Smart Money Choice$

The major tax deadline of April 15th is quickly approaching for non-corporation businesses (sole proprietorships, partnerships and LLCs). Here are five quick tax-savings tips you don’t want to forget before the deadline arrives in all its glory.

1. Home Office Deduction

Generally, you can deduct business expenses that apply
to a part of your home if that part is exclusively used on a regular basis…

• -As your principal place of business,
• -As a place to meet with your patients, clients, or customers in the normal course of your trade or business, or
• -In connection with your trade or business if it is a separate structure that is not attached to your home.

This deduction includes both expenses that are directly related to your home office (painting, repairs, etc.), as well as a portion of your indirect costs, which include utilities for your whole house, mortgage interest or rent, real estate taxes, even depreciation on your home.

This can really add up to a substantial deduction.

And if you took the home office deduction last year, but couldn’t use it all (it’s limited by your business profit), you can also carry over any leftover deduction you couldn’t use last year and add it to this year’s deduction. (Check your 2008 Form 8829 and look to see if there is any carryover available for 2009 at the bottom of the form.)

The home office deduction is worth the trouble because it also reduces your self-employment tax amount.

Click here to get the details on how to take the deduction here:
IRS Instructions for Form 8829

2. Write off new equipment (Section 179 deduction)

Rather than depreciate business property over several years, you can choose to expense business assets in the year of purchase. Here are basic guidelines for what qualifies:

• Tangible property, like machines, equipment, furniture
• Off-the-shelf computer software

It does not apply to:

• Real estate
• Property used less than 50% in your business
• Property you inherited or received as a gift

You can “write off” (deduct as an expense) newly purchased assets up to $250,000 for 2009.

This is another smart deduction that helps to reduce both your income tax and your self-employment tax.

Click here to get all the specifics here:
IRS Instructions for Form 4562

3. Use Per Diem Rates for Business meals & incidental expenses while Traveling

As long as you can document your away-from-home business travel, you can deduct a per diem rate (per day) for meals and incidental expenses instead of the need to keep records of and report your actual expenses. This can give you a much bigger deduction if you spend less than the daily rate, not to mention it makes the recordkeeping easier.

Of course, you only get a 50% deduction on meals and entertainment for business purposes, but if you’re frugal, you will still get a much better deduction than you would with claiming actual expenses.

And, yes, this one reduces both income and self-employment taxes.

Click here to get all the specifics here:
IRS Publication 1542

4. Maximize your HSA Contributions

If you have a high-deductible health plan (HDHP) for your health insurance and a Health Savings Account (HSA) for your out-of-pocket medical expenses, you have until April 15th to make your 2009 deductible contributions. That’s up to $3,000 ($4,000 if you are over 55) for a self-only coverage plan, or $5,950 for a family coverage plan.

While this one won’t reduce your Self-employment tax, it is a nice deduction in addition to any self-employed health insurance deduction you can take for what you paid in insurance premiums on that high-deductible haelth plan. This winning combination makes 100% of your medical costs deductible, even if you do not itemize. That’s sweet.

Click here for all the specifics are laid out here:
IRS Publication 969

5. Maximize your IRA Contributions

If you have a traditional IRA, you can still make your 2009 contributions up until April 15, and still claim any deduction you are entitled to (usually for a traditional IRA as opposed to a Roth IRA) now. This is an especially smart choice because when you make contributions to your retirment accounts, you will likely also get the retirement savings contributions credit (depending on your income level, among other things). It’s one of the very few times you can legally get a double-dip for a deduction.

General traditional IRA contribution limits for 2009 are:

$5,000 ($6,000 if you’re over 50 or older) – there are, however, several factors that affect how much of your contribution is deductible.

As a self-employed person though, you may seriously want to consider opening a SEP-IRA, since this type of retirement plan allows you to make larger contributions and thus get bigger deductions on your tax return.

