Self Employed? – Here’s 5 Reasons Why You Need An Accountant

For the self-employed, tax time can be an entirely different experience than for those who are either employed by another company or own their own business. Being self-employed means that you are technically both an employer and an employee, and are at times responsible for paying taxes on issues that affect both.

Taxes are already complex enough for the average individual, but that situation is exacerbated by your current status. As a result, it may be wise to talk to an accountant, as they can not only find special deductions and benefits, but save you the time and anxiety of having to figure out your tax status.

1. Special Rules

In the United States, every working individual is responsible for paying tax for Social Security and Medicare. However, the amount of tax paid is typically split between the employer and employee, whereas with a self-employed person they are responsible for both. This is just one of a number of different rules and forms that change as a result being self-employed. Having a certified accountant will help you sort through the brambles and not have to worry about an audit.

2. Loopholes and Tricks

Regardless of what type of situation you are in, it’s never a bad idea to consult an accountant as they are far more educated on how to maximize your tax return. Every year the government passes legislation or makes changes to the tax code that affects businesses of all types. Special credits and other tax friendly programs may also be introduced but not publicized to the general public.

Accountants are paid to keep abreast of such situations and how they apply to their various clients. In fact, many of the special tax benefits and tricks apply specifically to those who own a business, and having an accountant experienced with the self-employed may end up saving you far more than the cost of the hiring one.

3. Time

Even if you are willing to sift through the morass of new forms, rules and special deductions and exemptions, the one thing you will inevitably lose is time. Paying an accountant to do your taxes will save you time to concentrate on running your business. Depending on how much income you can generate with that time, it may be that it’s more cost effective to earn money to pay for an accountant than do your taxes for free.

4. Advice and Audits

Accountants can also be relied upon for advice as to how to avoid certain tax penalties or qualify for specific deductions or exemptions. For example, as you can deduct equipment purchases over a single year or over a extended period of time, you can consult them on which deduction works best for your business. If you are by chance audited, a qualified professional can assist you with the process.

5. Online Alternatives

For some self-employed individuals, it can be very difficult to pay for an accountant given their limited financial resources. Relying on an accountant, however, doesn’t necessarily mean relying on a living person. Accounting software can be just as adept at finding the best deductions provided you give it the information they require.

As a result online software is best reserved for those that have relatively simple situations, especially self-employed individuals who will likely be using the standard deduction for much of their taxes.

John Hill writes on behalf of Public Liability Insurance dot org an online resource for business insurance including childrens liability insurance.

Charitable Tax Deductions That May Surprise You

There are many people who make charitable donations every year and document them so that they can be claimed as tax deductions. However, many of us fail to take all of our charitable donations into consideration when going through our tax deductions, with some failing to even realize that some of the donations they have made are tax deductible.

There are in fact many charitable tax deductions that may apply to you without you even realizing it, and some people are very surprised to learn about the various donations that are actually tax deductible. Some of these donations are ones that you might make off the cuff without even thinking about it – such as sponsoring someone that you know for an event – but it is important to make a note of even these small donations, as it all adds up and could make quite a difference to the overall amount you can claim on charitable donations.

Some of the surprising charitable donations that you may never have thought of logging down as being tax deductible include:

  • Sponsoring a person you know: A huge number of us sponsor people that we know, often many times a year, for things such as fun runs and sports events to raise money for a good cause. Whilst you may not be sponsoring a huge amount, every little helps, so you should make sure you have a record of it in the form of a statement of you paid by card or cheque or a receipt if you paid by cash
  • Getting to sites where you volunteer: There are many people that like to volunteer to help out at good causes, which often involves going to one of the charity’s sites. Whether you take public transport or drive yourself to the site, the amount that you spend in terms of fare or mileage can be claimed. This is something that many people overlook, but if you volunteer and travel to the site regularly it can amount to a tidy sum. Bear in mind that you can only claim if you are not being reimbursed for your travel
  • Cooking for charity: There are some people that devote their time to cooking for charity, whether it is to feed people such as the homeless or to prepare something as a prize or a competition. If this is something that you do, make sure you keep a record of the cost of the ingredients as this is something that you should be able to claim back
  • Donations of items you have purchased: Some people give to charity not by donating cash but through items that they have purchased. You can claim back for the cost of the purchased items – just keep the receipt and a record of which charity they have been donated to
  • Donating used items: Many people would never think that they could claim against used items that are donated to charity, but you can. You need to look at the cost or fair market value (whichever is the lowest) to work out the value of the donation you have made

These are just some of the charitable donations that many people overlook when working out their tax deductions. It is important to think not only about the more obvious donations that you make, but also the everyday donations that you might make, which can easily be overlooked.

Esther is a blogger and journalist who writes about loans, mortgages and other financial issues. She also maintains a blog for paydayloansuk.org.uk.

An End To Charity Tax Breaks?

