As much as we talk about income taxes at USTaxAid, there are actually two taxes that might end up being more important to your business.

That’s because if you miss these taxes, you’ll get shut down faster than you can even imagine. Those two taxes are:

• Payroll tax
• Sales tax

Payroll tax here refers to the Social Security and Medicare tax that is withheld form employee’s checks and then matched by you. The IRS views these as trust accounts. It’s not your money. It’s your employees’ money and it’s their money. So if you don’t remit it, it’s tantamount to stealing the money. That’s why there isn’t a lot of notice before the IRS shows up at your door, seizing assets and shutting you down quick.

The other tax, sales tax, is tax that you collect from customers and then remit to the state. Again, the state doesn’t view this as your money. It belongs to the state in which the sale happened. They don’t think you should sit on that one second longer than you should.

Sales tax is even trickier, though, because you have to collect tax on sales you make to customers inside states in which they have decided you have nexus. Notice I said ‘they have decided”. Check with your CPA to make sure you (and he or she) are up to date on all the state nexus rules. The states have decided nexus recently on items as simple as spending one day in a state, driving through a state during the course of business, having an employee in a state or doing a seminar there.

You may want to do a search on ‘nexus’ (right hand corner above this blog) to see other articles we’ve written on it at the site.

And if you need some help, drop us a line. Richard can explain our services and how you can get in touch with me to talk about your own nexus or other tax issues. Richard is Richard@USTaxAid.com.

Related posts:

1. How To Report Form 1099-C Income Without Paying Extra Taxes
2. Are Your Taxes Going Up in 2010?
3. Owe Taxes? Now May be Time to Pay

If you’ve got a partnership or S Corporation return and haven’t yet filed your return for 2009, pay attention to today’s blog!

These returns are due 9/15, not 10/15 as some have been in the past.

Here’s how it works:

If you have a corporation with a 12/31/09 year end, your return will be due 3/15, or 2 ½ months after the year-end. You can file a Form 7004 and request an extension for 6 months, which takes you until 9/15/10.

If you have an LLC with multiple partners that has been disregarded for income tax purposes, a partnership or a joint venture, then your 12/31/09 tax return was due 4/15. You hopefully filed a Form 7004 which gave you an extension for 5 months. That takes you until 9/15/10 as well.

If you’re late, or failed to file the extension, there are some newly increased penalties that you’ll get hit with.

For the S Corporation, it’s $195/month for each month or partial month and per shareholder. So, if you’re late one month and there are two shareholders, it will be $390.

For the partnership, it’s $89/month for each month or partial month and per shareholder. So, if you’re late one month and have 10 partners, it will be $890.

If you’ve missed filing for a number of years, now is the time to come clean. Otherwise, the IRS may file a substitute return for you, disallowing deductions and then start the lien process against your assets. This is DEFINITELY something you want to avoid! Get a good CPA or tax attorney working with you right away. Give Richard a call at 866.829.2368 extension 1 to see how we can help.

Related posts:

1. Fix Your Sole Proprietorship Before It’s Too Late
2. Year-End Tax Planning
3. Don’t Forget These Deductions For Your First Year in Business!

If you haven’t yet filed your S Corporation return, or even if you have and you’re thinking ahead, then you don’t want to miss today’s blog.

The way you file your return can determine whether you get an audit or not.

Here are three mistakes that can land you in hot water with the IRS.

Mistake #1: Not reporting/paying officer salary.

This is at the top of the IRS hit list – S Corporations that have income but don’t report salaries paid to the owners.

The solution is simple – pay a salary. And if you pay the salary, make sure it’s reported on the separate line item for officer salaries, not just lumped in with all the rest of the salary on the regular salary line. (If you don’t know what I’m talking about, that’s fine – just make sure your CPA does!)

The IRS will be targeting this one issue even more closely in the future simply because salaries you take from your company are subject to Social Security and Medicare tax, while distributions are not. They want the extra payroll taxes and you probably are less inclined to pay them. So, they’re watching to make sure you pay at least some of your fair share.

Mistake #2: Making needless changes to how you report.

