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Taxes

Knowing Basics of Small Business Taxes Will Protect You and Your Business

Knowing Basics of Small Business Taxes Will Protect You and Your Business

Basics of Small Business Taxes

It is imperative that if you have a small business, you should have, at least, the basics of small business taxes so you can check your returns and understand why your accountant has chosen the deductions for you.

Small business taxes

Where to Get Tax Forms

All tax forms are available at IRS.gov. Search and print any form you need.

What is a Tax Publication?

Something every small business should know about are tax publications. You can verify any major tax issue when you read a publication, they hold the IRS facts. There are publications for home selling, home buying, selling a business, running a business, tax deductions for small business, and much more.

All the facts are listed in the publications. So, when you are told to check your taxes, the place to verify tax facts are the IRS publications. You will have to search publications and sometimes order the one you need, but most are online at the IRS. 

Publication 17 gives you all of the general information you need to file an individual federal tax form. Small Business Publications are here to make sure you get all of your deductions you qualify for and verify your forms.

Download the Federal Tax Bulletin at IRS.gov

Basics of small business taxes

Importance of Tax Timing and Honesty

It is better to pay your taxes on time and not risk ruthless penalties, than to get an extension and go over your extension or run out of money. If you are a small business, you could miss your social security contribution, and have to pay later.

You can go online to make sure you are getting credited with your social security contribution if you file an extension and the credit is not posted, this can be corrected.

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Small Business Taxes Estimated

Some new (first year) business owners forget that they have to pay taxes on profits at year end, so they inadvertently spend all of their profits.

At the end of the first year when taxes are calculated you will be put on a quarterly estimated tax schedule and will also be told how much you owe for your first year. This means you must save funds from your first year into a tax savings account on your own.

Most first year business owners will be safe to put aside at least 30% of their first-year profits. Now, in subsequent years you will have quarterly estimated payments you will make every 3 months, these payments are based on your previous years income, so be prepared to pay over your estimated taxes, at year end, if your income skyrockets the previous year.

Who is Responsible for Your Tax Form Calculations?

It benefits you as a small business to use a qualified enrolled agent or certified public accountant. No matter who does your taxes it is important to understand that you are responsible for what is put on your tax forms.

You will have to pay penalties and interest on understated income if your taxes are done incorrectly. So, create a system where you can verify your tax deductions and the math on your tax forms.

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Every Business is Based on Profits and Losses

Because every business is based on profits and losses, the internal revenue service wants to know the details of your profits and losses. Those are recorded on Schedule C of 1040.

You should have receipts for everything you have done, and each receipt should be part of a category listed on your Schedule C. From expenses and the income you take in, you can calculate your profits and losses.

Download Schedule C at IRS.gov

1099 Income; Verify that you have all your 1099 statements

When you do business with another business and are paid income and they file a 1099 (income statement) they send you a copy. You must report that income to the IRS and claim it on your taxes.

Understand Tax Publications and Their Valuable Information

Something every small business should know about are tax publications. You can verify any major tax issue when you read a publication, they hold the IRS facts. There are publications for home selling, home buying, selling a business, running a business, tax deductions for small business, and much more.

All of the facts are listed in the publications. So, when you are told to check your taxes, the place to verify tax facts are the IRS publications. You will have to search publications and sometimes order the one you need, but most are online at the IRS.

Download the Small Business Tax Guide at IRS.gov

Importance of Tax Timing and Honesty

It is better to pay your taxes on time and not risk ruthless penalties, than to get an extension and go over your extension or run out of money. If you are a small business, you could miss your social security contribution, and must pay later.

You can go online to make sure you are getting credited with your social security contribution if you file an extension and the credit is not posted, this can be corrected.

basics of small business taxes

Estimated Taxes for Business

Some new (first year) business owners forget that they must pay taxes on profits at year end, so they inadvertently spend all their profits. At the end of the first year when taxes are calculated you will be put on a quarterly estimated tax schedule and will also be told how much you owe for your first year. This means you must save funds from your first year into a tax savings account on your own.

Most first year business owners will be safe to put aside at least 30% of their first-year profits. Now, in subsequent years you will have quarterly estimated payments you will make every 3 months, these payments are based on your previous years income, so be prepared to pay over your estimated taxes, at year end, if your income skyrockets the previous year.

Who is Responsible for Your tax Form Calculations?

It benefits you as a small business to use a qualified enrolled agent or certified public accountant. No matter who does your taxes it is important to understand that you are responsible for what is put on your tax forms. You will have to pay penalties and interest on understated income if your taxes are done incorrectly.

