5 Tax Tips for Business Owners

By Laurence Finger

 

Tax is a complicated business to say the least and most business owners need professional support from a Torrance accounting firm to fully appreciate all the options open to them. With this in mind, our round of five top tax tips here provides you with some business and personal tax issues you may like to raise with your professional tax advice team.

1. Gain advice on how you pay yourself

Business owners can profit from professional advice to understand the different arrangements they are allowed to use when it comes to their own salary, dividends, bonuses and loans. You may be able to manage your contributions for tax and National Insurance more effectively by changing your existing arrangements.

2. Ask about the new capital allowance regime

This allows a 100% writing down allowance for the initial expenditure up to $50,000 on certain capital items during one financial year. Discuss whether co-ordinating necessary capital expenditure with your business year end would be to your advantage. It could be possible for some or all of the applicable capital expenditure to be set against the profits for the year. It will depend on the type of expenditure and of course, this is very much area in which you'll need expert advice.

3. Ask to review your VAT arrangements

Many entrepreneurs are not aware that even though they operate below the VAT threshold, it is still in their interests to register. Broadly speaking, this can be a worthwhile move when your customer base are all registered for VAT. There are other circumstances in which it would also be to your advantage; again professional input is essential. For those businesses who are VAT registered, a review is still important. Ask about flat rate schemes. Depending on the nature of your purchasing, you may find you are paying more tax than you might otherwise need to.

4. Start an IRA during April

The maximum contributions you can allocate to an IRA for the 2011 to 2012 are set at $10,680, an increase of $480 on the previous year. For a couple, this means a total of $21,360 can be invested without attracting Capital Gains Tax (CGT). Although an IRA might not perhaps seem as exciting as other more complex investments, it is certainly a reliable source of tax free funds in the medium to long term.

5. Ask about tax free gifts.

There are set tax rules on the amount and nature of gifts that you can make, for example, gifts to your partner, to your family, to charity and so on. There is also some provision for gifts that form part of your 'normal expenditure'. Ask your tax advisors about which gifts are tax free. You may find you are unaware of ways to further provide for your family or favourite charity without incurring tax.

Although most people will have probably heard of the IRA, there are a number of other provisions within tax law which business owners are sometimes surprisingly unaware of. Mention these brief tips when next consulting your torrance accountant - you could find that you are paying more than you need to.

Tax deadlines for 2010 tax returns

Torrance tax deadlines

Traditionally, the tax deadline for filing your federal tax returns is on April 15th of every year, but this year, Tax Day 2011 falls a few days later on April 18th which the IRS has approved as the new deadline for filing your 2010 taxes. Refrain from thinking that you can postpone filing your taxes by a few days, however. This new tax deadline appears to applicable only for federal taxes. Your state tax are still due on April 15th. And if you live overseas, your due date is still April 15th as well.

 

Why did the tax deadline in 2011 change?

National Tax Day has always fallen on April 15th unless that day happens to be a weekend or federally recognized holiday. But this year, Tax Day falls on a Friday, so what's the deal? Well, in 2011, Washington D.C. decided to celebrate Emancipation Day a day early on April 15th, which marks the day President Lincoln signed the Emancipation Act freeing more than 3,000 slaves. Since the residents of D.C. were the "first freed" by the federal government, it was decided to make it an official public holiday, which pushes back National Tax Day by one business day to Monday, April 18th.

 

Need tax help?

If you need a tax accountant who offers tax preparation services in Torrance, please call 1-310-894-9244 or email Mike at Mike@wkacctax.com for more information.

IRS Announcement

IRS just announced that they are not ready to accept some of the tax returns. This does not mean that you can not prepare your tax return. A South Bay accountant can prepare your tax and file it with IRS as soon as they accept the returns. Please read the announcement and call me if you have any question.

The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline.

The IRS also cautioned taxpayers with foreign accounts to properly report income from these accounts and file the appropriate forms on time to avoid stiff penalties.

Who Must to Wait to File
For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

• Taxpayers Claiming Itemized Deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction that was also extended and which primarily benefits people living in areas without state and local income taxes. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

• Taxpayers Claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students – covering up to $4,000 of tuition and fees paid to a post-secondary institution – is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit extended last month and the Lifetime Learning Credit.

• Taxpayers Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23 and Form 1040A, Line 16.

For tax preparation Torrance-based services, call 310-894-9244 to schedule a free 30 minute consultation.

How does the IRS calculate tax penalties?

If you owe taxes, the Internal Revenue Service will calculate penalties and interest on the amount owed. If you have a refund, the IRS may pay you interest on the delayed refund. (Note the difference between "will" and "may" – the IRS generally pays interest on refunds that have been delayed because of slow processing by the IRS. Since most late tax returns take longer to process, the IRS "may" pay you interest on based on the extra amount of time it takes them to process your return.) If you have a refund, there is no penalty for filing late. Penalties are calculated on the amount due. Since there is no amount due, there is no penalty.

