Why It's Worth Paying For a Tax Professional

To save money last year, Anthony Fasano tried preparing his new business's first tax return on his own. Then reality sank in.


"I realized I really had no understanding of the tax laws from a business standpoint," says Mr. Fasano, founder of Powerful Purpose Associates, an executive-coaching company he runs out of his home in Ridgewood, N.J. "I was just winging it."


Mr. Fasano started the business in 2009 as a side project while working for an engineering firm. But when his wife got laid off from a government job last year, he turned it into a full-time endeavor, sensing it would prove more lucrative for his family.

After spending roughly 20 hours trying to figure out the returns, Mr. Fasano ended up paying $500 to have an accountant finish the job, at which point he learned that he had overlooked the need to file 1099 forms for his four contract employees. "I didn't know that had to be done at all," says Mr. Fasano. "I should've gone to an accountant in the beginning."


This tax season, entrepreneurs operating on a tight budget may be tempted to forgo professional help in preparing their companies' returns. But experts say the investment is typically worthwhile -- at least for those just starting out -- to maximize deductions and avoid penalties. Tax specialists can help ensure that business owners don't pay Uncle Sam too much or too little and help identify all the tax breaks they're eligible to receive.
accountants typically charge between $250 and $500 to prepare a start-up company's tax return, says Keith Hall, national tax adviser for the National Association for the Self-Employed, a nonprofit business group in Washington, D.C.


This year, the filing deadline for most corporate entities is March 15. For sole proprietorships and partnerships, the deadline is April 18. Limited liability companies must choose to file as a corporation or as either a sole proprietorship or partnership.


Business tax returns are undoubtedly complex. They include a vast number of rules and options that frequently change. For example, the recently enacted federal health-care law includes a new, temporary tax credit for small businesses that cover at least 50% of the cost of health insurance for some employees, among other qualifications.


"Most people can do the tax return themselves, but it is a hassle," says Mr. Hall. "It's about how much you want to spend on Advil for the headaches you're going to get."


Lana Goldenberg says she lost out on roughly $1,000 last year by inadvertently misclassifying certain deductions when preparing her start-up's first tax return. "It's not a huge amount of money," she says, "but for a small business it matters."

Ms. Goldenberg launched her marketing consultancy out of her home in Marina del Rey, Calif., after getting laid off from a job in the same field in 2008. For her 2010 tax return, she says she's hired an accountant for about $300.



There are a number of deduction options that entrepreneurs may not be aware of. For example, if you've been running your business out of your home, you can deduct a percentage of your rent or mortgage interest, utility bills and repairs, says Cathy B. Goldsticker, a tax partner at accounting firm Brown Smith Wallace in St. Louis, Mo.


If you've been using your personal vehicle for your business, you can deduct however much you spent on gas, maintenance and tolls for this purpose. "Just make sure you have the records to show they're truly business-related deductions," Ms. Goldsticker says.



One tax break in particular that entrepreneurs won't want to miss: the ability to deduct up to $10,000 in start-up expenses when filing a business's first tax return. These include items or services purchased "prior to actually opening your doors," such as software for writing up a business plan, says Scott Berger, a principal at accounting firm Kaufman Rossin & Co. in Boca Raton, Fla.


But entrepreneurs may not realize that not every resource purchased to get a business up and running qualifies as a start-up expense. For example, the Internal Revenue Service doesn't consider computers, office furniture, machinery and other assets that last more than one year as such, says Mr. Berger. (However, many of these items can still be fully deducted either over the course of their lifetime in small amounts or, for 2010 returns, in one fell swoop if they meet certain qualifications.)



Oren Salomon says he regrets preparing his start-up's first tax return on his own this year to save money because he grossly underestimated how much time and energy the job would take. "The process has been very arduous and confusing," he says. "So far I've spent at least 25 hours and I'm maybe halfway done."



Mr. Salomon co-owns Mozign, a Dallas designer and developer of smartphone applications. He started the business with a friend last year after graduating from the University of California, Berkeley, because he wasn't able to land a job.

