We all look forward to receiving our paycheck. We can calculate from the number of hours we worked on our salaried amount how much we should get paid. When the check comes, the amount on the bottom line is always less than anticipated. We see a list of abbreviations on the side for deductions made to our gross pay, but what is the difference in all those amounts?

Let’s start with social security. There is always a debate going on about this. Younger employees argue that they shouldn’t be taxed for it since the system will probably have run dry by the time they reach retirement age. They will never see a penny.

This may or may not be true, but it is an employer’s obligation to pay into the social security fund. Each employer pays a certain percentage into the Old Age, Survivors, and Disability Insurance (OASDI) and the employee is taxed for the rest. It is required by law for them to do so. Self-employed individuals are also required to pay 12.4 percent towards this fund since they are considered employer and employee of their enterprise.

FUTA represents the Federal Unemployment Tax Act. This system in combination with state systems provides money for people when they are unemployed and looking for work. Employers are required to pay into this fund for their employees. They are responsible for paying 6.2 percent of the first $7,000 of taxable wages for each employee. Employees pay nothing.

Companies are rewarded for this contribution with a deduction on their taxes. They can claim a deduction equal to their state contribution to FUTA. In addition they can also claim a deduction equal to the difference between what they paid at 6.2 percent and what they would have paid if the state rate was 5.4 percent.

Income tax is the amount of money owed to the IRS by you each year. The government taxes your earnings at a certain rate. One determining factor for this rate is the filing status of the individual. There are five statuses: Single, Married Filing Separately, Married Filing Jointly, Qualified Widow with Dependent, and Head of Household. Single and Married Filing Separately are taxed at the highest rate.

Medicare tax goes towards Hospital Insurance, or HI. Employers are required to pay a 1.45 percent of the Medicare tax for their employees. If you are self-employed, the rate is 2.9 percent. Medicare is a federally funded program that provides medical coverage to older Americans.

Some argue that social security will be used up, but there are also the Medicare benefit and unemployment funds that come in handy should you find yourself living to a ripe old age or laid off of your job. Each tax serves a purpose that benefits us and other taxpayers.

In the world of taxes there are many forms. Most are familiar with the basic forms but there are also ancillary forms that need to be filled out by businesses of all sizes. One of those forms is the 1099 form. It is used to report income earned by non-employees, investment dividends, and interest earned.

These forms are used by companies to report income that was paid out during the year to people other than their employees. For employees, the business will issue W-2 forms. They detail the amount of income made and the tax deductions withheld, including retirement account contributions. If insurance is an option, premiums deducted are recorded here as well.

Independent contractors are not employees of a company. They are contracted to do a specific job for the company. A business is not required to deduct taxes from their income or pay taxes for the contractor. But, the company does have a responsibility to provide the independent contractor with a record of their earnings so that they can file their own tax documents.

Businesses hire qualified independent contractors, or freelancers, to work for them because it is cheaper and lowers their overhead. A freelancer is not an employee so money for insurance, taxes and other benefits need not be paid. A contractor is responsible for figuring their taxes. Essentially, their business is to provide a service for your business.

The 1099-MISC form is completed by a business for each freelancer that they hire. Some do not send out a form for small earnings of less than $600. It is a good idea for every business to send out this form to all their independent contractors even if the amount paid is smaller than that required by law. A copy in your files is good business practice to track your expenses.

1099 forms are sent out for a variety of other reasons as well. The 1099-DIV form is used by mutual fund companies and brokerages to report dividends paid out to individuals. This is income that the person records on their tax forms when filing.

If you have a savings account or interest bearing checking account you will receive a 1099-INT form from your bank. This form reports any interest earned on the money that you have in your accounts. Typically it is only a few cents since savings accounts don’t earn much, but there is a place to record it on your tax forms so you need the information. No one wants Uncle Sam breathing down their necks for fifty cents!

Issuing a 1099 form for all of your contractors is a good rule of thumb no matter how much they have made. The form is further proof for the contractor of the money that they have earned the previous year. It is a courtesy to them and a responsibility for you.

People who own businesses are subject to other tax requirements according to the IRS. This is true even if you have a job where you are an employee and not your own boss. The government might be looking for you to dish out some additional cash on that business enterprise in the form of self-employment taxes.

Self-employment tax is the money that a business pays on the profit that they make. It would be nice to think that a perk of all the blood, sweat, and toil is a tax-free enterprise. Stop dreaming. The government has guidelines for determining who is subject to these taxes and who can slide under the radar.

The IRS has determined that any individual who is the sole owner of their business is considered self-employed. This includes independent contractors and freelancers who work for clients but direct the way that the work is carried out. The final decisions are left up to them and not someone else. People who have entered into partnership with someone else to sell goods or services are also considered to be self-employed.

There is good news for businesses that haven’t quite gotten off the ground. A business has to make more than $400 in net earnings to be required to pay taxes on the profit. This is how much money you have been paid by a client.

As a business entity, you are required to pay taxes on the money that you receive for services rendered. It is not the responsibility of the client to do so. This is a misunderstanding of some freelancers and independent contractors. There are responsibilities on the part of the person hiring you, but paying your taxes is not one of them. If tax dollars are deducted by the client, then they are not a client - they are your employer and the tax rules do not apply.