This is one that just caught a new client of mine. A few years ago, he changed accounting firms and the then new firm changed how he reported expenses on his return. They moved all of the cost of good items to miscellaneous expenses.
Now never mind if the cost of goods should have been reported the way they were before or not, the issue was that the IRS saw a major change in the return.

And that was the reason they got audited, according to the IRS auditor.

When you become a client of my company, US TaxAid Services, we will change your tax return so you pay less tax. But we won’t make needless changes that raise an audit red flag. Instead we thoughtfully consider the consequences and weigh the pros and cons of each change. We very well might avoid a change that would save you a few hundred dollars but could be a huge red flag.

Talk any changes over with your CPA first.

Mistake #3: Failure to calculate basis.

This one is a little harder to explain in just a few paragraphs. Basically, if you have a flow through entity like an S Corp or a partnership and you have a loss, you must first have basis before you can take the loss against your other income.

No basis = no loss, even if you company lost money.

This is true for all types of flow through entities, but it’s a special issue for S Corporations because it is harder for an S Corp shareholder to get basis.

For example, let’s say you need to put money into the S Corporation to cover some shortfalls. If your company borrows money and you co-sign, this does not count as basis. But if you borrow the money personally and then personally loan the money to your company, it does count as basis.

And remember, you need basis to take the loss. The IRS will be checking to make sure you have a basis worksheet backing up any losses you take. Check with your CPA to make sure yours is up to date.

This is just one of the dozens of S Corporation tricks we talk about in The Tax Return Preparation Survival Kit. Remember the special price of just $99 expires this week.

Related posts:

1. S Corp Salary Mistake Costs Thousands of Dollars
2. The Importance of S Corp Basis
3. S Corp Payroll Trap

The President’s hand picked “Economic Recovery Advisory Board (PERAB)” has issued their findings. Wait until you read what they think will help the economy. Guess who gets the target squarely on their back….again. Small business.

There were some real shockers in the report, at least for me.

I’ve outlined a few of the items I’m most concerned about. You can go to this Government siteto read the entire report.

Normally I try to be objective in reporting tax news. Sorry, can’t do that this time. These changes could be the final straw for many struggling small businesses and some of the plans might sound good on paper, but I can’t see how they could possibly be implemented, at least not without a lot of chaos.

Small-business bank reporting. If you’ve ever had the bank make an error on your account, this proposal should make you shudder.

Small businesses would be required to keep a separate bank account for their business (separate from personal). So far, so good. But then, banks will report the receipts and expenditures from those accounts to the IRS. Can you imagine the mess that will create?

Withholding for independent contractors. If you make a payment to an independent contractor or, for that matter, pay almost any other business for products or services, you’ll have to do a tax withholding on the payment. Sounds an awful lot like what you have to do with employees. A lot more paperwork plus the government keeps your money. And, what if the receiving entity doesn’t have the much of a margin. They may have to wait for their refund for months, while meanwhile their company is hit once again with a cash flow shortage.

Multiple-year audits for small businesses and individuals. The idea here is to make more returns available for audit. The IRS would be able to extend audits beyond the current three-year statute of limitations if a state audit reveals changes and could re-open earlier years if they find noncompliance.

New self-employment tax rules. All partners, S corporation shareholders and LLC members would be responsible for paying self-employment tax. Congress tried this already once, but couldn’t get it past the Senate. Hopefully it gets stopped again.

Eliminate like-kind exchanges. What? This one caught me by surprise. The program calls for eliminating the ability to roll-over gain from real estate into another investment. You’ll have to pay the tax right now (if this passes).

Reduce itemized deductions. Ostensibly to make tax filings easier, the report suggests that itemized deductions be cut way back and the standard deduction is increased. That means the W-2 wage earner can say good-by to pretty much all of their deductions, including the home mortgage interest deduction. Looks like another blow to the real estate market may be coming.

Capital gains rates – The report notes that the zero-percent rate on capital gains for taxpayers in the lower brackets raises questions about whether middle-income taxpayers should pay some tax on capital gains income. The report provides two options in this area: (1) convert the separate rates on capital gains into a 50 percent exclusion and (2) replace the zero rate with a 5 percent rate for taxpayers in the 10 and 15 percent tax brackets.

