonstrate that they are actively working to achieve its goals. You should also remember that NPO still pay taxes on their activities not related to organizational purposes such as the sale of unrelated services or items.

How to file for non-profit status?

To file for non-profit status, organizations must file and fill out the Internal Revenue Service (IRS) Form 1023 and pay a filing fee of $850 for those which earn more than $10,000 and $400 for those which earn less than $10,000. Remember that filing fees are subject to change, thus it is important to verify the IRS regularly. However, churches automatically qualify as NPO even if they do not file for tax exemption.

Are NPOs the same as charitable organizations like private foundations and public charities? According to the IRS, public charities are institutions which majority of revenues came from governmental support or from the public, while a private foundation is one type of organization which do not directly disperse funds, instead it issues grants.

Craft Business Taxes Advice

If you own a craft business, taxes are unfortunately a big part of owning a business. There are however some basic guidelines you can follow when figuring out how much you should be paying.

First, I am not an accountant but I do however own two business and pay my taxes accordingly. Second, this is assuming you are living and working in the United States.

If you do not have an accountant I would highly recommend getting yourself a good one. An accountant will not only be able to save you a lot of money in the long but they will make sure you are paying the right amount of taxes so you do not get into trouble.

Okay, lets get into some general guidelines you should follow.

1. Expect to pay at least 25% of your income in taxes. When you are self employed you have to not only pay the regular taxes like everyone else but you have to pay the employers side of the social security tax.

2. You have to send in quarterly taxes if you are self employed. If you neglect to send in quarterlies then you will get fined. Also if 90% of your taxes are not paid by the end of the year you get penalized.

3. Claim all of your income. Don’t think you can get away with only claiming some of your income and keeping the rest a secret. It won’t work and if you get caught they get to decide just how much you did not claim. Now it is a pretty good bet they will come up with a higher figure then what you actually did not claim and you will have to pay them on their figure not yours.

Also if you do not pay taxes on all of your income you could end up losing everything you have and have worked so hard to get.

4. Now for the good stuff. Because you are self employed you get to write off business expenses.

Keep receipts for everything.

You need to talk to your accountant on what you can specifically write off for your business but some generals are your supplies to make your crafts, any expenses you incur listing your crafts online or registration fees for craft shows.

Your gas or millage you use on your car anytime you use your car for business. That includes going to the craft store to get supplies or a trip to the post office to mail your product to your customer.

If your store is online you can write off your Internet bill each month.

If you spend money on learning how to market your craft business or on marketing your craft business that is a right off as well.

Make sure you keep your receipts in a safe place and keep them for 8 years minimum. This is your proof if for some reason you ever get audited. This can be hard at first but you have to get in the habit of putting your receipts in the same spot every time you get one. What works really good for this is those 11×14 coupon envelope things that have the different slots in them with the little labels you can make. This works really well to keep all of your receipts organized and makes life a lot easier come tax time.

When you own a craft business taxes are not only an important part of your business but they are a mandatory part.