Self-employed people fill out another form in addition to the standard 1040 tax form. This form is called a Schedule SE. All of the money that they receive is reported on a Schedule C or C-EZ form. All of these forms are available on the IRS website along with information about filling them out.

Self-employment taxes can be paid much like the taxes that an employer pays for their employees. If you anticipate that you will make money that is subject to a large tax bill, this can be paid in increments during the year instead of in a lump sum at tax time. People who will pay $1,000 or more in taxes can fill out a 1040-ES form for estimating tax payments and send in a payment once a quarter. Overestimation results in a refund at tax time.

Know the rules regarding taxes for self-employed individuals. All those forms can be confusing for the savviest person. Make it easy and use a tax preparer to sort it all out.

When it comes to traveling and entertainment expenses for business, they need to be well documented so that no eyebrows are raised with your tax return. We’d all like to take a trip to Hawaii and write it off on our taxes but that may not be possible unless the trip complies with the tax laws regarding these expenses. If you have questions about travel and entertainment relating to your business, read on to find out more.

For travel and entertainment expenses to be considered as deductions, they have to be ordinary and necessary for your business. Ordinary means that they are part of what is considered normal for your type of business. If you are a doctor, talking business with a client in a nightclub may be a stretch. Deducting the cost of a meal in a fancy restaurant may not. You can discuss business in that setting and both of you have to eat.

Necessary means that it is something that is helpful for your business. Traveling to California to meet with a client who lives out there is necessary. Taking your family with you and trying to deduct the expense is not. Any travel or entertainment expense that is used for business and personal reasons has to be divided accordingly for the purpose of business deductions.

There is a wide degree of latitude for travel and business expenses but be sure to document everything. An overnight business trip is deductible if it is necessary. If you arrive and your client has an urgent meeting and must push yours back to the following day, it is a necessary reason to stay another night. The cost of the room, taxi or airport shuttle, plane fare and tipping are all deductible business expenses.

Any form of travel for business that is ordinary and necessary can be claimed as a business deduction. The travel doesn’t have to be yours to qualify. Flying a potential employee to see your company or a client to your offices is an example of a travel deduction. All expenses in relation to his visit are deductible.

Entertainment expenses have to be necessary and ordinary. Showing a client the night on the town while he is in your city may qualify as an entertainment expense that can be deducted on your taxes. Entertainment is a bit harder to justify unless you are someone in the entertainment business, in which case taking clients to nightclubs and shows would be a part of the normal business practice.

Meals that don’t qualify for reimbursement during a trip are subject to a fifty percent deduction. Meals with a client where business is discussed can be deducted as a travel expense when visiting the client. Remember not to try to deduct one event more than once. For example, if you deduct your meals on an overnight trip as travel expenses, don’t try to use the same meals to claim a deduction for unreimbursable business expenses.

Keeping an organizer that lists the dates of your trip plus an envelope for all receipts will ensure that no deductible expenses are missed. Consult a tax professional if there are questions regarding the validity of an expense. If you can prove that business was conducted, the expense should stand.

Starting a small business is one way to supplement your income. Small businesses do not have to operate out of a storefront. They can be started in your home. The government allows small businesses several tax deductions each year that some people may not be aware of.

The government looks kindly on the small business owner. They applaud your entrepreneurial spirit with tax deductions to lower your taxable income. Small business owners pay more taxes than they should because they are not aware of common deductions that are allowed.

1. Start-up costs. The biggest obstacle is getting over the hurdle of start-up costs. It can take a big slice out of the pie but you can get back a portion at tax time. Small businesses can deduct as much as $5,000 in their first year of business for starting costs. Costs include travel, advertising, and legal fees.

2. Vehicle use. The government allows you to deduct certain expenses for business vehicles including mileage. Keep good records for this deduction in case you are challenged on any point. If the vehicle is used for business and personal activities, you can deduct only the amount represented by the percentage used for business.

3. Equipment deductions. All businesses need equipment of some kind. The amount can be deducted all at once, up to but not exceeding $108,000.

4. Entertainment deductions. Who wouldn’t want to have a fancy dinner on the government? Business meetings over dinner or attending business conferences in sunny Florida can be deducted as business expenses. Meals are deducted at a rate of fifty percent.

5. Travel costs. Traveling for business is a tax-deductible expense. Keep your receipts for airline tickets, hotel stays, and meals. Any service that was necessary during the course of the business trip is subject to a deduction. Money spent on family members who are along for the ride is not deductible.

6. Advertising costs. You can deduct for expenses incurred for advertising. This includes print, billboard, radio, and television.

7. Legal fees. Businesses consult lawyers from time to time about business matters or to review contracts. The fees charged by your lawyer are tax-deductible.

8. Charitable contributions. Charitable contributions are tax-deductible based on the value of the item. Money given can be deducted for the actual amount, but goods can only be deducted for the amount received when they were sold by the charity, not what you paid for it originally. This includes cars.

9. Software deductions. Small businesses can deduct the cost of software purchased for exclusive use by the business. The deduction applies for the tax year that the software is purchased.

10. Educational expenses. Knowledge is power and more money in your pocket. Expenses for classes taken to further your knowledge for your present business are tax deductible.

Businesses have a distinct advantage when it comes to tax breaks. Take advantage of all the deductions available to you. Check with a qualified tax professional for further information on these and other tax deductions.