IRAs have lots of twists and turns, but if you already have one set up, or want to set up a quick traditional IRA (you can do this easily) and make a contribution for 2009, it’s just smart to max out your contributions and take the deduction for 2009 by April 15.

Click here to get all the ins and outs of IRAs here:
IRS Publication 590
IRS Publication 560

To keep your tax bill as low as possible, the smartest choice is to do your tax planning BEFORE the end of the year. But at least these tips will help you pay as little as legally possible right now for 2009, and then be all the wiser for 2010.

Most entrepreneurs give little thought to the legal structure of their business, especially in the early days. But not knowing the risks of just “winging it” can come back to take a painful bite out of your bottom line. Even worse, it could put you at very real risk of losing more than your business, without warning.

Why your business structure is worth your attention

Usually the biggest reason to go into business is to turn a profit. And a lot of hard work is involved in building a profitable business, without a guarantee for success.

The difference between wasting your time and getting into big debt, or financial freedom and prosperity, has much to do with building on a solid foundation. Your choice of business structure is a key component when it comes to your business stability – now and for the long term.

What effect does choice of business entity have on your finances and business operations?

Fact is, your profits will be taxed based on your business structure. And, of course, navigating the applicable tax laws is no easy task. The government knows this, so most new businesses are, by default, the type of entity that generally pays the most in taxes – a sole proprietorship or partnership. Thank you Uncle Sam.

In reality, besides employees, taxes will often be your largest business expense, especially for service-based companies. So educating yourself about which business entity and it’s tax advantages are best for your situation can significantly affect how much of your profits you get to keep and how much you are forced to hand over to the government.

Your choice of business structure can also have a big impact on how you need to run your business. There are legal requirements that must be followed, depending on your choice of business entity. When these are ignored (and they often), serious consequences can raise their ugly head, some of which can put you out of business instantly.

Most often, business owners who pick some sort of corporate structure (with or without the advice of qualified professionals) don’t know what the requirements are, leave themselves without any liability protection. That’s a very scary, but extremely common scenario.

How can the risks be minimized sensibly?

The best way to avoid falling into these costly traps is education. Admittedly, understanding the different business entity choices (and there are many of them) is not an easy path to navigate for most of us. But who said starting and running a solid, profitable business was going to be simple? It doesn’t, however, need to be difficult. All it takes is some research to get the needed facts before making a smart choice.

How to make smart choices about business entity

Here’s my four-step action plan for getting the information you need to make a smart choice about the best business structure for your business sooner rather than later (or too late):

1. Know where your business is going. You should have at least a basic business plan laid out that describes what your ultimate goals are, how you’re going to get there, and include an exit strategy. Block out a full day or two on your calendar to either review or map out where you want your business to be in 3-5 years, and what it will look like when you’re “done” with it.

2. Educate yourself first about the different business structures available to you. This should be your own research via books, the Internet or any other means available for credible, unbiased information. Define your priorities (based on your business plan) and identify the basic advantages and disadvantages of each entity choice. Identify the business structure that appears to be best for your goals.

3. Engage a qualified professional. AFTER you’ve done your research, consult with either an attorney or accountant who specializes in small business and discuss your plans. Your objective is to start moving toward a definite decision based on what’s going to give you the best overall protection and tax savings (as well as other key considerations) for your unique business situation.

4. Make it happen. Lay out what needs to happen next to implement your plan to build or  maintain a solid foundation for your business success. Then put it on your calendar and do it!

Take-Action Resource

Straight Talk About Business Entities – multi-media training that investigates the different entity types, their tax advantages and disadvantages for making an informed choice based on your own unique business situation and priorities

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WANT TO USE THIS ARTICLE IN YOUR OWN BLOG OR E-ZINE? You have permission to re-publish it, as long as you include the author’s bio and link

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Gabrielle Fontaine, PB is a freelance Professional Bookkeeper and Advanced Certified QuickBooks ProAdvisor. She specializes in assisting Internet-savvy entrepreneurs get control of their books and maximize profits. Gabrielle also publishes the business-boosting online ezine, Smart Money Choices. Get more information at http://www.BookkeepingDirect.com

One of the best things about the shift in our economy, is it’s forcing us to do what we should be doing anyway – managing business more effectively.