If you have a balance due on a late tax return, the IRS will calculate additional penalties and interest. There are three separate penalties:

·         Failure to File Penalty

·         Failure to Pay Penalty

·         Interest

Each is calculated differently. Let's take a look at each one.

Failure to File Penalty

The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.

Failure to Pay Penalty

The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. The penalty is calculated from the original payment deadline (the original April 15th filing deadline) until the balance due is paid in full.

Interest

Interest is calculated based on how much tax you owe. Interest rates change every three months. Currently, the IRS interest rate for underpayment of tax is 4% per year. The interest is calculated for each day your balance due is not paid in full.

For more help calculating potential tax penalties and other tax related services, contact WK Accounting and Tax Services at 310-894-9244.

Tax tips from a Torrance accountant and tax preparer

• The newly enacted tax cut creates a new 2011 and 2012 estate tax. The new rules are taxpayer friendly in two respects. First, they are easy to understand. Second, they contain$5 million exclusion (portable, if properly elected, for husband and wife, giving a married couple an exclusion of $10 million).

• Tax law gives choices to the executors who are handling the estates of those who died in 2010. Choice one is to apply the 2010 rules. Choice two is to apply the newly enacted 2011 and 2012 estate tax rules.

• Tax law creates trouble for selected fringe benefits that the S corporation gives to a more than 2 percent shareholder. The loss of benefits and accompanying complications are factors to consider in the selection of the S corporation as your choice of business entity.

• As a business owner, you should have your health insurance in a tax-advantaged position. If it is not possible or practical to utilize the Section 105 medical reimbursement plan, consider the health savings account.

• Here is the big picture on how the health savings account (HSA) works for the proprietor, S corporation owner, and C corporation owner. The good news is threefold: (1) the tax deduction for the high-deductible insurance, (2) the tax deduction for the HSA investment account, and (3) the tax-deferral and tax-free use of the HSA investment account.

• You need time and rate of investment return on your side to make your HSA investment grow to your satisfaction. One consideration for a higher rate of return is a self-directed HSA that allows you to invest in individual stocks, real estate, and mortgages.

• You need to strategize your purchase of high-deductible insurance to maximize your HSA tax-favored investment portfolio.

• The health savings account (HSA) offers the opportunity to save on insurance costs and create an investment nest egg. To learn how the HSA could work for you, do some easy arithmetic, like we show you in this article.

Taxpayers, beware: IRS warnes of new taxpayer penalities

The IRS has recently warned that it is stepping up its efforts aimed at taxpayer audits. High net worth taxpayers, small business taxpayers, rental property owners, a among a large group of taxpayers that may now face new IRS audits.


In addition the IRS is warning of new penalties and fines for taxpayers if they fail to follow the tax rules. Reporting items without records, or failing to report income, or making up deductions are just a few of the growing list of issues that new examinations will be looking for.

Tax Issues:
Follow Up Action Print out this ALERT and provide to
Inform all clients that is an important issue and to review their
requirements under the new taxpayer penalty issues.

Tax Professionals may face penalties for preparing returns where there are no formal books and records. Clients may be required to reconstruct their books and records before they can file a return.

Compare differences in prior year tax returns with current year return:
Review bank records against gross receipts for differences
Review any large dollar transactions
Look for comingling in corporate books and records
Review any independent contractor expense (AUDIT ISSUE)
Advise all clients of potential higher audit risk this year

– TAXPAYER ADVISORY BULLETIN
This year should see in some cases, an estimated 200% increase in number of IRS audits and examinations. Taxpayers should be advised of following:

• Review records and receipts
• Review bank records for unreported income
• Review receipts for deductions claimed
• Keep all records for possible audit
• Do not make up numbers for your return
• Make sure to compare information to return
• Maintain good records for business or rentals

How to find tax services in the South Bay

It's that time of year again. That time of year when your W-2 and 1099 statements start showing up in the mail. That time of year when you have to start looking for tax services in Torrance and South Bay to help you maximize your tax return.

Finding a Torrance tax account that provides tax preparation services in South Bay can seem like a difficult ordeal with the plethora of possible service providers to choose from, but it's really a very straight forward process based on what you are trying to accomplish.

The first thing you need to do is ask yourself why you are looking tax preparation services in South Bay. The most common reasons people pay for tax services in South Bay is because:

1. They want to file their taxes quickly with the help of professionals.
2. They want help taking advantage of tax credits and deductions to maximize their tax return.
3. They need help managing complicated tax situations such as separating business taxes from personal taxes when working as a sole proprietor. 

If you want it done fast, visit your local retail tax company as they are specifically trained to get your taxes done and quickly and efficiently as possible. If you want to lower your tax bill, you may want to work with a Torrance tax accountant as that may require additional time and research to accomplish this. If you have a complex dilemma, you may want to call around to different offices in search of a Torrance tax accountant who specialized in your particular predicament such as bankruptcy or what not.

The next step to finding a tax services in South Bay is to shop around for prices and then assess what's affordable for you based on professional liscenses. By following these simple steps, you'll be able to find affordable tax services in South Bay.