Don’t Pay Your Tax Bill with a Credit Card

Don't Pay Taxes by Credit Card

A big tax bill is like hay fever. You don’t want it, you try to avoid it — and then April rolls around and it hits you hard. Now you have to figure out how to take care of it. Taxes have to be paid, and putting them on your credit card might seem a good option. Maybe you need more time to come up with the money, or you’re imagining the rewards you could rack up by putting a big expense on your card. But paying the IRS with plastic probably isn’t a good idea, and here’s why.

Downsides When You Pay Taxes by Credit Card

You’ll Pay Processing Fees

When you buy something with a credit card, the merchant pays processing fees to the financial institutions that handle the transaction. But when you put a tax payment on a credit card, the IRS doesn’t pay those processing fees. You do.

To pay federal taxes with a credit card, you have to use one of the IRS’ third-party credit card processors, which charge fees of 1.87 percent to 2 percent of the amount you put on the card. If you use software such as TurboTax to file returns and pay taxes online, the fees may be higher.

These fees could eat up your credit card rewards. Most cards offer only a 1 percent to 1.5 percent rewards rate for this type of transaction.

The exception: If you put your tax payment on a card with a 2 percent rewards rate or higher and then pay it off in full on your next statement, your rewards might exceed the fees — but just by a hair.

You Could Incur Interest Charges

“Depending on the interest rates on your credit card, you could end up paying a lot,” says Trish Evenstad, president of the Wisconsin Society of Enrolled Agents, a group of tax experts. Her advice to people who can’t pay in full: “Pay as much as you can by the April 18th due date. Then you can set up an installment agreement with the IRS to pay the remaining balance.”

For 2017, it costs $31 for qualified taxpayers to set up an installment agreement online and pay via direct debit from a checking account, according to the IRS website. That’s in addition to 4 percent annual interest on unpaid federal taxes and a penalty of 0.25 percent of the outstanding balance for each month the agreement is in effect. That works out to an annual percentage rate of about 7 percent.

It’s a much better deal than 13.61 percent, the average APR for all U.S. credit card accounts that were assessed interest in the last quarter of 2016, according to the Federal Reserve.

The exception: Paying with a 0 percent APR credit card could be more cost-effective than setting up an installment agreement, if you can pay off your balance before the promotional period ends.

You Could Hit Your Credit Limit

Charging a big tax bill on your card could put you within spitting distance of your credit limit, making it easy to max out the account and incur penalties. Your credit score could also suffer.

“I’d look at ‘What is my financial situation?’” says Cari Weston, director of tax practice and ethics for the American Institute of Certified Public Accountants. “If I need to have my credit card available for emergencies to pay for expenses because I might not have a rainy-day fund set aside, [I’m] better off not adding that credit card debt.”

The exception: If your card has a limit well in excess of your tax bill, charging it might not hamper your purchasing power or hurt your credit score much.

Better Ways to Pay

If you have the money to pay your tax bill, pay by check or direct debit to avoid fees. If you need more time, an installment arrangement with the IRS likely is your best option. Here’s what to do:

  • Calculate how much time you will need. If you can pay in full within 120 days, you won’t incur a setup fee.
  • Go online. An online installment agreement with direct debit is the cheapest option, with a setup fee of $31. If you set it up offline without automatic payments, it costs $225. (For state taxes, you’ll have to set up a separate payment plan with your state, which may have different rates.)
  • Choose a long repayment period. To avoid falling behind on payments, Weston recommends taking the longest repayment period the IRS offers. “Commit to what you know you can pay,” she says. “You can always pay more.” Then the faster you pay it down, the more you’ll save on interest and penalties.

Credit Card Payment Photo via Shutterstock

This article, “Don’t Pay Your Tax Bill with a Credit Card” was first published on Small Business Trends

Outside-the-Box Travel Expenses — What’s Deductible?

Deductible Travel Expenses

Most small business owners incur, to a greater or lesser extent, travel expenses for their business. You probably know how to treat the most common costs — hotel rooms, airline tickets, business meals — but there are a slew of other travel-related costs that you may incur. Some are deductible and some are not. Here’s a rundown.