The pinch just about everyone is feeling right now can actually serve us. That’s because it provides powerful motivation to trim the fat and maximize all our resources and opportunities. It’s do or die time.

So let’s choose the positive approach to this so-called “new economy,” and take a look at three areas of your business that may need a tune-up to get your bottom line moving in the right direction again.

1. Accurate Recordkeeping

Yes, I know. Recordkeeping is not sexy. But it is vital to maximizing your business’ potential for sustainable profits. Let’s face it. Without profits, you won’t have a business for long.

So, whether your business goals are lofty or humble, priority #1 must be to make money. Period.

To make money, you must be able to see where you are right now, profitable or not. You need the whole picture. Then, with accurate and up-to-date bookkeeping records you will have the ability to realistically and deliberately move forward to navigate this bumpy, unpaved economic road we’re on and reach your final destination successfully.

Accurate financial records help you answer questions like…

• Are you pulling in a profit each month?
• How do your numbers look compared to last year at this time?
• What’s changed?
• Which expenses are directly tied to sales?
• What’s selling most right now…and what’s not?
• What’s your asset to debt ratio? In which direction is that headed?
• Are new customers still coming in? How much are they buying?
• How much are your existing customers still buying?

Answers to these types of questions reveal important trends you can’t spot any other way. Weaknesses will emerge, as well as opportunities on the road ahead that can make or break you financially.  You’ll be able to see them and use them to your advantage, instead of being caught by surprise.

But the only way to see through your business binoculars is by putting a good recordkeeping system in place.

So how do you do it? You probably already know.

Get QuickBooks software and learn how to use it effectively. It’s a powerful program that will give you the insight you need.

2. Create Cash-Sustaining Systems

As with our physical bodies, fear and pain can serve as powerful motivators to get us into action. But they can also become recurring energy-draining aches that only subside momentarily if you react with temporary, short-term “pain killers” to get past the immediate discomfort.

You wouldn’t just take aspirin to treat a toothache and think it will fix the problem. So don’t do the same with your business.

Financial pain must be identified and eliminated at its source to grow a strong and healthy operation. Otherwise, the problem, and the pain, are only going to get worse and more serious. Cash-sustaining systems must be put in place to prevent and cure those pain-causing areas in your business.

The cure? A shift from short-sighted, rollercoaster cash management habits, to long-term business growth systems that provide cash flow stability and health.

How to do it? Use what you’ve learned from your financial reports in Key #1. Maximize what’s working in your business to pull in more sales, and remove what’s dragging you down. This includes implementing both cash-generating strategies and cash-savings tactics.

Once you’ve laid out an action plan, put it to work immediately by scheduling it on your calendar and stick to it for at least six months. Keep track of your results. Documenting what you’re doing and measuring your progress is one of the best ways to build custom-made systems that turn your business into a consistently productive and profitable machine.

3. Reduce your tax burden

There’s no getting around it. Taxes are a significant obligation we all must bear. But it has been conservatively estimated that small business owners and self-employed taxpayers are unnecessarily overpaying by more than 160 BILLION dollars each year. Wow!

Can you really afford to be paying more in taxes than you need to right now? Consider this eye-opening bit of information I stumbled upon the other day…

In a recent report conducted for the Small Business Administration, it was found that tax debt for small businesses is a significant factor in bankruptcy.

“…more than half of individual small business owners [in bankruptcy] reported owing some tax debts. Individual small business owners in bankruptcy proceedings who are encumbered with high tax debts are generally in a precarious financial condition and are worse off financially.”

Why are so many small business owners in such a precarious financial condition?

At least one big reason is they only pay attention to their taxes as a “once-a-year” annoyance, usually sometime around April 15th. I see this all the time. Sound familiar?

If you’re only paying attention to your taxes during tax season, then guess what? You’re probably paying too much tax.