So, create a system where you can verify your tax deductions and the math on your tax forms. So, knowing the basics of small business taxes will protect you and your business.

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Tax Evasion an Option For the Tax Adverse, 5 Reasons

Tax Evasion is Not an Option
Tax evasion is not a 5th amendment right

Tax evasion is a practice employed by some tax revolt groups and individuals who feel, for different reasons, that paying taxes are not fair to them, either legally or morally. They take their excuse for tax evasion even further, by claiming it is their “fifth amendment right”. The government and interpreters of the law are in disagreement with tax evaders on this topic.

A “Tax” is a compulsory payment imposed or levied upon a taxpayer by their state, federal, or local governments, against their income, product sales, or services. This compulsory payment angers some taxpayers to the degree, that they resort to tax evasion.

The word tax evasion is often misunderstood as tax fraud or penalty, but tax evasion is a totally different term, having a different role in the scheme of “all things taxed”.

The word tax evasion is often misunderstood as tax fraud or penalty, but tax evasion is a totally different term, having a different role in the scheme of “all things taxed”.

Every American employee, business owner, or person with a qualified financial windfall, having an income or a qualified financial gain, normally owes a tax liability to the state, federal or local government, and being a mandatory payment, some resent paying taxes as an over-reach by government. This is the main reason, every year,  thousands of Americans decide to skip paying taxes.

What is tax evasion? How is it different from tax avoidance and tax fraud?

Tax evasion is actually a subset of tax fraud which usually entails a deliberate act of misrepresentation of taxable income to the IRS or Internal Revenue Service. It refers to any attempt by  a taxpayer to avoid paying taxes, usually by some type of illegal methods.

Tax evasion should never be confused with tax avoidance because the latter can be a legal way of avoiding taxes by means of legal deductions, sometimes simple and some very complicated, but always allowed by law.

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Tax fraud can involve cases that are civil and criminal in nature, while tax evasion usually includes cases which are criminal in nature.

Types of tax evasion

There are a number of ways an individual can evade his/her tax, some of the most common ones are enlisted below:

  • Reporting less than actual income or failing to report any cash income.
  • Claiming false deductions or showing inflated donations to charitable institutions in order to avoid tax payments.
  • Filing an intentionally deceptive and incorrect tax return or deceiving the IRS with misleading details.
  • Omitting a property or not understating the value of property owned, etc.


Why tax evasion is not a short term or long term option for those who don’t like taxes

Taxes are a legal payment that every American with income or gains is obligated to pay the government– both federal and state. Taxes are usually levied on the income of an individual which can be in the form of a salary, capital gains or income from miscellaneous sources, but the idea of giving up a considerable portion of their income to the government disturbs many taxpayers.

People feel that the government is actually exploiting their fundamental rights by taking away a part of their hard-earned money, and as a result, they resort to tax evasion.

However, tax evasion is never a short or long term option for people who don’t like paying taxes, because taxes are a legal income you owe the government. Our government spends tax money making sure public services are available to you and your family, such as government hospitals, schools, roads, dams, and bridges, as well as streets,  government buildings and salaries of government officials.

Thus, your taxes are the government’s rightful claim and are therefore the law, you must pay your share.

Indulging in tax evasion would mean that you are subject to punishments in the form of several penalties and possibly prosecution. There is a paper trail for everything you do, and the government will eventually find you if you evade taxes. So, I have one bit of advice for you, “pay your taxes, be honest about income”, otherwise tax evasion will eventually open you to severe penalties and punishment.

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What happens when you evade taxes?

A person suspected of tax evasion is first; interrogated by the Internal Revenue Service, and if proven guilty the suspect is immediately imposed with penalties. However, in certain cases, the IRS may deploy The Central Investigation Division to collect further evidence.

If an individual is found guilty, he may be imposed with the following penalties (these penalties are subject to change from year to year):

  • If a person is held guilty for cheating on taxes owed to the government, then his penalty may include a prison sentence of up to 5 years or a fine of up to $250,000 or both. In the case of corporations, the fine may be up to $500,000.
  • Filing a wrong return; having misleading information where the motive of the suspect was to evade tax, in this case, the penalty would be imprisonment up to 3 years or fine of up to $250,000 or both. In the case of corporations, this fine may go up to $500,000.
  • A penalty of 100% of the amount not paid by employers is to be paid by employers when they do not pay the required taxes to government agencies. In the case of businesses with employees, there are certain social security benefits that every employer needs to pay on his employees’ salary, and in the case of failure to pay the required tax, the employer will have to pay 100% of the amount withheld.
  • Non-filing of the tax return also attracts certain penalties and thus a person held guilty may get 1-year imprisonment or $100,000 fine or both. The amount of a fine is $200,000 in the case of corporations.
  • The penalty for failure to file a timely tax return- If a taxpayer who is required to file a tax return fails to do so within a stipulated time period then, he may be charged with a penalty. There will be a 5% penalty on the amount of tax unpaid per month until the return is made, but up to a maximum of 25%.
  • The penalty for failure to pay a timely tax- If a tax- payer is unable to pay his taxes due by the return date then, he/she will have to pay a penalty of 0.5% of the amount of unpaid tax per month up to a maximum of 25%.
  • The penalty for non-payment of stipulated dues- If a taxpayer is unable to pay his taxes even after being notified about the same within a given time period then, he will have to pay interest on the amount withheld along with a penalty of 0.5% per month applied to the unpaid amount.

