Posted By Administrator
Well one thing is likely for certain, small business or businesses for that matter are likely looking at higher taxes in the not so distant future. It is to early to know there final form but they will likely occur in one of the following areas: increased taxes on dividends, increased capital gain rates, increased income tax rates for individuals, or tax rate limitation on deductions.
My advice…..get your money out of your corporation now while you can. No this doesn’t mean bankrupt your company for the fear of future tax hikes and I’m not one for running a business with the fear of taxes, but it it does mean that you should not put off tax reduction strategies now simply because you don’t need the money. Between SEP 401ks, draws for S-Corp owners, dividends for C-Corp owners, section 179 deductions, etc you should be using these and other strategies to your best advantage now while they still exist in there current form.
Undoubtedly the need for accurate tax planning now and especially in the future is going to be at a premium especially for higher income individuals and corporations. Another bit of advice to clients is do not put off tax planning simply because it costs money. Its similar to the analogy of paying a mortgage simply for an interest deduction on your tax return…..“I never want to payoff my mortgage because I receive a deduction for it”. Well what sense does it make in paying $15,000 in mortgage interest for $3,000 in tax savings. On the other hand tax planning does cost money but if the benefits (tax savings) exceeds the cost isn’t it a no brainer? This is one point that I make to all potential clients that have a provider or are provider shopping…….are you sure your getting the most out of your business or are you just paying excessive fees for tax preparation? Regardless of “maximum refund guarantees” maximum refunds are not achieved at tax preparation, but are achieved before the year is over and when you CAN maximize your tax savings!
On an aside one thing I found interesting is many states voting strongly in Obama’s favor will be the same states most impacted by these types of future tax increases.
http://finance.yahoo.com/taxes/article/106659/Where-the-200K-Crowd-Lives
For a free in person consultation fell free to give me a call at 443-927-9161.
Thanks,
Travis Raml, CPA
Posted By Administrator
I don’t mean to be insensitive because I know the economic challenges are tearing lives apart as we speak. However it must be known that these problems were all caused by people chasing the fast or easy money. The late 90’s and early 00’s it was stock regardless of fundamentals. Then it was real estate regardless of the fundamentals. Now its the bank because they forgot the fundamentals. Now its the consumers because they forgot the fundamentals of living on borrowed credit at lifestyles they could not support.
Where ever you fall in all this as a Small Business Owner you must realize, that from this point forward you need to be better. That means the previous tried and true business methods need to be reanalyzed or possibly trashed all together. It means growing when everyone around you is shrinking. Now this is not to say every business has this opportunity, but if you do, you have to realize your businesses survival depends on you, what you do, and who you get help from.
One place to start is tax planning. Most people confuse this with tax preparation and they couldn’t be more wrong. Tax planning for small businesses is a major project. Why? Because there is so much at stake. From month to month your running losses, then profits, then losses…….and then get to the end of the year and you scream yes we made money. Problem is you probably didn’t tax plan with that money. Now say you are a (non corp) LLC and you earned 100,000 in this scenario. Now right off the top the government is going to take almost $16,000 in self employment taxes. No that’s not all, they are then going to tax the 100,000 again for federal and state taxes. Consider yourself lucky if you walk away with 60,000.
No what if I said at the beginning of the year we need to change your filing status, and draw down a reasonable salary until year end at which point we can pay you a bonus because your going to have a great year. The year goes by and we end up with making the same $100,000. But something amazing happen, you save over $6000 (or more) in taxes just because I helped you adequately plan at the beginning. During the middle when you were loosing money and saying this guys an idiot for having me take a salary……..however you came around in the end and are at least $6000 (or more) to the better for it.
This of course is just and example, but an example that happens ever day to clients everywhere. If your up to taking on the challenges of getting your business profitable…….we can help. That means getting down to business and working harder (remember the easy money is gone), it means analysis prepared by a licensed professional with experience in these types of matters. Try asking that of your bookkeeper or bargain basement tax preparation service.
If you looking for the bottom dollar tax preparation and planning then we are not for you. But if your ready for intelligent insight on how to take your business to the next level than you owe it to yourself to just give us a call at 443-927-9161. We offer a free in person consultations and are giving new clients a 25% off towards there 2008 individual tax return.
