The IRS just published their IRS Enforcement and Service Results for their fiscal year 2009. Based upon this new data, the higher your income, the more likely that you’ll receive a letter from the IRS asking for additional information or tax payments. A correspondence audit of this kind is often triggered when you forget to report all of your 1099 payments, including “freelance” payments that were reported to you on a 1099-MISC.
The statistics released by the IRS show:
- Individuals with income over $200,000 had an audit rate of 2.89%
- Individuals with income under $200,000 had an audit rate of 0.96%
For businesses the results were:
- S-Corporations had an audit risk of 0.40%
- Partnerships had an audit risk of 0.38%
- Sole Proprietorships were not broken out from individual results
For upcoming audits, the IRS has already announced that Sub-S Corporations that are not paying shareholder/employees “reasonable compensation” will be at the top of their audit lists.
Tags: audit, IRS, tax
Posted in Small Biz Taxes | No Comments »
It’s too late to try to save on your 2009 taxes, but it’s not too early to start planning your 2010 tax strategy. What can a small business owner do to save on taxes in 2010?
- Find every legal way to reduce your taxable income. Start an HSA plan for your medical expenses. Make charitable donations. Max-out your retirement plan contributions.
- Find an advisor. Whether it’s your existing CPA or a local Enrolled Agent (”EA”) like yours truly, find someone who will give you a one-hour consultation on ideas for saving on your taxes. These tax pros live and breathe this stuff and might know about tax deductions or credits that you’re missing.
- Save for your quarterly estimates and pay them on time! If you’re paying self-employment tax on your business income, it would be a safe bet that 25% of your profits are going to go to taxes at a bare minimum. So start setting aside that much each time you get a big check or monthly, at least. Then you’ll have the money ready when it’s time to send in those quarterly estimate payments.
- Keep track of your expenses. Save those receipts, keep a mileage log, and claim every deduction you’re entitled to. If you think it’s not worth getting a receipt for that $2 parking fee, just remember that saving one of those receipts each week will net you an additional $104 in business deductions by the end of the year … saving you up to $40 in taxes!
Being prepared and maintaining good recordkeeping habits is your best defense against the tax man!
Tags: saving on taxes, strategy, tax
Posted in Small Biz Taxes | No Comments »
If you paid any unincorporated service providers $600 or more during 2009, it’s almost time to send your 1099s out. The due date this year is February 1, 2010.
So, who might need a 1099 from you? You send 1099s to service providers, but not to vendors who sold you merchandise. Also, if your service provider operates as a corporation, you don’t need to send them a 1099. Who’s left? Any unincorporated:
- Computer support or repair techs
- Freelance graphic designers
- Virtual assistants and other virtual professionals
- Office cleaning services and janitorial services
- Accountants and bookkeepers
- Attorneys
- Landscape maintenance, including snowplow companies
- Any other consultant who was paid by your business
- Any other person who received referral fees or commissions from your business
Remember that the vendor gets a copy of the 1099 and so does the IRS. With the IRS copies, you need to include a Form 1096 summary sheet that totals up all of your 1099-MISC forms.
This IRS has a handy Guide to Information Returns that will answer even more questions.
Tags: 1096, 1099, 1099-MISC, Information Returns
Posted in Best Practices, Small Biz Taxes | No Comments »
NASE, the National Association for the Self-Employed, has published a short list of the tax changes for 2009 that affect self-employed taxpayers. The complete list can be found here, on their Web site. According to the NASE national tax advisor, Keith Hall, “The earlier a business owner can get organized, the more likely he or she will have the time to investigate eligibility requirements for additional tax benefits.”
Major changes affecting 2009 returns include:
- Making Work Pay Tax Credit – This $400 tax credit, or $800 if married filing jointly, is available for offsetting earned income, including self-employed income.
- Standard Mileage Rates – The rate for 2009 is 55 cents per business mile. This rate will be dropping to 50 cents per mile for 2010.
- Self-Employment Tax Changes – The tax rate for self-employed business owners remains at 15.3 percent, though the income threshold has increased to $106,000. All net earnings from self-employment of at least $400 are subject to this tax.
Posted in Uncategorized | 1 Comment »
Careful accounts make for long friendships.
