Tax Advice for Your Business

1. LLCs: If you are starting up a business, an LLC may be the right choice for you. LLCs offer the advantages of limited liability and partnership taxation. There are still good reasons for choosing to operate your business as a C corporation, S corporation, partnership, or sole proprietorship, but LLCs are often the best choice.
   
   
2. Business Conventions: Travel expenses for attending a convention related to your trade or business are deductible. Any unreimbursed employee expenses go on Schedule A as a miscellaneous itemized deduction. If you have a sole proprietorship business, the expenses go on Schedule C. Travel expenses for conventions related to investments or financial planning are not deductible. Conventions held on cruise ships are subject to a limit of $2,000 per year that can be deductible. Foreign conventions have a variety of rules that must be met before the travel expenses are deductible, however, conventions held in North America (Canada, Mexico, etc.) are not considered foreign conventions.
   
   
3. Estimated Tax Payments: Most people who just have W-2 wages income, don't need to do estimated tax payments. Estimated tax payments are needed if you have large amounts of income where federal and state taxes aren't withheld. Common situations are when you have self-employment income, rental income, or large amounts of investment income. You can make an estimated tax payment several ways. You can mail in Form 1040-ES along with a check to the IRS. You can go online at www.eftps.gov to make an estimated tax payment. The EFTPS online system is free to use. You can pay an estimated tax payment by credit card by going to www.pay1040.com or www.officialpayments.com. Fees are charged for using a credit card to pay estimated tax payments.
   
   
4. SUV: If you own a profitable business, you may be able to get a tax break by purchasing an SUV that weighs over 6,000 lbs that qualifies for the exception to the automobile depreciation limits. If your SUV qualifies, you are able to take a lot more depreciation on your vehicle or even possibly have a Section 179 deduction for the full amount of the SUV purchase price in the year you bought it. If your business isn't profitable, the extra depreciation is probably not going to help you and you won't be able to Section 179 the vehicle.
   
   
5. Schedule C Deductions: Make sure you have included every business related expense on your Schedule C. Every dollar of expense reduces not only your regular income tax but also the 15.3% self-employment tax if your business is profitable. For example if you are in the 25% tax bracket, if you find an extra $1,000 in business deductions, you save $403 in taxes. So scour through your checkbook and records to make sure you have included every business expense on your Schedule C. This is also a good reason to be organized and keep good tax records for your Schedule C business so that expenses don't slip through the cracks.
   
   
6. Hobby Losses: Hobby expenses are deductible only up to the amount of hobby income. The IRS may try to disallow your Schedule C business losses by claiming that your business is really a "hobby". Examples of businesses that the IRS may categorize as hobbies include breeding horses and gentleman farming. What you need to do to take the losses is show a "profit motive". If you treat your business like a business instead of as a hobby, then you will have a solid claim to take any losses on your tax return. Some ways to show that you have a profit motive include (1) keeping businesslike records and a separate business bank account, (2) putting time and effort into the business, (3) and consulting with knowledgeable advisors to develop a business plan.
   
   
7. Single Member LLC: A limited liability company (LLC) helps to limit your personal liability without having to form a corporation. If you are the only owner of the LLC, you report your company's income and expenses on Schedule C just like you would if you hadn't done an LLC. If there are two or more owners of the LLC, you file the companies tax return as a partnership on Form 1065 and your portion of income and losses is reported on a K-1. So if you are a sole proprietor who is filing a Schedule C already, it probably makes sense to look into becoming a Single Member LLC for liability protection since there is very little additional paperwork involved with the LLC and you can continue filing your business income and expenses on a Schedule C.
   
   
8. Payroll Taxes: Don't mess with payroll taxes. If you are a business owner, make sure you always file your payroll tax reports and pay the payroll tax withheld. You might want to use a payroll service such as ADP or PayChex to make sure your payroll taxes get taken care of in a timely manner. If your business is strapped for cash, never dip into the payroll taxes withheld. The IRS is vicious when it comes to payroll taxes and will assess steep penalties and even shut your business down if you fall behind on payroll taxes. Plus if you go out of business, the payroll taxes are still owed by you personally even if your business was a corporation or LLC and the IRS can seize any of your personal assets to take care of the payroll tax liability. The IRS is much easier to work with if you owe income taxes than payroll taxes. If you are dipping into payroll tax withholding, you are basically stealing your employees' social security and medicare taxes and the IRS would rather put you out of business than let you continue to steal your employees' payroll taxes.
   
   
9. Employing Your Children: If you own a business, you can hire your children to do legitimate services for you such as office work or maintenance. Pay them a reasonable wage, keep records, and give them a W-2 at the end of the year. If your child is younger than age 18, you don't have to pay any social security or medicare taxes on your child's wages. You get a tax deduction and your child's income is probably low enough that he or she won't need to file a tax return. Your child can also make a contribution to a traditional IRA or Roth IRA up to the lesser of their wages or $4,000. Imagine how much a Roth IRA contribution of $2,000 made for a 13 year old could grow tax-free over the fifty years before that child retires.