Archive for the ‘How Business Gets Done’ Category

Additional Resources on Taxes

Friday, July 17th, 2009 by Joe Kristan

While the Tax Update takes its summer vacation, we have serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” The following are “additional resources” included at the end of the chapter. You can buy your own copy of the book at Lulu.com by clicking on the link. We’ll be back to our normal schedule on Monday.
Five websites:
The Tax Update Blog (http:// www.taxupdateblog.com)
Tax Girl (http://www.taxgirl.com)
The Tax Lawyer’s Blog (http://blog.pappastax.com)
BenefitsBlog (http://www.benefitscounsel.com/benefitsblog/)
The official IRS Website (http://irs.gov)
Five Books:
IRS Publication 15 (“Circular E” Employers Tax Guide).
IRS Publication 17 (Your Federal Income Tax).
The Truth About Paying Fewer Taxes, by S. Kay Bell.
Tax Savvy for Small Business, by Frederick Daily
2009 State Tax Handbook, by CCH
Five Questions to ask yourself:

1. Do I really know that I am collecting sales taxes on
the right things?
2. Have I considered whether I have liability for taxes
in other states lately?
3. Have I checked my payroll tax account online to
make sure my payroll clerk or payroll provider has
been making the payments?
4. Has my business outgrown my old tax professional?
5. Is my business structure the right one? Why?
Share

Get to know a good Tax Professional

Thursday, July 16th, 2009 by Joe Kristan

This tax stuff isn’t easy. Get to know a good tax professional for your business. Don’t assume the guy who’s always done your 1040 is right for your business. Ask around, starting with your banker and your lawyer. They may know somebody who is the right fit for your business.
Next: Additional Resources on Taxes
While the Tax Update takes its summer vacation, we are serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” You can buy your own copy at Lulu.com by clicking on the link.

Share

Sales and Use Taxes

Wednesday, July 15th, 2009 by Joe Kristan

We all know about sales taxes. What most of us don’t know is how complicated the rules are. In Iowa, for example, services are exempt from sales taxes. Unless, of course, they are “enumerated” services, in which case they are taxable (sorry, foot reflexologists). An item that is taxable if purchased by a consumer is exempt if bought by a manufacturer, but only if the item is incorporated in the final product. Milky Way bars are tax-exempt in Iowa because they use flour, but a flour-free recipe makes Milky Way Midnight bars taxable.
Which is a long way of saying: find out whether what you are selling is taxable. The base Iowa sales tax rate is 6%. Few things are more unpleasant than having a sales tax examiner present a bill for 6% of your gross for the last three years.
If customers say they are buying for resale, demand a valid resale certificate. Otherwise their non-compliance could become your liability.
“Use taxes” are a backstop for the sales tax system. If you purchase an item that would be subject to sales tax in your home state, but you buy it free of sales tax from another state – maybe over the Internet – you are supposed to pay a use tax for the item to your home state. While the rule is widely ignored by consumers, businesses ignore it at their peril. If you are an Iowa business, for example, it’s only a matter of time before you host a use tax examiner. When they go through all of your internet purchases, it’s amazing how quickly the delinquent tax can add up. Get in the habit of paying use tax on your catalog and internet purchases if you don’t pay sales tax at the source.
Next: Get to know a good Tax Professonal
While the Tax Update takes its summer vacation, we are serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” You can buy your own copy at Lulu.com by clicking on the link.

Share

The wonderful nightmare of state taxes

Tuesday, July 14th, 2009 by Joe Kristan

No taxpayer is more popular with politicians than one who can’t vote. That makes out-of-state businesses a favorite target of cash-hungry pols.
Many growing businesses quickly expand beyond their home state. It’s surprisingly easy to become liable for income taxes in new states – it can take as little as delivering goods in a company vehicle. Any activity in a state beyond soliciting sales for fulfillment from out of state can give you “nexus,” making you fair game for state income tax enforcers.
For taxes other than income taxes, it’s even easier to fall into their clutches. You can get nexus for sales taxes and “doing business” taxes just by having independent agents selling your goods in a state. More states are adopting “franchise” or “gross receipts” taxes to take advantage of the lower nexus standard. Texas, Ohio, Pennsylvania and Michigan are among the most aggressive, but none of the states are shy on this front.
States are becoming more sophisticated in using data mining to identify potential out-of-state taxpayers. As you add new customers, ask yourself what new sales tax obligations will result.
Remember: If you don’t file state tax returns in a state, there may be no statute of limitations if they come after you.
Next: Sales and Use Taxes
While the Tax Update takes its summer vacation, we are serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” You can buy your own copy at Lulu.com by clicking on the link.

