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Tag: Business Taxes

  • Do I need a GST or HST number? – MoneySense

    Do I need a GST or HST number? – MoneySense

    Why registering for GST/HST pays off

    The other excellent reason to charge GST and HST is that it pays off in dollars and cents.

    One of the great advantages of being self-employed is that when you charge these taxes, you only give the government what you charged minus the GST or HST you pay on your deductible business expenses. 

    For freelance writers like us, this is the sales tax we pay on printer paper, internet service, professional development workshops and more. The government lets us in essence deduct the sales taxes we pay on deductible expenses from the sales taxes we charge our clients. We then pocket the difference. The amount we save each year is roughly enough to pay for a trip to Europe.

    HST quick method or detailed method?

    The good news is that we don’t have to add up every bit of GST and sales tax we pay on our expenses to take advantage of this. That’s because we use the “quick method” for our calculations. 

    The government gives you two choices for paying GST and PST/HST instalments: the “detailed method” and the “quick method.” With the quick method, you simply pay 3.6% of the 5% GST you collect. In the case of provinces with HST, it’s a percentage of the HST: so, in Ontario, you only pay 8.8% to the government from the 13% you collect. 

    Image by rawpixel.com on Freepik

    The advantage of the quick method is that it’s much less work. You must only add up how much sales tax you charge your clients or customers. My spouse and I use the quick method and find it easy to do our calculations with an Excel spreadsheet. There is no need to keep a detailed account of the sales tax you pay on all the pens, paper, printer cartridges and more you claim as deductible expenses. 

    There’s another bonus to using the quick method. Governments offer a credit of an additional 1% on the first $30,000 of gross revenue. So, for example, in Ontario you pay 7.8% (instead of 8.8%) of the 13% HST you collect for that amount and pocket the other 5.2%. However, if you use the quick method, you must add the credit to your total revenue when you file your income tax return.

    The detailed method involves more work, since you must add up the GST and PST/HST you paid on each of your expenses and subtract it from the taxes you collect to determine the amount you have to pay. But this calculation method is useful if your taxable expenses are proportionately high, amounting to roughly more than 50% of your income. The advantage of the detailed method is that you don’t have to add the amount you retain to your revenue when you file your income tax return. 

    Julie Barlow

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  • How much is capital gains tax in Canada?—and other questions answered – MoneySense

    How much is capital gains tax in Canada?—and other questions answered – MoneySense

    If you are going to sell next year, it is worth paying $833 of tax a year earlier? Think of it like debt. Imagine you can buy a refrigerator and you can pay $2,500 today or you can pay $3,333 in a year. Paying in a year costs you 33.33% more. That is a pretty high financing charge. 

    What about paying that $3,333 in five years? That would be like paying 5.9% interest. Not bad, right? But, because you are paying the so-called “interest” with after-tax dollars, I would say you want a lower interest rate than 5.9% to make it worth it. In other words, if your investments are only earning 5% to 6% per year pre-tax (less after tax), it may not be worth it to effectively pay 5.9% more annually. 

    For most investors earning a reasonable, mid-single-digit return, you might need to hold an asset for closer to 10 years to end up coming out ahead. 

    I am not suggesting you sell everything you expect to sell in the next 10 years before June 25. The budget proposals could be changed before enacted. A new government could change the rules again. You may have personal circumstances that make things different for you. 

    The point here is that if someone is very likely to sell an asset in the next few years that will be subject to the higher inclusion rate, there may be an advantage to doing so before June 25. And, that would generally apply to corporations. For individuals, only assets that would lead to more than $250,000 of tax in a single year.

    Ask MoneySense

    My wife and I own a cottage that will eventually be passed on to our children and at that point it will be a deemed disposition. My question is: Can the capital gain of, say, $600,000 be split up between both of us, each getting $250,000 at 50% and the remaining $100,000 at 67%?

    –Ian

    Can you split capital gains between spouses in Canada?

    When you die, you have a deemed disposition of assets. That would include a cottage. Although a cottage can qualify for the principal residence exemption, I will assume, Ian, you have a home where you live for which you would instead claim this exemption. 

    You can leave a cottage to your spouse and have it pass to them at its adjusted cost base without triggering tax. But you have the option of having the transfer value at any price between the cost base and the fair market value. If anyone other than your spouse inherits, there is capital gains tax payable. 

