Entrepreneurial

It’s Tax Day: Do you know where your tax return is?

– Kelly Phillips Erb is a small business owner and practicing tax attorney at the Erb Law Firm in Philadelphia. She is also the author of the popular Tax Girl blog. The views expressed are her own. –

Chances are, you’ve already filed, as only a third of all tax returns are filed during the last week of tax season. But if you haven’t, keep these tips in mind:

- Postage rates for large envelopes went up yesterday (yes, yesterday). If you’re mailing your return – and it’s a big one – make sure to allow extra time at the post office.

- A number of post offices will be open to accommodate last-minute filers. You can find a list of those offices open past 6 p.m. EDT here (downloads as a pdf). You can also find a post office by location on the USPS website.

- You can also use a private delivery service to file your tax return or extension. The IRS considers the following private delivery services as acceptable to meet the timely filed rule: DHL Express (DHL): DHL Same Day; Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First; United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

- You may also e-file your return in order to file on time.

- If you need to file for an automatic extension, use federal form 4868 with the IRS. You can download the form and mail it in by the deadline or file electronically using your tax software.

What is tax deductible for small business?

– Stephanie Rabiner is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –

There is no definite answer for those of you who wish to know just what is tax deductible for a small business.

According to the painfully dry tax code, a business may deduct all expenses that are ordinary, necessary and reasonable.

Just what does that mean? Think about expenses that are helpful, appropriate and common in your line of work. Oh, and they can’t make you laugh.

Internal Revenue Service Code section 162 provides a list of what is tax deductible — including travel, meal and entertainment expenses — under the ordinary and necessary clause. It, however, is not exhaustive, leaving many expenses to your interpretation.

If you have a business expense not covered, you need to ask yourself whether it’s ordinary and necessary. Consider whether it’s directly related to your business or an expense common in your trade. Also think about whether it helps your business make a profit and continue operating.

If you’re unsure, try what is known as the “laugh test” — can you put the expense down without laughing at yourself?

The right way to do home office deductions

– Stephanie Rabiner is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –

Some people believe that home office deductions are akin to begging the IRS to audit your taxes. While this can be true in some situations, home office tax deductions, if done properly, are completely legal and can provide a big payoff.

So if you work from home, consider the following tips. Home office tax deduction rules are a bit tricky, but with a little forethought and attention to detail, you should be just fine.

Home office deductions are attached to the percentage of your home that is used for business purposes. Therefore, the first thing you need to do is figure out, with respect to square footage, the percentage of your home designated as an office.

To take the initial tax deduction, the IRS requires that you use the space exclusively and regularly as either (a) your principal place of business; (b) a place to meet with clients; or (c) if the office is a separate structure, in connection with your business.

Once you meet these requirements, the home office tax deductions start flowing.

You’re getting audited – now what?

– Charley Moore is the founder and chairman of Rocket Lawyer Incorporated. He advises both early stage companies, large enterprises and their investors on strategic partnering and corporate development strategy. The views expressed are his own. –

Getting a letter from the IRS is enough to instill fear and trepidation in the minds of many small business owners. Opening the envelope to reveal a tax audit notice can be the thing of nightmares. After the panic attack subsides, there are things you can and should do to prepare for a tax audit. It doesn’t have to be as intimidating as it sounds, as long as you take it step by step.

1. Find out specifically why your return is being audited.

While the IRS is supposed to tell you why your return was selected, if they don’t, it’s up to you to ask. Your taxes can be audited for a variety of reasons:

• specific activity on your return, such as cash wages, 1099 and W-2 forms that don’t match your reporting, high deductions relative to your income, reports inconsistent with previous years, etc.
• related examinations, where your report involved transactions with someone else who is being audited
• automatic flags, where computer programs find outlying “scores” on returns (ex: above average withholding)
• random selection

Once you know what you’re being audited for, you can narrow your focus and start gathering the relevant documents.

