There is a common adage that says the only two things that are certain in life are death and taxes. While death is definitely not certain when it comes to a home business, taxes assuredly are. If you are going to operate a home business, there are some things you need to know about taxes or you may find yourself in a world of trouble.

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I can not think of one person I know who likes paying taxes, doing taxes or talking about taxes; but the fact of the matter is taxes are an inevitable part of life and if you start a home business, they are probably going to be an even bigger part of your life than they were before.

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When you work for someone else, your taxes are taken out of your paycheck and then at the end of the year, you simply file your tax return and you either pay money to the IRS or you get money back. Paying home business taxes gets to be quite more complicated than that. While income taxes are the main concern of those employed by others, home business owners need to worry about use taxes, sales taxes, employment taxes, income taxes and a number of other taxes that may apply to their business.

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The first thing you need to take care of in terms of home business taxes is the process of getting an EIN number. A business’ EIN number is much like a social security number for your business. It is the number that is used when reporting taxes to the IRS. Once you have your EIN number and your home business starts generating income, you are going to have to start making estimated tax payments to the IRS.

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Unlike the annual tax returns you filed when you were employed by someone else, home business owners have to pay taxes on a quarterly basis. For example, you are going to have to pay taxes on the money you make from January through March in April and for the money you make in April through May, you have to pay taxes on in June. The IRS provides home business tax payers with the Electronic Federal Tax Payment System in order to make paying your quarterly taxes more convenient.

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If your home business has employees, you are also going to have to take care of your employees’ income taxes. When you have employees, you are required to withhold their income tax from their paychecks and you must pay that income tax to the IRS. If you have less than one-thousand dollars in income tax liability each year, you can do this annually. However, if your employees’ income tax liability is going to total up to more than one-thousand dollars a year, you are going to need to pay the IRS either monthly or semi-weekly.

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Remember, this only applies to you if your home business has actual employees. Independent contractors are not considered employees and taxes do not have to be withheld from payments made to independent contractors.

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Home business owners also have to pay self employment taxes. Self employment taxes are taxes self employed people pay to Social Security and Medicare. This tax allows you to receive Social Security and Medicare benefits when you retire.

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If you are not sure how to manage your home business taxes, you should hire a small business accountant to consult with you on the best way to approach your tax requirements. Hiring an accountant who is willing to teach you how to do your own home business taxes can be much more cost effective than hiring an accountant who insists on doing all of your taxes for you without any explanation of what is being done.??

As we come to the conclusion of 2008, many businesses have lost money in this year. The economy for 2009 looks very volatile and some industries may start to recover in 2009, while others may take a little longer. One positive area to bring to the table is that the price of oil has decreased significantly and regular gas prices have come down?below $2.00 or so per gallon depending upon your location.

The question through this difficult year where losses have mounted up, why do you have to tax plan? If you were profitable in year 2006 and/or 2007 and paid business taxes in those years, you may be entitled due a tax refund in 2008 to recover part or all of these monies paid in previous years. This tax recovery is called a net operating loss carryback claim…This situation applies to proprietorships, corporations, limited liability corporations, and so forth.

The first part of this discovery phase is to identify whether you are a qualified individual and/or company to recapture monies paid in from prior years…It would be a good idea to obtain from your accountant, bookkeeper, CPA, or your own in house books an updated balance sheet and profit and loss statement for 2008. Additionally, you may want to locate your 2006 and 2007 either personal and or corporate tax returns and review the past years information. If you have paid business taxes in those past years and are in loss situation for 2008, there is a good chance you will be able to recover either partial or all monies paid to the
government for 2006 and/or 2007.

.If you are a farmer and have losses in 2008, you should locate your 2003, 2004, 2005, 2006, and 2007 prior years tax returns because your eligible carryback years extend back for five years. Everybody else, for the most part, can carry back their business losses two years…

Once you have located your prior years tax returns and reviewed the business taxes paid into those years, compare this to the 2008 Profit and Loss Statement. It is good idea that your 2008 information should be current and accurate because it could have a major effect on your decision making. Assuming you are in a loss situation for 2008, you may want to plan you year end cash flow accordingly. For

this illustration, we will assume everyone is on a cash not accrual basis accounting system. Because of your tax situation and the possibility of recovering a tax refund back in early 2009, you may, if cash flow permits, pay more bills in December 2008 than the normal January 2009 payment cycle. The bottom line here is that a qualified professional should be assisting you at this stage because of the cash flow and tax effect though the period ending December 31, 2008. The professional cost vs tax recovery benefit could be a big plus to you.

