How to Choose payroll service blog post

Whenever I mention payroll to business owners I see the telltale signs of them “checking out” mentally, and it’s not surprising!  With terms like FICA, Workers Comp, Unemployment and ObamaCare, it’s no wonder small businesses are confused and sometimes just downright disgusted by it.  In fact, we often tell clients that if they get one thing right in running their business, make sure you hire a competent payroll service!

We want to help you understand how to make the right choice in choosing a payroll service.  So let’s get into it!

Taxes

Penalties on payroll tax errors are some of the most stringent that the IRS will shell out.  So you need to get this right!  Payroll companies will work payroll taxes in one of two ways: impounding and you paying the taxes yourself.

Impounding means that the payroll company takes the taxes from your account, holds on to them, and then pays them on time to the IRS and state agencies.  Sure, they make money on holding onto your funds, but they also take full responsibility for making the payments on time.

Some providers make it pretty easy to pay the taxes yourself via ACH and electronic payments.  However, it’s up to you to press “Submit” and make them on time.

The Verdict:

Use payroll services that impound.  It’s easier to manage cash flow because the taxes are taken out right when you run payroll and the payroll company assumes the responsibility to make the payments on time.

Direct Deposit and Checks

This may seem like a pretty basic thing but did you know that you can save yourself some time and costs by ONLY offering direct deposit?  Direct Deposit is a great way to pay your employees because they get paid right into the accounts.  Checks can be used, but they also create a headache when it comes time to reconcile your bank account.  Payroll companies also charge to push that paper around.  Have employees that don’t have a bank account?  Give them a “Pay Card’ that has it’s own routing and account number and you can “load” it with their pay each pay period.

The Verdict:

Use a payroll service that focuses on direct deposit and you will most likely save money on monthly service fees, postage and mailing, and time when reconciling your bank account.

Integration with Other Apps

Do you use accounting or online scheduling software like Xero or Deputy?  Use a service that ingrates with them to eliminate data entry and make running payroll, easy.  If using online scheduling, within a few clicks you can approve timesheets and send them straight to payroll.  This alone can save you hours each pay period.

The Verdict:

Search out payroll services that are open that integrate with other apps that you use.  Who knows, you may even discover an app you can use for your business this way!

Advanced HR Features

Some businesses have 1-5 employees, some have 50.  And depending on how many you have, will determine how much help you’ll need managing them.

If you have a large staff to manage, payroll companies like ADP have robust services beyond just running payroll that offers on-site HR reps that can come out “do your dirty work” for you, a.k.a.hire and fire.  They can also help you navigate the tricky waters of the ACA (ObamaCare) and provide employee handbooks, amongst other things.

If only a few employees, then a company like Gusto is often a good choice.  While they don’t provide robust HR services, they can offer very competitive rates on Workers Comp insurance, and make managing your employees pretty easy.

The Verdict:

Make a choice based on your payroll needs and employee size.

Pricing and Cost

This is what it boils down to right?  There are two methods that payroll services use to charge their fees: a flat fee per month, or fee per pay period.

Flat fee per month gives you a predictable cost each month.  Generally, there is a base cost and then a per-employee-per-month cost.  So as long as you know how many employees you’re paying, your fee is pretty predictable.  And, these companies don’t charge for anything extra like W-2’s and quarterly reports, as long as you are a subscriber.

Per-pay-period providers charge each time your run a payroll.  For most businesses, this is twice per month.  They will also charge additional fees for W-2’s and quarterly reports.  There are also other charges for mailing checks, etc., so make sure you have the payroll service spell our EVERY thing that is going to cost before you sign up.

The Verdict:

Use a service provider that charges a flat fee per month.  There is less confusion on fees and it’s generally cheaper each month.

Make it Happen!

As you can see, there’re lots to consider when choosing the right payroll service provider for you.  We can help you make that choice and get you in touch with the people to make things happen.   Have questions, leave a comment or reach out to us on our Get In Touch page and we’ll be happy to help you make the best decision for you and your business.

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Ok, you’re a personal trainer, and it’s tax time.  Does your tax bill hit you like a ton of bricks?  Chances are you’ve experienced this pain.  But, there are ways you can plan so that your not working for “Uncle Sam” and paying too much of your heard earned money!

The first thing to consider is how you’re getting taxed–as an employee or contractor?  If you just filed taxes, then this is easy to find out.  If you received a 1099, then you are a contractor.  if you received a W-2, then you are an employee.

What’s The Difference?

If you are a contractor getting a 1099, you are technically self employed.  Meaning, that you will owe self employment tax on whatever your net income is.  This also changes how you file your tax return by requiring you to report your income, and any expenses associated with that income, on a business form called Schedule C.