2. Find out how the IRS is conducting your audit.

from Reuters Money:

1099 tax rule may bring big pain to small business

The new rules on 1099 forms, which were attached to the health care bill and are set to go into effect in 2012, call for all businesses, no matter how small, to file 1099 forms for goods as well as for services. That sounds like a technicality, but it’s got small business up in arms.

Here’s why it matters, and what you need to know.

What exactly is the rule, anyway?

The new rule requires all business to file 1099 forms for goods as well as services, if those goods cost over $600 annually (the current threshold). It also gets rid of the distinction between corporations, which previously did not need to receive 1099s, and unincorporated entities, which did. The rule is slated to go into effect in 2012.

Who will it affect?

It will affect all businesses, including sole proprietors, consultants, self-employed people and freelancers, who are considered businesses for tax purposes, but may not think of themselves that way. It also will apply to charities and other tax-exempt organizations. The National Taxpayer Advocate, based on Internal Revenue Service data, figures that it will affect 26 million sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farms, 1 million charities and other tax-exempt organizations, and likely more than 100,000 federal, state and local government entities. All told, that’s more than 38 million taxpayers and taxpaying entities.

Can’t pay your taxes? Don’t worry

Reuters Staff

Apr 13, 2010 16:48 EDT

- Thomson Reuters Tax Analyst Jim Keller provides some options available to help taxpayers pay their balance due. This article originally appeared on ThomsonReuters.com. – Are there options for Americans who cannot pay their taxes? According to Jim Keller, senior tax analyst for the Tax & Accounting business of Thomson Reuters, if you discover on April 15 that you have a balance due on your 2009 Form 1040, you won’t be alone.

In addition to the traditional causes of tax underpayment (such as the receipt of interest, dividends, or other non-wage income), the government estimates that more than 15 million taxpayers will be unpleasantly surprised to discover that they owe taxes with their 2009 returns as a result of the way income tax withholding was reduced to account for the “Making Work Pay Credit”.

“Taxpayers who fail to file on a timely basis and pay their taxes face penalties and interest charges,” said Keller, “these folks can expect to come up against a more aggressive IRS. For example, the IRS filed more than 683,000 tax liens during 2008 and served over 2.6 million levies during that same period.

There are some options available to help taxpayers pay their balance due:

GETTING AN EXTENSION

- No cash? File an extension. Assume that Don and Jody’s 2009 tax return shows unpaid tax of $5,000, but they don’t have the cash to pay the tax. First, they should not ignore the IRS – it will not go away. They should either file their return by the April 15 due date, or request a filing extension. Either way, the failure to pay the taxes due on April 15 will result in interest charges and a penalty for failure to pay of 0.5 percent per month on the unpaid balance (up to 25 percent) until the taxes are paid. But by filing or extending their return, they’ll avoid the more onerous late filing penalty of 5 percent per month on the unpaid balance (up to 25 percent) until the return is filed.

- Don’t do anything. If Don and Jody don’t do anything by April 15th, but file the return and pay their taxes three months later, they’ll owe a failure to file penalty of $750. If they extend the return and then file it and pay their taxes three months later, they’d pay a failure to pay penalty of $75 – $675 less than if no extension had been filed. “This shows how important it is to file or extend by April 15th even if you don’t have the money,” said Keller.

Five tips to avoid tax scams

– William E. Massey is a senior tax analyst from the Tax & Accounting business of Thomson Reuters. The views expressed are his own. —

Tax scams are prolific especially in these tough economic times. On the plus side, the IRS has been very good at keeping the public informed about the numerous scams it has uncovered. Each year, it issues a “Dirty Dozen” list of the most notorious scams. In addition, it posts detailed information on tax scams on its Internet site www.irs.gov. Here are five tips for avoiding being victimized by tax scammers.

Tip #1

Someone has promoted a way to for me to save taxes. It sounds good but sounds somewhat fishy at the same time. What should I do?

If it sounds fishy, stay away from it. It is probably no good. Check the IRS web site to see if the plan being touted is really a tax scam. In general, only pursue tax strategies put forth by a trusted, seasoned professional, whose credentials can be verified.

Tip #2

I received an e-mail from the IRS claiming I am due a refund. Should I respond?