All Articles Tagged "business taxes"

What’s the Difference Between a Tax Deduction and a Tax Credit?

December 13th, 2011 - By P.S. Jones
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There are very few constants in this world as infallible as death and taxes. Honestly, it’s hard to tell which one hurts more. Your paychecks don’t look so great when you realize that for every dollar you earn, you owe a percentage of it to Uncle Sam. Most of us hear that we can save money on our tax bills and think “I’ll take it.” But, before you get excited about a tax break, you need to know whether it’s a deduction or a credit. Each one affects your tax bill differently and one is more valuable than the other.
A tax deduction is an amount pf money you can subtract from your total taxable wages due to a relevant tax law. You can’t deduct more than 100 percent of your taxable wages, though. Taxable wages are the total amount of money you earned that year that IRS takes a percentage of. A common tax deduction is the one you might get if you used part of your home for business use that year. On the other hand, a tax credit is an amount of money the IRS credits to your tax bill based on an applicable tax law. The most commonly used tax credit is always the child tax credit, which gives you $1000 per qualifying child you claim.So what’s the difference. Well the primary difference is that a tax deduction is subtracted before you calculate your owed taxes and a tax credit is calculated after. Since you can’t deduct less than your taxable wages so once you get to the point where your deductions equal your total taxable income, it’s a wash. So if you have $2500 in taxable income and you have more than $2500 in deductions, you just don’t owe any taxes. However, a credit is applied to your tax bill. So if you owe the IRS $2500 and you get $5000 in credits, the IRS is going to send you a check for $2500.

DC AG’s Findings Could Leave City Facing Multi-Million Dollar Lawsuits

August 12th, 2011 - By TheEditor
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(Washington Examiner) — D.C. Attorney General Irvin Nathan says the city’s chief financial officer changed how the District was collecting a commercial real estate tax six years after if it was passed, potentially leaving millions of dollars in revenue uncollected.  And in addition to missing out on tax dollars, the AG’s findings could leave the city facing multi-million dollar lawsuits from businesses that paid the tax before the rules were changed, a real estate attorney said.  Questions around how the city implemented a 2001 tax law change to collect new revenue from refinanced commercial real estate mortgages were first raised earlier this year by a group of attorneys who said the city had missed out on hundreds of millions of dollars.

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Alderman Pushing Phase-Out of Employee Head Tax

June 9th, 2011 - By TheEditor
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(Chicago Sun-Times) — The $4-a-month employee head tax despised by Chicago businesses would be phased out over four years, depriving the city of $19.6 million in annual revenue, under an ordinance quietly introduced by a North Side aldermen.  Ald. Tom Tunney (44th), owner of Ann Sather restaurants, has been on the warpath against the head tax since he was appointed to the City Council by then-Mayor Richard M. Daley in 2002.  Two years ago, Tunney and downtown Ald. Brendan Reilly (42nd) proposed a four-year phase-out to stop an avalanche of private-sector layoffs, only to have Daley reject the idea.  Instead, Daley proposed waiving the head tax for two years, but only for newly hired employees.

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Small Businesses Push Back on IRS Requests

May 27th, 2011 - By TheEditor
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(Wall Street Journal) — The Internal Revenue Service, moving aggressively to collect more taxes from small businesses, is telling companies being audited to turn over exact copies of the electronic records kept in their business-software programs, according to a letter from an agency official to the American Institute of CPAs.  The accounting group fears this will force small businesses to turn over customer lists, personnel data, confidential client information and other unrelated information often contained in the off-the-shelf software programs many businesses use to manage all aspects of their finances.  Small-business groups are beginning to push back, saying the agency shouldn’t treat small firms like bigger businesses, which usually have elaborate accounting systems and are able to give the IRS only the data the agency seeks. Small businesses, defined by the IRS as those with assets of less than $10 million, often use one off-the-shelf software program such as Intuit Inc.’s QuickBooks or Sage Group’s Peachtree.

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Did Big D.C. Property Owners Evade Taxes?

May 25th, 2011 - By TheEditor
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(Washington Post) — Authorities are reviewing whether the D.C. government, over the course of a decade, failed to collect taxes on certain large property transactions.  When some loans are refinanced, the city is supposed to collect a tax, which can total hundreds of thousands of dollars for some big downtown properties. At the center of the inquiry is whether the District missed out on millions of dollars in recordation taxes.   Natwar M. Gandhi and D.C. Attorney General Irvin Nathan confirmed that their offices are reviewing the matter and will publicly issue their findings in the coming weeks.  The legal review comes months after two Washington lawyers approached Gandhi’s office claiming knowledge of a method used by large property owners, their lenders and their attorneys to evade the payment of those taxes. During several meetings, the would-be whistleblowers proposed, for a fee, to search on the city’s behalf for any owed taxes and penalties.

