Year End Tax Responsibilities for an Entity

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This is an important message if you have an entity that has a December 31st year end which includes, LLC taxed as a partnership, S corporations, disregarded entities and S corporations.

Since the tax year end is only a few weeks away it’s very important that you touch base with your CPA/accountant to see if there are any last minute tax planning strategies you should implement in December – not in January when the year is over and your chance to reduce your tax bill is gone!

Perhaps you haven’t done December tax planning in the past. That’s common because most business owners don’t pay for any tax planning and just show up to the CPA’s office the following year when the taxes are due. This is the MOST expensive approach because you can’t make retroactive changes.

By the way, if you’re not already working with a CPA/accounting firm we do have a good recommendation for you – but more on that in a minute.

For now, here are a few key end-of-year tax planning strategies you want to have in place:

  1. If you have an S corporation (or LLC taxed as an S corporation) did you have any payroll in 2013? If you only had distributions with no payroll that would be an issue.
  2. Are your books current with year-to-date profit and loss? That’s important because if your business is profitable there may be some end-of-year expenses you can use to lower your net profit and taxes owed for 2013. You can only do that if your profit and loss records are up to date.
  3. Have you properly documented all your deductions throughout the year as required by law?
  4. Even if you had no profits in 2013, will your books and accounting practices for the year be viewed by the IRS as a business or a hobby? They aggressively search for people trying to disguise personal hobby expenses as business losses on a “guilty until proven innocent” basis.
  5. If you’re outside the U.S. are you and your family adequately prepared for U.S. tax rates and tax treaties that apply to your country?

These are all important factors that can be addressed before the end of the year – with a potential for substantial tax savings. Are you working with a tax firm that’s fully supporting you in these areas? NOW is the time for an expert review of your business – it’s important to get these protections in place BEFORE the tax year is over! Plus, you’ll be in a better position for IRS compliance and tax savings going into 2014.

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The Top 6 Dangers Lurking Behind Your Business

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In today’s uncertain financial climate, is there any way to be sure your assets are fully protected? Many business owners, and those who may be considering a startup venture, are unaware of hidden risks that can erode or even erase everything they’ve worked for with virtually no warning.

Fortunately, there are simple, practical steps you can take. By having the right protections in place at the right time, you can ensure that your assets and your peace of mind are secure. Here are the top 6 areas where your assets may be exposed:

  1. Operating your business as a sole proprietorship. In addition to paying higher tax rates in most cases, sole proprietorships are targeted by the IRS for audits more than any other business structure. IRS statistics show that sole proprietorships are more likely to understate income and overstate expenses. This is where many get flagged for writing off hobbies as business expenses. This risk will increase with health care reform and an incoming wave of new IRS agents.
  1. Owning safe assets in your own name. Even though they may have nothing to do with your actual business affairs, any asset held in your own name, such as stocks or precious metals, could be tied up (or lost) in a personal lawsuit. It’s a common myth that living trusts or “dba” operating companies can protect the assets or investments you hold in your own name from liability.
  1. Owning intellectual property in your own name. As with safe assets, holding IP in your own name is also a risky strategy. All the time, materials and sweat equity you’ve invested in any system, product or body of work could be taken away from you if it’s exposed to litigation.
  1. Domain names. In today’s internet economy, many entrepreneurs rely on domain names for a substantial portion of their income streams. Even something as random as a liability claim from a car accident could cripple your business if they go after your domain names for recovery. Although it may seem like a simple way to save time and money in the beginning, the worst place to hold domain names is in your own name or in the operating name of your business.
  1. The ownership of your current company. Even having a separate entity like an S or C corporation does not guarantee protection for your assets or investments, unless you have the proper structural details in place. Many “one price fits all” online incorporation services fail to ask important questions that could mean the difference between security and exposure. Certain high revenue and profit LLCs may be at risk also.
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How the IRS Knows You are Operating a Hobby, Not a Business.

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How the IRS Knows You are Operating a Hobby, Not a Business.

There are many business opportunities to earn an extra income or a full time income.  Many will turn to a direct sales or networking marketing opportunity.

The direct sales and networking marketing industry is a popular option for many because it allows for low overhead and the opportunity for a high income, if and only if, you run it as a business. That part is a challenge for most and many times the difference between success and failure.

Now, the key is NOT your definition of what running a business entails, but what the IRS says about it.

The IRS had a $300 BILLION tax gap and they know there are suspicious activities for which individuals will start a “business” where really it was a way where expenses that where incurred could be written off as a loss against earned income… (not a real business, just a way to justify money you would have spent anyways so now you want to turn it into a tax write off).

On the list of IRS suspicious activities include:

  • Fishing
  • Horse Racing
  • Entertaining
  • Photography
  • Direct Sales/Network Marketing

Why is direct sales/network marketing on the list? The IRS knows the pattern for this industry and why 95% are really running a hobby and not a REAL business:

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