For a long time those who have contributed to charity have been able to see a benefit in terms of a lower tax bill. For British taxpayers this era may be coming to an end with Chancellor George Osborne seeking to close what he sees as a loophole.

With the current government having come to power partially on a platform of “the big society”,  a move to curb philanthropic donations seems slightly surprising. The idea of the “the big society”, as far as anyone was able to divine, was to replace aspects of the public sector with work by the charity and voluntary sectors.

It is not proposed to end tax relief for charitable donations altogether, but rather for there to be a cap put in place. There has been criticism of this proposal however, with many pointing out that wealthy individuals are donating much more to charity than they are saving on their tax bills.

Dodgers

There can be little doubt that tax chiefs see a problem in the way that things stand at the moment. Through canny accounting the amount income tax paid some of the wealthier Britons is thought to be just around ten percent.

While low tax returns are obviously a concern for the government, it is far from clear that this is a problem either for society or the economy at large. For instance large amounts of money are given to fund medical research and to help vulnerable groups. At the same time the argument against the 50p tax rate was that it is a force stopping the job creators from creating jobs, and surely that would also apply to any measure designed to increase the tax take from the wealthy.

Tax Planning

Minimising the amount that you pay in tax, within the law, is perfectly legitimate – by definition.  Planning your tax affairs in a way that makes sense for you does not make you a ‘cheat’ or a ‘tax-dodger’. Indeed if you cannot even be bothered to take the allowances you are entitled to with regards to your own money, should you be trusted with other peoples, for instance in a work situation.

It is perhaps true that the tax system is too complicated. It is very hard for the individual to avoid being ripped off by the taxman. In order to get the best deal it is often necessary to involve accountants and other professionals who are knowledgeable in the field.

Whether Osborne’s reforms go through as planned or not the British tax system, like all others, will continue to have its idiosyncrasies, and there will continue to be ways to avoid being stung for the full whack when it comes to tax time. Hopefully also charitable donations (which have fallen in recent years) will continue to be made.

Pamela Chimbonda wrote this content on the behalf of Adam & Co. who specializes in private wealth management.

5 Tips for Surviving an IRS Tax Audit

If you are chosen for an IRS tax audit, then there is nothing you can do to avoid it. The important thing is that you know what to expect, and that you keep one specific goal in mind: to end up owing the IRS as little money as possible. How do you do this? By complying, first of all, but also by doing everything you can to ensure you don’t trigger the IRS to investigate any items outside of the original causes for audit. Being audited can be a scary prospect; fortunately, there are things you can do to make it as smooth a process as possible, so as to protect your money and your sanity. Here are five tips for surviving an IRS tax audit.

Watch what you say. Do not provide any information other than exactly what was asked of you. Use yes and no answers any time possible. If you are not sure about something, tell you auditor you don’t know. Talking too much can cost you a lot of money. Giving false information, on the other hand, can cost you even more money, and possibly even jail time.

Organize your records. You aren’t expected to keep perfect records, but you are expected to have accurate and comprehensive records. Take your time preparing for your audit, and bring everything you have to support your story to the table. Showing up organized is a sign of respect, and a great way to get on the auditor’s good side from the get-go.

Act natural. This may seem like an oxymoron, but when you’re nervous (which you likely may be when dealing with an auditor), your mannerisms may betray you. Remember that auditors are trained to monitor behaviors for anything unusual, and the last thing you want to appear to be to an auditor is deceptive. Take a few deep breathes, relax, and just be yourself.

Keep your originals. The IRS is known for misplacing documents, and if your auditor loses anything pertinent to your case, you will have to produce it again. Provide only copies to auditors and keep your originals.

Seek professional help. Although it’s not necessary, you might want to consider enlisting the services of a professional tax preparer. Accountants understand the audit process and know how the IRS operates; therefore, having one on your side can improve your chances of surviving the audit with as little damage as possible.

No one wants to face an IRS audit. Unfortunately, many people do, any you might be one of them. Follow these tips to get through your audit and make the process as painless as possible.

About the Author: Jake Saechao is a full-time tax accountant who knows how stressful receiving an audit notice can be. At the end of a long day he enjoys sipping a cup of oolong tea, searching www.goldenmoontea.com for new blends, and simply trying to forget about the numbers running through his head.

Travel v Entertainment Expenses for the Small Business Owner

Tax time is a very stressful time for a great majority of people. Small business owners can be especially nervous. “What form do I use? Is this the right attachment? What is a business expense, and what isn’t? What type of expense is this one? Can I prove if necessary? Is this fully deductible as a legitimate business expense, or can I claim only a portion of it?” Boil all those common questions down to the core issue that will prove or disprove legitimacy and type, and the battle is almost won. The most common mistakes small business owners make, though, is correct categorization of travel and entertainment expenses and how to properly document those receipts.

Entertainment v Travel Food Expenses

This is one of the most commonly misdirected-expense categories for businesses. The difference in deduction categories centers around purpose, timing and environment.

