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October 2018

Four Useful Tax Planning Tips for Small Businesses 

Being able to properly manage the finances of a business is one of the biggest challenges that small business owners face. A key element of efficient financing is developing adequate tax strategies that will ensure compliance and savings. This is why we’ve gathered four useful tax planning tips for small businesses that should help you to stay compliant while facilitating deductions.

Such tips include creating a tax planning calendar, keeping track of all your expenses, and conserving relevant documents. Also, we shouldn’t forget about hiring professional help to handle our company’s taxes. Here are four useful tax planning tips for small businesses.

Create a Tax Planning Calendar

One of the most practical tax planning tips for small businesses is creating a tax planning calendar. This will help us to keep track of important dates and avoid missing headlines. The Internal Revenue Service has an online calendar available for businesses and self-employed that can be of great help. Having a tax calendar is a great way to ensure compliance and submit any relevant form on time.

Keep Track of All Your Business Expenses

Another essential aspect of successful financial management for small businesses is keeping track of all our business expenses. This is also a great tip for efficient and practical tax planning strategies. When we have an accurate and detailed record of every expense that we generate throughout the year, filing our tax return will become an easier task. There are several apps available, specifically designed to help business owners to record and document their expenses.

Make Sure You Conserve Relevant Documents

When we file our business income tax return, we must keep in mind that there are several expenses which can be deductible. Besides keeping track of expenses like payrolls, equipment repairs, or business trips, there are other services we can include. One example would be our business insurance policies.

Even when the expenses might be on the record, we must have a copy of our policies to prove such payments. If we are renting an office or using part of our house as one, showing leases and property documents, utility bills, and other documents will help.

Hire a Professional Tax Consultant

Lastly, one of the most overlooked tax planning tips for small businesses is hiring the services of a professional tax consultant. Having the assistance of an expert available is the best way to ensure efficient tax planning. We must keep in mind that professional tax consultants must be knowledgeable when it comes to IRS compliance. Besides, having a tax advisor available will help us come up with the best tax planning strategies. This, in turn, will result in significant savings for our businesses and companies.

Employer Identification Number: How to Get your Business Tax ID 

One of the most important steps of starting a business is ensuring compliance with the Internal Revenue Service’s (IRS) office. Such compliance requires you to obtain your Employer Identification Number (EIN), or Business Tax ID. This number is unique to your company just like your Social Security Number is to you. The IRS will need this number in order to identify your company and keep track of your tax reports and requests.

Despite popular belief, obtaining our Employer Identification Number is a simple and efficient process. But before we submit our request, first we need to understand what exactly this number is and why we need it. Then, we’ll go over the steps to submit our EIN request.

What is the Employer Identification Number?

The EIN is a unique nine-digit number that the IRS provides to companies and corporations with operations in the United States. The IRS assigns this number to businesses in order for them to identify the company and keep track of tax forms and documents. It is similar to the Social Security Number (SSN) or the Individual Taxpayer Identification Number (ITIN) for individuals.

Besides businesses, the IRS can issue an EIN to employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts, estates, government agencies, and any other business entity.

Why Do I Need an Employer Identification Number?

There are many reasons why our business might need to request an Employer Identification Number beside taxes. Several banks, credit unions, and other financial institutions will ask for the EIN before opening a business account. Getting a business loan, a line of credit or another type of financing might require having an EIN, too.

Also, when we work as self-employed entities or independent contractors, an EIN might work as a valid ID for our clients. This way, we keep our personal SSN safe, and we even look more professional than without.

How Can I Get My Business Tax ID?

Requesting and obtaining our Employer Identification Number is not a complex process, as one may think. The IRS has four different channels through which we can apply for the EIN. Before you begin the process, we recommend this article on how to apply for your business tax ID. Then, you can decide whether to apply online, over the phone, by fax, or by mail.

When you apply online, you will receive your EIN immediately after your information has been validated. In order for you to be able to apply online, you must have a valid U.S. ID number, and your business must be located in the U.S. or territories.

