When it comes time to prepare your tax return there are many things that you need to consider. One of the most common questions I encounter as a CPA is who is considered a dependent. Although you make think that the answer is simple, many things determine if somebody is truly a dependent.
Dependency of Children
When it comes to children the best way to determine if they are under 18, live at home and you supply more that 50 percent of their income. From 19 to 24 you can claim them as a dependent if they are living at home the majority of the time and you are still contributing the majority of their income.
The One Up And Down Rule
Although you make think that you can only claim your children, there are other members of the household that can be claimed. If a person is one up or one down from you in terms of relatives than you might be able to claim them. This includes children, stepchildren, adopted kids, parents and stepparents. The general rule is that if you are providing over 50 percent of their support than you can claim them. However, there really is not great benefit to claiming some of these people, because the savings may not outweigh their expenses.
Claiming relatives is the most common way to claim someone as a dependent, but there are some cases where you may want to claim somebody who is not a relative. If this is the case, you need to contact a CPA. They will be able to help you determine if you can claim each individual in your household. There are a lot more restrictions if the individual is not related to you.
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Every year as the tax deadlines roll around, business owners find themselves scrambling to file their business taxes. As a result, these owners often miss important deductions that could end up saving them a significant amount of money. However, a little pre-planning and research can help a lot. For example, here are seven business tax deductions that are commonly overlooked.
Working from Home
A home office can supply a business owner with major business deductions. Most are aware that a home office can be deducted, but did you know it doesn’t have to be an entire room? The area just has to be devoted exclusively to the home office. Just measure out the work area and deduct that percentage from all home-related business expenses such as the mortgage and insurance. Even expenses like phone calls can be included here. Not a bad way to help pay for home expenses.
On the Road
Traveling can offer additional hidden Reno business deductions. In fact, many owners overlook the incidentals charges such as car rentals, tipping employees, and even dry cleaning expenses. Another major deduction involves company vehicles. In 2010, up to 50 cents per mile can be deducted for business trips. This can really add up when you consider the number of business miles driven in a year. Plus, don’t forget things like maintenance and insurance. Even if the car is used for personal use, a percentage can still be deducted.
Perhaps the only thing more complicated than business taxes is dealing with benefits. However, a CPA can help business owners find hidden deductions here too. For example, if an owner is considered self-employed, he or she can now deduct the premiums not only from the income tax but from the self-employment tax. Finally, don’t forget business deductions for retirement benefits. The self-employed pay double the social security, but the IRS will allow half of that to be deducted. That’s a huge savings.
What if it’s a family business? There are overlooked business deductions here too. For example, if a business owner is a sole proprietor or is in a partnership with a spouse, a Reno CPA might tell them to put the kids to work! As long as the child is 17 or younger, no social security taxes will be collected, and the salary can be deducted as a business expense. No other employee comes with those benefits to the company.
Operating cost deductions can only be taken for expenses incurred after the business opens its doors. As a result, many owners miss start-up costs such as lawyer’s fees or licensing fees because they occur before opening day. However, these can still be taken as part of the business deductions for start-up. In most years, this is up to a $5,000 deduction the first year with the remaining spread over 15 years in equal amounts. In 2010, the first year deduction was doubled up to $10,000! Now, that’s a deduction!
Of course, there are a plethora of other business deductions that can be overlooked by business owners – subscriptions to trade magazines, memberships to professional organizations, and dining out expenses, just to name a few. To make the most of these on your business taxes, contact a Reno CPA. He or she will help find not only the seven deductions mentioned above, but may just find a few more that can really affect your bottom line.
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It is time to talk about the importance of tax planning in small business. Nevada corporate tax planning is necessary for any business to be able to meet their obligations to the government, increase their profits and to plan by analyzing previous years’ performance. An experienced Nevada tax accountant can guide a company through the maze of tax laws, advise about debt-reduction strategies and help put more money into growth and development.
