All Financial Matters

Finding the Right Tax Preparer

The tax preparation and filing process is easier than ever these days. With software like TurboTax, people can do their taxes at home without any significant problems. The software checks the work and explains each step to you. But for a small business, whether home based or in a storefront, the job of preparing taxes can be more complicated. If you need a tax professional, find one to fit your needs.

People are afraid to make a mistake on their taxes. They have nightmares of officials in dark suits with shiny badges coming to arrest them in the middle of the night for tax fraud. Besides the fact that we probably watch too much television, there is nothing to worry about. If you are in doubt about your skills in the tax department, there is no shame in hiring a professional.

All tax preparers are not the same. During the months of January through April, you can find a tax preparer on every corner and in every newspaper. People advertise their services for tax preparation all over the place. Unfortunately, some people have been badly burned by a crooked preparer.

Do some research before deciding on a person to choose. What are their credentials? How long have they been doing taxes? Are they familiar with small business deductions and tax forms?

Small businesses require more knowledge on the tax end than individual returns. A tax preparer who has worked with other small businesses is a must. Even if you are new to business tax laws, they have all the forms you might need to file your taxes. They can answer your questions about small business related exemptions and deductions. If they can’t, they know where to find the answers.

Some tax preparers like H&R Block or Jackson Hewitt may deal with small business returns. Ask about their expertise before sitting down with just anyone. It is better to ask now and not get cheated out of money that is due you from the IRS.

Accredited tax advisors and preparers have received their accreditation from the Accreditation Council for Accountancy and Taxation. They have completed ninety hours of continuing education in addition to the requirements for accreditation. These individuals have been trained to handle small business tax returns and to find all the deductions you need.

Certified Public Accountants (CPA) are also qualified to do tax returns for small businesses. These individuals have taken state exams to certify them as public accountants. If you do find yourself in trouble with the IRS, they can represent you in the case.

A search of state websites for tax preparers can give you names of accredited tax preparers and CPA’s in your area. Don’t go it alone. When your tax return needs an expert touch, search for a professional to help you out.

Employee or Independent Contractor?

There is a difference between an employee and an independent contractor when it comes to classifying the two for tax purposes. Misjudging the distinction could cost the company money in fees and penalties. Below is a description of both so that an employer can avoid trouble due to mistakes.

An employee of a company is someone who is subject to the rules and regulations of the company. The job they perform is dictated by the company, which also directs how they do their job and when. Employees may work at home for an employer but they are still working for the company.

An independent contactor is also referred to as a freelance worker. This classification includes artists, actors, writers, and others who perform on a per job basis for a client. Independent contractors have the right to control how the work is done and what is done when they accept a contract from a business. The client only has a say in the look of the completed work.

Independent contractors are working for themselves. Their trade or profession is their business. They are considered self-employed by the IRS and pay taxes according to that classification. Independent contractors receive a 1099-MISC form from each business they deal with showing the amount of money paid to them for their services.

Any business that engages employees is required to pay taxes for those employees. Social security, unemployment, and Medicare taxes are paid by the employer for each employee. The company determines the amount of federal and state taxes withheld based on W-4 information provided by each employee. Employers also provide medical and disability insurance for them if they want it.

Independent contractors are not employees. They receive the full amount for their contracted services. Employers are not required to pay social security or Medicare taxes for them or provide any benefits. Their only cost is the expense of the work.

Mistakenly paying an independent contractor as an employee or an employee as an independent contractor can cause confusion. Independent contractors are responsible for paying their taxes based on their earnings for the year. Since they are both employee and employer, they are taxed at 15.3 percent for social security and Medicare. An employer only pays half of this amount and the employee pays the rest. Independent contractors owe for state and federal taxes as well.

Companies who classify telecommuting employees as independent contractors aren’t paying their requisite portion of taxes owed to the government. When this mistake is discovered, employers are assessed for the full amount of the unpaid taxes as well as a penalty. Depending on how long it has been going on, the sum will be large.

Consider the work of each person in your company carefully. Use the explanations above to determine whether they are independent contractors or employees.

Do I Have to Pay SE Tax?

Self-employed individuals have more forms to look at than just the 1040. All those forms can be daunting and start to look the same. Before you start pulling out your hair, find out if you are subject to pay any self-employment taxes.

The self-employment tax applies to individuals who have been deemed “self-employed” according to the IRS. Self-employment is determined by the ownership of the business or trade that you engage in. When the decision about how to direct the method of providing those goods and services rests with you, then you are self-employed. Freelancers and independent contractors are considered to be self-employed as well.

The business enterprise can be home based or run in an office building downtown. It can be conducted completely on the Internet or from your garage. The location doesn’t matter. The government looks at the amount of profit that is received.

As a self-employed person, if the business earns $400 or more during the previous year, that money is subject to the self-employment (SE) tax. Church employees who earned more than $108 and didn’t receive a W-2 form are subject to self-employment tax. The W-2 form shows what taxes are deducted from your pay by an employer. Without it, you are an independent contractor and are classified as self-employed.