Next year, Mr. Salomon says he plans to hire an accountant. "It will be totally worth the money," he says. "I'd rather be working on product and spending my weekends with my girlfriend."

Let me help you save money on your taxes, CALL NOW for a free 1 hour consultation- (562) 420-0043.

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Is Your Business Ready For The New 1099 Reporting Requirements?

Does Your Organization Pay Any Single Vendor $600 or More?

In March 2010, President Obama signed into law a new comprehensive health care reform law. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (Health Care Act) focus on expanding health care coverage and controlling the related costs. In an effort to pay for the Health Care Act and curb unreported or under-reported revenues, the Health Care Act contains critical provisions that change information reporting requirements. These changes could drastically increase the paperwork burden for small businesses, including not-for-profit organizations.

Does your organization already have everyone’s taxpayer identification number on file? Is your organization’s accounting system and accounting staff capable of preparing dozens of Form 1099s? When and where do you start?

In general, all persona engaged in a trade or business must file with IRS An information return for payments made to another persona in the course of trade or business that constitute fixed or determinable income of $600 or more in the tax year. The payer is also required to provide the payment recipient with an annual statement showing the aggregate payments made and contact information for the payer.

Word is that this includes merchandise used in your business, for example a computer purchased from Costco would require the business owner to collect the necessary information from Costco and provide them with a Form 1099. Landlords will have to provide a 1099 to anyone performing work on their rental properties, and if you purchase an aggregate of $600 or more in paper, pens and toner cartridges from Office Depot or Staples, guess what?? A 1099 is required.

NOT CONCERNED WITH FILING?.... THINK AGAIN

To aid in the compliance of these new requirements, the IRS double the penalties for failure to correctly file information returns. The new penalties range from $30 to $100 per form 1099 for inadvertently failing to file and a minimum penalty of $250 per Form 1099 for intentional failure. If an organization fails to obtain a payee’s taxpayer identification number, they may have to begin backup federal income tax withholding at a 28% rate on payments.

REPEAL – UNCERTAIN

Explaining the administrative nightmare to lawmakers has fallen on deaf ears. Amendments to the Health Care Act that would have repealed the increased Form 1099 requirements failed to pass in the Senate in September and again in November 2010. Since the fate of the provisions are so uncertain, organizations should be prepared to comply with the new Form 1099 requirements thus avoiding a stressful nightmare at the end of 2011 scrambling to get everything in place.

If you have questions or need assistance with compliance please contact me for a free one hour consultation.


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What Is The First Thing A Small Business Should Outsource?

Everyone has their own opinion on this subject. I certainly have my own but it is a little bias. I was curious to see what everyone's opinion was and so I listed it on a forum. Do you think it is payroll, marketing, human resource, hiring, etc?  Here are some responses I got:




Linda Wall • "Payroll. If you use QuickBooks payroll, Paychex, ADP or any of the many others out there, this is one area you want to get right. Also, the time saving and peace of mind that payroll deposits are made on time".







 Barbara Bublyk •" Personally, after working with a number of small businesses, I strongly urge everystart-up to get COMPETENT bookkeeping help. I've spent a ridiculous number of hours trying to set up systems and straighten out messes that could have been avoided had the owners asked for help from day one".



Amy Trader • "I agree with Barbara, bookkeeping would be the first. I, too, have spent a lot of hours correcting mistakes or having to throw it all out and start over".



Kevin Harris • "Thanks to each of you for your input. I believe bookkeeping is ultra important to get right from the start, for exactly the reasons Barbara and Amy mention. If I had to choose, I'd say payroll is the first thing that I'd recommend small businesses take off their plate. Not only do you get the guarantee on accuracy and timing (as long as it's a reputable payroll service), a better reason is the simple trade-off between a ton of time & energy spent versus a minimal cost".



Catherine Haig • "I agree with bookkeeping and payroll because I've spent countless hours with owners hanging all over my head worrying about their payroll when all they had to do was give it to a competent company and that would NOT be Quickbooks payroll which, imo, IS THE WORST EVER! "


Stephanie Wells •"Ditto the bookkeeping. And unless the business is IT related, anything and EVERYTHING to do with setting up and maintaining computers, networks and peripherals".