Share

Federal Income Taxes

Monday, July 13th, 2009 by Joe Kristan

If your business is taxed on your 1040, your taxes are paid the same way you pay your personal taxes. If your business is part time, you may be able to pay all of your business tax just through withholding on your regular job. As your business grows, you may find yourself needing to make quarterly “estimated tax payments.”
The tax law provides three primary ways for individuals to avoid estimated tax penalties through a combination of withholding and estimated tax payments (withholding payments are normally treated as evenly made through the year):

Share

Mind your payroll tax obligations

Friday, July 10th, 2009 by Joe Kristan

It’s a good bet that more businesses fail because of failure to pay payroll taxes than for any other tax-related reason. When cash is tight, it’s tempting to put off the IRS to pay that howling vendor. For many businesses, it’s a fatal mistake.
When you start a new business the IRS will tell you how frequently you should pay your payroll taxes when they assign your tax identification number. They will update your payment schedule based on the size of your payroll remittances. Keep up with your schedule religiously. If the IRS requires electronic payment for your business, pay electronically; the IRS will penalize you for paying the right amount if you pay it the wrong way.
IRS payroll tax penalties start at 2% for taxes paid as little as one day late and quickly reach 15%. Of course the IRS also charges interest on late payments. And if the business goes under before you pay the payroll taxes, any “responsible person” who fails to remit payroll taxes – whether or not an owner – may be assessed the entire amount of unpaid taxes. The states are no more forgiving.
Many taxpayers outsource their payroll tax obligations to a payroll service. That may well be a wise expenditure, saving you time to grow your business. Even so, you can’t outsource your responsibility for payroll taxes. Be sure to sign up for EFTPS, the Electronic Federal Tax Payment System; this will enable you to check online to see whether your provider is remitting your payroll taxes on schedule.
Next: Federal Income Taxes
While the Tax Update takes its summer vacation, we are serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” You can buy your own copy at Lulu.com by clicking on the link.

Share

Keeping books and records

Thursday, July 9th, 2009 by Joe Kristan

To fill your cigar box you have to keep track of how much is in there. It’s shocking how many businesses founder because they don’t know where they stand financially.
A very small business should start with an off-the-shelf business accounting program like Quickbooks or Peachtree. You should either learn to use it or hire somebody who does. Make sure you keep your source documents, like receipts and purchase orders. You will need them to verify your expenses should the IRS come calling.
For some expenses, you need extra information with your records. For travel and entertainment expenses, you need to record the time, place, people involved and business purpose of the expense. If you use a personal car in your business, you should keep a daily record of your business mileage. When the IRS comes calling, you’ll be glad you went to the trouble.
Next: Mind your payroll tax obligations
While the Tax Update takes its summer vacation, we are serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” You can buy your own copy at Lulu.com by clicking on the link.

Share

Just what kind of business are you running anyway?

Wednesday, July 8th, 2009 by Joe Kristan

Just like the guy who learned in high school that he had been writing prose all along, everybody who has a business has chosen an entity, whether they know it or not.
With rare and specialized exceptions, your business will be one of these, as far as the tax law is concerned:

Share

Keep your eye on the cigar box.

Tuesday, July 7th, 2009 by Joe Kristan

While the Tax Update takes its summer vacation, we are serializing my chapter in “How Business Gets Done: Words of Wisdom by Central Iowa Experts.” You can buy your own copy at Lulu.com by clicking on the link.
Every business, from the humblest hot dog stand to the biggest swaggering conglomerate, has one thing in common: the need to end the day with more cash in the cigar box.
That’s not the same as having the lowest taxes. The businesses with the lowest taxes are the ones that have folded. You can look it up. While paying taxes isn’t the best thing in the world, it’s preferable to business failure.
Your job is to make money. Treat taxes like any other expense: lower them as much as you can without hurting your profitability. The guy with the full cigar box wins, not the guy with the most deductions. If you end up spending your time fighting the IRS over underpaid or late-filed taxes, you won’t be filling the cigar box.
Next: Just what kind of business are you running anyway?

Share