My Personal Finance Blog

If you are a small business owner looking for cost cutting ideas here are ten tax planning ideas that may result in substantial tax savings.  The following article highlights planning areas often missed by business owners.  You should consult a qualified tax advisor to determine if any of these areas are appropriate for you and your business.

S Corporation:  Set up an S Corporation to avoid self-employment tax on profits. If you conduct business as a sole proprietor, a partnership, or a limited liability company the first $106,800 of 2009 profits are subject to a self-employment tax rate of 15.3%. The profits in excess of $106,800 are subject to a Medicare tax rate of 2.9%. These self-employment tax rates are in addition to paying income tax on the profits. An S Corporation is not subject to self-employment tax on the profits earned. But you must take “reasonable” compensation as salary subject to F.I.C.A. Bad Debt Expense: A reserve for bad debts is not deductible, but you can write off accounts receivable in the year in which they become uncollectible.  Be sure to take advantage of writing off all those uncollected accounts at year end.

If you used a collection agency, you can deduct a portion of the debt that will go to the collection agency as a fee (around 25%).  You can write off that amount at the time you turn over the receivable to the agency. Medical Expense:  For 2009, eligible self-employed individuals can deduct from gross income 100% of the amounts paid for health insurance coverage. The deduction is limited to net earned income from the business, less the deduction for 50% of the self-employment tax. Also, you cannot take the deduction for any month you were qualified to participate in an employer sponsored health plan.

If you conduct business as a corporation, set up a corporate medical reimbursement plan. Medical costs are generally personal expenses deductible only to the extent that they exceed 7.5% of your Adjusted Gross Income (AGI). However, medical reimbursement plans set up by C Corporations let you deduct all the medical costs you incur for yourself, your spouse, and dependents. These plans must cover all eligible employees. Equipment Expense:  For 2009, Section 179 of the Tax Code lets companies deduct up to $133,000 of new equipment, subject to certain limits. (This limit is reduced by the amount by which the cost of section 179 property placed in service in the tax year exceeds $530,000.) Passenger vehicles are excluded from the expensing election. A passenger vehicle is defined as having a loaded gross vehicle weight of less than 6,000 pounds.

The tax code also allows an accelerated method to depreciate the remaining value of that equipment – it’s faster than the straight-line method of depreciation. Home Office Expense:  Write off home-office expenses.  You can take this deduction even if you use the space for administrative purposes, as long as there is no where else you can work.  When you use one room in your six room home as an office, you can deduct one-sixth of your costs for utilities, security, homeowner’s insurance, etc. as well as all costs for the room such as carpeting.  Although you can also claim the depreciation on your home used for home office, you should consult a qualified tax advisor prior to doing so to understand the impact it will have on the exclusion of gain when you sell your residence. Travel Expense:  Deduct business trips by putting your spouse on the payroll. When spouses are on the payroll, even at low salaries, cost of business trips that include the spouse can be fully deducted. You should also be aware that putting your spouse on the payroll in 2009 will also double the amount of Social Security tax owed up to the first $106,800 of income. Hiring Children in the Family Business:  Put your children on the company payroll. When you employ your children in the business, for 2009 you can pay them up to $5,350 in salary free from Federal tax. The “kiddie” tax doesn’t apply to wages, so children under age 18 get this tax break, too. Have your children put $4,000 into a Roth IRA, where it will compound tax-free over time. When the money is left in the account until they turn 59 ½, they will never have to pay out any tax or penalties on that money or its earnings.

If your business is not incorporated, and the children are under age 18, neither you, as employer, nor your children will owe Social Security or Medicare tax on their wages. Retirement Planning:  Put more money away in your company retirement plan for yourself than for your employees.  Business owners who are more than 20 years older that other company employees can set up a defined-benefit pension plan instead of a defined-contribution plan.  Because they are funding a specific benefit (not putting away a percentage of salary) and have fewer years to do so, owners can contribute more to the plan for themselves than their employees. Claiming Business Losses:  Make the most of business losses. If your company has a net operating loss in 2009, it can be carried back two years or carried forward up to 20 years to offset future profits. To get a refund, file an application on Form 1139 for corporations and Form 1045 for sole proprietorships. Most refunds are sent out by the IRS within two months. Education:  Set up a company tuition-reimbursement plan to pay a child’s school cost.  Businesses can set up plans that pay up to $5,250 in tuition per employee annually.  Business owners’ children must work for the company, be older than age 21, own no company stock and cannot be claimed as a dependent on the owners’ tax returns.