5 Deductible Travel Expenses

As a general rule, the cost of out-of-town travel is deductible. This includes airfare, lodging, and 50% of the cost of meals. Examples of other deductible expenses:

Cancellation Fees

It’s common to book a hotel room or a flight but later be forced to cancel…for business or personal reasons. If the travel would have been deductible (i.e., for business), then any cancellation fees are also deductible.

Cash Tips

Gratuities to porters, baggage carriers, and hotel staff may seem like minor expenses, but during the course of a trip they can add up. What’s more, unlike tips on meals that show up on your credit card bill, there’s no paper trail for cash. It’s up to you to keep a record of your cash outlays for tips.

Beverages

Another cash outlay that’s common on business trips is for the purchase of water, coffee, or other beverages throughout the day. On a four-day business trip, how many of these beverages do you think you consume? Try to obtain receipts for any purchases.

Internet Access

A growing number of airlines and hotels offer free Internet access, but others charge you (or charge you for upgraded service). You may charge the access to your credit card; it may not be part of your hotel bill. Don’t overlook the charge as a deductible business expense

Laundry and Dry Cleaners

On a short trip, you may not have any of these costs, but if you’re away for a while, or if you have a mishap, the hotel laundry services may be needed. Usually, it shows up on your hotel bill so you won’t overlook the cost. But if you go outside of the hotel (e.g., to use a one-hour cleaners), don’t overlook the cost as a deductible business expense. 

5 Nondeductible Travel Expenses

There are various tax rules that may prevent you from deducting a cost that you view as arguably related to business travel. The tax law has some specific rules against certain deductions:

Airline and Hotel Clubs

The annual fee to belong to a special travel club, such as one that gives you access to airline lounges or hotel discounts, is not deductible. The tax law prohibits any deduction for most types of club dues.

Traffic Tickets and Parking Fines

But for the travel, you may not have received a speeding ticket or a fine for overtime parking. Nonetheless, the tax law bars any deduction for fines and penalties.

Commuting

You have to get to and from work, but the tax law views this as a nondeductible personal expense. There are some minor exceptions, but by and large, the cost of commuting, including any tolls and parking, are not deductible.

Carpooling

Carpooling is merely a variation on the commuting theme. It’s a nondeductible personal expense.

Travel Costs of a Companion

If you bring your spouse or someone else with you who is not there on business, you can’t deduct the cost of that person’s airfare, meals, or any other additional cost. Of course, there’s no added cost for riding along in your car, or in most cases, sharing your hotel room so the cost is nominal to not be lonely.

Conclusion

As with other business expenses, your ability to maximize your write-offs depends on good recordkeeping. Use your smartphone to capture receipts for minor expenses so you don’t have to accumulate the paperwork or risk misplacing it. Check with your CPA and IRS Publication 463 to learn other deductible travel costs and the records you need to keep in order to claim them on your return.

Travel Expenses Photo via Shutterstock

This article, “Outside-the-Box Travel Expenses — What’s Deductible?” was first published on Small Business Trends

70 Percent of Small Businesses Still Don’t Use Tax Software

use tax software

Despite arguably making lives easier, tax software is not used by a majority of small businesses. That’s according to a new report by Office Depot (NASDAQ:ODP), the office supply retailing company.

The company’s latest Small Business Index survey (PDF) reveals 70 percent of small business owners did not use tax software when they filed their taxes in 2016.

What’s more, 24 percent of large small businesses (those with 50-99 employees) still use paper forms compared to the 20 percent that use tax software.

Many business owners, however, are planning to use more technology when they file taxes in 2017, the report says.

About 21 percent of small business owners are looking to use more technology and use less paper this year. Moreover, 61 percent are planning to make changes in how they filed their taxes.

It’s worth noting that many business owners still wait until the last minute before they file their taxes. Specifically, 11 percent of business owners said they waited to file their taxes on Tax Day or asked for an extension.

Software Tools Can Make Tax Filing Easier

Software tools for tax filing can save time, resources and eliminate the risks of calculation errors.

“Tax software can provide SMB owners with the flexibility to file their taxes at their own pace,” Christine Nessen, senior director of contract marketing for Office Depot said in a release announcing the survey.

Time saved on filing taxes can be better spent on other business tasks.

Florida-based Office Depot interviewed 1,500 small businesses online for the survey.

