Wednesday March 5, 2014
That sinking feeling - you are preparing your business tax return and realize that your hard drive crashed, taking all your business records with it. Or you receive a tax audit notice and discover that your business records are lost.
The IRS requires that you provide records that are:
1. Accurate 2. Complete, and 3. Timely. That is, collected at the time of the expense, not later.
What if your record are lost, stolen, or destroyed?
In a recent Tax Court case, a real-estate agent diligently recorded her mileage every day, but her log was taken by her employer. She reconstructed the log using handwritten notes. When the IRS denied her mileage deductions, she took her case to the Tax Court. The Court found that she could reconstruct the log if she had evidence to establish the expenses. In this case, her testimony and gas receipts were enough to allow the deduction. (T.C. Summ 2013-106)
If you want to prove the expense, you an do it one of two ways, according to the IRS.
Your own written or oral statement containing specific information about the element, and
Other supporting evidence that is sufficient to establish the element.
I know this is vague; it's on a case-by-case basis and, like the taxpayer above, you might have to go to Tax Court to get your claim heard.
More helpful information:
The IRS has an article about how to reconstruct your business records which describes how to reconstruct specific records, including business records.IRS Publication 463 describes what type of records are required.
Sunday March 2, 2014
Business owners want to know - about their business ownership and taxes. How a business owner gets paid and pays taxes depends on the type of business legal form. Here are some questions I get asked about this issue, with short answers. More details in the linked articles.
1. Am I an owner or an employee?
Owners of corporations who work in the corporation are considered employees. Sole proprietors, LLC members, and partners are not considered employees, in most cases.
2. How are business owners paid?
Sole proprietors, LLC owners, and partners in partnerships do not receive a paycheck but are paid from their capital accounts and out of the profits of the business. Corporation and S corporation owners who work in a business are considered employees and receive a paycheck, but they also receive dividends (corporate shareholders) or a distributive share (S corporation owners).
2. How are profits distributed to business owners?
Owners of corporations can receive dividends as shareholders, based on the profits of the corporation. Other business owners take profits at their own discretion or by agreement, like a partnership agreement, shareholder agreement, or LLC operating agreement.
3.How are dividends taxed to business owners and shareholders?
Dividends must be reported on a 1099-DIV form, which is included with the person's other income on his or her personal tax return.
4. Do I have to pay self-employment taxes?
Business owners who are not corporate employees must pay self-employment taxes (Social Security/Medicare tax). If you are the owner of a corporation and you actively work as an employee, you will have FICA taxes withheld from your paycheck. You don't have to pay self-employment tax in this situation.
Read more about Self-employment and payroll taxes for S corporation owners, from William Perez at Tax Planning.
Considering starting a business? This Guide to Selecting a Business Type takes you through the steps, including a discussion of how business owners get paid.
Wednesday February 26, 2014
Last week, common business tax questions. This week, answers to the most commonly asked questions about filing business taxes....
1. When is my business tax return due?
For 2013 taxes, corporate taxes are due 3 1/2 months after the end of the corporation's fiscal year end. For all S corporations and December 31 year-end C corporations, corporate taxes are due March 17, 2014 (March 15 is a Saturday).
For other types of businesses, including sole proprietorships, partnerships, and LLCs, business taxes for 2013 are due April 15, 2014.
2. What form do I use to file my business taxes?
It depends on your business type:
- Sole proprietors and single-member LLC's use Schedule C.
- Partnerships file an information return on Form 1065 with Schedule K-1 for each partner's share
- Corporations file on Form 1120
- S Corporations file on Form 1120-2, with a Schedule K-1 for each owner.
3. How do I complete Schedule C? How do I file Schedule C?
Follow the process on how to complete Schedule C for 2013. Then include Schedule C in your personal tax return.
4. How does my husband-wife business file a business tax return?
If your husband-wife business is not an LLC, partnership, or corporation and you both participate actively in the business, you can file as what the IRS calls a "qualified joint venture." You would file two Schedule C forms, showing your percentage of the profits or losses. This allows you both to get credit for self-employment taxes.
5. How and where do I file my business tax return?
In most cases, it's best to file online. If you use tax preparation software or a tax preparer, online filing is part of the service. You can also file online by using the IRS E-file system.
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Sunday February 23, 2014
The Obama administration has once again delayed the Employer Mandate, according to the New York Times. The general delay in the requirement for all employers with over 50 employees is until January 1, 2015, with two additional delays to help smaller employers:
- Employers with between 50 and 99 employees don't have to comply until 2016, and
- "the requirement would be put into effect gradually for employers with 100 or more employees. Employers in this category will need to offer coverage to 70 percent of full-time employees in 2015 and 95 percent in 2016 and later years, or they will be subject to tax penalties."
To review, the employer mandate is a key provision of the health care reform act. The employer mandate requires business with 50 or more full-time employees to offer health insurance or face annual fines of up to $3,000 per employee.
Businesses with fewer than 25 full-time equivalent employees can receive a tax credit for providing health insurance, and those employers with between 25 and 50 full-time equivalent employees don't have to comply with the employer mandate but they aren't eligible for the tax credit.
Obamacarefacts (not part of the federal government) has more information on the Employer Shared Responsibility Payments
More details on the delay of the employer mandate, from Robert Longley at U.S. Government Information.
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