Getting a W-2 is inherently easier.  You report the W-2 as wages, and there is no self employment tax.

 Which One Is Better?

There is a good, and a bad list to each one.  If you’re detailed, you can save a lot of tax by being self employed.  However, it’s much less complicated to receive a W-2 and report the wages.  Whatever you’re preference is, there are ways to make sure you’re minimizing your tax.

If you need help or have questions, feel free to reach out or leave a comment!  If you have friends that would find this useful, tweet, share, plus this over to them!

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If you have income that is not subject to withholding you may need to pay estimated taxes to the IRS during the year. Whether you need to pay estimated taxes is dependent upon your financial circumstances, what you do for a living (if you’re self-employed for example), and the types of income you receive. Here are six tips that explain estimated taxes and how to pay them.

1. If you have income from sources such as self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax.

2. As a general rule, you must pay estimated taxes in 2013 if both of these statements apply:

1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and tax credits, and

2) You expect your withholding and credits to be less than the smaller of 90 percent of your 2013 taxes or 100 percent of the tax on your 2012 return. Special rules apply for farmers, fishermen, certain household employers and certain higher income taxpayers.

3. Sole Proprietors, Partners, and S Corporation shareholders generally have to make estimated tax payments if they expect to owe $1,000 or more in taxes when they file a return.

4. To figure estimated tax, include expected gross income, taxable income, taxes, deductions and credits for the year. You’ll want to be as accurate as possible to avoid penalties and don’t forget to consider changes in your situation and recent tax law changes.

5. For estimated tax purposes the year is divided into four payment periods or due dates. These dates are generally April 15, June 15, Sept. 15 and Jan. 15 of the next or following year.

6. The easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System, or EFTPS, but you can also figure your tax using Form 1040-ES, Estimated Tax for Individuals and pay any estimated taxes by check or money order using the Estimated Tax Payment Voucher, or by credit or debit card.

Give us a call today if you need help making estimated payments.

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Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did–and was able to legally deduct every dime that he spent on his “vacation”. Here’s how he did it.

1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.

Let’s say Tim is a manufacturer of green office products looking to expand his business and distribute more product. One possible way to establish business contacts–if he doesn’t already have them–is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

2. Make Sure your Trip is All “Business Travel.”
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don’t need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Make sure that you deduct all of your on-the-road -expenses for each day you’re away.
For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50% of this amount, or $25.

Tip: The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.

Example: If Tim pays $6 for drinks on the plane, $6.95 for breakfast, $12.00 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation includes amount, date, place of meeting, and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days count as business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities; otherwise, you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day, since it includes traveling – even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

Consult us before you plan your next trip. We’ll show you the right way to legally deduct your vacation when you combine it with business. Bon Voyage!

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Filing a past due return may not be as difficult as you think.

Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.

Here’s What to Do When Your Return Is Late

Gather Past Due Return Information

Gather return information and come see us. You should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.

Payment Options – Ways to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.

Payment Options – For Those Who Can’t Pay in Full

Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise.

Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.

 

    • A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.

 

 

    • A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. In terms of how to pay your tax bill, it is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. You should pay as much as possible before entering into an installment agreement.

 

 

    • A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.

 

What Will Happen If You Don’t File Your Past Due Return or Contact the IRS

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.

If you haven’t filed a tax return yet, please contact us. We’re here to help!

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More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs – home-based businesspeople.

And, with technological advances in smartphones, tablets, and iPads as well as a rising demand for “service-oriented” businesses, the opportunities seem to be endless.

Is a Home-Based Business Right for You?

Choosing a home business is like choosing a spouse or partner: Think carefully before starting the business. Instead of plunging right in, take time to learn as much about the market for any product or service as you can. Before you invest any time, effort, and money take a few moments to answer the following questions:

  • Can you describe in detail the business you plan on establishing?
  • What will be your product or service?
  • Is there a demand for your product or service?
  • Can you identify the target market for your product or service?
  • Do you have the talent and expertise needed to compete successfully?

Before you dive head first into a home-based business, it’s essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss: an honest assessment of your own personality, and understanding of what’s involved, and a lot of hard work. You have to be willing to plan ahead, and then make improvements and adjustments along the road. While there are no “best” or “right” reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:

  • Are you a self-starter?
  • Can you stick to business if you’re working at home?
  • Do you have the necessary self-discipline to maintain schedules?
  • Can you deal with the isolation of working from home?

Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment; if at all possible, you should set up a separate office in your home. You must consider whether your home has the space for a business, and whether you can successfully run the business from your home.

Compliance with Laws and Regulations

A home-based business is subject to many of the same laws and regulations affecting other businesses and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.

Zoning

Be aware of your city’s zoning regulations. If your business operates in violation of them, you could be fined or closed down.