Linda Morgan •"Definetly the bookkeeping and payroll. After these two I would add the record keeping. Hopefully if the bookkeeping is outsourced the bookkeeper is attending to the record keeping. New and stringent rules regardine retention are coming down in the next couple of years and businesses need to be prepared".


Demos Loizides •"You gotta love the small businesses that give important functions, such as bookkeeping and payroll in to inexperienced and apathetic employees. Their screw ups keep us busy".



Meghan Blair-Valero •"I am always amazed by what people decide to cheap out on. The amount of money they end up paying the IRS or the accountant because they decided to let the secretary be the bookkeeper. - often wonder if they even asked the person that they have largely left in charge of there business finances if they have ever balance their own checking accounts? I charge a premium when cleaning up someone elses mess".



Demos Loizides • "Since I'm hourly, I don't need a premium for cleaning up messes. They take longer than routine maintenance jobs, so I earn more anyway".

I personally can relate to this last one.  I recently acquired a client that has been merrily going about posting there business expenses, etc in QuickBooks.  When I looked at their check register nothing was classified, all put into accounts payablenot into business expenses, payroll, donations, etc.  This entire year has to be gone through again to get ready for tax time and this will take hours.

I can help give you peace of mind with your bookkeeping for as little as $75.00 per month but when we're talking about re-constructing an entire year of business.......

Call now for a FREE consultation and estimate (562) 420-0043

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Does Your Small Business Have It's Bookkeeping House In Order?

Even though it might not be the most glamorous aspect of running a business, bookkeeping should always be near the top of your to-do list. The very life of your business depends on your diligence in this area.


Every business, regardless of size, has to keep a detailed record of its financial activities in order to comply with the tax laws. The activity of making and maintaining these records is known as bookkeeping.

For small businesses, accurate and diligent bookkeeping is necessary. It not only establishes compliance with a number of IRS regulations and bank lending rules but also improves your ability to make operational decisions.


So where do you start? Here are a few basics to keep in mind when setting up a bookkeeping system. Follow this advice, and the numbers will work for you, rather than the other way around.

1. Choose a bookkeeping system.


There are two varieties of bookkeeping: single-entry and double-entry. Single-entry bookkeeping is a rudimentary system suitable for personal finance. Balancing your checkbook is an example of single-entry bookkeeping, as it involves a single account (checking) that is being debited and credited. Double-entry bookkeeping is more appropriate for business, as it tracks two accounts at a time. Say you sell a product: Double-entry bookkeeping records the transaction as a credit in your cash account, and a debit in your inventory account.

2. Get help.


If you're like most small business owners, you lack both the time and enthusiasm to keep a detailed ledger. Accordingly, find a good CPA in your area or take advantage of bookkeeping software to make your life easier. A simple rule is that if your business is operationally complex, dependent on precise and timely records, or large, you should definitely engage professional help. Do you have a considerable inventory? Do your employees perform billable work on client sites? Do you expect to do $100,000 in sales this year? If the answer to these questions is yes, don't wait to get bookkeeping help.

3. Capture financial data.

Whether you delegate bookkeeping to a CPA (or other in-house financial specialist) or decide to use bookkeeping software, make a habit of holding on to everything: sales receipts, purchase orders, bank statements, etc. Create a dedicated filing system for every type of financial data.

4. Put financial data to work for you.

Do you know how much you spent on office supplies last month? Can you estimate how much business tax you'll pay next quarter? Can you forecast sales? Can you generate a list of non-paying customers? The answers to these and related questions come from categorizing the data you capture. Fortunately, this is where software can help. Small business-oriented tools such as QuickBooks, Peachtree, and Microsoft Office Accounting Professional will do the heavy lifting of categorization and prediction for you. This helps your bookkeeping to go beyond administration and begins to offer your business insights that can speed up your cash flow, grow your revenues and better inform your decisions.

5. Handle the IRS.


The IRS likes records, paper trails, and audits; so should you. Certify all mail to the IRS, request return receipts and keep the correspondence record accessible in case of a dispute over your bookkeeping practices. Contact a local taxpayer advocate (http://www.irs.gov/advocate/content/0,,id=150972,00.html) in case of intractable disputes.