Taxes are Unavoidable
It is impossible to avoid paying taxes in business. Any time a product or service is made or sold, the business has to pay taxes on a portion of its profits. Taxes allow the government to give services and protection to its citizens. However, a company can lower its taxes and increase its working capital with tax planning. A business can grow and become more profitable with more working capital. The company’s accountant should discuss what kinds of tax deductions and write-offs are right for the business at the proper times.
Two Basic Corporate Tax Planning Rules
There are two key rules in tax planning for Nevada small businesses. The first is that the company should not take on extra expenses to get a tax deduction. One smart tax planning method is to wait until the end of the year to buy major equipment, but a business should only use this strategy if the equipment is necessary. The second rule is that taxes should be deferred as much as possible. Deferring taxes means legally putting them off until the next tax season. This frees up the money that would have been used to pay that year’s taxes for interest-free use.
A company’s accounting methods can influence its taxes and cash flow. There are two main accounting methods, the cash and the accrual methods. In the cash method, income is recorded when it is actually received. This means it is noted when an invoice is actually paid rather than when it is sent out. The cash method can defer taxes by delaying billing. The accrual method is more complex because it recognizes income and debt when it actually occurs rather than when payment is made or received. It is a better way of charting a company’s long-term performance.
Nevada Tax Planning with Inventory Control and Valuation
Properly controlling inventory costs can positively affect a company’s tax deductions. A tax planning accountant can advise how and when to buy inventory to make the most of deductions and changes in stock value (valuation). There are two main inventory valuation methods: first-in, first-out (FIFO) and last-in, first-out (LIFO). FIFO is better in times of deflation and in industries where a product’s value can drop steeply, such as in high-tech areas. LIFO is better in times of rising costs, because it gives inventory in stock a lower value than the prices of goods already sold.
Predicting the Future by Looking at the Past
Good tax planning means that a company takes the past sales performance of their products and/or services into account. In addition, the state of the overall economy, cash flow, overhead costs and any corporate changes need to be considered. By looking at previous years according to the “big picture,” executives can forecast for the future. Knowing an expansion or a cutback will be needed makes planning for it easier. The company can stagger expenses, purchases, staff reductions, research and development and advertising as needed.
A Nevada tax-planning accountant can help a company increase profits, lower taxes and achieve growth for the future. Discuss your business’s needs, wants, strengths, weaknesses and goals with your corporate accountant to develop a tax planning strategy for all of these factors.
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It is important to keep finances organized, whether for an individual person or a business. Many people do not organize their finances until tax time comes. They often find they have a mountain of information to sift through and no idea where to start. Here are some tips on better financial and tax organization from a public accountant in Reno, NV.
Bank accounts are crucial money-management tools. Single people should have both a personal expenses and a savings account. Families should have a family account, which wage earners can deposit money into for household bills. They should also have individual accounts for personal spending, plus a family savings account. A self-employed person or small business owner needs to keep their company’s expense separate. This will keep personal and business matters from mingling. A public accountant in Reno, NV can help set up a plan for how to contribute to each account.
Keep or Throw Out?
Many financial records can be thrown away after a time. Any papers about major expenses (a vehicle, appliance, investment, etc.) should be kept forever, or at least until the item is no longer in use or needed. Anything about taxes and personal or investment income should be kept for at least 3 years, although six is advisable in the event of an audit. Credit card and bank statements, receipts, and utility and other bills can be thrown away annually once taxes have been filed with a public accountant in Reno, NV. Streamline your life and save paper by scanning and saving these papers.
An individual can use a simple, low-tech paper filing system. Set up files according to the area of expense: loans (mortgage, car, etc.), bank and credit card statements, insurance, household expenses (groceries, gas, clothing, etc.) and bills. Public accountants advise that certain tax-deductions need their own files, like education, health care spending, travel, charitable donations, investments, etc. Keep a box in a visible place to put all receipts and bills into when you empty your purse or briefcase. Reconcile the box’s contents weekly when balancing bank statements.