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Prevent tax evasion under all circumstances

By now you know that tax evasion is a crime and the best way to avoid penalties and fines imposed by the IRS, states, and local governments, would be to follow all tax rules and laws. Make use of legal deductions and avoid anything not permitted by tax law. In case you will be late filing your return, ask for an extension from the IRS, clear your tax debts as soon as possible and always stay away from tax evasion.

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5 reasons tax evasion is not a 5th amendment right at msfinancialsavvy

These are five great reasons tax evasion is not your 5th amendment right

How to Protect Your Tax Returns and Pay Taxes Online

Tax returns can be protected and avoid unnecessary stress.

How to protect tax returns and pay taxes online


Tax preparation and tax preparer selection are not all that difficult, but there are those who make it difficult by not adhering to a few simple rules.


Avoid tax fraud by choosing your tax preparer carefully, and carefully communicating with your tax preparer once he or she is chosen. You can pay taxes online  with the new IRS systems.

The IRS defines someone who is an Abusive Tax Preparer as someone who prepares fraudulent or abusive tax returns for compensation. Here are some of the ways they prepare false tax returns that are easily detected by the IRS.

  • They may inflate expenses related to business or personal use.
  • State false deductions, give tax credits that are not allowed, state excessive exemptions
  • Give false tax credits, such as business equipment credits or personal Earned Income Tax Credit (EITC)
  • Claiming false income and loss statements
  • Claiming non-existent charitable contributions
  • Claiming false dependents
  • Preparing fraudulent schedule C (for business expenses)
  • Claiming false medical and dental expenses; usually over inflating medical cost so they can deduct them.

These and other deductions are usually caught with the IRS “red flag” system as tax fraud. The return is rejected for review because it does not make sense according to computer analyses of the return. You can check own tax forms, filing your own tax forms, and pay taxes online.

The IRS has a special division whose sole purpose is to investigate tax preparer abuse and fraud. It is the IRS Criminal Investigation Return Preparer Program (RPP) that flags the fraudulent returns. Through the RPP, all fraudulent tax preparers are subject to criminal charges.

The abusive tax preparer usually prepares taxes for large numbers of people. The people, who use the services and receive bad tax preparation, will later be charged with interest, penalties, and sometimes civil and even criminal charges.

In 2010 the IRS launched the tax preparer oversight program. This allows the IRS to monitor and catches tax preparers easier. It is important for every taxpayer to make absolutely sure they have closely researched their tax preparer, so they can choose a preparer carefully. The taxpayer is responsible for every single item their tax preparer places on their return.

With electronic filing of income tax returns, and refund anticipation loans (RAL), came new abuses in filing for tax preparers. There were fake tax preparers, filing fake electronic returns and taking fake RAL’s. Since 1977 the Criminal Investigation Unit in the 10 IRS campuses, monitor returns for fraud at their Fraud Detection Centers (FDC). The FDC’s role is to detect tax fraud and tax fraud schemes, and send them to the Criminal Investigation Unit of the IRS.

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Here are questions you can ask your tax preparer before you get started.


1.   What are your qualifications?

A CPA or Enrolled agent are the best qualified to do taxes. Both of these designations regularly take classes and take an exam for their designations. A CPA or certified public accountant is the highest qualified in the tax field.

2.   Would you be willing to lie on my return?

If your preparer says yes, run as fast as you can. This can get both of you in trouble so why would he/or she be willing to lie. Perhaps your preparer is not licensed. Licensed preparers can lose their designation if they are caught lying on a return.

3.   How is your information protected in their office?

The computer and backup files should be secure during and after hours. All paper files should be secured in locked cabinets. Identity theft is on the rise.

Easy Budget Planner for an outrageously great budget4.   What are your costs?

Agree on a tax preparation fee before you hand over your information, so there are no surprises.