Corporate tax changes. There are a number of programs suggested for reforming corporate tax. I’m hoping they go for the option that calls for reducing the current corporate rate by a few percent.

PERAB (who brought us this new proposal) is headed by former Federal Reserve Board Chairman Paul Volcker. Members of the tax reform task force include Laura Tyson, currently one of President Obama’s economic advisors and formerly chairman of the Council of Economic Advisors and director of the National Economic Council during the Clinton administration; William Donaldson, a former chairman of the Securities and Exchange Commission; Martin Feldstein, a professor of economics at Harvard University; and Roger Ferguson, the CEO of TIAA-CREF.

Related posts:

1. Obama’s Proposed Tax Hikes & What You Can Do About Them
2. Selling Your Home? Tax May Be Due!
3. Doing Business in Washington? You might be!

The access that the Internet provides has given all of us more information that we can possibly look at. That’s Information Overload. It’s also made it much cheaper to get information, but you’re not sure if it’s accurate or timely. Anything you get from the Internet should come with the warning that it’s reader beware.

Today’s blog post is a bit of a soap box from me as I’ve just spent interesting year sorting through the information on the Internet.

The Good, the Bad and the Ugly of Internet Information – Here’s the Good

On one hand, Megan and I have almost immediate access to Bills as the wind their way through Congressional Committees, Congress, Senate Committees and the Senate Floor. Once a Bill passes Congress, then the Senate and finally gets signed into law, it’s still a long ways from being something we can implement for your tax return. The IRS now has to take that Bill and interpret it into IRS Code. The Coe tells us what to do.Then, we get Treasury Regulations that tell us how to do it. And still there is a lot more interpretation needed for specific circumstances. That comes from Revenue Rulings, Revenue Procedures, Tax Court cases and even the US Supreme Court.

This past year, we’ve had to create Tax Strategies based on what we think the eventual application will be. Thank goodness we had the committee reports to fall back on because this often tells us the intent behind what was passed. It’s what the IRS uses when they eventually come up with the Code and Regulations.

Here’s the Bad

Unfortunately because anyone with a computer and Google can now see the various stages of the Bills, there is a lot of misinformation and just plain wrong and dangerous information floating around about bills.

Plus, the Internet has a long memory – as in, forever. So, things posted in 2004 might have been true then, but no longer are true. But that doesn’t stop search engines from pulling old articles and others from posting the articles on their website in an attempt to boost Google search rankings.

The morale of all of this: Make sure the person who wrote the article is the one publishing it. If they aren’t, check back to the source. When was it originally written and if it comes to taxes, is it written by a true expert?

Here’s the Ugly

The biggest culprit when it comes to misinformation and just plain wrong information is the IRS website itself. The IRS has hundreds of links to outdated publications. If you rely on one of these publications, you have no recourse against the IRS.

Let me say that again.

If you go to the IRS website, pull up a publication that has specific instructions for what you want to do and you follow every single one of the instructions, YOU CAN GET A HUGE FINE!

You alone pay the tax.

You alone pay the penalty.

You alone pay the interest.

And, if it’s bad enough, you alone go to jail.

And it could all because you read something from the IRS that they themselves published and put at one time on their website.

Make sure the information you get is timely and accurate. Make sure the author has the credentials to stand behind what they write. Always, check with your own tax or legal advisor to make sure what you’ve read works for you.

The penalties have just gotten much bigger for filing incorrect information with the IRS. Don’t get caught!

Related posts:

1. The Internet and Sales Tax Nexus
2. Internet Tax Changes Starting in 2011
3. Selling on the Internet? Beware of Nexus

One of the things I really enjoy over at the Smart Business Stupid Business website is something we call “Stupid Business Stories.” We ‘fess up to some of our own mistakes, and also invite people to tell us about what happened, why, and the lessons they learned.