TurboTax Photo via Shutterstock

This article, “70 Percent of Small Businesses Still Don’t Use Tax Software” was first published on Small Business Trends

How to Avoid Double Taxation with an S Corporation

How to Avoid Double Taxation with an S Corporation

Paying taxes is unavoidable, yet that doesn’t mean you need to pay more than necessary. You can make smart decisions to minimize your tax burden, without running afoul of the IRS.

For small businesses and entrepreneurs, business structure impacts how you pay taxes, and potentially how much you pay as well. The biggest difference is whether the business is its own entity responsible for paying taxes or whether the business’ profits are passed along to the owners’ individual taxes.

How to Avoid Double Taxation

C Corporation vs. S Corporation

A C Corporation is taxed as its own entity. The corporation files IRS Form 1120 each year to report its income, deductions and credits. Profits are typically taxed at corporate income tax rates. That’s pretty cut and dry, but where small business owners can run into trouble is through something called double taxation. That’s because when the corporation distributes dividends to the stockholders, these dividends are taxed on the stockholders’ personal tax returns.

If you’re a small business owner and expect to put some of the end of the year profit into your own wallet, the money could end up being taxed twice: first, the corporate profits are taxed at the corporate level and then the distributions are taxed on an individual level.

To avoid double taxation, a corporation can file a special election, called S Corporation election, with the IRS. As an S Corporation, the company itself no longer pays taxes on the profits. Instead, any profit or loss is passed to the stockholders. The stockholders then report their share of the profit/loss on their personal tax returns. If you own 33 percent of an S Corporation, then you’ll need to report 33 percent of the company’s profit with your personal tax return.

From a high level, this “pass-through” taxation is the key difference between a C Corporation and an S Corporation. But there are a few other key details to understand about S Corporations:

  • You’re also able to pass a loss onto your personal income taxes. If the business experiences a loss for the year, you’ll report your share of the loss on your return and this can offset any other income you might have.
  • Stockholders are required to report their percentage of the profit/loss whether or not they actually receive that money as a distribution. So, let’s say you own 100 percent of an S Corporation and it makes X dollars in profit for the year. You decide to keep that money in the business in order to make some big purchases next year. You still are required to report the profit on your individual tax return. If you anticipate keeping a significant amount of money in the business, you may be better off as a C Corporation.
  • S Corporation distributions aren’t subject to FICA/self-employment taxes. This is one tactic that self-employed entrepreneurs use to minimize their self-employment taxes. However, if you have an S Corporation and are actively working in the business, you’ll need to pay yourself a market-rate salary for the work you do. In other words, the IRS won’t let you pay yourself entirely in distributions to avoid self-employment tax.
  • Lastly, we tend to talk about S Corporations in terms of C Corporation vs. S Corporation, so you may be surprised to learn that an LLC (Limited Liability Company) can also elect S Corporation treatment. An LLC already enjoys pass-through tax treatment, which begs the question, why would an LLC ever need to elect to be taxed like an S Corporation? The answer is related to the previous point: the S Corporation allows the owner to divide up the business’s earnings into both salary and distributions. By electing to have your LLC taxed like an S Corporation, you can have pass-through taxation, the minimal formality of an LLC, and be able to take out some profit as a distribution that’s not subject to FICA/self-employment tax.

Who Qualifies for S Corporation Status?

The IRS places strict requirements on S Corporation status, so not every business will be able to qualify. In order to qualify, the company must meet all the following criteria:

  • It needs to be a domestic corporation
  • Shareholders cannot be partnerships, corporations or non-resident aliens
  • You can’t have more than 100 shareholders
  • You can have only one class of stock
  • You need to be an eligible corporation (some financial institutions, insurance companies and domestic international sales companies aren’t eligible).

How to Elect S Corporation Status

Electing to be an S Corporation is relatively simple: you’ll need to file IRS Form 2553. The only catch is the deadline. You need to file Form 2553 no more than two months and 15 days after the beginning of the tax year the election will take effect.

If you want to be treated like an S Corporation for Tax Year 2017 (assuming you follow a calendar tax schedule), you need to file Form 2553 by March 15, 2017. If it’s after March 15, S Corporation treatment will generally begin with calendar year 2018.

As the deadline approaches, think about your company’s business structure and determine if an S Corporation is right for you. A tax advisor or small business expert can help you decide if this is the right course of action for your specific situation.

