Do you owe business taxes? By Daniel Stoica Accounting Professional

According to the IRS, the form of business you operate determines what taxes you must pay and how you pay them. The following are the four general types of business taxes.

• Income Tax
• Self-Employment Tax
• Employment Taxes
• Excise Tax

Income Tax

All businesses except partnerships must file an annual income tax return.  Partnerships file an information return.  The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established.

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year.  An employee usually has income tax withheld from his or her pay.  If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax.  If you are not required to make estimated tax payments, you may pay any tax due when you file your return.  For additional information refer to Publication 583, Starting a Business and Keeping Records.

Estimated tax

Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer to Estimated Taxes.

Self-Employment Tax

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves.  Your payments of SE tax contribute to your coverage under the social security system.  Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.

• If your net earnings from self-employment were $400 or more.
• If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.

Note: There are Special Rules and Exceptions for aliens, fishing crew members, notary public, State or local government employees, foreign government or international organization employees, etc. For additional information, refer to Self-Employment Tax.

Employment Taxes

When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file.  Employment taxes include the following:

• Social security and Medicare taxes
• Federal income tax withholding
• Federal unemployment (FUTA) tax

For additional information, refer to Employment Taxes for Small Businesses.

Excise Tax

This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following.

• Manufacture or sell certain products.
• Operate certain kinds of businesses.
• Use various kinds of equipment, facilities, or products.
• Receive payment for certain services.

Form 720 – The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return (PDF), consist of several broad categories of taxes, including the following.

• Environmental taxes.
• Communications and air transportation taxes.
• Fuel taxes.
• Tax on the first retail sale of heavy trucks, trailers, and tractors.
• Manufacturers taxes on the sale or use of a variety of different articles

Form 2290 – There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return (PDF). For additional information, see the instructions for Form 2290 .

Form 730 – If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Use Form 730, Monthly Tax Return for Wagers (PDF), to figure the tax on the wagers you receive.

Form 11-C – Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering.
Excise Tax has several general excise tax programs.  One of the major components of the excise program is motor fuel.  For additional information, refer to Excise Taxes.

Do you owe business taxes?

Would you like to find out if you do?

Please consult with a professional.

Follow the Yellow Brick Road to B2B and B2C Social Networking by Daniel Stoica Accounting Professional, Part 10

Following the Yellow Brick Road while using LinkedIn today I noticed a Status Update that my friend Fred McMurray has added a Twitter account for his company Mandatek.

This was the catalyst in my decision to finally join Twitter.

I joined as @DanielStoicaTax

Or is that http://twitter.com/DanielStoicaTax

I am very naïve and look forward to learning about Twitter.

I know that there are a lot of Twitter applications to consider.

I do not know the etiquette of Twitter.

I do not know the basics or strategy of using Twitter.

I know that the basics of social networking remain the same for me:

1. Initiate, Develop, and Nurture long lasting business relationships beneficial to all parties involved.
2. Contribute to others’ success in a direct and immediate way.

If I can find a way to do that, then I will continue using Twitter.

Have you joined Twitter?

What has your experience been?

Do you enjoy it?

Looking forward to your comments!

Starting a Business or a Hobby? By Daniel Stoica Accounting Professional

Most businesses start out small.  As a new business owner you need to know your tax responsibilities.

One common question that a new business owner has to be able to answer is:

Is it a Business or a Hobby?  Answer has implications for Deductions.

Here is the FS-2007-18, April 2007

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Does the taxpayer depend on income from the activity?
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
• Has the taxpayer changed methods of operation to improve profitability?
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:

• Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
• Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
• Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

Did you start a Business or a Hobby this year?

I look forward to your comments and interaction.

Follow the Yellow Brick Road to B2B and B2C Social Networking by Daniel Stoica Accounting Professional, Part 9

Following the Yellow Brick Road while using LinkedIn, I was invited to join other online networking sites.

As I was new to online networking, I obliged and joined a few other networks.

One of the networks that I joined and am still using on a regular basis is BlitzTime.

BlitzTime is a Web 2.0 Networking platform that combines the use of the internet and the telephone for a personable networking experience.  BlitzTime enables me to connect with like-minded people to initiate, develop, and nurture deeper connections.

BlitzTime has been a successful networking site for me.

• I have hired professionals that I met on BlitzTime.
• I have been engaged for a consulting role by a professional that I met on BlitzTime.
• I have entered into strategic alliances with professionals that I met on BlitzTime.
• I have attended workshops and seminars of interest to me.
• I have referred professionals that I met on BlitzTime.
• I have been referred by professionals that met me on BlitzTime

I have been active on BlitzTime for almost seven months and have had over five hundred conversations to date.

I enjoy using BlitzTime as a tool to meet people to whose success I can contribute.

Have you participated in a BlitzTime event?

What was your experience?

Do you enjoy it?

Looking forward to your comments!

Did you start a new business this year? By Daniel Stoica Accounting Professional

Congratulations!  Welcome to Startup Entrepreneurship! Celebrate and enjoy your success!

Do you have an accurate record of your business transactions?

Why should you keep records?

Good records will help you:

• Monitor the progress of your business

Records can show whether your business is improving, which items are selling, or what changes you need to make.  Good records increase the likelihood of your business success.

• Prepare your financial statements

These include income (profit and loss) statements and balance sheets.  These statements can help you in dealing with your bank or creditors and help you manage your business.

• Identify source of revenues

You receive money from many sources.  Your records can identify the source of your revenues.  You need this information to separate business from non-business receipts and taxable from nontaxable income.

• Keep track of deductible expenses

You may forget expenses when you prepare your tax return, unless you record them when they occur or at least before you prepare your tax return

• Prepare your tax returns

Your records must support the income, expenses, and credits you report.

• Support items reported on tax returns

You must keep your business records available at all times for inspection by the Taxing Authorities.  If a Taxing Authority examines any of your tax returns, you may be asked to explain the items reported.  A complete and accurate set of records will speed up the examination, minimizing your cost in time and hassle.

What kind of records should you keep?

You may choose any recordkeeping system suited to your business that clearly shows your income and expenses.  Except in a few cases, the law does not require any special kind of records.  However, the business you are in affects the type of records you need to keep for tax purposes.

How should you record your new business transactions?

Purchases, sales, payroll, and other transactions you have in your new business generate supporting documents.  These documents contain information you need to record in your financial books.

What is the burden of proof?

The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof.  You must be able to prove certain elements of expenses to deduct them.

Do you have an accurate record of your business transactions?

I look forward to your comments and interaction.