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Ask Felicia Joy: How To Register Your Online Business

May 12th, 2011 - By TheEditor
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"Felicia Joy"Dear Felicia,

I have a question with regard to online businesses. I run an online music video website that will soon be adding e-commerce as a revenue stream. Is it necessary to register my business in a particular state although the transactions will primarily take place online?

Thank you,

Charlie

via e-mail

 

Dear Charlie,

There are three main reasons — and depending on your long term plans, a fourth reason — to register a business with the state: liability, credibility, taxes and ownership.  Liability is a concern if you operate a business with a physical space where an accident can happen, or if you operate a business in an industry that is highly litigious. An example of such an industry is financial services where people might allege that a business ripped them off and take civil action to recoup their losses. But it doesn’t sound like liability is a big risk for you.

If you are the sole owner of your business, and are planning to give ownership to others as you expand, then you may consider registering with the state so that you codify your business and operating agreements.

Now we’re down to the two reasons that probably matter most for you: taxes and credibility.  A well-managed, unregistered business is no less credible than a registered business, but a registered business creates a perception of higher authority and trustworthiness.  Since you operate an online business, you should take advantage of that perception. People have heard of Napster, iTunes and Amazon.com, but they may not have heard of you.  Most people are accustomed to shopping online at this point, but scores of people are still leery (including my mom). So, if they wanted to check to make sure your business is legit before making a purchase from your website, then an easy way for you to create instant credibility and set them at ease is to be registered with the state.

Also, there is the issue of paying and collecting taxes.  You can take advantage of most business deductions whether you are registered or not. But some advanced deductions may require that you are a registered entity. Plus, if you were to ever be audited by the IRS, they would have a harder time declaring your deductions invalid because your business seems like a hobby if it is registered with the state.  (This is more of a concern for part-time entrepreneurs who could more easily be pegged as hobbyist. I am mentioning this because I’m not sure of your status.)

As far as collecting sales taxes, generally, if you have a physical presence in a state, like a store or business office open to the public, then you must collect and remit sales taxes from online purchasers in that state.  But this is a murky subject because there is no consistent rule from state to state.  Check with your state revenue department and tax attorney for the final word.

Ultimately, you don’t have to register, but it’s a good idea to do so. You can simply register in the state where you reside and from which you operate your business.

Grace & Peace,

Felicia Joy

 

Felicia Joy is a nationally recognized entrepreneur who created $50 million in value for the various organizations and companies she served in corporate America before launching her business enterprise.  She is often called on to discuss the ins and outs of entrepreneurial success and has appeared on CNN, FOX and in other national press.  Felicia operates Ms. CEO Inc., a company that helps women entrepreneurs achieve more success, faster — as well as Joy Group International, LLC, a business development and consulting firm. Send her your questions at ask@feliciajoy.biz or www.twitter.com/feliciajoy.

 

Ask Felicia Joy: How to Protect Your Business

May 5th, 2011 - By TheEditor
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"Felicia Joy"Dear Felicia,

I’m starting makeup artistry school to become a professional makeup artist. I have my logo designed, I’ve selected Intuit as my webpage hosting site, I have my design ready for my business cards etc. I have a few questions regarding my new journey: do I need to register my business with my county, state? Do I need to federally trade mark my business name/logo? How do I handle taxes, etc.?

Lexie B.

via e-mail

 

Dear Lexie,

Congratulations on your creative new endeavor. How exciting to be studying to become a makeup artist.  You have made a lot of progress already.  I like it when people take action!

In regards to creating a formal entity for your business by registering with the Secretary of State, there are three main things to consider: liability, credibility and taxes. If there is high risk for you being sued or taking on a lot of financial responsibility to start your business, then creating an entity is a must because it separates your personal assets from the business. If a formal business entity faces a lawsuit or financial struggles, the entity is at risk instead of the personal assets of the founder.  Mind you, I am vastly oversimplifying how this works.  There are many nuances and complexities involved in legal and financial liability, but I am giving you a general idea of why it matters.

Next, consider credibility.  If you’re going to be serious about your business then separating business funds from personal funds is a best practice; so you’ll need a business bank account. Some banks will allow you to open a business account as a sole proprietor (which is your status before you are registered with the state) as long as you have a Federal Employee Identification Number (commonly known as an EIN). But many banks will require your business to be registered with the state before you can open an account.  In addition, if you pursue contract or corporate opportunities, the potential client may take your proposals and business more seriously if it’s a formally registered entity.