Finances Photo via Shutterstock

This article, “How to Avoid Double Taxation with an S Corporation” was first published on Small Business Trends

9 Ways to Get Free Help With Taxes from a Real Live Person

9 Ways to Get Free Help With Taxes from a Real Live Person

Tax help can cost a lot of money. Pros charge $150 an hour on average to do a federal and state return, according to the National Society of Accountants. Help with planning, back taxes or audits can cost even more. But there are a few ways to get human tax help for free.

Where to Get Free Help With Taxes

1. Volunteer Income Tax Assistance (VITA)

What it is: A federal grant program that helps community organizations provide free tax-prep services to low- and moderate-income individuals, the disabled, the elderly and limited-English speakers.

How it works: Taxpayers can get face-to-face help from local, IRS-certified volunteers. Generally, the income limit is $54,000. Volunteers won’t prepare the Schedule C (sorry, freelancers), the complex Schedule D (sorry, investors) or forms associated with nondeductible IRA contributions, investment income for minors, premium tax credits, requests for Social Security numbers or determinations of worker status.

“In a lot of communities, [people] can just dial 211 to find out information about the nearest VITA site and get more information about whether or not they qualify,” says Rebecca Thompson, project director of the taxpayer opportunity network at the Corporation for Enterprise Development, which focuses on fighting poverty.

Get help from the Volunteer Income Tax Assistance program.

2. Tax Counseling for the Elderly (TCE)

What it is: A federal grant program that gives money to community organizations to provide people with free tax help. Although the program was established to help people 60 and older, and still prioritizes serving them, there’s actually no minimum age requirement. Trained volunteers provide the assistance.

How it works: Similar to VITA, community organizations and nonprofits use the grant money to provide help. Most TCE sites are operated by the AARP Foundation’s Tax-Aide program.

“The TCE program and the VITA program use, as a base, the same training program [for volunteers]. They use the same certification test and, for the most part, the same software,” says Fran Rosebush, deputy director of the Corporation for Enterprise Development.

Get help from the Tax Counseling for the Elderly program.

3. AARP Tax Foundation

What it is: A nonprofit arm of AARP that operates the Tax-Aide network of tax preparation sites for the IRS’s VITA and TCE programs.

How it works: AARP’s Tax-Aide connects taxpayers with tax counselors who have advanced IRS training. It also operates an online FAQ page where you can submit tax questions to IRS-certified volunteers. You don’t need to be an AARP member to get help.

Get help from the AARP Tax Foundation.

4. IRS Taxpayer Advocate Service

What it is: An independent organization within the IRS that protects taxpayer rights.

How it works: You can turn to the Taxpayer Advocate Service if you’ve already tried to resolve your tax problem through normal IRS channels or you think an IRS process isn’t working the way it should. There’s at least one Taxpayer Advocate office in every state.

Get help from an IRS taxpayer advocate.

5. Low Income Taxpayer Clinics (LITCs)

What it is: A federal grant program that gives money to legal-aid and legal-services organizations to help low-income taxpayers or taxpayers who speak English as a second language. Law schools and business schools also are common providers. Some charge nominal fees.

“We don’t prepare tax returns, generally speaking, but if somebody, for example, has their refund frozen and they need help figuring out why, they can call low-income tax clinics,” says Christine Speidel, an attorney at Vermont Legal Aid, which runs clinics in the state.

How it works: The program generally provides representation for people in IRS disputes, including audits, appeals, collections and litigation. It also can help respond to IRS notices and fix account problems. Typically, the income ceiling is 250% of the federal poverty rate, but some programs have a little wiggle room, Speidel says. Sole proprietors are usually welcome, she adds.

Get help from the Low Income Taxpayer Clinic program.

6. IRS Taxpayer Assistance Centers

What it is: Local IRS offices across the country.

How it works: Services vary by office but can include basic tax-law assistance, payment arrangements, procedural inquiries, help with IRS letters and notices and other support. You’ll need to schedule an appointment and provide a valid photo ID and taxpayer identification number, such as your Social Security number.

Get help at an IRS Taxpayer Assistance Center.

7. Military OneSource

What it is: A Department of Defense program that provides financial and legal resources, among other things, to military members and their families. The tax program is called MilTax.

