Accounting tips for New Small Business

Keep it simple starting out. The simplest form of entity for running your first business is called a sole proprietorship. This form of ownership requires NO special communication or filings to the Internal Revenue Service until you start paying employees.

As a sole proprietor you are the owner/entity which might require only to acquire an occupational license if your county or municipality mandates one. As the owner, you are also liable to remit all state or city tax collections on retail or wholesale sales your business collects. Service businesses and most cross state sales are exempt from state tax collections.

If you are concerned about personal liability as a sole proprietorship then do the cheapest and simplest thing which is to buy a personal liability umbrella policy. The best way to avoid liability is to learn your trade well and keep accurate records.

Over 90% of small businesses fail or change ownership within the first five years. Plan your business to thrive but if it fails under a sole proprietor you simply stop doing business. No communication or special forms with the IRS, no additional taxes to get your investment returned and no high accounting fees to close out your entity.

Concentrate on building your business not communicating with the IRS. As a sole proprietor, the IRS will not even know you exist until after you file your first personal income tax return. This return will include a Schedule C which communicates all of the sales and expenses you recorded.

Courtesy of LessAccounting

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Identity Theft and Your Taxes

Tax-related identity theft normally occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Many people first find out about it when they do their taxes.

The IRS is working hard to stop identity theft with a strategy of prevention, detection and victim assistance.

The Taxes. Security. Together. awareness campaign is an effort to better inform you about the need to protect your personal, tax and financial data online and at home.

Keep your Social Security card at home and not in your wallet or purse. Only provide your Social Security number if it’s absolutely necessary.

Criminals often try to impersonate your bank, your credit card company, even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts

If you cannot e-file your return because a tax return already was filed using your SSN, consider the following steps: • File your taxes by paper and pay any taxes owed. • File an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. You may include it with your paper return. • File a report with the Federal Trade Commission using the FTC Complaint Assistant; • Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on your account.

If the IRS identifies a suspicious tax return with your SSN, it may send you a letter asking you to verify your identity by calling a special number or visiting a Taxpayer Assistance Center.

If you are a confirmed ID theft victim, the IRS may issue an IP PIN. The IP PIN is a unique six-digit number that you will use to e-file your tax return.

If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

IRS Works to Help Taxpayers Affected by ITIN Changes

 
The Internal Revenue Service today announced important changes to help taxpayers comply with revisions to the Individual Taxpayer Identification Number (ITIN) program made under a new law. The changes require some taxpayers to renew their ITINs beginning in October.

The new law will mean ITINs that have not been used on a federal tax return at least once in the last three years will no longer be valid for use on a tax return unless renewed by the taxpayer. In addition, ITINs issued prior to 2013 that have been used on a federal tax return in the last three years will need to be renewed starting this fall, and the IRS is putting in place a rolling renewal schedule, described below, to assist taxpayers.

If taxpayers have an expired ITIN and don’t renew before filing a tax return next year, they could face a refund delay and may be ineligible for certain tax credits, such as the Child Tax Credit and the American Opportunity Tax Credit, until the ITIN is renewed.

The ITIN changes are required by the Protecting Americans from Tax Hikes (PATH) Act enacted by Congress in December 2015. These provisions, along with new procedures to help taxpayers navigate these changes, are outlined in IRS Notice 2016-48, which was released today.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-8960-2999

Avoid these 5 financial mistakes

Mistake #1: Getting A Late Start On Saving.
More than any other single error, I'd say this is the one that prevents people from attaining at least a measure of financial security. For example, in a recent survey of retirees by Pentegra Retirement Services 39% of those polled said they regretted not having started saving sooner, and 63% said the most important advice they could offer to people starting out would be to get an early start on saving.
The oldsters know what they're talking about. A 25-year-old earning $30,000 who saves 10% of salary a year would have a nest egg of just over $620,000 at 65, assuming 2% annual raises and a 6% annual return on investments. If that person holds off just five years, the size of the nest egg falls by almost $140,000. Waiting 10 years shrinks it by more than $250,000.

