Whether you are working on your business part-time, operating as a sole proprietor, or starting a business with a more formal structure (such as a partnership or corporation) – it’s vital that you keep your business banking separate from your personal finances.

Keeping the two separate not only provides your business with credibility, it reduces your personal liability (a must if you are incorporating your business as a distinct and separate legal entity under its own name) and helps you to manage your taxes, bills, and other payments. (more…)

For small business owners, tax breaks often come in the form of tax deductions – which can offer a nice little instant cash savings – if you know how to navigate tax law and claim the deductions you deserve (not what you believe you are entitled to).

Large tax deductions are a notorious red flag for the IRS, with home-based businesses, in particular, facing an increase in tax audits due to suspicious deduction activity on income tax returns.

To help you navigate the complex world of business tax deductions, here is some foundational guidance that will help you take the deductions that you deserve. (more…)

Around the beginning of the year, employers typically ask their employees to provide new W-4s. You may have already done that. If you have updated your W-4 recently and did so without knowledge of the consequences, it may be appropriate to revisit the issue and have this office assist you in completing an appropriate W-4 that suits your unique circumstances.

Owing money at the end of the year or receiving excessively large refunds while struggling to make ends meet during the year may be an indicator that your W-4 has been incorrectly completed. There are many factors to consider when completing a W-4, such as those involving individuals and couples with multiple jobs and people who are having children, getting married, getting divorced or buying homes – and the list goes on! (more…)

That is the result of a new stimulus provision included in tax legislation passed late in December last year that takes the place of the Making Work Pay credit that expired at the end of 2010.

This new provision reduces employees’ Social Security (OASDI) payroll tax withholding by a full 2 percentage points from 6.2 percent to 4.2 percent of wages paid. The reduction applies to all wage earners regardless of income. The employer’s share of the payroll tax is unaffected. For wage earners with payrolls in excess of the $106,800 payroll tax cap, their savings for 2011 will be $2,136 (2% of $106,800). The OASDI portion of the self-employed (SE) tax for self-employed individuals would also be reduced by 2 percentage points, reducing the overall SE tax from 15.3% to 13.3%. This reduced Social Security withholding will have no effect on an individual’s future Social Security benefits. (more…)

Not all individuals are required to file tax returns. If your income is less than the sum of your standard deduction and personal exemptions, you are generally not required to file a tax return. There are, however, circumstances where you may have to file anyway based on certain types of income or special circumstances.

Even if you are not required to file, it may be in your best interest to do so. The following are some of the instances in which you may want to file a tax return even though you are not required to do so. (more…)

If you are helping support your parents, you may qualify to claim a tax benefit if you are providing over half of your parents’ support. But you may be having difficulty showing over half of the support for both parents, thus failing to qualify for the dependency exemptions (and for the beneficial head of household filing status if you are a single taxpayer).

You may overcome this problem by designating the support to only one of your parents.  This may allow you to claim at least one parent as your dependent and, if you are unmarried, permit you to file as head of household. (more…)

Some tax rules affect every person who may have to file a federal income tax return; these rules include dependents and exemptions. Here are some important facts you need to know that are related to dependents and to claiming exemptions on your tax return.

• Exemptions reduce your taxable income – There are two types of exemptions: personal exemptions (one for the filer or two if married taxpayers are filing jointly) and exemptions for dependents claimed on a tax return. For each exemption claimed on the tax return for 2010, a $3,650 deduction is allowed. For example, a married couple filing jointly with two dependent children would be allowed 4 exemptions for a total deduction equaling $14,600 (4 times $3,650). (more…)

If you paid someone to care for a child under age 13, or a qualifying spouse or dependent to allow you to work or look for work, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return.  To qualify, your spouse, children over the age of 13, and other dependents must be physically or mentally incapable of self-care.

The good news is that increased child care benefits provided as part of the Bush era tax cuts have been extended through 2012.  That means, instead of the credit percentage dropping to 30%, the higher 35% credit will continue for two more years.  In addition, the maximum expenses qualifying for dependent care credit will remain at $3,000 ($6,000 for two or more qualifiers) instead of dropping to $2,400 ($4,800 for two or more qualifiers) as previously scheduled.  The credit is a percentage of the amount of work-related child and dependent care expenses paid to a care provider. (more…)

If your home or business address has changed, make sure that you update this information with the IRS to ensure that you receive any refunds or correspondence from them.  Since the IRS meets its notice requirements by sending notices to your last known address, it is not an excuse that you did not receive the correspondence if you have not provided the new information.

Although no one likes to receive mail from the IRS, other than a refund check, it is important that you timely receive their correspondence and respond promptly.  Otherwise, the IRS will automatically escalate the inquiry, making it far more difficult to deal with.  If additional tax will be owed as a result of an inquiry, penalties and interest will continue to accrue.