Alan is managing partner at Greenstein, Rogoff, Olsen & Co., LLP, a leading Bay Area CPA firm in the San Francisco Bay Area. Alan has more than 23 years of experience in public accounting, and works with some of the most successful venture capitalists in the world, helping to develop innovative financial strategies for business enterprises. Alan earned a B.S. in Accounting from Brigham Young University, and an MBA (Taxation) from California State University at Hayward.

Tax is the price one pays for civilization. Man has to endure with taxes as long as civilization is in existence. And as long as taxes are in existence,  Tax preparers will be in existence (abundance?) who help tax payers compute their incomes & taxes and file the tax return.

Computation of tax involves gathering of sensitive information about a person like:

1. What was the marital status of the person during the year?

2. If the person is a widow, when did the spouse expire?

3. If the person is single, was he ever married? And if yes, when did the divorce come through?

4. How many dependent children does a person have and what is the expenditure on them?

5. What are the incomes of the person from various sources and what are the expenses during the year?

All these information are highly sensitive to any person and when that person wants the help of a tax preparer, the tax preparer has to have a very high degree of integrity and trust worthiness. With such kind of responsibility as regards data confidentiality reposed on the tax prepares, is it not necessary for Law makers to impose some kind of accountability on the tax preparers?

For long, the certified members of AICPA (referred as CPAs) have been in the forefront in helping tax payers with their tax computation and tax return filing. And since the code of ethics of AICPA (Ethics Ruling No 112 under Rule 120: Integrity and Objectivity) makes it mandatory for the members to take express permission of the tax payers before disclosing the confidential data pertaining to the tax payer, tax payers usually have been comfortable with the CPAs. However, off late, many other Tax Preparers have come up to help tax payers in filing their returns and these preparers are not essentially members of AICPA. Thus the code of ethics does not apply to such people. This meant that such tax preparer could use the services of a third party service provider in preparing the tax return, thereby disclosing the confidential data of the tax payer to the third party service provider, without the tax payer getting to know that his/her information has been shared with a person he/she does not even know!

To address this loophole, the IRS has updated Section 7216, rules for tax preparers on 18th Dec’08. These updated rules would be effective from 1st January’09. Per this rule, “any person who is engaged in the business of preparing, or providing services in connection with the preparation of, returns of the tax imposed by chapter 1, or any person who for compensation prepares any such return for any other person, and who knowingly or recklessly -

(1) discloses any information furnished to him for, or in connection with, the preparation of any such return, or

(2) uses any such information for any purpose other than to prepare, or assist in preparing, any such return, shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

Thus any tax preparer now has to compulsorily take the express permission of the tax payer before the services of a third party service provider is utilized. It thus marks a new beginning in outsourcing business as well. Tax preparers who look at outsourcing some of their work would now have to take consent of the clients before doing so. This would make outsourcing a transparent and more acceptable service.

The tax preparer would have to be highly catious about partnering with outsourcing firms. An average tax payer would not entrust his information to a person who has no liablity pertaining to data confidentiality. But the moment, tax preparer partners with a CPA or Indian CAs, tax payers would have no problem about the sharing of the information because it is public knowledge that these professionals are governed by strict code of ethics which bars them from disclosing data. Thus, it makes sense for tax preparer looking out for outsourcing partners to opt for such outsourcing firms as are owned and managed by CPAs.

Steve is a qualified accountant (Indian CPA) and co-founder of APT Services, the fastest growing outsourced accounting service provider in India. Steve has over 10 years of expertise in audits, accounting (both US & Indian GAAP), payroll and tax preparation services. For more details, log onto http://www.aptservicesonline.com

If you are very good at following directions and also good at math, there are many career options available for you. Many people think that all the math that was learnt when they were in high school has gone down the drain it is not very right. Bankers, architects and accountants also use math. Tax preparing is yet another profession that uses a lot of math. This however is a seasonal job. There are many companies that are ready to hire new people. A career in tax preparing may suit you if you are very good with computers, people and also math. At the end of all this you need education. Tax preparation is not as easy as you think. There are many things that you ought to know to prepare taxes for businesses as well as people. Tax preparation courses may help you now. Surf the net to find one of these centers. This way you get to meet real teachers and go to a physical place. if you ever get stuck, you can take the help of those people.

If you do not find any preparation courses for taxing near your place, you have other options. Websites provide you with these courses. Looking at different websites will give you a better idea. You need to work with a site that has good information and is also very easy to understand and also read. By doing this you will know quite a lot in this field. Prices are one thing that you need to look out for in these courses. There will be courses for free sometimes. But many a time you will need to pay. Learn form free sites also because a lot of information is never bad.