How it works: Trained MilTax consultants are available by phone seven days a week during tax season from 7 a.m. to 11 p.m. ET at 1-800-342-9647. After April 18, they’ll be available Monday through Friday, 8 a.m. to 10 p.m. ET. MilTax is part of the VITA program, which means you also can get face-to-face help on base or nearby.

Get help from Military OneSource.

8. The tax pro down the street

What it is: A certified public accountant, licensed attorney, enrolled agent or someone who has completed the IRS’ Annual Filing Season program. The IRS also requires anyone who prepares or helps prepare federal tax returns for compensation to have a Preparer Tax Identification Number, so be sure to look for that.

How it works: To get free help, all you might need to do is ask. According to the National Society of Accountants, 89% of tax pros offer free client consultations worth more than $100.

Seek help from a credentialed tax professional.

9. Your tax software

What it is: Many versions of do-it-yourself tax software come with free help from a tax pro via phone, chat, email or even face-to-face via your cell phone’s camera.

How it works: Tax software providers frequently offer free help, though it’s more common among the higher-end paid versions. Audit support and audit representation are often provided, though you might have to pay extra.

Where to find: Companies such as TurboTax, H&R Block, TaxAct and TaxSlayer offer free help for all or some of their tax software packages.

Tax Pro Photo via Shutterstock

This article, “9 Ways to Get Free Help With Taxes from a Real Live Person” was first published on Small Business Trends

Ohio Congressman Says Tax Code Stunting Small Business Growth

One House member says the complexity of the US tax code is stunting small business growth by penalizing entrepreneurs who take risks with their businesses.

House Committee on Small Business Chairman Steve Chabot voiced his concerns the complexities of the tax code are stunting small businesses and start-ups from growing during a hearing Wednesday.

There are provisions in place that penalize entrepreneurs for taking risks with their businesses, according to Chabot.

“Entrepreneurs simply aren’t taking the kinds of risks they once did and this will have serious economic consequences, both in the short-term and in the long-term,” he said. “America’s entrepreneurs are crying out for tax relief, and we are listening to them as we take action. They want a tax code that is simpler, fairer and flatter so they can start and grow their businesses and turn their dreams into reality.”

Tim Reynolds, the president of Tribute Inc., a small accounting software business based in Hudson, Ohio, testified he feels it would be “irresponsible” to do his own business’s taxes, fearing he would “inadvertently run afoul of the law.”

“‘My company pays our accountants more than $14,000 each year to prepare our taxes,” he told the panel. “In addition, we spend about 40 hours a year preparing various forms and making various estimated payments required to comply with tax law.”

Heritage Foundation senior fellow David Burton argued the complexities of the policy currently in place impose high compliance costs on start-ups.

“Although there are many reasons that entrepreneurs are struggling, the tax system is a major contributing factor,” he said in his testimony. “This is both because of the direct impact of the tax system on small and start-up firms and because of its adverse impact on the economy overall. The current tax system reduces the incentives to work, save and invest.”

House Republicans are hoping to have tax reform legislation in place before Congress recesses in August.

Image: chabot.house.gov

This article, “Ohio Congressman Says Tax Code Stunting Small Business Growth” was first published on Small Business Trends

These Are the 10 Most Important Tax Forms

These Are the 10 Most Important Tax Forms

Ask the IRS’s website for a list of all federal tax forms and you’ll get over 900 results. That’s a ton of forms.

Happily, you probably don’t need to care about most of them. But here are 10 major IRS tax forms you should know about before you file.

Three of them — the W-2, 1098 and 1099 — are forms that may be sent to you with information you’ll need in order to file. The others are forms that you might need to fill out as part of your tax return.

Most Important Tax Forms

The Biggie: Form 1040

The Form 1040 (and its buddies the 1040EZ and 1040A) is the star of the tax show — it’s the form where you tally your income and deductions and calculate your actual tax bill. The 1040 “long form” itself is just two pages long, but to fill in its 70+ lines, you usually have to fill out lots of other forms.

There are rules about which of the three 1040s you can use; here’s a quick breakdown.

  • Form 1040A: Also for fairly simple tax situations, with a twist. Although you can’t itemize, you can claim certain popular tax credits, and you can deduct your student loan interest, IRA contributions and a handful of other things. Your taxable income has to be under $100,000.
  • Form 1040: Anyone can use it, regardless of filing status. You can itemize and claim all allowable deductions and credits.