If you attend a seminar that causes you to travel away from your home city, for example, your transportation mode is a travel expense. If you drive a vehicle, that means your car rental and insurance costs are business travel expenses. Your fuel is also a deduction, but it may not at 100 percent; check with the IRS for current deduction percentages. Include mileage in your annotations.

Your hotel room rental amounts are travel expenses, but your food and drink bills may not be, and this is where people make costly mistakes.

If you pick up the tab for lunch during that seminar, and the intent and agenda during that meal was to discuss business, that’s a business lunch deductible under travel expenses. However, if you are “schmoozing” clients or colleagues, that is not a travel expense but an entertainment expense even if it’s during the same time frame or location as the seminar. Categorize it as such.

Receipt Documentation

No longer is the IRS accepting just names, location and dates as proof of business deductions on taxes. You must also note a brief outline of what was discussed. No confidential or proprietary information has be recorded permanently on that receipt, but you must outline the gist of the content.

For example, as you drive from Denver, Colorado, to Lincoln, Nebraska, you stop for lunch in a diner. On that meal receipt, you ensure the date and the restaurant name is on the receipt. If the name of the server is noted, all the better. On the back, you note, “Meal during drive to…” and note the organization and reason you’re headed there. That is a travel expense.

If you travel with a client or colleague when you stop, and if you discussed the conference you will attending, that’s a travel expense. If you talk about families, hobbies or non-business topics, that bill is an entertainment cost.

Home v Away

Many small business owners do not know that you don’t have to be traveling away from your home city to incur travel-related or entertainment-related, tax-deductible expenses. You just won’t have a plane ticket to declare.

Mileage you drive a private vehicle can accumulate quickly. So can the amount of fuel that you use and its accompanying cost. Keeping accurate mileage and fuel consumption records can be tedious, boring and dreaded. It’s entirely necessary, however.

Whether you keep at-moment records or you use the voice memo option in your mobile phone to note starting-trip mileage, stop mileage, the cost of fuel at the time and your purpose in traveling – a very, very crucial element, your written records and your receipts for any money spent during that trip from start to finish, are exceptionally crucial. “Guestimates” are not acceptable to the Internal Revenue Service. The IRS has increased its investigation into deduction verification, and if you cannot present acceptable documentation, toss your deduction into the “due with interest and penalty” pile.

Summary

Be thorough. Be complete. Be conscientious, and be accurate. If you are, you can be assured that your tax filing will be less intimidating and fraught-filled than it used to be. Remember: It is far better to have a documented receipt that you don’t need than it is to discover too late that you really should have kept better expense records.

by Jaye Ryan, who loves writing about responsible financial management and taxes for Octopus Loans.

Discharging Tax Debt Through Bankruptcy

Filing for bankruptcy can be an effective way to get out of debt and get started rebuilding your financial life. While bankruptcy can provide quicker relief than other options such as debt settlement or credit counseling, some debts are ineligible for discharge. When dealing with tax debt, it can be difficult to get a discharge for it through bankruptcy. While it is possible, you’ll have to make sure that you meet certain standards. Otherwise, your tax debts may remain even after you file for bankruptcy.

Tax debts are subject to specific rules that must be met before they can be discharged in any kind of bankruptcy. The tax debt in question must be at least 36 months old in order to be eligible. When you need to discharge a tax debt, the return associated with that debt must have been filed at least 24 months ago as well. In addition to filing the return more than 24 months ago, you also have to make sure that the tax assessment is at least eight months old. The tax return that you file also has to be legitimate and cannot be fraudulent. You also cannot simply file for bankruptcy so that you can get out of paying taxes. This is considered tax evasion and is against the law.

If you want to qualify for bankruptcy discharge with your tax debt, you also have to prove that you have filed your last previous four tax returns with the Internal Revenue Service. Without having proof of filing those returns, you will not be eligible to have the debt discharged through the bankruptcy process.

While it is possible to get your tax debt discharged in bankruptcy, it is not very likely. In order to get part of your tax debt discharged, you have to prove that it is at least three years old. In most cases, the Internal Revenue Service will start contacting you almost immediately after your tax debt is not paid. The chances of you being able to hold out for more than three years without having anything done by the IRS are not good. The Internal Revenue Service has many ways that they can try to get you to pay your tax debt. For example, the IRS can file a tax lien on your property and make it difficult to sell any of your property without paying back the debt. In some cases, the IRS also has the right to seize your property such as your house, your vehicle, jewelry, securities and money from your bank account. If you do not pay the debt in the appropriate amount of time, the IRS will start trying to collect this money from you.

If you are having trouble repaying your tax debt, you may want to explore some other options besides trying to wait out the three year period for filing bankruptcy. For example, you could try to set up an installment agreement with the IRS or use an offer in compromise to settle your tax debt for less than you owe. The IRS will evaluate your proposal and decide if it is worth accepting.