Another way in which you can do this is by getting hired by a company. These companies do provide their trainers with courses free of cost. It will be the duty of the company to run these classes. This will also include people who are taking the course again as the law charges for tax keep changing every now and then.

Abhishek is a Tax Consultant and he has got some great tips on Filing And Understanding Taxes! Download his FREE 84 Pages Ebook, “Taxes Made Easy!” from his website http://www.Taxes-Guru.com/777/index.htm . Only limited Free Copies available.

The energy bill that has reached the President of the United States has finally turned into law by virtue of President Bush’s signature. Said law includes a provision that gives consumers incentives and tax privileges. Moreover, the greatest stir is the hybrid tax credit.

Hybrid tax credit allows consumers to slash tax bills by $1,700 to $3,000 depending on the hybrid model. Hybrids that are capable of saving the most fuel will be given greater tax privileges. However, the consumers covered by said provision are only those who are going to purchase hybrids from January 1 and onwards. According to David Friedman of Union of Concerned Scientists “It’s not a home run, but a good, solid double.”

Said legislation is aimed at saving energy and reducing air pollution. Hybrids contribute to the aim of saving gas by combining electric motor with the internal combustion engine. The mentioned legislation is also applicable to the new generation of fuel-saving diesel cars. The tax privilege is to expire at the end of 2009. However, for some hybrids, the privilege is expected to linger. For every automaker, tax breaks are only available to a total of 60,000 vehicles.

In the present time, consumers get a $2,000 income-tax deduction for purchasing a hybrid. Deductions are due to fall to $500 next year. Tax credit can also be availed of by consumers. Compared to deductions, tax credits are more valuable. This is because credit represents a dollar-for-dollar cut in the taxpayer’s bill.

In regard to said legislation, Toyota is aiming to sell 100,000 Prius hybrids this year. Martha Voss, spokesperson of Toyota, says: “Hybrids only account for 1% (of new vehicle) sales, so there is still a need.” She further noted that Prius could qualify for at least a $2,400 credit. It can be recalled that Toyota is one of the giant names that prioritizes fuel-saving. This is manifested in the manufacturing of Toyota Prius auto parts, which are incorporated in its hybrid vehicle.

Ford Motor Co. is also making way for its three additional hybrids. These hybrids will also benefit from the legislation.

Jennifer Dylan is a 35-year-old gal who hails from San Francisco. She has a habit of updating herself on new car trends and models. She spends most of her time reading up on cars and hopes to test drive them. She works for one of the topnotch car parts dealer in the U.S.

This is why we have got things like dishwasher and microwave. This convenience carries to every aspects and phases of life. Most of the people find to file their taxes hard and consider it to be a troublesome activity. They are in a notion that it is not easy and want better ways to do it. Fortunately computer programmers and businesses have developed the process of online tax preparation keeping the keeping the issue of the public in their minds. For sure there are hundreds of service providers in the internet. The best thing of this is that there is no need to download any kind of software. Every step can be carried out in the net itself from filling up of forms to tax-filing process with the aid of government. Hence the preparation of online tax has eased the lives of people. Most of the people don’t like the tax season after all. They start to feel the heat by 14th of April which is the final date and they don’t relish that they need to send the forms by the prescribed date. The online method of tax filing will help you reduce the stress level during certain tensed season.

Few steps are to be followed and learnt before one starts using the preparation of online tax which helps in taxes. You just need to be aware that you make use of a reputed site of a good company to fill up your taxes. In frame to save your funds and identity and to protect them you must try to make use of the companies and websites which is quiet familiar and well-heard and which really is capable of proving itself a true deal. You must never forget to read the policies of website security. You must be well aware that they contain a good internet security which will protect your valuable information. If checking out is completed then the usage of the tax preparation online can be made use with zero worry.

Going to the website of IRS and looking the present year’s tax details will provide you a big list of websites which can be made use of during the filing period and which is considered to be safe by IRS. The websites which provide free online tax preparation is also listed. This turns out to be really helpful as it saves a hell lot of cash. Just that the online process is free of cost it doesn’t apply during the filing of taxes. Lot of sites files you with certain federal tax returns which are free of cost and the state return is charged.

Abhishek is a Tax Consultant and he has got some great tips on Filing And Understanding Taxes! Download his FREE 84 Pages Ebook, “Taxes Made Easy!” from his website http://www.Taxes-Guru.com/777/index.htm . Only limited Free Copies available.