    This creates an interesting situation with these new changes. If a taxpayer dies and leaves a cottage to their spouse with a capital gain of more than $250,000, there may be situations where you want to declare a partial capital gain on the first death. If the surviving spouse is older, this may be more worth considering. If they are younger, it can be a tougher decision to make to prepay tax that could otherwise be paid many years in the future. 

    Jason Heath, CFP

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  • Get Three Years of This AI-Powered Tax App for Just $50 | Entrepreneur

    Get Three Years of This AI-Powered Tax App for Just $50 | Entrepreneur


    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    Entrepreneurs and business leaders have to keep up with a fast-paced workload throughout a given year. That means when April rolls around and that tax deadline is looming, professionals like these need to save money with deductions and time on the process of filing itself. To help streamline the whole process and maximize savings, you can get a FlyFin AI Tax App three-year subscription on sale for just $49.99 (reg. $252), the best price online.

    Considered the top AI-driven tax platform used by freelancers, independent contractors, and small-business owners — FlyFin uses its machine-learning core to track your business expenses and find every possible write-off so that you can save the most money possible on your taxes without having to take extra time away from work.

    FlyFin features a quarterly tax calculator that helps secure the most accurate estimates possible for what you might owe, and it enables you to pay directly through the app for speedy and efficient processing. In addition to having the app prepare and file Federal and State taxes, FlyFin offers subscribers unlimited access to CPA advice with 24/7 access to a team of experts with a combined 100+ years of experience.

    FlyFin was named the number-one tax engine for freelancers by the Best AI Product of the Year Awards by AITECH. Set yourself and your business up with some relief from the time-consuming annual chore of tax prep, and let this technologically advanced platform help you out.

    You can get a FlyFin AI Tax App three-year exclusive subscription on sale for just $49.99 (reg. $252).

    StackSocial prices subject to change.



    Entrepreneur Store

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  • File Your State and Federal Returns for $25 With H&R Block | Entrepreneur

    File Your State and Federal Returns for $25 With H&R Block | Entrepreneur


    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    There are only two months left until your favorite time of year: Tax season. While that’s a tad early, it’s also true that IRS data shows an overall 15% increase in average refunds so far (according to CNBC Select). If that actually makes you eager to file this year, then you might also be interested in this deal on H&R Block’s Deluxe software.

    It can help you file both your state and federal returns with assistance on more than 350 credits and deductions to maximize the amount you get back — plus loads of other perks. For a limited time, you can get H&R Block Deluxe for only $24.97, normally $49.99.

    H&R Block Deluxe: All-around worry-free filing.

    H&R Block Deluxe is designed to be easy to use, whether it’s your first time filing without an accountant or you’re a seasoned filer. The software will walk you through the state and federal programs step-by-step so you can feel confidence in its accuracy, and those who used TurboTax or Quicken in previous years can easily import old returns and data.

    You’ll also get access to an abundance of resources like 13,000 searchable articles, FAQs, and tips on tax preparation. Uniquely, H&R Block will also represent you in-person in the rare case of an audit at no additional cost.

    Unlike web-based programs, H&R Deluxe is actually a downloadable app for your PC or Mac, so you can save your work and complete it later. This could also be handy to reference when you’re filing next year’s return.

    Use H&R Block Deluxe to file your taxes and maximize your refund, now only $24.97 (reg. $49.99) on sale until February 11 at 11:59 p.m. PT. No coupon is needed.

    StackSocial prices subject to change.



    Entrepreneur Store

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  • Don't Miss a Deduction with This $39.99 Tax Software from H&R Block | Entrepreneur

    Don't Miss a Deduction with This $39.99 Tax Software from H&R Block | Entrepreneur

    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    Whether you’re managing a startup or you’re your only employee, you might be missing out during tax season. In fact, gig economy workers, including freelancers, tend to lose money during tax season through missed deductions, according to one Fox Business report.

    If you want to help your business during tax season, try some software that simplifies the whole process. H&R Block Deluxe Tax Software is a comprehensive solution for individuals looking to simplify the tax filing process, and it comes with a separate Tax Preparation and Deduction Bundle. Get the whole tax package while it’s on sale for just $39.99.

    Stress-free tax season.

    This bundle comes in two parts. The first is the H&R Block Tax Software, which gives you tools to search for deductions while also simplifying your federal filing. This software provides step-by-step guidance covering over 350 credits and deductions so you can confidently navigate the tax preparation process. In the rare event of an audit, worry-free audit support provides free in-person assistance to represent the user at no additional cost.