This carryback claim process is important because it can generate needed working capital if the economy hasn’t recovered in your niche for 2009. Additionally, with all the available acquisition and financing deals available for commercial vehicles, construction trucks, office equipment, computer systems etc, these monies could be used as a down payment or a combination of working capital and acquisition funds.

These carryback claims can be carried back two years, except for farmers, five for them, and if needed carry forward for twenty years. It doesn’t matter what your business structure is…There are exemptions to these rules and you should consult your tax professional for advise on these carry back and carry forward rules.

For illustration the types of industries that would qualify for these carryback losses include construction, trucking, farming, restaurants, all retail shops, mail centers, franchise operations, consulting firms, manufacturers, wholesalers, service providers, This is obvious a partial list of qualified businesses. In addition, the type of entity doesn’t play a role in these carryback claims. There are a few exceptions to the rules, therefore consult a good tax adviser.

In addition to the carry back rules, there are numerous business and individual tax changes for 2008. It would be a good idea to get a head start at the end of this year to understand them and see if there are any you want to take advantage of before December 31, 2008.

In conclusion, 2008 was a trying year for many, but this recapture of tax monies shouldn’t be ignored. If done properly, you can get a head start on 2009 and have a profitable and less stressful year… … Who says Tax Planning is boring

This article is based on the assumptions that 1) You are a small business owner or self-employed person (including home-based and part-time business owners) and 2) You don’t like to pay taxes. In fact, whenever you think about paying taxes, you get so mad you end up all worked up with nowhere to go.

Now, if paying taxes makes you so upset, what have you done about it lately? Why was your tax bill so high last year?

You paid too much tax last year (and the year before that, and the year before that . . .) because you have probably been an innocent victim of many popular myths about taxes.

Here they are. Get rid of them or you’ll be stuck paying too much tax forever.

Tax Myth #1: “I don’t make enough money to worry about reducing my taxes.”

Nothing could be further from the truth. People at all levels of income can pay less tax.

Tax reduction strategies are not just for the rich and famous. No matter how much money you make, you can pay less tax than you currently pay.

In fact, if your business has a loss, you can use that loss to offset other sources of income, such as wages from a regular job, your spouse’s wages, investment income, rental income, and other business income.

And if your business loss is so great that it more than offsets all your other income, you can take advantage of a special rule that lets you: a) Carry back that excess loss to the two prior years, thereby entitling you to a refund of taxes you already paid for either (or both) of those two prior years; and/or b) Carry forward that excess loss to the next 20 future years, so that any income you earn in the future will be reduced by that excess loss.

Tax Myth #2: “Tax reduction strategies are too complicated for me to use.”

Again, hogwash. There are plenty of ways for you, the average American, to lower your taxes.

Tax reduction is not just for the wealthy who pay high-priced attorneys to finagle their way out of paying taxes with sophisticated tax-avoidance schemes, like off-shore trusts and foreign bank accounts.

The average small business owner has plenty of tax reduction strategies at his/her disposal. You just have to know what they are and how to use them.

Tax Myth #3: “I had my return prepared by an accountant, so I know I paid the right amount of taxes.”

There are thousands of excellent, hard-working accountants doing a great job. And if you use a tax professional, maybe he/she has done everything possible to reduce your taxes to the legal minimum.

Based on my own experience, however, I’m convinced that many taxpayers who use professional tax preparers are overpaying their taxes, sometimes by thousands of dollars each year.

Why is that? Well, there are many reasons. The most obvious one is this: Many professional tax preparers are just that: tax preparers and tax preparers only.

A good tax accountant may know how to prepare a tax return in his/her sleep. He knows the forms backwards and forwards. He knows what numbers go on which form perfectly.

But that’s it. That’s all he/she knows.

A good tax preparer is not necessarily knowledgeable in tax reduction strategies. There’s a big difference between a good tax preparer and a savvy tax reduction specialist.

When you look for a good accountant, make sure you find one who doesn’t just “do the returns”, send out a bill and say “Next, please.”

Tax Myth #4: “My tax situation is OK because my BLANK (fill in the blank with a family member or other good friend) takes care of my taxes.”

There are various versions of this myth. Do any of these sound familiar?

“My brother-in-law takes care of my taxes.” “My uncle takes care of my taxes.” “My college buddy takes care of my taxes.”

And of course, the same problem exists with Myth #4 as Myth #3. Even when someone you know and trust does your returns, how do you know that this person is a good tax reduction specialist?