So what can you do about it? You need to do tax planning BEFORE the end of the year (that means NOW), while you can still take advantage of whatever tax breaks may be available to you. Yes, this may mean you need to spend some time doing a bit of research, or at least making an appointment with your tax professional. But this is some of the smartest time and money you can invest for your business longevity.

A significant possible tax-reduction strategies to consider seriously is your choice of business entity, also known as your legal structure. That is, whether your business is a sole proprietorship, partnership, corporation or LLC. Your business structure can have a HUGE impact on the way your income is taxed.

So pick up the phone an make an appointment with your tax professional, or set aside a few hours this week to research the tax breaks that are available to you. One obvious place to start is at the IRS website.

Okay, so I’ve thrown a lot of information at you in this article. And quite honestly, you probably can’t put it all to work for your business immediately. So pick just one of the three keys above and run with it.

The vital message is – make the “new economy” pinch work for you by getting into action now to streamline your business. You’ll emerge a stronger entrepreneur well on your way to manifesting your vision for your business and your life as a result.

Take-Action Resources

Recordkeeping

QuickBooks software – It’s #1 for small business for good reason

QuickBooks Basics: New User Essentials – an economical video crash course for learning how to use QuickBooks software effectively by yours truly

Quicken Home & Business – If you don’t want to learn QuickBooks and you’re already familiar with Quicken, this may be your best bet in the short term for your business recordkeeping

Cash-Building Systems

Cash Flow Kick-Start – My no-nonsense special report that gives you a quick, effective way to get your cashflow moving without breaking the bank

Instant Cash Flow – highly recommended book for building a solid cash flow system in your business, one step at a time.

Tax Reduction

Straight Talk About Business Entities – multi-media training that investigates the different entity types, their tax advantages and disadvantages so you can make an informed choice based on your own unique business situation and priorities

My Corporation – online resources for those who know what they want and want to do it themselves

The Tax Reduction Toolkit – information for small business owners on how to save the most possible in taxes, legally.

Finally a couple breaks that gives a bit of relief specifically for self-employed folks!

The American Recovery and Reinvestment Act (ARRA) has created a few tax breaks for 2009 that are only available this year, some with just a few months to take action and save taxes. Here are a couple you may want to take note of right now because they can have a quick impact on your cash flow.

Estimated Tax Requirements Modified

There are changes to the estimated tax requirements. This is welcome news since the next deadline is Monday, June 15th.

You can defer your estimated tax payments, paying a larger part of your 2009 estimate at the end of the year. The payment requirements have been modified as well.

Now you only need to pay in the lesser of 90% of your 2008 or your 2009 tax bill through estimated payments. The most significant qualification for this new rule is that more than half of your gross income in 2008 had to be from your small business.

Making Work Pay Credit for the Self-Employed

We’ve heard lots about how employees are getting the benefit of this new credit right now, but what about us?

The new credit is equal to 6.2% of your earned income, up to $800 (depending on your filing status). Of course, there is a phaseout of the credit for taxpayers with higher income (AGI over $75,000-$150,000). But if you qualify, you can take the credit now by deducting it from your estimated tax payments.

For directions on how to make the calculations, use Worksheet 2-9 on page 43 of Publication 505

For additional small business tax breaks that may apply to your business, check out the summary of ARRA small business info available directly on the IRS website.

Are you having fun? They say that time flies when you are. The fact that April 15th has nearly arrived and has caught a lot of people by surprise, must mean there’s a lot of fun going on! That’s the positive spin, anyway.

If you are one who had intended to have your taxes handled by now, but you still haven’t gotten to it, no worries. That’s why the IRS allows you to apply for an automatic 6-month extension to file. They realize that time can get away from us all. That is, at least when it comes to preparing your tax return. But the empathy stops there.

By filing a Form 4868, yes, you will automatically get six more months to FILE your tax return. No questions asked. However, there is no such thing as an extension to pay any taxes owed.