Self-employed people and small businesses should organize their financial records with a computerized system. This minimizes missed payments and keeps the volume of paperwork down. Important items can be scanned into the computer and saved onto a disk for your public accountant to use at tax time. Dates such as quarterly tax payments and payroll can be set ahead of time. Linking a business’s bank account with the software can result in payments being automatically deducted. All these measures reduce hassle and increase efficiency.
Individuals can pay their taxes once yearly on or before April 15. Businesses should make quarterly or bi-annual contributions to a tax account. This keeps the amount owed from becoming unmanageable. Any time taxes are paid, a payment for work or a service or a money gift is received, or a life insurance or other investment dividends report arrives, the paperwork should go right into the tax file for the public accountant in Reno, NV. They should get all the information you have well before tax time, in order to get the best tax deductions possible.
Careless record keeping can result in missed deadlines and payments. A certified public accountant in Reno, NV can give valuable advice on how to streamline your tax and financial organization. Everyone should review their own procedures periodically and see how they can improve them.
Reno’s Best CPA,
There are many things to consider when starting a business. One of the first concerns should be organizing the business itself. There are many ways to organize a business in the United States. Each type of business has its advantages and disadvantages for taxes and operations. Here is some business tax advice from a Reno accountant about making the right choices for your company.
The Sole Proprietorship is the most common kind of business in the US. In this type of business, one person is responsible for everything. This includes daily tasks, owning assets, profits, losses and taxes. The owner would need an accountant to give business tax advice. The advantages of a sole proprietorship are that it is easy to set up and run, the profits do not have to be divided, and the owner calls all the shots. Disadvantages are that the business and its owner are inseparable according to the law. This means that if the business gets into legal or tax trouble, your personal property could be forfeit.
Another common business type is the partnership. Partnerships involve two or more running the company and sharing responsibility. As in proprietorships, the partners’ personal property can be forfeit if there are problems with taxes or lawsuits. Partners need to have clear legal agreements, to prevent disagreements about profit sharing, personal contributions, and inheritance. An accountant will tell you that partnerships’ advantages are that the work and troubles of running the business are shared, as are the taxes. Partnerships are usually short-lived, ending with the death or departure of one partner.
The corporation is a more complex way to organize a business, but it has many advantages over other models. A corporation is an “entity” that is formed and registered in its home state. A business charter sets forth the corporation’s purpose, as well as whom its shareholders, or owners, are. The shareholders elect a corporate board, which directs the company’s operations. A Reno accountant is needed to give corporate business tax advice and to ensure that state and federal tax laws are followed. Taxes are generally higher. Corporations allow the owners limited legal and financial responsibility in lawsuits, debts or even bankruptcy.
The LLC is a newer business class that works like a hybrid of a partnership and a corporation. LLC owners are listed as “members” and organizational paperwork is filed that sets out its purpose and terms. The main tax benefit for an LLC is that it is taxed at individual rates instead of higher corporate rates. Members also have limited legal and financial liability. An LLC cannot have more than two corporate features, like continuity of the agreement, management centralization, asset ownership, and ownership transferability. If it has more than two of these, it is re-classified as a corporation.
Before starting a business, talk to a Reno accountant about how to begin. Get good business tax advice and figure out your goals. If you have modest goals and do not want to share profits, a sole proprietorship is best. If you and someone else share the desire to make a business work and are committed to it, a partnership could benefit you. More upward-minded businesses should organize into corporations or LLC’s, depending on how they want to structure operations. Remember to ask about taxes, as each method’s tax liability varies.
I sat down with Chuck McCumber of the Nevada Small Business Development Center (NSBDC) and talked taxes. The interview was featured in the NSBDC’s monthly e-newsletter. Here is one quote from our conversation:
“It’s also one of the best times,” said Tim Nelson, “because when the economy is down it stirs people to be more creative, entrepreneurial.”
To read the rest of the interview CLICK HERE.
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