To apply over the phone, you must call the Business and Specialty Tax line between 7:00 am and 10:00 pm, Monday through Friday. Once they have received and validated your information, you will receive your EIN by the end of the call.

To apply by fax, you must complete and send Form SS-4 from your state fax number. This way, you can receive your EIN within the following four business days. When we apply by mail, we must send the same form to the corresponding IRS office. Our EIN is delivered within four weeks.

 

Tax Planning for Retirement: Aspects to Keep in Mind 

Preparing for our retirement is one of the best, smartest financial decisions we must take care of. Giving an early start will only bring benefits in the long run. Which is why we should always consider one of the many strategies of tax planning for retirement. Knowing how each work will help us be more prepared for the future. It will also help us make an informed decision regarding how we want to allocate our savings for when we need them.

Some of the most common strategies of tax planning for retirement include our social security check income, having a 401(k) plan, IRAs, and tax credits for the elderly. There are other options available, but we will only focus on these four.

Social Security Check Income

Most of us make payments to the Social Security program during our years of career. Once we are eligible to start receiving our Social Security check, though, such income might be subject to taxes. A good strategy for tax planning for retirement regarding social security income is being aware of our adjusted gross income. In order to avoid or reduce taxes on or socials security check we need to avoid hitting certain caps. For example, if we hit $25,000 as single or $32,000 as a married couple, our Social Security Check starts becoming taxable.

401(k) Plans

Several employers offer this retirement plan on which they make contributions that will later become retirement resources. This is a particularly interesting strategy of tax planning for retirement because of the options it offers. With a traditional 401(k) plan, our contributions will be made from pre-tax amounts, but any withdrawal will be subject to taxes. With a Roth 401(k) plan, however, our contributions come from after-tax amounts, but withdrawals aren’t subject to taxes.

Individual Retirement Accounts (IRAs)

Another very common strategy of tax planning for retirement is getting an Individual Retirement Account, or IRA. Just like 401(K) plans, there are two versions of IRAs that we should consider. You can opt for a Traditional IRA or a Roth IRA for your retirement funding. Similar with 401(K) plans, you can make contributions to your Traditional IRA account with pre-tax money but having withdrawals subject to taxes. If you decide to go for a Roth IRA, your contributions can come from after-tax money, avoiding taxes on withdrawals. The amounts of our contributions and other restrictions might depend on the adjusted gross income we report, as well as whether we have individual or joint accounts.

Tax Credit for the Elderly

The last alternative for tax planning for retirement includes claiming a tax credit that the IRS offers. If you are 65 or older, or if you retired on a permanent and total disability, you can be eligible for this credit. There are several limits that we can’t pass in order to qualify for this credit, though. To begin with, if we are married, our spouse needs to file a joint return with you in order to qualify. Also, our income can’t go over a certain amount in order to qualify for this credit. You can consult all the details here.

 

Tax Extension Due by October 15th, 2018 

Income tax season finished on April 15th, and by that time, most of us should have filed our tax return. However, there might have been different cases on which such due date wasn’t met. Actually, this was the case for 14 million Americans who requested to have a tax extension, according to H&R Block. And even when filing for this 6-month extension might bring several benefits, we must pay attention no to miss the date.

In order to make the most out of the federal tax extension that is due by following Monday, we need to understand a couple of things. First, we need to know how the tax extension works. We should also be aware of the possible penalties we might face should we miss the extension date. Also, it is important that we remember the IRS offers payment plans and alternatives, just in case we need one.

How Does the Tax Extension Work?

There may be different situations that can impede the timely filing of our income tax return. Missing the April 15th due date happens more often than we think, and the Internal Revenue Service is aware, too. Luckily, there is a federal tax extension form that will grant a 6-month delay on April’s due date.

This is called Tax Form 4868, Application for Automatic Extension of Time to File U.S. Income Tax Return, and you can download it from the IRS website directly. To request the extension, just download the form, and mail it to the IRS once you’ve filled it. You can also do this electronically using tax software.

