The typical sole proprietor trying to find legal tax reduction strategies is faced with a daunting task. Our tax code is so complex, how can you even begin to unravel all the convoluted rules and regulations?

Just how complicated is the tax code? Consider this: Back in 1913, when federal income taxes first began, the entire tax code occupied a mere half-inch thick book. The first federal income tax return was a simple two-page form with four pages of instructions.

Now what do we have? — a literal monster. Today the tax code takes two four-inch thick volumes to print, along with well over a million lines of “regulations” that officially explain and interpret what the code means. Then when you add all the relevant tax-related court decisions that apply the code — well, now we’re talking about 25 feet of library shelves.

With all these tax rules, what’s the small business owner to do? Here’s the first thing you must realize: Given the same amount of profit, not all businesses pay the same amount of taxes.

Think about that for a moment. It’s probably something that you’ve always wondered about, maybe were even a bit suspicious about. Well, if you always thought that some people pay less tax than you (even though they make the same amount of income), you are correct.

Why is that? Is it fair? Is it “right”? Is it legal? Yes, it is legal for one business owner to pay less tax than another business owner, even though both have the same income. Any why does this happen? I’m going to answer this question by telling you about the easiest (and perhaps the most overlooked) tax-reduction strategy on the books. Many small business owners are paying too much tax, simply because they own the “wrong” type of business. I’m not talking about “type” in the sense of whether you own a carpet cleaning business vs. a pet store. I don’t mean what kind of industry your business is. I don’t mean whether you are a manufacturer, a wholesaler, a retailer, or a service business. I’m talking about whether your business is a sole proprietorship, a partnership, a C corporation, an S corporation, or a limited liability company (LLC).

There are several “types” of business ownership, from a legal entity standpoint. And you have got to get this right, or you will pay literally thousands of dollars more in taxes than you should. The simple fact is, there are significant differences in the amount of taxes that each of these business “types” usually pay.

Sole proprietors are especially vulnerable to overpaying their taxes because they are sole proprietors. So if you are a sole proprietor, I must ask you this question: Have you ever done an analysis of the tax consequences of operating your business as a partnership, a corporation (both C and S), or a LLC? This is known as a choice of entity analysis, and this analysis is a great place to start on the journey of small business tax reduction. It could be the best thing you ever do for yourself and your business.

Wayne M Davies
http://www.articlesbase.com/business-articles/the-abcs-of-small-business-taxes-why-is-choice-of-entity-so-important-704112.html

Tax season is one of the most nerve-wracking times of the year. From putting together all of the necessary tax documents to finding the right accountant, taxes can be time-consuming, frustrating, and a major challenge. Add in a home-based business and taxes can be downright overwhelming. However, there are some things you can do to make your tax season a breeze.

Choose your accountant wisely

One of the most important decisions you’ll make as a business owner is who you will choose to help you with your bookkeeping and accounting needs. Research accountants in your area and look for one that specializes in small business taxes. Ask if they will prepare both corporate and personal returns if needed. Make sure your accountant is clear on how they charge for their time – especially for questions over the phone.

I once worked with accountants who worked with large corporations. They were used to having very little contact with their clients, however with a new corporation I had many questions about how things worked. Needless to say it didn’t go well. Our current accountant specializes in small businesses and is available by phone or email if I have a question.

Set up your business accounts properly

I was told early in my business career that I must make sure to keep my business accounts and personal accounts separate. When I first began running my own business I simply added a second checking account to use for business purposes. There was no cost to do so I was able to set my income aside in this separate account.

I also set up a savings account to set aside my taxes each month. This was a big help at the end of the year knowing that all of my taxes were set aside and I could relax instead of scrambling to come up with the money.

Keep good records

Another way to keep tax season stress-free is to keep business receipts throughout the year. I keep a separate file in the filing cabinet next to my desk just for this purpose. This way I have everything in one place when tax season arrives. If you don’t have room for a filing cabinet, consider an expandable folder categorized A – Z. That way you can still divide up the taxes by topic, and won’t have to do that come tax season.

Keep records of your business expenses throughout the year. Request a list of items from your accountant or tax professional, so that you will know what items to track. Be sure to ask what counts as “business expenses.” There are certain deductions that you can take for your home, car, and utilities. Consult your tax professional about these deductions.

Know Your Tax Facts

It’s important to know the date that your taxes are due. Many S corporations are surprised when they discover that some of their tax forms need to be filed by March 15th and not April 15th. Another surprise to some home-based businesses is that if you pay subcontractors over $600.00 a year, you need to send them a 1099 by the end of January.

There are many places online to find more information about taxes. One great place to find more information is the Internal Revenue Service (IRS) website at www.irs.gov. They have sections with helpful information on both personal and business taxes. They also list contact information for local IRS offices where you can also find help.

Don’t ignore the taxes involved with running a home-based business and hope it will all work itself out. It takes planning and effort to be prepared for tax season. Do your homework when it comes to taxes and find an accountant that you trust to guide you through the tax maze. With the right preparation and help your tax season can be stress-free.