Here’s just a quick sampling of what we’ve received from readers:

When I was 22 I started a telecommunications company. Turn it into a million dollar business in 9 months. Over the next 3 years grew it by 50% each year. Then I was diagnosed (completely unexpectedly) with a life-threatening illness and could no longer physically work within several days. Unfortunately 95% of the business revolved around me and when I couldn’t physically work, the business no longer worked. And that’s when I learned my lesson … There is a major difference between being self-employed and being a business owner. I was self-employed. I now own over a dozen businesses and in each one I’m a business owner. If I’m not there the business does just fine. In fact, in most cases it actually does better when I’m not there! (thanks to Greg H.!)

Went into business with a close friend. Lesson from the story: DON’T GO INTO BUSINESS WITH A CLOSE FRIEND. (Thanks to Chris F.!)

Anonymous wrote in:

A repair business had a customer service person for several years. He seemed like a good guy. Was very good with customers and knew lots about the computer system and the way things ran in the office.

This was all good and well, except for a few things. I noticed the cash in Quickbooks NEVER balanced to the cash drawer. Oftentimes there was a miscellaneous entry on the day’s closing to balance the general journal entry for the day to the cash drawer. I asked several times about this, and the answer was, “we don’t count the change so it’s always off”. They felt it was a waste of time to worry about the change being counted.

There were problems with inventory, too. The customer service guy was the only one who understood what the parts were, but it was like pulling teeth to ever get him to really do anything on the inventory. We made an estimated guess at the end of that year.

Then we noticed he was writing several hundred dollars worth of checks to himself as an “advance” on his paycheck at least every 2 weeks …

By the time I wrote the email to the owner about my concerns with the customer service person, she said he had already left the position. They never were repaid about $1,000 worth of loans he took for himself. But, in my mind, that’s not all he took. What about all the times the cash drawer was off because they didn’t count the change? Why was he reluctant to do inventory? There was a lot of time wasted when he didn’t show up to work and no one was really sure how to fill his spot because they weren’t trained to do the job. I believe this company really lost thousands of dollars because of this employee who was in a key position.

The Lesson here: Don’t place too much responsibility on just one employee. Someone other than the person in charge of the cash drawer should be balancing it at the end of the day. Put better systems in place, and cross train employees to be able to fill in when one employee is not there. And, trust your gut instinct when something feels wrong.

If you’ve got a story you’d like to share, come over to http://www.smartbusinessstupidbusinessonline.com/stupidbizstories/ and drop us a line. You can give us your name, or stay anonymous!

Related posts:

1. Sneak Preview of “Smart Business Stupid Business”
2. Nexus Horror Stories That Could Happen To You
3. 3 Types of Business Income

Crazy, but true. A Line of Credit is easier to get in today’s market than a home loan is.

I have two clients who are in the process of getting loans:

Client #1: Credit that has taken a few dings and needs a line of credit for his business.

Client #2: High 6 figure income and stellar credit and has been turned down 6 times for a modest home refinance.

Client #1 signed on just 3 months ago with Marco Carbajo to build his business credit and repair his personal credit. He told me last week that he got a line of credit for $100,000.

(Marco Carbajo is my guest on Saturday’s teleseminar “The Truth About Business Credit and Personal Credit Recovery”. The teleseminar is FREE! and NO HYPE! If you haven’t already signed up for Saturday’s teleseminar, do it NOW at www.dianesseminars.com.

Client #2 has just gotten approval for his refinance, but they are making him (and me, as his CPA!) jump through a lot of hoops.

Fact: You CAN get business credit if you look in the right places.

Fact: Business credit can be easier to get than a traditional home loan.

Fact: There is something you can do today to recover bad personal credit.

Three years ago, I would have never believed how hard it could be to get a real estate loan. But times have changed. Make sure you’re up to date on what you need to know to survive this credit crunch.

Please join us Saturday, August 28, 2010 “The Truth About Business Credit and Personal Credit Recovery” www.Dianesseminars.com

Saturday, August 28, 2010

9 am Pacific, 10 am Mountain, 11 am Central, Noon Eastern

Related posts:

1. Don’t Do a Short Sale or Loan Mod Until You Read This
2. Deducting Your Telephone Expense
3. Tax Issues With Walking Away From a Rental Property

Does going inside your bank make you cringe? Do you have to steel yourself outside the doors and prepare to spend the next hour or more trying to get something done that seems so simple, yet generates a foot of paperwork and may not even happen at all?