Thanks
Travis
Posted By Administrator
Date: December 25th, 2008
With the ease and low expenses of forming an LLC, they are quickly becoming the entity of choice of many small business owners. However this type of entity can have some serious drawbacks if you simply form it without seeking some expert advice.
One of the more common mistakes I have been seeing is individuals forming LLCs and assuming they are corporations. In fact they are not taxed as corporations if formed by one individual and instead are treated as an ignored entity for tax purposes. Further the income they generate gets taxed on your personal tax return on Sch C and is subject to SE (Self-Employment) Tax. There are some circumstances where this does not apply, but generally if you run a business with the intention of generating a profit SE Tax applies.
So what is the big deal with SE Tax. Well this is the Social Security (6.2%) and Medicare (1.45%) (also known as FICA Taxes) that are normally deducted from your regular paycheck……..only doubled. You might ask why are they doubled. Well as a self-employed individual you are responsible for the employee and EMPLOYER (same as amount as the employee) share of FICA. No wait it gets worst. Unlike your regular income taxes, SE tax is not reduced by itemized deductions or tax credits.
So how is it calculated? You take your Sch C net income and multiply it by 92.35%. This is your net earnings from self-employment. Next multiply this amount by 15.3% and your have your SE Taxes due. The only real benefit is that you get to deduct 1/2 of the self employment taxes as a deduction on your 1040. But remember this simply reduces your taxable income, this is not a tax credit. You then add this tax with your regular income tax liability to arrive at your total tax liability. SE Tax in many cases can easily equal or exceed your regular income taxes, and if you do not plan correctly can lead to a huge tax headache at year end especially if you were expecting a refund.
So what can you do? My best advice is to contact me and for FREE I will tell you some of the options you have at your disposal. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.
Posted By Administrator
Date: December 25th, 2008
A common request from some LLC owner(s) is to pay themselves a salary. Though it is possible it is unlikely this appropriate especially if the owner filed his or her own LLC filings. Single member LLC’s by default are treated as Sole-Proprietor (an ignored entity and with business income reported on schedule C of his or her personal tax return). Likewise multi-member LLC’s are by default treated as Partnerships (with business income reported on tax form 1065 with income and losses passed through to the partners).
In either case a salary is not permitted by the LLC owner(s). Instead the owner or partners can take distributions which can or can not have a bearing on their taxes. Regardless traditional paychecks and remittance of taxes through the organization is not appropriate.
So what can be done? In this case the LLC owner(s) have a couple options.
1) Continue to take distributions in liu of salary.
2) File form 8832 with the IRS to elect corporate tax status of the LLC with the IRS.
Under option (2) once the IRS has accepted the 8832 the LLC will be recognized as a corporation for tax purposes, and the owner(s) can generally begin to tax a salary.
However, special care should be taken before such decisions are made since election of corporate tax status can not generally be changed for 60 months after the effective date of the filing.
If this or other tax questions are concerning you please feel free to contact me (free of charge) and I will advise you of your available options. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.com.
Thanks,
Travis Raml, CPA
http://ramlcpa.com/
Posted By Administrator
Date: December 25th, 2008
If you’re a small business owner you’ve probably seen those QuickBooks commercials showing the pleased business owners effortlessly entering transactions into QuickBooks and with a few simple clicks everything is complete………..if only if it were that simple.
If you’re a small business owner that has gone done this route there is a good chance that you’ve found yourself saying what did I get myself into. Whether it’s excess transactions, to many bank accounts, unreadable financial statements, or any host of additional problems you’ve quickly discovered that it’s not just a simple click.
First thing I tell clients who find themselves in this situation is don’t feel bad. It really is NOT your fault. The advertisements make it sound simple, and you’re concerned with saving a buck these days………but the fact is maintaining your own books can quickly become an unmanageable task, especially if you’re running most of the day to day operation of your business.
So what can you do? If you are committed to doing the books yourself, than I would suggest that we setup the QuickBooks for you and help train you to be successful. Most of this can be accomplished in just a few hours. If you have a limited volume of transactions and feel you have the time to handle it, this is a great option. We can even do quarterly reviews for you just to make sure your not veering off course during the year. If you have a relatively high volume of transactions or you simply don’t have the time to handle it, then we can do it for you. We’ve designed our services with affordability in mind and can meet virtually any budget.
If you’re ready to end the nightmares then feel free to contact me (free of charge) and we can discuss your situation in more detail. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.com.
Thanks,
Travis Raml, CPA