As far as managing your taxes, the easiest entity to establish is a Limited Liability Company.  (You can take business tax deductions as a sole proprietor too, but a formal entity demonstrates to the IRS that you are seriously engaged in a business, not a hobby. This further substantiates a business in the case of an audit.)  Nearly every dollar you spend to launch, grow and operate your business is deductible so keep a monthly list of what you spend.  Scan your receipts using Neat Receipts and keep them saved digitally or keep physical photocopies of them on file.  At the end of each month, or every quarter, give your accountant your list of expenditures.  When you start making a profit you’ll have to make quarterly estimated tax payments, so you need an accountant who is experienced in dealing with state and federal business tax filings so you can remain compliant at all times.

Trademark your business name and logo after you’ve built your brand for a few months.  To get a trademark finalized you have to demonstrate that you have used the name and logo in commerce.  This extra time will give you a chance to fine tune your brand.

To sum it all up: yes, register your business with the state, find a savvy accountant right away and trademark your business name and logo after you’ve finished school, started your company and gotten established.

Grace & Peace,

Felicia Joy

 

Felicia Joy is a nationally recognized entrepreneur who created $50 million in value for the various organizations and companies she served in corporate America before launching her business enterprise.  She is often called on to discuss the ins and outs of entrepreneurial success and has appeared on CNN, FOX and in other national press.  Felicia operates Ms. CEO Inc., a company that helps women entrepreneurs achieve more success, faster — as well as Joy Group International, LLC, a business development and consulting firm. Send her your questions at ask@feliciajoy.biz or www.twitter.com/feliciajoy.

Minority-Owned H Street Businesses Decry Tax Increases

April 28th, 2011 - By TheEditor
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(Afro) — Bachir Diop looked down the District’s H Street corridor at the clusters of large wooden barricades, orange mesh tape and warning signs that dominate the streetscape, evidence of the 12 blocks of construction that have closed or crippled more than a hundred businesses and properties in four years and made way for new investors to acquire property at tax sales.  “It’s devastating,” said Diop, owner of property on H Street.  Diop is among a coalition of minority-owned businesses and property owners who claim that many longtime daytime establishments have folded due to four years of disruptive construction on the H Street corridor. Many have suffered up to 100 percent loss of revenue due to customer access being impeded by road blocks, barricades, parking restrictions and zealous parking enforcement, they said.  “The construction on H Street was more devastating to my business than the crack epidemic in the ‘80s,” said Jerry Goldkind, owner of a men’s clothing store in the 900 block of H St.  Adding insult to injury, coalition members claim, tax assessments have risen as much as 350 percent in three years, forcing many businesses to end up in government tax sales.

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What to Do When Audited

March 14th, 2011 - By TheEditor
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(Businessweek) — There’s nothing that strikes fear into the heart of a small business owner like getting an audit notice. The chance of being audited in any given year is small: About 1 percent of 2008 taxable returns were audited, according to the latest available IRS statistics. But self-employed individuals and small business owners are more likely to be audited than employed persons, particularly if they report adjusted gross income of more than $100,000.Scott Berger, a CPA and tax principal withKaufman Rossin in Boca Raton, Fla., spoke recently to Smart Answers columnist Karen E. Klein about “hot spots” for IRS audits, what to do during an audit, and how to avoid audits in the first place….

What triggers an audit?  The IRS will tell you it’s random. Their computers are programmed to look closely at differential scores, but how those are defined is closely guarded. There are all sorts of stories as to what generates an audit, but I don’t think there’s something specific.

Do certain things make an audit more likely, such as having an office in the home?  It seems like the home office is not as big a deal as it used to be. On the other hand, if the auditor wants to look at the home office and finds the kids’ toys in there, they might challenge it.

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Tax Code Changes That Might Impact Your Business

February 24th, 2011 - By TheEditor
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(Black Enterprise) — As tax time draws near, it’s imperative that entrepreneurs be aware of the impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which was signed into law by President Barack Obama in December. Richard Levychin, CPA, Managing Partner ofKBL, LLP, a New York City-based Certified Public Accounting and business advisory services firm, says small business owners should be aware of the following provisions.

Bonus Depreciation: Under prior law, a 50% bonus depreciation deduction was allowed for qualifying property. The provision has been extended to include property placed in service before Jan. 1, 2011. Additionally, certain property with long production periods and transportation property, including certain aircraft, qualify if placed in service before January 1, 2012. Bonus depreciation also applies to certain qualified leasehold improvements.

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