    The software includes five free federal e-files and allows unlimited federal preparation and print. You can even get access to a vast help center with more than 13,000 searchable articles, FAQs, and tips on tax preparation.

    And make sure to check out all 15 courses in the 2023 Tax Preparation and Deduction Bundle, covering everything from income tax for small businesses to tax prep for self-employed business income.

    File your taxes easily.

    Don’t pay someone to do what H&R Block can help you do yourself.

    January 14 at 11:59 p.m. PT is the deadline to get H&R Block Tax Software Deluxe and the Tax Prep and Deduction Bundle for $39.99 (reg. $299), with no coupon needed.

    StackSocial prices subject to change.

    Entrepreneur Store

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  • Don’t Miss This Upcoming Tax Deadline or Expect to Pay These Penalties | Entrepreneur

    Don’t Miss This Upcoming Tax Deadline or Expect to Pay These Penalties | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Millions of taxpayers requested a six-month extension to file their 2022 federal income tax return. If you’re among them and haven’t yet completed your return, it’s time to get serious.

    The extension runs out on October 16. While plenty of good reasons exist to file for the initial extension, you want to avoid missing this deadline. The penalties for not filing by then can get costly, and you need to shift your focus to your 2023 return.

    Here’s how to wrap this project up.

    1. Finalize your documentation

    The biggest underlying reason people seek a tax extension is that they don’t have the documentation they need to file a complete, accurate return. Use these remaining months of your extension to sort through any loose ends and instill proper bookkeeping and recordkeeping systems so that you don’t run into this issue in the future.

    Most business owners and investors are eligible for a long list of tax deductions. Make sure you have the proper documentation for any deductible expenses, such as business purchases, travel, education, training, charitable contributions and your home office. Double-check your documentation to ensure there aren’t any errors or omissions before you complete your return.

    The biggest deduction available to entrepreneurs and investors with real estate holdings is depreciation. Taking this deduction correctly requires substantial documentation through a cost segregation analysis — this determines the schedule for depreciating each component of the asset.

    Land, land improvements, buildings and building fixtures all depreciate at different rates, and a cost segregation analysis will help you accurately calculate the right amount of depreciation. For the 2022 tax year, bonus depreciation was still 100%, making this an even more powerful part of a tax strategy. But these studies take time, so make sure you are on top of this.

    Related: Want Taxes to Be Easy? Work on Them Year Round

    2. Check for possible tax credits

    Tax credits can be even more valuable than tax deductions because they give you a dollar-for-dollar reduction in your tax liability. Yet, many taxpayers don’t take advantage of the credits for which they are eligible, either because they don’t know about them or because they’ve received bad advice about using them. Use your extension to make sure you receive the proper tax credits on your return.

    The IRS offers a lot of information about tax credits on its website, and a tax advisor should be able to guide you through the process. Some of the many tax credits of interest for entrepreneurs and investors for the 2022 tax year include:

    • Installing solar energy systems.
    • Buying certain electric vehicles.
    • Creating jobs in economically distressed communities.
    • Providing certain benefits to employees.
    • Hiring people from groups that have faced significant barriers to employment.
    • Investing in research and development.
    • Making your business accessible to customers with disabilities.

    These are valuable tax credits — take them if they apply to you. Don’t pay more tax than you are required to pay. Invest that money back into your business.

    Related: What Gen Z Side Hustlers Don’t Know About Taxes — But Should

    3. Prepare your return

    While you can use various tax software programs to prepare a return and file your taxes, entrepreneurs and investors benefit greatly from working with a high-quality tax professional. There’s simply too much money at stake and too much complexity to treat your taxes as a do-it-yourself project.

    If you don’t have one already, look for a certified public accountant (CPA) who specializes in tax. As you speak with potential advisors, look for someone who takes a consultative approach. You don’t want to feel like just another transaction. You want a tax advisor who will be a trusted member of your wealth strategy team.

    Related: 6 Steps to Make Tax Season As Painless as Possible

    What happens if you don’t file?

    It gets expensive. Being just a day late can turn into a penalty equal to 26% of the taxes you owed back in April.