Restrictions on Certain Goods

Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.

Registration and Accounting Requirements

You may need the following:

  • Work certificate or a license from the state (your business’s name may also need to be registered with the state)
  • Sales tax number
  • Separate business telephone
  • Separate business bank account

If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.

Planning Techniques

Money fuels all businesses. With a little planning, you’ll find that you can avoid most financial difficulties. When drawing up a financial plan, don’t worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.

Estimating Start-Up Costs

To estimate your start-up costs, include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses.

Business experts say you should not expect a profit for the first eight to 10 months, so be sure to give yourself enough of a cushion if you need it.

Projecting Operating Expenses

Include salaries, utilities, office supplies, loan payments, taxes, legal services and insurance premiums, and don’t forget to include your normal living expenses. Your business must not only meet its own needs, but make sure it meets yours as well.

Projecting Income

It is essential that you know how to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points and cash-flow statements. Use your marketing research to estimate initial sales volume.

Determining Cash Flow

Working capital–not profits–pays your bills. Even though your assets may look great on the balance sheet, if your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you’re broke.

Make a list of all anticipated expenses and projected income for each week and month. If you see a cash-flow crisis developing, cut back on everything but the necessities.

If you think a home-based business is in your future, then don’t hesitate to give us a call. We’ll set up your business and make sure you have the proper documentation system in place to satisfy the IRS.

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Question: How do I know if I have to file quarterly individual estimated tax payments?

Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.

Contact us if you are unsure whether you need to make an estimated tax payment. The first estimated payment for 2012 is due April 15, 2013.

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If you haven’t contributed funds to an Individual Retirement Arrangement for tax year 2012, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for 2012, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2012. Otherwise, the trustee may report the contribution as being for 2013 when they get your funds.

Generally, you can contribute up to $5,000 of your earnings for 2012 or up to $6,000 if you are age 50 or older in 2012. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Note: IRA contribution limits increase in 2013 to $5,500 ($6,500 if age 50 or older).

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.

Saving for retirement should be part of everyone’s financial plan and it’s important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We’re happy to help.

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Confused about which credits and deductions you can claim on your 2012 tax return? You’re not alone. Even in an ordinary tax year, it’s hard to remember which tax breaks you can take, but the fiscal cliff fiasco this year made it even more difficult to keep everything straight. With that in mind here are six tax breaks for 2012 that you won’t want to overlook.

1. State Sales and Income Taxes

Thanks to the fiscal cliff deal, the sales tax deduction, which expired at the end of 2011, was reinstated retroactive to 2012 (it expires at the end of 2013). As such, IRS allows for a deduction of either state income tax paid or state sales tax paid, whichever is greater.

If you bought a big ticket item like a car or boat in 2012, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2011 tax return in 2012, you can include the amount when you itemize your state taxes this year on your 2012 return.

2. Child and Dependent Care Tax Credit

Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent. The credit is worth a maximum of $1,050 or 35% of $3,000 of eligible expenses per dependent.

3. Job Search Expenses

Job search expenses are 100% deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2% of your adjusted gross income (AGI).

4. Student Loan Interest Paid by Parents

Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

5. Medical Expenses

Most people know that medical expenses are deductible as long as they are more than 7.5% of AGI for tax year 2012 (10% in 2013). What they often don’t realize is what medical expenses can be deducted such as medical miles (23 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.

Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

6. Bad Debt

If you’ve loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.

Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

Are you getting all of the tax credits and deductions you are entitled to? Maybe you are…but maybe you’re not. Why take a chance? Make an appointment with us today and we’ll make sure you get the tax breaks you deserve.

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One of the biggest hurdles you’ll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people.

The old legal saying that “ignorance of the law is no excuse” is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an “I didn’t know I was required to do that” claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they’re legally entitled to that can help them lower their tax bill.

Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes.

Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.

1. All Start-Up Costs Are Immediately Deductible

Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures.

Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.

For tax years beginning in 2010, you can elect to deduct up to $10,000 of business start-up costs paid or incurred after 2009. The $10,000 deduction is reduced (but not below zero) by the amount such start-up costs exceed $60,000. Any remaining costs must be amortized.

2. Overpaying The IRS Makes You “Audit Proof”

The IRS doesn’t care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can’t substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to “Audit Proof” yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.

Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don’t make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.

4. The home office deduction is a red flag for an audit.

While it used to be a red flag, this is no longer true–as long as you keep excellent records that satisfy IRS requirements. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit.

5. If you don’t take the home office deduction, business expenses are not deductible.

You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Requesting an extension on your taxes is an extension to pay taxes.

Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.

7. Part-time business owners cannot set up self-employed pensions.

If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.

A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.

And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don’t hesitate to give us a call today. We’re here to assist you.

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