Resources

General Tax Tips

• You may qualify to file form 2106 if you have expenses for your job or business that are unreimbursed. Many taxpayers have this and don’t even realize it. This is an itemized deduction.
• If you have self-employment income from a schedule C or you were issued a form 1099, you should strongly consider making a SEP contribution rather than and IRA contribution. A SEP contribution (Simplified Employee Pension) is fully tax deductible and can usually be larger in amount than an IRA.
• If you are self-employed or have self-employment income, you may be eligible to deduct part of your health insurance premiums directly against your income. This could be a big tax saver.
• If you receive a 1099 in one year for money you physically receive in the following year, you do not have to recognize those monies until the following year. You should be sure to note this properly on your return.
• You can deduct certain educational expenses. In general, if the education is required by your employer or is to improve your skills in your existing profession you can write it off. Nowadays, with the need for higher education, this is a deduction that can save big money. Feel free to contact us (link to contact form) on this issue.
• You can deduct a credit charge in the year it was charged, rather than when you pay the bill. Therefore, if you charge a deductible expense on December 20th, but don’t pay the credit card bill until January 17th, you should take the deduction for the prior year.
• If you make a charitable contribution of $250 or more, you should obtain written acknowledgement from the charity and keep it with that year’s tax file. You do not have to enclose the receipt with your filing to the government.
• If you have a child, you must have his/her social security number in order to claim an exemption. This is true regardless of your child’s age. You can contact Social Security at 1-800-772-1213. Make your life easy and just fill out the forms in the hospital when the baby is born.
• If you owe money on your return and you can’t afford to pay it, enclose what you can afford now and file the return with a balance due. Many taxpayers do not realize that the penalty for "Failure to File" is much more than "Failure to Pay."
• The top long-term capital gains rate is 15%. You may wish to cash in on some of your paper profits before year-end. If you have paper losses, you may wish to sell them along with your profits and offset these together. Your should aim for a total combined capital loss of $3,000 for the year.

To Incorporate or Not?

An Overview of Business Structures and Types

• Sole proprietorship
• Standard partnership
• Limited partnership
• Limited Liability Corporation – LLC
• Standard corporation

"S" corporation

• Sole proprietorship
• Most simple of business structures
• Has no existence outside of the owner
• Liabilities are personal to the owner
• Sometimes difficult to establish business loans – personal assets are often pledged
• Owner has full control
• All of the personal and business assets of the sole owner are at risk – unlimited liability
• Files Schedule C with Form 1040
• Makes quarterly estimated tax payments

Partnership

• Agreement between two or more people
• Disadvantage is potential conflict between partners
• Each partner is subject to unlimited personal liability for the debts of the partnership
• Files a Form 1065
• Each partner receives a K-1 reflecting his share of the income or loss
• Each partner should make estimated quarterly tax payments

Limited Partnership

• Combination of elements in both a traditional partnership and corporation
• Has one or more general partners who manage the business and one or more limited partners who are investors with no active role in management of the partnership
• The limited partners are treated much like shareholders of corporations, with limited liability
• Same tax forms as a traditional partnership.

Limited Liability Corporation – LLC

• For federal tax purposes, an LLC is treated like a sole proprietorship if it has only one member (files Schedule C), or a partnership (Files Form 1065) if it has two or more members
• Subject to Texas State franchise tax even though it isn’t really a corporation
• Corporation
• A creation of law – a separate legal entity
• Subject to more regulation – a simple form consists of shareholders (investors), directors (do not own any of the business), and officers (responsible for day to day operations)
• Greater record keeping requirements – Article of Incorporation, minutes of meetings, minimum capitalization of $1,000
• Generally provides a greater offering of non-taxable fringe benefits (must be available to all employees to avoid taxation)
• Has employees – owners do not take "draws"
• Files Form 1120
• Subject to Texas State franchise tax
• Taxed on profits and when dividends are distributed to shareholders, the shareholders are taxed on the dividend received, but under the new tax law, not at ordinary income tax rates
• Must file federal quarterly Employer’s Reports (Form 941) and quarterly state (SUTA) employer’s reports
• Must file annual Form 940 (FUTA) and issue W-2s and file W-3 for the year

S Corporation

• Creature of the IRS, not relevant to state incorporation laws
• Allows small corporations to choose to be taxed at the federal level like a partnership, but enjoy many benefits of a corporation
• Election of S corporation status must be filed with the IRS, all shareholders must consent
• Profit and loss of the corporation is passed through to the shareholders
• Could have suspended losses depending on the basis of investment
• Files Form 1120S
• Shareholders each receive a K-1 reflecting their individual share of profit or loss