March 6th, 2012 Theresa Watson
It is officially Tax Time and we are hustling and bustling here at Tax Loopholes to implement the latest and greatest strategies for the 2012 tax filing season.
You may already know that here at Tax Loopholes, we are passionate about educating our community and empowering you with the tools you need to reach your financial freedom. Tax time is one of our favorite times of the year because your ability to save taxes may be one of the easiest and quickest ways that you can increase your cash flow.
In working with small businesses all over the US over the past decade, there are a handful of mistakes that we see over and over which are costing business owners thousands of dollars in overpaid taxes. This week, we wanted to share with you a few of the most important ones that you need to watch out for when filing your tax returns:
1. Business Expenses Paid by Personal Funds are Nondeductible
Business start-ups often need cash infusion from its owner from time to time to cover operational expenses. Whenever you pay for business expenses from your personal funds, it is important to make sure that you are tracking these expenses because these should all be tax deductible items on the tax return. Remember, as long as the expenses are incurred for business purposes, it is generally deductible regardless of whether it is paid for personally or with business funds.
2. Overpaying the IRS Makes You “Audit Proof”
The IRS doesn’t care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can’t substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to “Audit Proof” yourself is to properly document your expenses and make sure you are getting good advice from your tax advisor.
3. Being incorporated enables you to take more deductions.
Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don’t make money for the first few years and find themselves saddled with minimum corporate tax payments and no income. Make sure you work with your tax advisor to determine the right time (and right type) of entity for your business.
4. The home office deduction is a red flag for an audit.
While it used to be a red flag, this is no longer true–as long as you keep excellent records that satisfy IRS requirements. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. There are so many benefits of a home office that you do not want to miss out on. Keep an eye out for an upcoming article where we discuss the 6 Reasons You Need to Deduct Your Home Office.
5. If you don’t take the home office deduction, business expenses are not deductible.
You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.
6. Requesting an extension on your taxes is an extension to pay taxes.
Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.
7. Part-time business owners cannot set up self-employed pensions.
If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.
Last month, we made an announcement that for the first time many years, we are now finally able to take n new tax return clients. There are still a few spots left so be sure email us at [email protected] to receive your Free Tax Return Quote and find out more about how we can help you save taxes this year.
With tax returns starting at just $499 (let’s face it, its cheaper than getting your taxes prepared by a high school student at H&R Block) why wouldn’t you want to take advantage of it?
If you are looking to maximize your tax refunds this year and want to upgrade your advisor team, be sure to act fast. We only have room for a few new clients this tax season and we want YOU to be one of them. Let us help make this tax season Easy and Profitable for you. Just email us at [email protected] and we can help you to take control of how much you pay this year!