5. Can I pay you extra to re-check my return against documents I have given you?

Ask your preparer to re-check your return. If you have the ability to check your return against your documents that is fine. But, you absolutely should check for the small things: correct spelling of your name, correct social security number, correct occupation, correct income, and any other minor items, which could turn major if entered incorrectly.


6.   How Long Will It Take?

It is your responsibility to organize your tax information and submit it to your tax preparer early. It is your tax preparer’s responsibility to get the information back to you in a timely manner, so you can file your taxes well before the tax deadline.

The Internal Revenue Service has several ways to find dishonest tax preparation. They have a series of checks and balances in their system that can signal fraud.

Why would you risk getting caught by the Internal Revenue Service when the penalties are far, far greater than the savings you will get for dishonesty, by you or your tax preparer? There are many ways your preparer can be dishonest about preparing your tax return.

He or she can make it seem as though you have more business or personal expenses than is true. I have listed many of the ways dishonest tax preparers try to fool the IRS. Some of the more common are; going through the trouble of presenting false receipts for equipment or furniture not purchased.

They can get you a credit where you do not deserve one. They can make false claims about deductions you are not entitled to. False receipts can be detected by the IRS, as well as other forms of fraud.

Understand how tax preparers charge. This is another area where you can get scammed. Tax preparers charge according to the difficulty of your tax return. This should be a flat fee. If a tax preparer charges you according to the percentage of the money you receive from your return or if they claim they can get you a higher return than anyone else, run, as fast as you can. This should raise a red flag in your mind.

You have heard this in other articles I have written, but I will say it over and over. You are responsible for every item that goes into your tax return. You will be heavily fined and penalized for dishonesty in your tax return. So, check your tax return carefully. If there is something you don’t understand, ask your tax preparer to explain it. As you can see from all of the above, you will sleep better for years to come if you file an honest return.

But, better yet, you will save money, lots of money in the long run if you are honest with your return, and you choose an honest tax preparer. You can pay taxes online when you find you own money after tax preparation.

Be sure your preparer signs your return and gives you a signed copy of the return, so you can verify everything on your return is correct before you mail it, and avoid tax fraud at all cost.

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How to protect tax returns and pay taxes online

Sell Your Home Tax-Free

Tax-Free Savings

sell your home tax-free

You may be able to sell your home tax-free. This is a tax saving Americans rarely discuss when they are complaining about tax rates. The tax-free benefit that comes with the sale of a home is one of the major benefits of home ownership. The interest deduction is another benefit that occurs while occupying the home.

Most earned income is taxable, but the income you earn from the sale of your home may not be. Therefore, you will not have to pay taxes on the equity from the sale of your home if you meet certain IRS requirements.

In most states, if you sell your home with a real estate broker you will have to pay fees to the real estate company for the sale as well as other costs.

Other cost includes sellers escrow cost and repairs to the home as required by law or requested by the buyers.

Many of your cost are tax deductible, which means you will get some of the money back when you file your taxes.

To get homeowners tax breaks when you sell your home pay attention to the requirements for a tax-free home sale

If you qualify, you can exclude part or all of the gain from the sale of your home. To get the exclusion, the tax law requires that you use the home as your main home, and own it for 2 out of  5 years prior to the date of sale.

There are exceptions to this rule if you are military, handicapped, or have been in the peace corps. Read IRS publication 523 for the specific rules.

There is a limit to the financial exclusions when you buy a home. You can only get up to $250,000 tax-free if you are single and a $500,000 tax-free gain if you are married. In most cases, you can exclude the gain on the sale of your home every two years. If you
sell your home at a loss, it is not tax deductible.

If your home sale is not taxable you may not need to report the sale to the IRS, if all or part of the sale is taxable you will need to report the sale.

Some of you may have used the first time home buyers credit to buy your home, if so, this is an exception and certain rules will apply to your sale.

These rules are current as of August 2016, verify if there are new rules in place when you sell your home after this date, by going to IRS.gov.

There are many advantages to selling your home tax-free up to the exclusions.

1. You get to keep some or all of your profits from equity up to the $250,000 for singles or $500,000 for married couples.
2. You can have a large down payment for your next home or use it for retirement income.
3. When you sell, you can use part of the money to pay off bills, fund an education or start a savings account.
4. You don’t have to purchase your next home immediately; you have time to evaluate all of your options for a new home.
5. If you live in your previous rental home 2 of the 5 prior years, you can sell your home tax-free now that it is not be considered a rental home.

Related Links:
Create Your Home Buying or Selling Budget Here
Understand How Money Works on a Global Scale
Save Money The Right Way

 

sell your home tax-free