What Happens If I Miss the Tax Extension Due Date?

Once the IRS has granted the tax extension, we have until October 15th to file our taxes. One important aspect to consider is that the extension does not apply for any payments due. It will only give us extra time to finish the paperwork, but any amounts that we owe the IRS should be paid in April.

We should keep in mind that there are different penalties for not filing our tax return and nor paying them. If we missed the date to file our taxes, we’ll be subject to a penalty of 5% of the unpaid balance. This penalty has a limit of 25% of the tax balance we might have. If we filed our taxes but didn’t pay them, we’ll be subject to a penalty of 0.5% of such unpaid balance, with a limit of 25% also.

Are There Any Payment Plants Available?

The IRS is well aware that there might be situations beyond our control that can impede a timely payment. That’s why they offer different payment plans and alternatives that should enable us to cover any pending balance.

A Short-Term Payment Plant allows you to cover any balance you have in 120 days or less after the due date. This helps limit the penalties and interests you would accrue and doesn’t include any additional fees.

A Long-Term Payment Plan allows you to pay your balance in more than 120 days through automatic payments. This plan does include a fee of $31 if we apply for it online. It also comes with a $107 fee if we apply by phone, mail, or in person.

 

 

Four of the Best Mobile Apps for Taxes  

We can all agree that filing taxes can become a stressful and overwhelming process. Going over boxes and more boxes of receipts isn’t anyone’s favorite activity. However, there are several mobile apps for taxes that can and will simplify the process enormously. During the last couple of years, mobile apps have become much more functional, powerful, and accessible than ever. Even when this kind of software can’t replace the experience and knowledge of CPAs, apps can still get the job done.

Whether we are self-employed and trying to keep track of our books, single or married individuals filing our taxes, or small business owners, these apps should be of great help for the coming tax season. From the popular Turbo Tax, Intuit’s QuickBooks, H&R Block’s, and even the official IRS app, these are four of the best mobile apps for taxes.

Intuit Turbo Tax Mobile App

Turbo Tax is one of the most popular tax preparation software there are available. Their free version allows you to file your 1040A and 1040EZ forms without a problem. If you purchase the Deluxe edition, though (which is also the most popular one) you can maximize your tax deductions and even submit charitable donations into deductions.

Their Premium and Self-Employed versions are ideal for small business owners and freelancer who might need more personalized assistance. The Turbo Tax Mobile App is available for both iOS and Android devices, so you can use it regardless of your equipment.

H&R Block Tax Prep

Looking for convenient alternatives when filing our tax return is essential. Thanks to the H&R Block Tax Prep app, we can get convenience and peace of mind altogether. This app has the option of taking a photo of your W-2 form to scan it, saving time and money.

Not only that, but you also get free assistance from one of the H&R Block representatives. However, H&R Block designed this app to help filing income taxes for federal and state returns. If you need more advanced filing, you will need one of the more complex mobile apps for taxes.

Intuit QuickBooks Self-Employed App

Being self-employed comes with many great benefits and advantages. But keeping track of payments and expenses can eventually become an overwhelming task. That’s why Intuit’s QuickBooks Self-Employed app is one of the best mobile apps for taxes. It will allow you to snap pictures of all your receipts, and then export those for your tax deductions. Intuit created this app with freelancers and small business owners in mind. So, if you have multiple income sources from clients and customers, QBSE is the right app for you. You can purchase the app alone or go for the QBSE and Turbo Tax apps bundle.

IRS2GO

What better way to file your tax refund than using the official Internal Revenue Service’s own mobile app, IRS2Go. It is one of the most complete mobile apps for taxes there are. Even though you can’t really submit your tax forms, the features it offers will definitely simplify the process. IRS2Go allows you to check your refund status, make payments, and find professional tax assistance near you, too. Besides, during tax season, the app provides relevant updates to its users during business days. During the rest of the year, they share policies and other relevant tips to get prepared for the coming tax season.