Jill Hart
http://www.articlesbase.com/home-business-articles/tax-tips-for-the-homebased-business-owner-114280.html

Trying to get a handle on the complex world of small business taxes? There are plenty of good resources available, both online and offline, for free and not-so-free.

I’m assuming you want to postpone spending any money on a topic you may prefer not to touch with a ten-foot pole let alone a ten-dollar bill. So let’s review some of the least expensive tax resources available. Is free a good price for you?

Believe it or not, the IRS has a plethora of free resources for the business owner. The place to start is the Small Business and Self-Employed Tax Center at www.irs.gov/businesses/small/index.html.

Now before you go there and start clicking away until your head spins, let me give you a heads up on how to best navigate the IRS web page. First, you need to know what type of business entity you own: sole proprietorship, S corporation, C corporation, limited liability company or partnership.

Once you have that basic piece of information in mind, click on the link “A-Z Index for Business” and you’ll be taken to a page that is organized by the various types of business entities listed above. Under the heading “Business Types”, click on your particular business type and you’ll be taken to a page that provides just about everything you need to know about taxes for that entity.

For example, let’s assume you are a sole proprietor. So you click on the Sole Proprietor link and you’ll be taken to a page that contains a chart for all the major income tax forms you’ll need, organized according to the type of tax. For income tax, there are links for forms Form 1040 and Schedule C. For Self-Employment Tax, there’s a link to Schedule SE. If you have employees, there are links to the various employment-related tax forms (Forms 941, 940, W-2, etc). This is a very handy chart because it gives you the big picture for all the main types of business taxes and their associated tax forms.

Below this chart is the heading “References/Related Topics”. Under this heading is a clickable list of several excellent resources that you can view online or download as free PDF files. Two of the best IRS small business publications are listed here: Publication 334: The Tax Guide for Small Business (for Individuals Who Use Schedule C) and Publication 583: Starting a Business and Keeping Records. Pub 334 is 53 pages and Pub 583 is 27 pages, so you’ll get plenty of information at a bargain-basement price.

After checking out the resources applicable to your particular entity, you can return to the Small Business and Self-Employed Tax Center and find dozens of other useful articles, updates and publications. Be sure to check out the Online Learning and Educational Products link. Here you’ll find both audio and video presentations by IRS staff on a number of small business tax topics.

Take advantage of these free tools and benefit from your tax dollars at work. For the small business owner who prefers not to spend a dime on tax advice, the IRS website is a great place to start.

Wayne M Davies
http://www.articlesbase.com/business-articles/small-business-tax-tips-where-to-find-free-tax-information-707103.html

That’s right, you can take advantage of the IRS tax code and save a lot of money that you’d otherwise send to Uncle Sam by doing what you love.

The secret is to simply set yourself up as a small business and take tax deductions for related expenses! This is very easy and inexpensive to do. You can then turn many personal expenses into business one that you can deduct!

It doesn’t matter if you are retired (in fact this is a perfect time) or just getting started in life. You can start doing a business in virtually any niche or subject that you love or have a passion about.

For example, if you are passionate about photography, there are multiple ways to offer a product or service to others for a fee, commission or whatever. I have a retired client that loves to travel to Italy. In fact they are on their way there as I write this for an extended trip.

Wouldn’t it be nice if the IRS would make virtually all of their travel expenses deductible?

There are multiple ways they could accomplish this in return for a little effort. They could write a travel guide to the particular region they will be staying in with reviews on restaurants, museums, stores, things that are a “must” see or do and other things that are worth skipping and why.

It could be just published as a $19.95 e-book. Don’t want to write anything? What about organizing a trip for others with you as their “guide”. Simply organize a trip with friends from church, old schoolmates, etc.

You can either become a travel agent or work with one to put together a trip making a profit on the
difference between the costs the airlines and hotel charge and the “package” that you offer it for.

If you love horses, you might be able to offer rides for a fee at birthday parties or church events.

I could go on and on with potential ideas of taking something that you love to do and making it into a business to enable you to save thousands of dollars on your taxes. But let’s discuss how this works in general terms of taking your “expenses” and deducting them from your tax return.

But first you have to set up your business. Yes, you can incorporate (or set up an LLC) and I would highly encourage you to do so.

In some states you have to go to the court house and fill out a form known as a “DBA”. That’s for “Doing Business As”. So you could say… Jane Doe (your name) doing business as Tax Saver and Associates.

Your business does NOT have to make a profit in order to legally take those deductions…. but it does need to have a “profit motive”! Under the IRS rules, a profit motive is presumed if you earn ANY net income during any 3 out of 5 tax years.

In fact, your business need NEVER actually be profitable to keep your business deductions going as long as you can keep proving a profit motive. Did you know that Amazon.com has yet to show a profit after all these years and billions of dollars in sales? But nobody could successfully argue that they don’t have a profit objective.

