Diamond Tax Consultants Blog

A growing number of people are facing the prospect of no job. We’re in a recession, without a doubt. There is one industry that ALWAYS grows in times of recession: small, home-based businesses. With no job, starting a business might seem like the only solution. And, done right, it can grow beyond anything you can expect.

If you’re in that spot, or are concerned that you might soon be, then today’s post is for you. It’s the 3 steps you must take to ensure you get all the tax breaks you can.

There is another piece as well: your mindset. Going from the Employee Mindset to the Entrepreneur Mindset requires a shift. Some people, sadly, can’t ever make it and their businesses almost always fail or never even get started. Do you have the Entrepreneur Mindset?

Here, though, let’s talk about the practical accounting/tax side of your first business.

(1) Set up a good record keeping system. At the very least, open up a different checking account. Deposit all business income into that account and pay all business expenses from that same account.

If you loan money to the business in the beginning (and you probably will), make a notation in the register that you’ve done so.

You’ll also probably donate items to the business like a personal computer, printer, fax machine, cell phone, office furniture and the like. Make a list of those items with their current fair market value. You can get that from Craig’s List or eBay. Then, pay yourself back from the company to create an audit trail.

(2) Set up a business structure. This will probably be the one you’re tempted to wait on. That’s because there is a cost associated with setting up an LLC (limited liability company) or a corporation. It’s also a bit of the “great unknown”.

There are three reasons to set up a business structure:

• Asset protection. Without a business structure, everything you have is it risk if something happens with the company.
• More tax. You pay self-employment tax of 15.3% on net income in a Sole Proprietorship (the default if you don’t have a business structure)
• More chance of audit. You have a staggering 1 in 3 chance of being audited with a Sole Proprietorship. Compare that to 1 in 100 chance of audit with a corporation and you’ll understand why so many people avoid a Sole Proprietorship at all costs.

(3) Find your hidden business deductions. For everything you spend money on, ask yourself: How could this be a write-off? Is it ordinary and necessary to the production of income?

Of course, not everything is a write-off, but I bet most small business owners leave thousands of dollars on the table by avoiding this step.

A small business can be a lot of work, but it also means freedom and control. And it means a whole lot less in taxes, if you do it right. by Diane Kennedy

At Diamond Tax Consultants we have helped to start and grow many small businesses.  To see if a small business venture is right for you, use our business consulting services which includes a free 30 minute consultation.  To schedule your appointment click here: http://diamondtaxconsultants.com/appointment.html or visit the our services section for details on business startup & development services http://diamondtaxconsultants.com/services.htm

For most Americans “tax season” lasts just a few weeks, from the time W-2 forms arrive in the mail in late January to the day they pull the trigger and file their return online. For a good number of others, tax season is an agonizing two-plus month period of back-and-forth with an accountant, ultimately culminating in a race to the April 15 finish line. Still others scramble to take advantage of year-end tax breaks by December 31, then scramble anew to ultimately file their returns before the deadline.

Clearly there must be a better way. The U.S. income-tax code is ridiculously complex and rigid. Even President Obama, marveling at the 3.7 million-word behemoth, recently called it “monstrous” and noted that it needs to be rewritten.

So for those who are financially savvy, by necessity tax season runs all year long. Through rabbit season. And duck season.

Those who view their taxes through this year-round lens are destined to come out ahead — and keep more of their hard-earned cash. Let’s face it… who doesn’t want to keep more of what’s rightfully theirs? And in today’s economy more than ever, every dollar counts.

Here are three things you can do today — and year-round — to gain control of your own tax situation for 2009… and beyond.

1. Stop Lending to Uncle Sam

Most U.S. taxpayers get a hefty refund after filing their returns. According to The Wall Street Journal’s Tom Herman, through April 3, 2009, the average refund paid out by the IRS was $2,705, an 11% increase from 2008. Sounds good, right? Who doesn’t like a nice, fat check in the mail?

Actually, a refund of that size is the result of poor tax planning. That $2,705 is your money. You’re entitled to it, and you were entitled to it all year long. So what a large refund means is that you essentially gave Uncle Sam a hefty loan — interest-free — for an entire year.

Although it all more or less evens out in the end when the government returns your hard-earned money after you file a return, you’d be far better off having that extra money in your take-home pay week after week. Not only does this give you the ability to earn a real return on that money ($2,705 invested in a 12-month CD at today’s prevailing rates would net you an additional $68) but it provides some financial breathing room in your monthly budget. If you’re living paycheck-to-paycheck — or even close to it — boosting your take-home pay is the quickest and easiest way to help make ends meet.

Do something about this today. Simply complete a new Form W-4 (and the accompanying IRS worksheet) and hand it to your employer to adjust your withholding allowance. You should see more money in your paycheck in a matter of weeks. If you’re self-employed or have been making estimated tax payments quarterly, lower the amount of those payments as well.

2. Consider the Consequences

Through little fault of your own, you may be missing out on valuable tax breaks. Whether dollar-for-dollar credits that equal cold, hard cash or deductions that would reduce your tax liability, the breaks you fail to take advantage of definitely add up — and have a real impact on your family’s bottom line.

Both large and small financial moves that you make year-round can have a direct — and substantial — effect on your tax bill. For example… in most cases, holding securities for more than 2 years will lead to a smaller tax bill on any gains. The same 2-year cutoff applies to gains realized from selling your principal residence. Remember to tread carefully (plus, do your homework) before making any retirement-account contributions and withdrawals to make sure you’re handling these transactions in a tax-friendly manner.

And as if the existing tax code weren’t complex enough, the recent stimulus legislation is loaded with tax breaks small and large. Might you qualify for the $8,000 home-buyer tax credit? Does your new car purchase entitle you to a healthy sales-tax deduction? These are the kinds of questions you should be asking year-round, not just as April 15 approaches.

3. Follow the Paper Trail

Hanging on to receipts, acknowledgement letters and account statements can be a pain. But setting up a comprehensive and efficient filing system to use for your important tax papers year-round can be less painful than trying to track down everything you threw away or misplaced come April. And something tells me an IRS auditor wouldn’t take too kindly to your “my dog ate it” excuse, either.

Lost receipts can have a direct impact on your tax liability. There are plenty of circumstances under which the IRS has a firm “no receipt, no deduction” policy. Whether it’s a medical expense, a charitable donation or an investment sale, a small slip of paper can truly be the equivalent of a $100 bill.

There isn’t a one-size-fits-all solution for organizing your financial documents. Some people prefer a traditional filing cabinet. At Diamond Tax Consultants we offer bookkeeping solutions customized to your business or personal needs.   Just find a system that works for you and stick to it all year.

Wondering what documents you need to keep — and for how long? Check out the IRS guidance on this topic.

There may never be an epic cartoon sequence about tax season. But regardless, whether it’s duck season OR rabbit season… it’s always tax season – by Anthony Catalano

It is always Tax Season at Diamond Tax Consultants – We are open all year round to assist existing and new clients with an assortment of services: (Bookkeeping, Payroll, Credit Repair, Real Estate, Traveling Notary, Business Consulting, Tax Return Review, and Audit Assistance). 

Referrals are always welcome! 

http://diamondtaxconsultants.com/contactus.html