And often, many of these family members or “buddies” are not even professional tax preparers. This person just happens to be “The Family Accountant.” Just like every family has one person who knows a lot about cars (or mutual funds, or carpet cleaning, or whatever), many families have someone who “knows enough to be dangerous” with regard to taxes.

And even if your “Family Accountant” is a professional tax preparer, he’s probably not charging you for the return. He’s doing you a favor. He prepares your return; you change his oil.

My first reaction to this kind of situation (when someone is getting his/her return prepared for free) is this: You get what you pay for. When a family member does your return for free, how much attention can he give to your need for tax reduction strategies? Probably very little.

Tax Myth #5: “My tax situation is OK because I prepare my own returns.”

If this statement applies to you, then perhaps you are a “do-it-yourself-er”. Money is tight and you are used to doing things yourself anyway, so why not save a few bucks each year and do your own returns?

So you’ve spend countless hours over the years pouring over the forms and instructions, trying to figure out how to do the returns. And you’ve done OK. No letters from the IRS, no audits. Hey, pat yourself on the back!

And now that tax preparation software is so readily available and affordable, doing your own return is a breeze. Just key in a few numbers here and there, push the print button, and presto, you’ve got your return done in record time. And now you can even e-file your return with your own computer.

Have you ever heard of the book, “The Millionaire Next Door” (by Thomas J. Stanley and William D. Danko)?

This book describes the common characteristics of millionaires in our country. My favorite millionaire characteristic is this:

Millionaires become millionaires by minimizing their taxes and getting their tax & other financial affairs in order.

Now comes the Million Dollar Question: How do you think millionaires get their tax affairs in order? By doing their own tax returns? Of course not. Millionaires don’t prepare their own tax returns. They have more productive things to do with their time.

Instead, what millionaires do is spend time and money each year on tax planning and tax reduction strategies, not figuring out what number goes on which line of Form XYZ.

So my challenge to you is this: What are you going to do this year to reduce your taxable income?

Are you a believer in any of these myths? Now’s the time to get rid of them, once and for all. Your financial well-being depends on it.

There are a number of renowned tax expert, just one of several home based business tax experts I’ve learned much from, wrote an article if you don’t have a home based business start one today. Specifically, you can probably deduct the business portion of your vehicle expenses on your business tax return.
One really nice thing that can also be included in a home business tax deduction is that up to 50% of any gifts you may purchase that are related to the business, such as to win a new client, can be included in calculating this deduction.
Take the time to go to a good tax preparation website and read all you can about home business taxes. This meant that the borrower had to show up with a mountain of paperwork including personal tax returns, business tax returns, and financial statements in addition to the documents related to the property such as the leases, rent roll, and income and expense history. If you are a small business owner and thinking how it is possible, then here are few business tax strategies for you.
Self-employed/sole-proprietor if you are not using a business entity, your business tax information should be reported on your personal tax return. Per Diem rates and business taxes understanding the internal revenue service and all of its workings when trying to fill out your tax forms can be a monumental undertaking indeed. If you also work a job, be it part-time or full time, in addition to your home-based business it is especially beneficial to you to file a business tax return.
Again, the business taxes from the $100,000 exporter and the $100,000 import-replacer are identical. What if I told you there are online tax software programs that can supply all of the necessary forms for your home business taxes? Look for someone or a company who:

a) Has sufficient years preparing home-based business tax returns

b) Prepares less than the average number of returns between January and April so that your return gets sufficient time and attention.
A business plan, cash flow projections, a statement of personal financial status, past business tax returns and a credit rating report are some of the necessary requisites needed to convince any lender to sanction a small business loan. Thus, business tax lawyers serve as helpful guides for businesses and individuals by planning various methods of tax exemption. There is business tax accounting software that has been programmed for people who are not computer-savvy.
You need to be able to stay in complete control of your individual or business tax profile all year and therefore need to look for an online tax system that will provide live customer services, as well as access to your previous year returns, financial services and various planning tools to assist you. What if my small business tax returns are wildly complex? Census bureau identifies through its data a classification it calls ‘non-employer businesses’ (which is based on internal revenue service (IRS) data obtained from annual business tax forms that are filed).

You would be surprised how valuable your Profit & Loss Statement is and how it can help you manage your business. It can show you if you material, labor or administrative costs are too high or too low. It can also show you the trend in your business so that you can capitalize on favorable trends and mitigate negative trends. And finally, your Profit & Loss Statement can provide the foundation for creating a budget and truly enable you to get control of your costs.