Of course, that’s just more proof of how whacked our tax system is. Isn’t the purpose of preparing a tax return to determine whether or not you have paid enough taxes in based on the amount of your income that’s subject to tax? So if you already knew the answer to that question, why would you need to file an extension in the first place!?! Typical governmental circular reasoning, isn’t it?

But fortunately, there are easy ways to deal with this dilemma.

How to Do It

First, you need to fill out and file the automatic extension form (Form 4868). You can do that for free online using the IRS’s FreeFile system. But if you prefer the old fashioned send-it-in-the-mail method, you can also fill out a PDF version of the form, print it out, and mail it in if you like. Just be sure it is postmarked by April 15th.

However, it is actually safer and more reliable these days to file for extension online. You will receive a confirmation from the IRS usually within 24 hours, giving you proof that your form has been filed successfully. But when you file by paper, you’ve just got to hope that it gets there safely AND that the IRS doesn’t lose it. (The IRS loses paperwork on a regular basis!) The only way you’ll know if they got it or not is if you don’t get any nasty notices from the IRS later asking you for your tax return.

My recommendation: File electronically if at all possible.

What Information Do You Need?

Fortunately, Form 4868 is the shortest and quickest tax form you’ll ever need to use! Heck, once you fill in your name, address and social security number, you’re half-way there!

After that, there are only four other lines you will need to fill in (in most cases). The toughest one is Line 4, where you must estimate your taxes for 2008. Of course, you won’t know that number for sure until you actually complete your tax returns. So we’re talking about your best guess here.

But you’ve got to make it a good guess. If you say you owe less in taxes than you really do, the IRS will smack you with underpayment penalties and interest. Remember, this is an extension to file, not one to pay.

There are, however, a couple fast and dirty ways to estimate smart.  Probably the easiest way is to take a look at last year’s tax return. If you made around the same income in 2008, your tax liability should be roughly the same. And even if you made more, you won’t be penalized for underpaying as long as you pay 100% of your 2007 tax liability. So, to be safe, if you really have no idea what your 2008 taxes will be, enter 100% of your taxes were last year (“total tax” Line 63 of your 2007 Form 1040).

Next you’ll need to fill in how much you’ve already paid in for 2008. Add up all federal estimated tax payments you’ve made, any overpayments applied to 2008 from last year, as well as taxes withheld from your W-2 or 1099 forms. The total should be entered on Form 4868 Line 5.

Finally, subtract the amount you’ve already paid in from the estimated tax liability, and you’re probably done. That is, if you paid in more than the tax. If that’s the case, all you need to do is file this form before midnight on April 15th. You now have until October 15, 2009 to finish up and file your tax return. Isn’t that a relief?

But What If You Didn’t Pay In Enough?

If, you have a balance due, you will need to pay that amount by April 15th. Again, you can do this by paper or electronically. When you file the Form 4868 online, you will be given instructions on how to make your payment. Again, you can do so electronically, use a credit card or by mailing in a check.

What If You Can’t Pay The Full Balance Due?

If you can’t pay the full balance due, simply pay as much as you can right now, and enter that amount you are paying on Line 7 of Form 4868.

The IRS will eventually send you a bill for the rest, including late payment penalties and interest. But don’t sweat it just yet. Remember the balance due is based on an estimate only. The final numbers will be known once you complete your tax return, so it might not be as bad as it may seem now.

Just be sure to send in Form 4868 by April 15th. And if you owe a payment, don’t delay filing the form. That will only cost you more. The smart choice is to file for an automatic extension on time.

Now you can breathe a sigh of relief because you now have six more months to get your taxes in order. That wasn’t so bad now, was it?

~Gabrielle

P.S. If you still need to get your bookkeeping records in shape for completing your taxes, and you use QuickBooks, be sure to check out the time saving tip for quick and easy tax prep at QB QuickTips and check out my latest mini-lesson that will make QuickBooks do a lot of the tax organizing for you this year, and you may never need to go on extension again.