Chinese proverb
Posted in Quotations | No Comments »
The IRS announced that the standard mileage rate for 2010 will be decreased to 50 cents per business mile. This is a significant reduction from the 55 cents allowed in 2009. According to the IRS, “The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.”
So, when can you deduct business mileage? Driving to client meetings, industry conferences, or running business errands are all legitimate business trips.
There are two ways to claim business deductions for automobile use: the standard mileage deduction (now 50 cents per mile) or a percentage of actual costs incurred during the year. Actual costs would include gasoline, insurance, repairs, parking, lease payments or depreciation, and vehicle registration fees. Generally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you’re better off basing your deduction on the standard mileage rate.
Regardless of which deduction method you choose, be sure to keep an up-to-date vehicle log of your miles driven!
Tags: business, deduction, mileage
Posted in Small Biz Taxes | No Comments »
The Journal Blog has a great guest post this week, “How to select and use small business credit cards” by Robert C. Seiwert, Sr. VP of the American Bankers Association. I encourage you to read the full post, but here are my favorite points:
Don’t mix personal expenses with business expenses. Speaking as a bookkeeper, I don’t want to know how much you spent at Victoria’s Secret or QVC this month. If I’m keeping your business books, then the only thing I should see on that credit card statement is business expenses. Why? It keeps things clean and simple. Business expenses go on the business card and personal expenses go on the personal card … period. More importantly, if you don’t like your bookkeeper or tax preparer weeding through all those charges trying to pick out the business expenses from the personal ones, imagine how you’ll feel when the IRS auditor is weeding through them!
Pay your credit card bill on time. This sounds so simple, and it really is if you just develop a system and stick to it. Paying your card on time will improve your credit rating, eliminate late fees and penalties, and just make your life easier. Most credit card companies are happy to send you an email when your payment is due if you just sign up for it. Most credit card companies will also let you schedule payments in advance. My advice? When you get that statement, immediately schedule a payment for the minimum amount on due date. If you can make a larger payment later, great! If not, you’ll at least get that minimum payment in and avoid all the nasty late fees.
Develop some good habits with your business credit card and the credit card companies will reward you with a better credit rating. You’ll enjoy lower fees and less stress. It’s a win-win!
Tags: credit cards
Posted in Best Practices | No Comments »
The MicroEnterprise Journal has a great new blog post about the forecast for small business in 2010: Forecast: the small and microbusiness econocmy in 2010.
Among the highlights of the article is a discussion on one of the advantages that microbusinesses have over the big guys: lower overhead. As a result small and microbusinesses should be among the first to recover and prosper as we head out of the recession.
Tags: forecast, small business
Posted in Small Biz Taxes | No Comments »
NFIB, the National Federation of Independent Businesses, is offering a no-cost webinar entitled Year-End Tax Tips for Small Business. Check it out to learn helpful hints to lower your tax burden, learn what is and isn’t deductible, and avoid the top tax mistakes made by small business:
Register using Promo Code sst444
Posted in Uncategorized | No Comments »
It’s December, which means you’re running out of time to trim your 2009 tax bill. What can you still do?
Buy some assets! Any type of equipment that you buy for your business before year-end can be written off for a 2009 tax break. The cost of computers, copiers, fax machines, printers and even software can be written off through depreciation. Stock up on office supplies that you’ll need in the next couple months, but don’t go out and buy stuff that you don’t actually need!
Organize your receipts! Now’s the time to start tracking down receipts for all of your deductible business expenses, not the first week of April! Are you missing some mileage records? Reconstruct them while you still remember where you went. Missing some receipts for online purchases? Download duplicate copies while they’re still available. And if you’re going to be claiming a home office, you can start collecting all of your utility bills, homeowners’ insurance bills, and records of other deductible expenses. In fact, if you pay your January mortgage or rental payment before the end of this year, you’ll have a little extra mortgage insurance or rent to deduct, as well!
Open a solo 401(k) retirement plan. If you still have profits that you want to protect from the tax man, check out the wide range of solo 401(k) plans available to self-employed business owners. You can stash away a maximum of $49,000 in 2009: $16,500 plus 20% of your net business income.
Get your paperwork organized now, shop the Christmas sales for good, cheap office equipment, and pat yourself on the back for being so organized for the upcoming tax season!
Tags: deduction, reduce taxes, tax
Posted in Small Biz Taxes | No Comments »
RSS Feed