    If you’re still not ready to file your taxes by the October 15 deadline, you absolutely should be working with a tax advisor to navigate the situation. Your advisor will help you in two key ways. First, it’s possible you can get an additional extension. These are rare and mainly apply to people living outside of the U.S. or serving in a combat zone, but it’s worth checking. Second, and most importantly, a high-quality tax advisor will help you create a plan to get your taxes back on track.

    Sticking your head in the sand is not a tax strategy, and facing your tax situation doesn’t have to be frustrating or confusing. A good advisor will help you understand the tax law so that you can use it in a way that gives the government what it wants while also legally and permanently reducing the amount that you need to pay.

    The government wants people to invest in seven key categories (business, technology, energy, real estate, insurance, agriculture and retirement), and it offers great tax incentives to people who do so. Your tax advisor should be talking with you regularly about how you can build these investments into your wealth and tax strategy. It will allow you to make way more money while paying far less in taxes.

    Tom Wheelwright

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  • Let Robots Help You With Your Taxes For Just $17 This Year With This App | Entrepreneur

    Let Robots Help You With Your Taxes For Just $17 This Year With This App | Entrepreneur

    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    Most freelancers dread tax season more than regular folk, with multiple streams of income to account for and mysterious deductions to hunt down. If you loathe tax season as an entrepreneur, there’s now an app that has set out to change that.

    FlyFin AI Tax App is the ideal tax software for entrepreneurs and freelancers alike, letting the power of AI seek out all of your potential deductions and ensure you’re getting the most money back possible. And you can score a three-year exclusive subscription at the best price online, just $49.99 for a limited time.

    This handy app is built to take away 95% of the effort filing your taxes, helping you discover even the tiniest write-offs and ensuring you can file your taxes online in as little as five minutes, the company says.

    A quarterly tax calculator provides accurate estimates for your quarterly payments, allowing you to conveniently pay directly from the app, the company says. If you tend to be forgetful when it comes to tax filing, there’s also an automatic reminder option so you don’t miss any deadlines. And thanks to the AI-powered component, it can even tackle complicated tax filings that include crypto.

    Aside from taking advantage of AI-powered technology, FlyFin AI Tax App also gives you unlimited access to real-life CPAs to ask any tax questions you might have, providing the best of both worlds. It’s been rated the number one AI Tax Engine for Freelancers and the Best AI Product of the Year by AITECH.

    Take the headache out of doing your taxes with a 3-year exclusive subscription to FlyFin AI Tax App for just $49.99 (reg. $252).

    Prices subject to change.

    Entrepreneur Store

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  • 10 Important Tax Numbers Every Business Owner Should Know to Save | Entrepreneur

    10 Important Tax Numbers Every Business Owner Should Know to Save | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    I’m a certified public accountant but my firm doesn’t prepare tax returns. However, I’m also a business owner. This means, like my best clients, I pay close attention to my taxes. Why? Because for a business owner, taxes are usually one of our biggest expenses. If you’re running a business, these are 10 federal tax numbers that are very important for all of us in 2023.

    $160,200

    This is the maximum amount of wages that can be taxed for social security (FICA) benefits at 6.2% (the 1.45% Medicare tax has no limit). Any wages paid over this amount are not subject to the FICA tax — employee or employer. This is important because if you raise an employee’s compensation above this amount, they’re receiving an added tax benefit which should be part of your salary considerations this year.

    Related: These Are the Top Tax Filing Mistakes Made by Small Business Owners (and How to Avoid Them)

    $6,500

    This is the amount you can contribute to an individual Roth IRA account. Roth IRAs often get ignored by my clients but they’re a fantastic way to put after-tax money away and watch it grow tax-free with no penalties or additional taxes on withdrawal. Because the stock market is down, I have a number of older clients taking distributions from their 401(k)s, paying the tax on a lower capital gain, and then transitioning those amounts to a Roth where the amounts are never taxed again. Everyone should be putting money into a Roth IRA.

    $7,500

    This is an added “catch-up” contribution that can be made to your 401(k) account if you’re over the age of 50 — which means that more than half of business owners in the U.S. are probably eligible. There’s also a $1,000 catch-up for individual IRAs for people in this age group. Thanks to the recently passed Secure 2.0, the 401(k) catch-up amount is going to rise to as much as $10,000 annually for those between the ages of 60 and 63 starting in 2025 and will then be adjusted for inflation each year.

    $66,000

    That’s the amount that can be contributed to a 401(k) plan this year which includes both employer and employee contributions and does not include any “catch-up” contributions. This amount is limited to your income and discrimination tests (see below).