I have to tell you, that’s how I’ve been feeling for some time now, and I (thought) I had a great relationship with my business bankers. But personnel come and go, through promotions, branch moves, and attrition. As the folks I’ve dealt with for several years moved on, all of a sudden I began hearing things like, “Oh you have an LLC, that’s not a real corporation,” “Why do you have two business checking accounts?” or “It’s against the law for an LLC to have a non-US owner.” Then there’s my favorite, “Series LLC? What is that? We don’t support those here.”

Then, last week, I had a breakthrough. I went into the corporate office of my bank.

I needed to get some fairly complex banking done, and didn’t want to bang my head against the wall anymore than I had to. I was introduced to John R., a corporate banker, and we got down to it. To make a long story short, I had to change signatories on about a dozen accounts, order some new bank cards, destroy some old ones, make some changes to various account owners, and try to get some questions answered about whether or not I could continue to refer my Series LLC clients to this bank to get their accounts opened.

What a joy! John R., got through all that paperwork in under an hour. Then we started talking sweep accounts, Series LLCs, and things got even better. He understood the value for businesses to have two checking accounts (one is your merchant account, the other is your operating account. By having two, you can sweep funds out of the merchant account regularly, and avoid cash-crunches caused by unexpected chargebacks). John wished that more of his clients understood why this was such an important, yet simple, administrative function.

Even better (for me), John also knew all about Series LLCs, and was already working with several Series LLC-owning clients. I repeated some of the refusals, reasoning and obstacles my clients had been encountering, and John was able to refute all of them. I walked out with a handful of business cards and a rolodex full of clients I wanted to refer.

But it got better. The next day John called and asked me if he could send referrals MY way, too. Seems he’s got all sorts of clients who don’t know how to get their paperwork filed, and he wants to make sure they’re properly protected. He knows that having filed Articles and a Tax ID number aren’t enough to give his clients legal protection, and he wants to help them as much as he can.

John also mentioned that he’d performed a review of all our business accounts and had come up with some changes he wanted to implement. By following through, we’d be able to save hundreds of dollars in service fees.

I told John that dealing with him has been a night-and-day difference. Then I asked him why he thought that was. His answer shouldn’t have surprised me, but I guess it did.

There’s a difference in banker terms between a personal banker and a business banker. A personal banker may deal with anyone from a teenager to a very high net-worth individual. But they’re always focused on looking at things from the personal side. A business banker, on the other hand, deals strictly with business owners. He or she is trained differently, and understands more of the key issues that business owners face – including in-depth training on business structures.

I would love to refer all of my clients to John R. In fact, for those who live in states where his bank has a branch, I will. It’s a big bank, so that’s a lot of states! If you’re not a client, that’s okay too. Drop me a line, to megan@ustaxaid.com, if you want a referral and I’ll be happy to send you on.

So … the lesson for me was clear. If your banker can’t answer your questions, or if you feel like you’ve gone as far as you can with the relationship, maybe it’s time to meet the business bankers at your bank corporate offices.

Related posts:

1. 3 Reasons a Series LLC Should be a Real Estate Investor’s Best Friend
2. Basics of a Series LLC
3. Watch Out for State Tax Increases

One of the biggest benefits of having a business is the benefits! If you can get tax-free benefits, so much the better. That means you get to take a deduction at the business side, plus not have to pay taxes on it personally.

The challenge is that too many people focus on the big, flashy benefits, which often aren’t truly tax-free, and ignore the hundreds of smaller ones that can make a huge difference in your business and especially in your taxes.

Tax-free benefit or not? You be the judge!

Here’s an example of one I had to deal with a lot a few years ago. Tax-free or not?

The Case of the Rolex

A very well known financial author used to stand on stage and point to his very expensive Rolex. “My company bought this for me!” he exclaimed.

Was this a tax-free benefit? – Answer at the bottom.

Personal Chef Heats Up the Kitchen

A busy financial planner wanted to work from home, so she built an attached office for her three employees and herself. If you’ve been following USTaxAid, you know that was all deductible.