6. Leverage your books.


Good bookkeeping gives you credibility. Use it. Remember important audiences (such as banks and other credit sources) who may not get excited about your company based on its products or services, but who will be won over by a carefully-documented record of financial success.

7. Stay close to financial data.


Employing a CPA or delegating bookkeeping to an employee doesn't give you an excuse to separate yourself from the financial details of your business. As the owner, you are legally and professionally responsible for your business activities. You needn't spend hours every day poring over the books, but always have a big-picture idea of where the financial data is trending. This is another realm in which bookkeeping software can be advantageous, because it can give you custom views into your financial records. Using such software, you can decide to run and refresh basic reports every day, so that you can see important data captures (such as profit and loss, overdue accounts and monthly expenses) at a glance.

8. Ensure data validity.

Bookkeeping software and the assistance of hired help only go so far. Sometimes you will be the only person who can ensure the validity and timeliness of data. If an important customer's address changes, record it immediately in your bookkeeping system. Read through your vendor list to make sure that one vendor isn't listed by two names. Performing these small but vital acts of diligence, and training your employees to remain similarly alert, requires you to adopt a detail-oriented way of acting.


The devil of bookkeeping is in the details. Approach these details with a keen focus, and your bookkeeping will reveal crucial information about your business's health and vitality. Attention to financial details pays off, in both the short and long terms.

For as little as $75.00 per month I can help you have the peace of mind you deserve.  Call now for a FREE consultation and estimate, (562) 420-0043.

http://www.checkedandbalancedaccounting.com/

IRS to Get Tougher on Sole Proprietor Audits

The Internal Revenue Service will be taking additional steps to check on whether sole proprietors are hiding sources of income during field audits.


A report by the Treasury Inspector General for Tax Administration found that IRS field examiners are generally effective in checking for unreported income during field audits of sole proprietors. However, the report recommended that the IRS could take further steps to determine if additional sources of income need to be reported.

While IRS field examiners generally check for unreported income, TIGTA found that the IRS could improve the accuracy of its preliminary cash transaction analyses by taking greater advantage of performance feedback mechanisms and ensuring that appropriate personal-living-expense data are being used. The preliminary cash transaction analysis involves little or no taxpayer burden, but uses tax return and personal expense data to determine whether the sole proprietor’s income and expenses are roughly equal.



“Tests for unreported income during IRS audits of sole proprietors are critical to the process of verifying that the correct amount of tax is reported,” said TIGTA Inspector General J. Russell George in a statement. “Our results indicate that sole proprietors may have avoided tax and interest assessments of over $8 million in fiscal year 2008.”

The IRS’s National Research Program estimated that unreported business income by sole proprietors accounted for $68 billion (or 20 percent) of the $345 billion tax gap. This is due in large part to resource constraints and the need to balance audit coverage across other segments of the tax return filing population, such as corporations and partnerships.


TIGTA recommended that the IRS issue guidance to group managers to provide specific written feedback to examiners on the adequacy of their tests for unreported income, and that the IRS reinforce the requirement and importance of using appropriate personal-living-expense data in preliminary cash transaction analyses. The IRS agreed with these recommendations and plans to take the appropriate corrective actions

Take action now!  For as little as $75.00 per month you can have your bookkeeping done professionally and be stress free at tax time.

Call now for your free consulatation - (562) 420-0043

http://www.checkedandbalancedaccounting.com/

Five Tax Tips for Recently Married Taxpayers

Are you getting married this summer? If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are five tips from the IRS for newlyweds to keep in mind.



 1. Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.


2. Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).


3. Notify the U.S.Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.


4. Notify Your Employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.


5. Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.


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Six Facts about the Amercican Opportunity Tax Credit

There is still time left to take advantage of the American Opportunity Tax Credit, a credit that will help many parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2010. It can be claimed by eligible taxpayers for college expenses paid in 2009 and 2010.


Here are six important facts the IRS wants you to know about the American Opportunity Tax Credit:


1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.


2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.


3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.


4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.


5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.


6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

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