Your First Tax Year – Taxes for Entrepreneurs
It’s no coincidence that taxes are due around Easter each year. Anyone who’s ever needed an answer to a tax question will be familiar with the rabbit hole that they call the IRS Website. If, like tens of thousands of individuals, you started a business last year, this year might be the first time you’ve ever needed to file business taxes. You might think that they’re just like individual taxes, but you’d be wrong. Business taxes are the Complete Works of Shakespeare. Your individual taxes are the Cliff Notes of “Where’s Waldo?” Call the Internal Revenue Service, and they’ll direct you to their website to answer your questions. You should review its checklist for starting a business. But for the non-CPA, non-tax attorneys out there, the Web site can more confusing than an average episode of “Lost.”
Charitable contributions made to qualified organizations may indeed help taxpayers lower their tax bills. As covered in most EA CPE courses on the subject, enrolled agents must be mindful of several issues and procedures to help ensure their clients’ contributions pay off on their tax returns. In order for taxpayers to claim a charitable donation as a legitimate tax deduction, then the recipients must be qualified organizations. Moreover, contributions made to specific individuals, political organizations or candidates do not fall under this rubric. Enrolled agents should refer to IRS Publication 526, Charitable Contributions for more information on what constitutes a qualified organization.
If you are starting a business and you can’t be bothered to read about how to do your (and your employees’) taxes right, you’re not going to be in business very long. So read them. All of them. Sorry. The first, and most valuable, piece of tax advice is this: Find a CPA you trust. Overwhelmingly, small-business owners advise using a CPA. Have one audit your accounts, listen to his or her recommendations, and plan your business accordingly. Good CPAs will probably save you as much money as they cost – from making sure you get all your deductions in a row at tax time, to alerting you to cash-flow crunches, to keeping you off the IRS audit radar, their advice will help you limit your exposure to the risk of being audited.
The amount of deduction for stocks, non-cash donations or other non-cash property is usually the fair market value on the date of the donation. Items such as clothing and household goods must generally be in good used condition to qualify as deductible, although special rules apply to vehicle donations.
So you’re probably wondering what someone like you might do to keep the IRS from knocking on your door, asking for all your receipts. Forbes Investopedia has a list of 10 things that will trigger a red flag or audit: 1. Large Charitable Deductions 2. Large Business Expenses 3. Inaccurate W-2 or 1099 Reporting 4. Excessive Itemized Deductions 5. Concealment of Cash Receipts 6. Tax-Shelter Losses 7. Informant reporting you to the IRS 8. Prior Tax Problems or Audits 9. Complex Business Transactions 10. Complex Investment Transactions
Keeping Abreast of Eligibility Rules It would be remiss to not point out a word of caution that any RTRP should heed when advising clients on the tax advantages of the S Corp election, particularly when dispensing tax planning advise to more sophisticated businesses, where there is a greater likelihood that an ineligible shareholder could become an owner of S corporation shares. Shareholder eligibility is an arena in which tax practitioners must exercise considerable care, since an ineligible shareholder will terminate the S corporation election.
Taxpayers donating items worth more than $5,000 are also required to complete Section B of Form 8283. The IRS also typically requires these individuals to attached an appraisal of the donated items that has been conducted by a qualified appraiser.
IRS Circular 230 Disclosure Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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