For Itemizers: Schedule A

Schedule A is for itemizing your deductions — property taxes, charitable contributions, mortgage interest, state taxes, medical expenses or one of myriad other options. Its tax-bill-reducing powers make it one of the single most valuable pieces of tax paper in the stack.

For Those with Investment Income: Schedule B

This form tallies all the taxable interest and dividends over $1,500 that you received during the year. Note the word “taxable.” The lower the total, the lower your tax bill, which is one reason tax-advantaged accounts such as IRAs and 401(k)s can be so valuable — they don’t raise your taxable income.

For Freelancers and Small Business Owners: Schedule C

Schedule C (or the simpler Schedule C-EZ) is what you use to report the profits and losses from freelancing, consulting or contractor work. It’s also where you can deduct expenses related to the growth and development of your business, such as advertising, home office expenses or office supplies. You might be able to get away with using the shorter C-EZ if your expenses are below $5,000, and you have no employees, no inventory and no depreciation or deductions for the cost of your home.

For Investors: Schedule D

If you trade stocks, bonds or other instruments, Schedule D is for you, because it’s where you tally your capital gains and losses for the year. If you’re like most investors, some of your investments probably did well, and some probably didn’t. Report both types: Up to $3,000 of your net losses could be deductible — and Schedule D is where that mathematical magic happens. You’ll likely need information from your 1099s (see below) to get it done.

For Regular Employees: The W-2

The W-4 is a form you give to your employer (typically when you start at a job), instructing how much tax to withhold from each paycheck. The W-2 is a form your employer sends back to you in January or February. It shows, among other things, how much you earned, what you contributed to your company’s retirement plan and the amount of taxes withheld on your behalf. A copy goes to the IRS, so be sure you report this information accurately. (Side note: If you got a huge refund last year, fill out a new W-4 to reduce your withholding — otherwise, you’re just giving the government a free loan.)

For Homeowners and Students: Form 1098

If you have a mortgage, you’ll get one of these tax forms in the mail. It shows the interest (over $600) you paid on your home loan during the year, and that mortgage interest is generally deductible. Students might get a 1098-T, which reports tuition payments they’ve made, or a 1098-E, which reports the interest they’ve paid on their student loans. Student loan interest and tuition payments may also be deductible.

For Multitaskers: Form 1099

The 1099 tax form comes in several flavors, but the big four are the 1099-DIV, 1099-INT, 1099-OID and 1099-MISC. They’re all records of income you’ve received from a source other than your employer, and whoever sent you one also sent the IRS a copy, so don’t forget to report it on your return. In a nutshell, the 1099-DIV reports dividends and distributions from investments; the 1099-INT reports interest you earned on investments; the 1099-OID comes when you buy a bond or note for less than face value; and the 1099-MISC is for most everything else not derived from investments, such as money a client paid you for freelance work.

For People Who Made a Mistake: Form 1040X

If you filed your return and then realized you made an error, the 1040X will save your bacon. You may need to include copies of your other tax forms when you file it (go here to learn more about amending your return). Note that you’ll have to file this form on paper and mail it the old-fashioned way, so be sure to keep a copy of all supporting documents, and consider sending it certified mail. If you find out you owe more due to your mistake, you can still pay online. If you score and realize you’re owed a bigger refund, you can still get a direct deposit.

For People Who Need More Time: Form 4868

File this form with the IRS by the April deadline — you can even do it online — and you’ll buy yourself an extension until October. Beware: You have to make a good estimate of what you owe the IRS and send in some or all of that amount along with your extension request. If the estimated payment you send in April ends up being less than what you actually owe, you’ll need to pay interest on the difference. And don’t miss your extended deadline: The IRS can sock you with a late-filing penalty of 5 percent of the amount due for every month or partial month your return is late.

Tax Form Photo via Shutterstock

This article, “These Are the 10 Most Important Tax Forms” was first published on Small Business Trends

7 Tax Saving Tips You Can’t Afford to Ignore

Check Out These 7 Tax Saving Tips

As we turn the page on the calendar it’s always a good idea to make sure you’re wrapping up the old year right and getting the new one off to a great start.  We know we have to pay taxes, and we may even appreciate the benefits we get from handing over our money to the government, but we owe it to ourselves to make sure we don’t hand over more than we’re required to by law.

