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August 30, 2012

Tips to Increase Take Home Pay and Prevent Tax Bills

Now is a good time to adjust your 2012 tax withholding to avoid big tax refunds or tax bills when you file your tax return next year. You should act soon to adjust your tax withholding to bring the taxes you must pay closer to what you actually owe and put more money in your pocket right now. According to the Internal Revenue Service, IRS, millions of American workers have far more taxes withheld from their pay than is required. Then we anxiously wait for our tax refunds to make major purchases or to pay large bills. Wouldn't it be better to have more "take home" pay now? Here are some ideas on what to do to bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees:

Typically you can submit a new Form W-4, Employee's Withholding Allowance Certificate, at anytime you wish to change the number of your withholding allowances. When you start a new job your employer will ask you to complete Form W-4. Your employer will use this form to calculate the amount of federal income tax to withhold from your paychecks. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include: a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date. NOTE: if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.

Self Employed Individuals:

IRS rules are different for those people who are Self Employed. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to determine if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

Want more information? Take a look at IRS Publication 505, Tax Withholding and Estimated Tax, which has information for employees and self-employed individuals, and also explains the rules in more detail. The forms and publication are available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

August 22, 2012

Should You Incorporate or Form an LLC

The decision to incorporate or form an LLC should be decided early on in your business creation as the correct decision can help you maximize your chances of success. Although there are various issues to consider such as costs, ease of implementation, and how you plan to run your business, either choice will provide you with protections and advantages. Below are key factors to consider when deciding whether to incorporate or form an LLC.

Incorporate:

Key advantages of incorporation include: the ability to issue shares of stock to attract investor(s), and the ability of owners to split profit and loss with the business for a lower overall tax rate. Some disadvantages of incorporation include the following: double-taxation for C Corporations (not S Corporations), in which the corporate entity is taxed and then its shareholders' dividends are taxed as well; S Corporations have restrictions on the number of owners; tax liability for a C-Corp or S-Corp varies by state; and numerous recordkeeping requirements (must file articles of incorporation, hold directors' and shareholders' meetings, keep corporate minutes, and hold shareholder votes on major corporate decisions).

LLC (Limited Liability Company):

Key advantages of an LLC is that debtors will go after your company assets and not your personal assets; there are no limit on the number of owners; earnings and losses are passed through to the owners' personal tax returns; there are no requirements for annual meetings in which minutes are recorded; and LLCs don't suffer from double-taxation (corporate entity is taxed and then its shareholders' dividends are taxed). Some disadvantages of an LLC are that owners can not split profit and loss with the business for a lower overall tax rate; tax liability for an LLC varies by state; the inability to issue shares of stock to attract investor(s), and the limited life of the LLC (when a member dies or undergoes bankruptcy the LLC is dissolved). If you have an LLC there is always the possibility of requesting S-Corp status for your LLC.

These are just some of the issues you should consider when deciding which legal structure is best for you. Before you make your final decision you should contact your state's corporate filing office (usually your Secretary of State's office or the Corporations Commissioner), along with your attorney and your accountant so that you choose the best legal structure for your particular business.

August 16, 2012

How to Dissolve Your Small Business

Even though you've worked hard creating and developing your small business, you may find yourself having to close your business for a number of different reasons such as the economic crisis, a lack of funding, a bad business decision, or any combination of these reasons. Don't make matters worse by not properly and legally dissolving your business or you may find yourself with a rash of unexpected expenses. Below is a checklist of things you need to do as you prepare to dissolve your business.

Check your Business Bylaws:

First check your business bylaws. You may have specific dissolution requirements stated in your company's organizational documents.

File Dissolution Papers with All Governmental Entities:

You need to officially dissolve your business with all government entities so that you are no longer liable for business taxes or filings in your state, county, city, or town. Each state uses different terms to describe the dissolution forms necessary to dissolve a business such as: Certificate of Dissolution, Certificate of Election to Wind Up and Dissolve, Articles of Dissolution, etc. These forms set out the disposition of your business's debts and liabilities, the distribution of your business assets, and how you and your co-shareholders elected to dissolve your business.
NOTE: Be sure to check with your particular Secretary of State's office as some states require that you file documents before you notify creditors and resolve claims while other states require that you file documents after that process.

Cancel Permits, Licenses, and Fictitious Business Names:

Be sure to contact the agency that issued your permit or license. Also, if you have a Fictitious Business Name you need to file an "Abandonment" of the name and you may also need to publish it in your local newspaper. Your County Clerk can assist you with the proper form.

Pay Your Taxes:

You must notify the federal and state employment tax authorities that you are going out of business. IRS Form 940, the Annual Federal Unemployment Tax Return (FUTA), and IRS Form 941, the Quarterly Federal Tax Return, both have a section you can complete indicating you will not be filing future returns. You should also review your state withholding and wage reporting return form(s) as they should also have a section that you can complete indicating you will not be filing future returns. In addition, Schedule K-1 (IRS Form 1120S), has a box on the form to indicate that this is the "Final K-1". You should also contact the IRS to close your employer identification number (EIN) account.

Notify all Creditors:

You should contact all creditors and settle any outstanding debts owed by your company. You should also close all bank, service, and credit accounts under your company's name and provide them with an address where they can contact you or the other partners/shareholders.