Mistake #2: Taking on unnecessary debt.
Sometimes it makes sense to borrow -- say, to buy a house, purchase a car or finance an education that can increase your earning power. But it's the debt we take on to maintain a lifestyle that exceeds our earning power that gets us in trouble.
And make no mistake, paying down debt can strain your budget. According to NerdWallet's latest annual survey on consumer debt, the average household is shelling out more than $6,650 in interest payments alone per year.

Mistake #3: Buying into Wall Street's 'investing is complicated' mantra.
The message investors get from many Wall Street firms boils down to this: You need to watch the financial markets constantly, spread your money among all sorts of arcane and complex investments and be ready at a moment's notice to dump what you own for new investments. And, of course, to pull off all this successfully, you need their help, for which you must pay a handsome price.
Nonsense. No one, not even market pros, can consistently outguess the financial markets. And research by University of California at Berkeley finance professor Terrance Odean shows that trying to do so by frequent trading is more likely to hurt than enhance your returns.

Mistake #4: Overpaying for financial help.
Whether it's the annual expenses you pay to a mutual fund manager or the fees you shell out to an adviser to help you choose the right funds and provide other financial advice, the fact is that paying more than you have to drags down the returns you earn and makes it harder for your savings to grow. Which is why it makes sense to hold the line on such costs as much as possible.
When it comes to investments, the easiest way to rein in expenses is to stick as much as possible to low-cost index funds and ETFs. Doing so can easily save you upwards of 1% a year compared with the typical stock mutual fund.

Mistake #5: Failing to monitor your progress.
You don't have to (and shouldn't) constantly obsess about money matters. But neither can you just set a course and then assume all will be fine going forward. You need to periodically review your finances -- say, once a year or so -- to ensure you're making headway.
The most comprehensive gauge of whether you're making progress is to track your net worth -- that is, the difference between the value of your assets and liabilities, or what you own vs. what you owe.

Courtesy of CNN

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

IRS Warns Taxpayers of Summer Surge in Automated Phone Scam Calls

The Internal Revenue Service today warned taxpayers to stay vigilant against an increase of IRS impersonation scams in the form of automated calls and new tactics from scammers demanding tax payments on iTunes and other gift cards.

The IRS has seen an increase in “robo-calls” where scammers leave urgent callback requests through the phone telling taxpayers to call back to settle their “tax bill.” These fake calls generally claim to be the last warning before legal action is taken. Once the victim calls back, the scammers may threaten to arrest, deport or revoke the driver’s license of the victim if they don’t agree to pay.

“It used to be that most of these bogus calls would come from a live-person. Scammers are evolving and using more and more automated calls in an effort to reach the largest number of victims possible,” said IRS Commissioner John Koskinen. “Taxpayers should remain alert for this summer surge of phone scams, and watch for clear warning signs as these scammers change tactics.”

In the latest trend, IRS impersonators are demanding payments on iTunes and other gift cards. The IRS reminds taxpayers that any request to settle a tax bill by putting money on  any form of gift card is a clear indication of a scam.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Selling your Home and Taxes

Usually, profits you earn are taxable. However, if you sell your home, you may not have to pay taxes on the money you gain. Here are ten tips to keep in mind if you sell your home this year.
Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test.
Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability.
Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns.
May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion.
Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years.
Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home.
First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale.
Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Tips for Charity Travel

Do you plan to donate your time to charity this summer? If you travel for it, you may be able to lower your taxes. Here are some tax tips that you should know about deducting charity-related travel expenses:
Qualified Charities.  To deduct your costs, you must volunteer for a qualified charity. Most groups must apply to the IRS to become qualified
Out-of-Pocket Expenses.  You may be able to deduct some of your costs including travel. They must be necessary while you are away from home.
Genuine and Substantial Duty.  Your charity work has to be real and substantial throughout the trip.
Value of Time or Service.  You can’t deduct the value of your time or services that you give to charity.
Travel You Can Deduct.  The types of expenses that you may be able to deduct include: Air, rail and bus transportation,  Car expenses, Lodging costs, Cost of meals, and Taxi or other transportation costs between the airport or station and your hotel.
Travel You Can’t Deduct.  Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or  vacation.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999