Important disclaimer:  While many of the following strategies can help you reduce your tax liability, you should always consult with a tax expert before making any changes.  Tax law changes frequently, and you need the most current information.  That said, here are strategies that have worked for me and many others.

Tax Saving Tips

1. Max Out Your Retirement Contribution

401k, SEP, or Roth IRA … no matter what your form of retirement plan, setting aside all the money you can lets you defer paying taxes until later in life, when you’re likely to pay a lower rate.  Not only are you building your nest egg, but you’re also reaping tax benefits.

2. Build Up Your HSA (Health Savings Account)

Typically, contributions to HSAs roll over indefinitely, and your contributions are tax-free!  Sure, you will have to spend all of your HSA on medical expenses, but allowable expenses may be broader than you realize, and medical bills are something we all face eventually.

3. Leverage Your Losses

Deducting losses from your investments can soften the blow from decisions that turned out differently than you expected.  Not only can you deduct losses from stock purchased in publicly traded companies, but your own business may provide you with deductions as well.

4. Defer Capital Gains

If you’re considering selling off large amounts of stock for profit, think about holding onto those shares until the new year.  You’ll move the tax liability out of the year that’s ending, and then you’ll have an entire year to find ways to offset the gains.

5. Defer Deposits

If you’re looking at big year-end receipts, consider holding onto those deposits until after we turn the calendar page.  Just like deferring capital gains, you never know what the future holds.  You may encounter losses or expenses that help reduce the tax burden from huge deposits.

6. Donate to Charity

This strategy both reduces your tax liability and makes the world a better place!  Find worthy causes that speak to you and improve your community, and donate what you can afford.  Make sure you get receipts for your charitable donations.

7. Combine Business and Vacation Travel

This one’s my favorite!  I travel a lot for my speaking engagements, and anytime I can, I build a few extra days into my itinerary for fun.  Since work travel incurs legitimate business expenses, I can deduct a portion of the costs for my vacation.  Make sure your records are clear about which portion of expenses were business and which were pleasure.

As hard as you work for your money, you should put a little effort into making sure you keep all you’re entitled to.  A good accountant can help you maximize profit and minimize tax liability.  Resolving to pay less in taxes makes good business sense and starts your year off right.

Tax Blocks Photo via Shutterstock

This article, “7 Tax Saving Tips You Can’t Afford to Ignore” was first published on Small Business Trends

Mark Your Tax Calendars for 2017

Mark the Dates for the 2017 Tax Calendar

As a business owner, you don’t want to miss any tax deadline. Doing so can result in tax penalties, which can be hefty and are not deductible. Here are some key dates (some of which are new this year), as well as strategies you can use to be on time.

2017 Tax Calendar

Income Tax Returns

If you are a calendar-year partnership or limited liability company (LLC) filing Form 1065 for 2016, the due date is March 15, 2017. Previously, this form was due on the same date as the owner’s Form 1040, but the date was moved up. However, if you get a filing extension, you’ll now have six months — to September 15, 2017 — to file the 2016 return. These are the same deadlines that apply for calendar-year S corporations.

If you are a calendar-year C corporation, your Form 1120 for 2016 is not due until April 18, 2017. Previously, this form had a March 15 deadline. The filing extension remains September 15, so there’s only a five-month extension for this return.

The filing deadline for your personal income tax return, Form 1040, is due on April 18, 2017 (April 15 is a Saturday and April 17 is Emancipation Day in Washington D.C.).

Employment Tax Returns

The due dates for the employer’s quarterly tax return, Form 941, for 2017 are the end of the month following the close of the quarter to which the form relates: April 30, 2017, July 31, 2017, October 31, 2017, and January 31, 2018. If taxes have been timely deposited in full, the due date is extended to the 10th day of the second month following the end of the quarter (e.g., May 10 for the first quarter if taxes have been deposited in full).

If you have been filing the annual Form 944 instead of the quarterly Form 941 and need to switch because you expect payments for the year to exceed $2,500, you can’t simply do this on your own. You have to get the IRS’s approval. You have until April to contact the IRS and request a change by calling 800-829-4933.

For federal unemployment tax, there’s an annual filing. The due date for filing Form 940 for 2016 is January 31, 2017. However, if you deposited all your FUTA tax when it was due, you can file Form 940 by February 10, 2017.