    $150,000

    That’s the amount of compensation that defines a “highly compensated employee.” This is important because the number of people you have in your 401(k) retirement plan that earns over this amount will figure into your plan’s year-end discrimination testing and that may limit the amount you — and they — can save. The takeaway: The more employees —particularly non-highly compensated employees — that contribute to your 401(k) plan, the more you can contribute.

    Related: 3 Ways to Save Money on Taxes That Most Entrepreneurs Miss

    $0.655

    That’s the IRS-reimbursable mileage rate for 2023 and it changes every year based on the fluctuating costs of operating a vehicle. This is important because you can reimburse your employee for any miles traveled above the commute to your office (for example to a customer) and you’ll get a tax deduction — and the amount won’t be taxable to them. This is potentially a great added benefit to provide for your staff, particularly in these times of high gas costs.

    $300

    This is the amount you can pay your employees each month to reimburse for their commuting expenses. You’ll get a deduction and they won’t be taxed. If an employee drives to work, you can also pay them $300 to reimburse for their parking expenses with the same tax treatment. It’s another benefit to consider and could be a helpful enticement to get your people back into the office more often.

    $1,160,000

    That’s the maximum Section 179 deduction you can take this year for the acquisition of capital assets. This applies to both new and used assets like capital equipment, machinery, furniture and most computer software. There are “bonus” depreciation deductions that your business can take in addition to the Section 179 amounts. You can even finance these purchases and get these deductions — just make sure they’re “in service” by year-end.

    $12,920,000

    That’s the individual federal estate lifetime tax exemption which means that a married couple can leave more than $25 million of their assets upon their deaths tax-free to the beneficiaries. After that, most transfers of assets will be taxed at 40%. This exemption gets reduced to $7,000,000 individually in 2026.

    $17,000

    This is the amount you can gift this year and the recipient won’t be taxed. This is in addition to the lifetime addition above and applies to anyone, not just family members.

    You know what’s coming next, right? It’s the usual caveat where I write that your situation may be unique and you should always consult your tax professional before making any decisions based on the above numbers.

    Gene Marks

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  • 6 Steps to Make Tax Season As Painless as Possible | Entrepreneur

    6 Steps to Make Tax Season As Painless as Possible | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Q1 marks the beginning of a critical time for businesses — tax season. As you know, it can be a busy and stressful time of year for most businesses, regardless of their age, industry or profitability. No one wants any surprises after they file, so it’s important to start preparing sooner rather than later.

    By planning ahead, you’ll ensure your business is organized and ready to file on time. You may never enjoy tax season, but there are ways to make it as painless as possible. Here are six steps to ensure your business is ready — come April 15.

    Related: These 6 Tax Tips Will Help Make Tax Season Easy for Your Business

    1. Prepare throughout the year

    Getting ready for tax season starts long before you’re ready to file your tax return — you should be preparing throughout the year. This starts with having an accounting system in place where you can keep track of your finances.

    There are tons of free and inexpensive options when it comes to accounting software, including QuickBooks, Xero and ZohoBooks. The software is more comprehensive than anything you can do with an Excel spreadsheet, and most give you the option to collaborate with your accountant.

    In addition, businesses should be paying their quarterly tax obligations throughout the year. The exact filing schedule will vary depending on your business entity. Once you get on a schedule, you’ll likely find that paying your taxes as you go will make your life easier and help you avoid any fines or penalties.

    2. Make sure your books are balanced

    You don’t want to run into tax problems because of mistakes or missing transactions. Make sure all of your business transactions are recorded and accurately categorized. Take the time to reconcile your accounts and ensure that your financial software matches what your bank account says.

    You should also make sure that you’re separating your personal and business transactions. Otherwise, you’re going to create a lot of frustration for yourself.

    3. Gather your paperwork

    Start gathering your paperwork together at the beginning of the year. You’ll need to provide receipts for any deductions you took in case your business gets audited. It’s a good idea to digitize your receipts, so you don’t have to worry about anything getting lost or damaged.

    You’ll also need the following documentation to bring to your accountant:

    If you have employees, you’re required to file W-2s with the Social Security Administration by Jan. 31.

    Related: 5 Steps to Tax Season Success

    4. See what tax credits you qualify for

    Next, you want to see what kind of tax credits your business qualifies for. Tax deductions reduce your taxable income, while tax credits reduce your total tax bill. You can look for industry-specific tax credits or see if there are any state-specific tax credits you qualify for.