But, here’s her new question. She hired a personal chef to come in and cook for her and her employees every day. (He also cooked dinner for her family at the same time.)

Tax-free benefit or not? - Answer at the bottom.

Running Fast and Getting Nowhere

An Internet Marketer had a hard time fitting a work-out into his daily life because he had so many projects going. So, he decided to turn his spare bedroom into a gym. Now, when he needs a break to think, he jumps on the treadmill and gets a quick run in.

Was the treadmill a tax-free benefit? - Read on!

Answers:

Rolex: The Rolex is most likely going to be taxable to the recipient. Gifts can be tax-free, but only if they’re ‘de minimus’ (not a high cost) or fit specific other criteria.

Personal Chef: In this case, the personal chef WAS tax-free for the portion of his fee and cost of food for the lunch he prepared daily. And, it was not subject to the 50% meal exclusion.

On Tues, August 24, 2010, we’ll showcase five strategies to turn your meals into 100% deductions as part of the USTaxAid Coaching Course. SIGN UP HERE It’s just $67 for the complete coaching course for Tax Free Benefits plus the next “Understanding Financial Statements” course. Don’t miss out!

Personal Gym: If you’ve got a C Corporation, you’ve got a tax-free benefit as long as you’re following all the rules. We’ll cover that in the Tax Free Benefits Coaching Course.

Related posts:

1. Little Known Tax Benefit For Employers in 2010
2. Little Known Trick to Turn a 50% Meal Deduction Into 100% Deduction
3. The IRS’s Dirty Little Trick on Real Estate Investors - Material Participation Rules

When it comes to taxes, there’s a big tax difference between a real estate investor and a real estate business owner. We’re seeing interest from both types these days, especially from folks wanting to set up a business structure to protect their personal assets, as they come back into the market. But it’s important that you get into the right structure, or you could wind up overpaying your taxes.

The difference between the two is (fairly) simple. A real estate investor buys properties to hold and rent out. If you’re an investor, you’re in it for the long haul. You’re going to hang onto that property for several years.

A real estate business owner, on the other hand, has a different goal in mind. If you’re picking up properties with the intention of moving them on in a relatively short period of time (1 year or less), or if you are developing land, then you’re a real estate business owner.

Both of these classifications relate to the IRS, and how the income you earn is taxed. With long-term investments, the income is passive. That means you pay income tax, but it’s not money you have to treat as salary, and pay Social Security or Medicare taxes on. When (and if) you sell the property the income will be treated as a long-term capital gain for tax purposes. So, it’s best to use a structure that gives you good passive income treatment. If you’re into long-term investments, LLCs electing either partnership or, if you are the only owner, disregarded status, are best here.

With short-term investments, the IRS looks at the income as being active, earned income. Even if your income comes from buying and reselling properties, it’s not passive unless you hold the property for over a year. If you own it for less than a year, the profit from a sale is considered a short-term gain, which are taxed at regular tax rates. Your best bet here is one of the active tax classifications – either S or C Corporation tax. That way you can stream your income, by taking part as a salary and part as a profit distribution. Only the salary portion will be subject to payroll taxes (in most cases). But because you’re still going to be holding assets in the business structure, you want the LLC asset protection. So, an LLC making either a C or an S Corporation election is going to be your best choice here. Which one you choose depends on where you’re at financially, and what you’re using the income from the business for. If you’re living off the real estate income, an S Corp is probably your best bet. If you’re using the real estate as a way to accumulate income, and don’t need it to live on, there are great opportunities for you with C Corporation taxation.

But wait! You’re investing money into real estate with the intent of making a profit. Aren’t you an investor regardless of what you’re doing with the properties? And the answer is yes! It’s really two sides of the same coin. In the grand scheme of things, you’re still an investor. The question is, HOW do you invest in real estate. Knowing the answer will help you to make sure you get into the right business structure.

Related posts:

1. Is a Series LLC the Best Business Structure For You?
2. How to Attract an Angel Investor Today
3. Businesses About to Get a HUGE Potential Tax Break