Estimated Taxes

If you are self-employed (sole proprietor, independent contractor, partner, or LLC member) and pay estimated taxes, be sure to note the payment due dates for 2017: April 18, 2018, June 15, 2018, September 15, 2018, and January 16, 2018.

Don’t send the first installment for 2017 with your 2016 income tax return.

You can avoid late payments because you’re traveling or simply forget by scheduling estimated taxes for Form 1040 in advance. You can do this up to 365 days in advance if you opt to pay through EFTPS.gov. If you use EFTPS.gov for business taxes, advances can only be scheduled up to 120 days in advance. There’s no cost for using this service. Find out more about EFTPS.gov in IRS Publication 966.

Information Returns

You were supposed to provide employees with W-2s and independent contractors with 1099-MISCs for 2016 services by January 31, 2017. This was also the date that transmittal of these forms were due to the Social Security Administration (for W-2s) and the IRS (for 1099-MISCs showing nonemployee compensation). This is a new transmittal date, which applies whether you’re transmitting forms on paper or electronically. If you are already late, file as soon as you can to minimize penalties.

You could have asked for a filing extension by submitting Form 8809 by January 31. It’s too late now, but remember this option for next year.

If you are a small employer with a self-insured health care plan (e.g., a health reimbursement arrangement), the deadline for furnishing employees with Form 1095-B for 2016 coverage is March 2, 2017. They were originally due by January 31, 2017, but the IRS gave everyone an extension this year. However, transmittal of the forms are due to the IRS by February 28, 2017, if you do this on paper, or March 31, 2017, if you transmit copies electronically.

Correcting Delinquencies

It seems axiomatic that the sooner you submit a late return, the smaller the penalties will be. That’s because penalties apply per month (or part thereof). Interest on tax underpayments applies month-by-month as well.

But when it comes to information returns, correcting a delinquency as soon as possible can really limit penalties. For example, if you send a delinquent 1099 within 30 days of the required filing date, the penalty is only $50. If you miss this date but file by August 1, the penalty doubles to $100. But if you don’t file by August 1, the penalty jumps to $260.

Conclusion

You can create your own tax calendar so you’ll never miss another deadline by using a free desktop calendar tool from the IRS. Also, be sure to include the dates for state tax obligations (e.g., state unemployment insurance).

Tax Dates Photo via Shutterstock

This article, “Mark Your Tax Calendars for 2017” was first published on Small Business Trends

Top 10 Tax Deductions for Small Businesses (Video)

If you’re like many small business owners, your thoughts are already turning towards preparing for tax season.

And an important part of that preparation should be looking for ways to potentially save your business a lot of money: namely deductions!

Need a refresher on what’s deductible? Then watching the video above on the top 10 tax deductions for small businesses should help.

These Deductions Can Really Help Your Bottom Line

When you deliver your files, receipts and spreadsheets this year, make sure to schedule some time with your accountant to discuss tax deductions that could save your business vitally important revenue. You may be aware of many of them already, but here’s a refresher course just in case.

For example, you probably know that while your salary is a non-deductible draw in many cases, you can deduct the salaries and wages you pay your employees. And speaking of wages, you can also deduct the fees you pay to professional service providers such as accountants, lawyers and perhaps even your tax preparer. Yay!

Many ongoing business fees are actually eligible for deductions. Those include your insurance payments, rent on business facilities, items used in a business (e.g., cleaning supplies for a cleaning service), and the electrical utilities that keep your facilities running.

Some of the available deductions may surprise you. One example is your home office. Did you know if you use your home as a principal place of business you can claim some of your personal expenses as deductions? That includes mortgage interest, insurance, utilities, repairs and depreciation. This is the case whether you use your home as a place to meet or deal with clients or customers or for some other business activity. And, of course, if your company owns property that’s used exclusively for business purposes, you can deduct many of the costs — including mortgage interest.

Finally, don’t forget to deduct your ordinary advertising costs. This is an important one t keep in mind.

So this tax season, don’t forget to ask your accountant about these top 10 tax deductions for small businesses and more. The results could really change your bottom line.

And for more, be sure to check out the full list of top 20 tax deductions for small business.

Tax Deductions Photo via Shutterstock

This article, “Top 10 Tax Deductions for Small Businesses (Video)” was first published on Small Business Trends