There are a number of tests or standards that would indicate that there is the goal to be profitable which nclude the manner in which you conduct your business, the effort and time that you can prove that your devout to uour business, your expertise in that field. Do you have business cards and letterhead? Are you keeping accurate records, have an outline of a business plan written down?

Then, you will be able to deduct most or all of your expenses directly related to your business or “hobby for profit”. If you have a home office, you’ll have a number of other partial potential tax deductions such as: office furniture and equipment, deprecation, homeowner’s insurance, utilities and more.

Like to travel? How would you like for the IRS to help you pay for some or all of your travel expenses? On ANY type of business or niche there are many conventions, conferences, functions or similar businesses that you can meet and learn from — all over the WORLD – that you can go to.

On any given day there are literally hundreds of seminars and such on going on. If you are a little bit creative, you can “justify” why your business made the decision to invest the money to attend to learn and network with others in your field.

If you follow the IRS rules, you can deduct all or much of your travel expenses to get there, your hotel, your food, cab fare and so on. Where and when do you want to go? Just look for something going on that might make sense for your business and let the IRS help you pay for it!

Start a business and slash your taxes today!!

Mark J. Orr, CFP
http://www.articlesbase.com/business-articles/slash-income-taxes-by-doing-what-you-love-127850.html

LIHTC, or the low-income housing tax credit is an indirect subsidy from the Federal Government that can be used to finance affordable rental housing for those with a low income. Local housing and community development programs can use these tax credits to increase the amount of affordable housing in their local community.

How It Works

The program is based on Section 42 of the IRS Code, and was first enacted in 1986 in order to give incentive for private markets to invest in affordable housing.  The credits are awarded to the developers for qualified projects, and then they are sold to investors in order to raise capital for the project. Since the debt load is shouldered by the developer in low income housing unit projects, they can afford to offer their units as a cheaper rental rate.

The investors then receive a dollar-for-dollar credit each year over the following ten years, which they can use to reduce their federal tax liability. The amount of the credit awarded depends on the amount that was originally invested in affordable housing projects.

Allocation of Tax Credits

Every year the IRS allocates the LIHTC to designated agencies in each state. These agencies then award the credits to qualified developers. The tax credit limit per state is $1.75 per resident, per year. Beginning in 2003 this amount is adjusted annually for inflation, and you can visit the U.S. Department of Housing and Urban Development website for more information on tax credits available by state.

Each state has two years to use their tax credits allocated annually, after which time the credits will be returned to the national pool to be re-allocated. The state agency will award tax credits based on a competitive process to find projects that serve the lowest income families and are structured to remain affordable for as long as possible. Ten percent of tax credits must be allocated to non-profit groups.

Determining Eligibility

Each proposed project must adhere to certain guidelines to be considered eligible:

1)      The project must be a residential rental property.

2)      It must commit to one of a possible two low-income occupancy requirements.

3)      The completed project must restrict rent and utility charges.

4)      The building must operate under rent and income restrictions for at least 30 years.

Low-income tax housing credits can be awarded to developers of existing buildings, as long as the building has not changed ownership in at least 10 years prior to acquisition and has not been in service for the same period of time.

Rent and utility costs on an eligible building must not exceed the applicable limits set by the LIHTC, and must remain within these limits for thirty years.

Green Research Council

If your company is planning to make the change to renewable energy then it would be advantageous to look into the Production Tax Credit that is contained in the American Recovery and Reinvestment Act of 2009. The incentive offers tax credits of 2.1 cents per kWh for the first ten years when companies make the switch to energy systems that generate wind, solar, geothermal or closed-loop bio-energy.

Other technologies are also eligible for a tax credit of 1 cent per kWh for ten years, including open-loop biomass, incremental hydropower, irrigation, landfill gas and solid waste systems. Each of these types of energy systems has to be put into place by the end of 2013, except for wind energy systems which have to be implemented by the end of 2012.

For companies who are unsure of the production capacity of their new energy system it may be more advantageous to make use of the 30% installation tax credit instead. This tax credit is offered in lieu of the Production Tax Credit in order to entice businesses to convert to renewable energy sources.

There is also a grant system in place which is offered by the Treasury Department, which gives the owner back 30% of the value of the installed system for wind, biomass, geothermal and solar energy systems. Other systems can receive a grant of up to 10% of the system’s value. The grant is offered in places where a tax credit wouldn’t be utilized to its full potential, such as for businesses with low taxes.

It is hoped that by offering this range of incentives for renewable energy systems that there will be a two-fold benefit of increased reliance on renewable energy systems as well as an improvement in the health of the economy with increased capital spending. On four separate occasions the PTC was set to expire – in 1999, 2001, 2003 and 2005 so it is likely that at the end of this period there will be no more renewals unless a long-term policy is introduced.

Business owners across the United States should get started now on converting to a new energy system before they miss out on a big opportunity to save money. With the availability of the Production Tax Credit, 30% tax credit on new systems and the grant offered by the Treasury department it is more affordable than ever to switch to greener energy at the office.

Green Research Council