Now, the money that you make will have deductions and exemptions that apply just like people without businesses. Anything that factors in to lower your taxable income will lower the tax bill at the end of the year. People who have an idea that they will owe more than $1,000 in taxes can pay their taxes throughout the year on an estimated basis.

In addition to the 1040 form, self-employed individuals fill out a Schedule SE form. The form details who qualifies to fill out the form and whether you must use the short SE or the long SE form. A flowchart on page one directs the filer to one or the other.

Most individuals with small businesses and church workers without a W-2 fill out the short SE form. Businesses that made over $97,500 in the tax year are required to file the long SE form. Individuals with unreported tips and uncollected social security or Medicare taxes for wages earned are required to file the long SE form, too.

Each line explains what needs to be entered there. You will enter the amount of earnings for the tax year before deductions. Tax deductions that may apply are recorded on a separate form that works in tandem with the Schedule SE.

There are additional requirements for businesses with employees. Employment taxes must be paid for each employee. If you’ve ever looked at your check stub, this is the federal, state, social security, and Medicare amounts. Visit www.irs.gov for more information on self-employment taxes for individuals and businesses with employees.

Am I Considered Self-Employed?

During tax time there are often more questions than answers among tax payers. Everyone wants to know what deductions and exemptions they qualify for so that they don’t have to pay a lot of money to the government. One question that is asked concerns the issue of self-employment.

Am I self-employed? People have hobbies and leisure time activities that have made them money. EBay is a popular way to make extra money by selling the things we have lying around the house. But, does that qualify me to be self-employed? Let’s find out.

According to the IRS, a self-employed person is someone who is the sole owner of their business enterprise. It also includes independent contractors. Independent contractors sell goods and services to others but they are the ones who decide how to do that.

The term “self-employment” covers a variety of individuals. You don’t have to have a business name on file to be considered self-employed. Your business as a freelancer whether it is writing, photography, or another enterprise may not necessarily require it. Online work with a service where you don’t need to advertise for yourself may not facilitate the need to think of a business name.

On the other hand, if you have drawn up the business cards and are handing them out like candy, you are the owner of a business. You have a name and a product that you want others to buy. The work that you do is client driven, but the control over how the work is completed is still in your hands.

Office space doesn’t dictate whether you are self-employed. Small business owners work from their homes out of one room. The trend is towards lower overhead to maximize the amount of profit and lower the cost it requires to get a new business off the ground. Catering businesses have been started out of home kitchens. Toy businesses can be started in your garage.

Having another job doesn’t affect self-employment status either. Working for someone else from nine to five Monday through Friday won’t keep the government from viewing your other money maker as a separate business. The business can be a part-time enterprise that you started to make extra money.

All of these people are considered self-employed individuals according to the federal government. Once it has been determined that you are self-employed, think about applying for a business license and making it official by registering the name of the business. Freelancers and other independent contractors are included in this group.

Self-employment distinctions are important for tax purposes. There are filing requirements for the self-employed and additional forms to use. No one wants their friendly business enterprise to run afoul of the law.

For more information on self-employment designations, visit www.irs.gov/businesses. They provide articles on all aspects of business from small home-based businesses to larger enterprises.

What is a Home Warranty?

Every home needs protection. At some point during the course of owning your home, you will need to replace, clean, or repair appliances and other structures. A home warranty helps owners to pay the cost when things break down.

A home warranty is a new home buyer’s best friend. It covers the structure of the home and appliances should something go wrong with them. This is especially good news when buying an older home or one that was not built for you.

A home buyer can negotiate the purchase of a home warranty plan. Sellers may pay for the plan as a way of getting their asking price for the home. Both parties could go fifty-fifty. It all depends on what is typically done in your area. Most sellers don’t want to have to deal with calls from buyers about broken appliances after the closing. They may pay for the plan to avoid this.

Home warranty plans can cost as much as $400, which is not expensive when compared to the cost of repairs. You could catch a warranty company when they are running a sale and get a discount on a yearly plan. The policy is paid a year at a time and can be renewed when it expires.

This is how a home warranty plan works when something is in need of repair. If an appliance stops working, the buyer calls the warranty company. They describe the problem and the warranty company then contacts a repair person who can handle the problem. The repair person contacts the buyer to set up an appointment. The repair person will fix the problem if they can; if not, the item in question will be replaced according to the terms of coverage. A service fee is assessed by the repair person for the buyer to pay.

Items that are usually covered by a general home warranty include but are not limited to:
• Hot water heater
• Air conditioning
• Heating system
• Duct work
• Ceiling fans
• Electrical wiring
• Stove
• Dishwasher
• Garbage disposal
• Telephone wiring
• Doorbells

Any item that is included in the plan can still be denied payment under the plan. If that happens, you are liable for charges incurred for the services performed. Contact your real estate agent immediately. Tell him or her about the entire situation. The representative for your agent will contact the warranty company to straighten out the problem and come to some sort of agreement.

Payment can be denied if it is determined that the appliance was improperly maintained or violated a safety code. A buyer who installed the item themselves and did a poor job can invalidate their home warranty.

Check your coverage and upgrade for your needs if necessary. If you follow all suggested uses for the item and only allow professionals to do installation, you should be covered when something breaks down.