Most small-business owners think of their bookkeeping as a necessary evil that is useful only for the preparation of tax filings. But your Profit & Loss Statement is much more than that. Comparing the current year financial activity to the prior year can tell you how your business is progressing – whether the trends are headed up or down. If they are headed up then you can expand on what you are doing right. This will increase your profits and make your business stronger. Conversely, if the trend lines are heading down, you can identify what is causing the negative trend and then make changes to rectify the situation. Maybe your quality is slipping or your vendors are causing delays in the production cycle. Whatever the problem, by figuring out what is going wrong, you are sure to improve your business.

Another useful tool is calculating costs as a percentage of sales. This calculation will tell you if your material or labor costs are too high and show how your selling and administrative expenses are tracking against sales. Costs that are too high will eventually put you out of business. But costs that are too low are a real danger too. It could indicate a decrease in product quality or reduced customer service.

By digging a little deeper you can identify which product lines are most profitable. It might surprise you that a product receiving little attention has a great gross profit. That is your starting point for a marketing program to push a product with low sales volume but great gross profit potential.

Your Profit & Loss Statement is also a useful tool for creating a budget. Once you have identified your sales streams and costs, you can estimate what those items will be next year. It might surprise you that a small increase in sales without a corresponding increase in costs can have a dramatic positive effect on the profitability of your business. At the same time, increased costs without a corresponding increase in sales can cut deeply into the profitability of your company. This is especially true of labor costs which are often the highest cost in a business.

So take a few minutes and look at your Profit & Loss Statement. Compare it with last year and see how your business in progressing. Then look at those percentages to see if your costs are too high or too low. You will be surprised at how much valuable information is available just by reading your Profit & Loss Statement.

Many small business owners and entrepreneurs are choosing to forgo the traditional, manual methods of preparing taxes or handling payroll and sales taxes by using tax software instead. For simpler businesses, especially sole proprietorships, the most basic tax preparation software should be enough to meet your requirements.

What are some of the different things that tax software can do for small businesses?

1. Simplify preparing and paying state and federal income taxes.
2. Ensure that all the proper deductions are claimed.
3. Make it easier to pay and calculate payroll taxes.
4. Help deal with sales taxes.
5. Make e-filing simpler.
6. Reduce the risk of an audit.

 

To choose the best tax software for  business, first assess your actual needs. You’ll want to select one based on factors such as the number of employees you have, whether or not you do business on a local, national or global level, as well as the overall complexity of your company or business. Then, make a list of each type of taxes you will be responsible for paying or collecting. Be sure to include not only local, state, and federal taxes, but also payroll taxes along with any sales or usage taxes.

Some of the most popular tax software include:

Automatic Data Processing, Inc. (ADP): ADP has a line of tax software, with some specifically designed for small businesses with one to 49 employees. Their payroll tax software completely calculates, prepares, and submits returns as well as tax compliance reports. Other software manages income taxes as well as unemployment insurance taxes.

MasterTax: MasterTax is used by small businesses for payroll purposes and has an easy-to-use user interface for those who aren’t familiar with figuring taxes. Their products include MasterTax Enterprise and MasterTax Service Provider, as well as software for use with intranets and within networks.

Sabrix: Sabrix’s tax management software is used by companies both large and small, and supports global tax transactions, which is excellent for those businesses that deal with clients overseas and need to understand foreign usage taxes. Sabrix also offers an online service that allows potential customers to try their system before buying, and is a leader in providing sales tax solutions to businesses.

Others that deal mainly with sales tax are Independent Systems, which has been in operation since 1977 and offers software for both sales and payroll taxes, and CorpSystem Sales Tax Solutions that features automated returns, access to tax rate databases, and several other helpful tools. For many small businesses, software such as TaxCut or TurboTax that are commonly used by individuals may also be sufficient.

Tips for Buying the Best Tax Software for Your Business

- Software that has the most features may not necessarily be the best for your particular type of business and may make things more complicated than they are.

- If possible, “test-drive” tax preparation software before buying. Many companies will allow businesses to evaluate their software or try demo versions before making any commitments.

- The absolute best tax software will include regular, automatic updates to stay in accordance with current tax laws and requirements.

- Make certain the software you purchase is compatible with your computer’s operating system.

- Ask business associates or colleagues for their recommendations.

The objectives of using tax software for your business should be to avoid the most common mistakes and tax preparation errors, and also to reduce the amount of time spent calculating taxes. Tax software will also enable you to claim all available tax credits, and be sure that your taxable income is accurate.