Distribute Assets:

Take inventory of the assets you have and distribute them among the owners. If you are going to sell any business property, you may also need to file additional forms with the IRS.

Deciding to close your business is a very tough decision to make. Don't make matters worse by neglecting to follow the legal formalities of closing a business or you may find yourself in a worse financial situation. You may want to consult with an attorney to facilitate the dissolution process and make sure that your individual rights are protected.

August 13, 2012

Organizing Your Tax Records

We're more than half way through 2012 so if you don't have your tax-related documents in order you will truly be stressed once tax time roles around. Although it's not a difficult task, it's oftentimes overlooked and ignored until the last minute. Here are a few tips for both Individual tax payers and Small Business Owners that will make your tax time filing easier:

Individual Tax Payers:

According to the Internal Revenue Service (IRS), you should keep records that support items on your tax return for at least three years after that tax return has been filed. Examples of some of the items you would keep include: bills; credit card and other receipts; invoices; mileage logs; cancelled, imaged or substitute checks or other proof of payment; and any other records to support deductions or credits that you have claimed. The IRS also suggests you should typically keep records relating to property at least three years after you've sold or otherwise disposed of your property. Additional examples of records you would want to keep include any documents relating to: a home purchase or improvement, stocks and other investments, Individual Retirement Account transactions and rental property records.

Small Business Owners:

According to the IRS, you need to keep all your employment tax records for at least four years after the tax becomes due or is paid (whichever is later). You also need to keep records documenting gross receipts, proof of purchases, expenses and assets. Some examples of documents you need to keep include the following: cash register tapes; bank deposit slips; receipt books; purchase and sales invoices; credit card charges and sales slips; Forms 1099-MISC; cancelled checks; account statements; petty cash slips; and real estate closing statements. Some electronic records that you may want to keep can include databases, saved files, e-mails, instant messages, faxes, and voice messages. Documents you should keep relating to your business assets (machinery and furniture) include: when and how you acquired the assets; purchase price; cost of any improvements; section 179 deduction taken; deductions taken for depreciation; deductions taken for casualty losses (such as losses resulting from fires or storms); how you used the asset; when and how you disposed of the asset; selling price; and expenses of sale.

Whether you are an individual or a small business owner you will need to gather, organize, and store the above mentioned records. As you gather these records you can store them in binders or a variety of tax-related storage boxes that you can easily find at your local office supply store. If you take the time to create a designated place now for all tax-related documents and receipts it will make it easier for you once tax time arrives or even earlier if you have to prepare a response to an IRS notice or need to substantiate items on your return if you are selected for an audit.

August 6, 2012

Where to Store Your Last Will

Ok, so you've made the decision to get financially sound by preparing your last will and testament. Excellent! You're on the right track! Your will is the document that specifies who is to receive your possessions at the time of your death such as your real estate, bank accounts, and personal belongings. The other decision you need to make is the location of where to store your will. Below are some ideas you may want to consider when deciding where to store your last will and testament so that it will be easily accessible to your executor.

The Executor of your will is the person in charge of carrying out your desires once you pass away. Your executor will need the original will which is signed and witnessed. You need to inform your executor of the exact place where it is kept, otherwise it can be a financial and emotional nightmare for your beneficiaries. Some places you might consider include: safety deposit box, home, attorney, online file sharing, or the county clerk.

Safety Deposit Box:
Many people consider the safety deposit box to be the most obvious place to store your will. Before you automatically make that decision, know your state laws and what documentation may be necessary to access your safety deposit box. If you decide that this is where you will store your will make sure your executor and beneficiaries know where your box is located and make sure that your executor has the legal authority to access your box and take possession of your will.

Home:
You may decide to store the original will in your home. If so, you should store it in a waterproof and fireproof safe. (This safe should be large and heavy or built into the structure of your home to keep the safe from being stolen by thieves.) Again, make sure that your executor and beneficiaries know where your safe is located and how to open it.

Attorney:
This may be a good choice if you are positive that you will keep the same attorney and/or law firm for the remainder of your life. They may charge you a small amount or fee to retain the original will. As stated above, make sure that your executor and beneficiaries know who your attorney is and how to contact him/her. Also, if you choose to keep your will at your home, safety deposit box, etc. you may still want to ask your attorney to keep signed copies of your will in case your will is lost or destroyed. Also, a copy of the original will can sometimes be admitted to the probate court if the original is lost (check your state law as sometimes additional documentation and/or testimony may be required).

Online File Sharing:
Storing your documents in the cloud gives you safety against loss, and 24/7 access from anywhere in the world which allows your executor to obtain your will at the time needed. There are a number of companies that you might want to consider including some that are free. Just do a simple online search and you will find a number of companies from which to choose.

County Clerk:
Some counties may store your will for a small fee. This may be a good choice if you plan to stay in the same county for the remainder of your life. However if you decide to move and want to make a change to your will you will have to travel to your original county to obtain your will, and make the necessary changes. As stated above, make sure that your executor and beneficiaries know where your original will is located.

No matter where you choose to keep your will, make sure that your executor and beneficiaries know where to find it and have legal access to it.

 

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