    One of the most advantageous tax deductions for financing is Section 179, which allows you to write off nearly the entire value of an equipment purchase on the current year’s tax return.

    The IRS provides information on its website about available tax credits and eligibility requirements. It’s a good idea to work with a tax professional to ensure your business actually qualifies for any credits you identify.

    5. Work with an accountant

    If you’re in the early stages of building your business, you may be tempted to file your taxes on your own to save money. However, the short-term benefits often lead to longer-term problems, and most entrepreneurs find more benefits in working with an accountant.

    Tax laws and regulations are constantly changing, and it’s impossible for the average business owner to stay on top of these changes. Accountants understand all of the relevant tax laws and filing requirements and can help you minimize your tax liability.

    Plus, filing your taxes can be time-consuming and tedious, especially if you don’t know what you’re doing. Using an accountant will save you time and help you avoid costly mistakes. Plus, you’ll have peace of mind knowing that your business taxes are filed accurately and on time.

    The upside of working with an accountant extends well beyond tax season; Your accountant can work with you throughout the year to develop strategies to minimize your tax burden.

    Related: 3 Ways to Save Money on Taxes That Most Entrepreneurs Miss

    6. File early if you can

    April 15 is commonly thought of as Tax Day, but the exact filing deadline depends on your business entity. Sole proprietors, single-member LLCs, and corporations that ended their year on Dec. 31 have to file taxes by April 15.

    But if you’re a partnership, multi-member LLC, or S-Corp filing Form 1120-S, you’re required to file by March 15. The IRS begins accepting tax returns beginning in mid to late January, so it’s a good idea to file early if you can.

    By filing early, you’ll avoid processing delays with the IRS and save yourself the stress of attempting to file at the last minute. If you wait too long to get the process started, you may have a hard time getting in with your accountant.

    Scheduling an appointment with your tax pro early ensures you can file on time. Otherwise, you may have to request an extension.

    Joseph Camberato

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  • Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur

    Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur

    Tax season is here (hooray?) and to make sure that you don’t leave a single penny on the table, we have called in our resident tax experts to walk you through the specifics of write-offs for entrepreneurs. Whether you are a full-time small business owner or making extra money with a side hustle, this webinar is essential to making sure you wind up with the best tax bill or refund possible.

    Mark J. Kohler — author, CPA, attorney, and cohost of the podcast “Refresh Your Wealth” — and Mat Sorenson — author, attorney, and CEO of Directed IRA & Directed Trust Company — have been at this for years, and these self-described “tax geeks” have all of the answers to your write-off questions. During this webinar, they’ll teach you:

    • Commonly missed home office deductions
    • Auto and travel write-offs
    • Changes to meals and entertainment rules
    • Red flags that can trigger audits
    • Changing your entity (LLC, S-corp) structure to save taxes
    • And more!

    This free webinar can save you a lot of dough on Tax Day — don’t miss it! Register now and join us on March 22nd at 3:00 PM ET.

    About the Speakers:

    Entrepreneur Press author Mark J. Kohler, CPA, attorney, co-host of the Podcast “Refresh Your Wealth”, and a senior partner at both the law firm KKOS Lawyers and the accounting firm K&E CPAs. Kohler is also the author of “The Tax and Legal Playbook, 2nd Edition”, and “The Business Owner’s Guide to Financial Freedom.

    Mat Sorensen is an attorney, CEO, author, and podcast host. He is the CEO of Directed IRA & Directed Trust Company, a leading company in the self-directed IRA and 401k industry and a partner in the business and tax law firm of KKOS Lawyers. He is the author of The Self-Directed IRA Handbook.

    Entrepreneur Staff

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  • 9 States With No Income Tax: Everything To Know

    9 States With No Income Tax: Everything To Know

    Income tax can take a big bite out of your wallet and your business’s bottom line. But not every state in the union charges income tax. Some states, like Texas, have become well-known as business havens for budget-minded entrepreneurs partly because they don’t charge income tax.

    For comparison, here are the nine states with the highest income tax rates:

    1. California – 13.30%
    2. Hawaii – 11.00%
    3. New York – 10.90%
    4. New Jersey – 10.75%
    5. Oregon – 9.90%
    6. Minnesota – 9.85%
    7. Vermont – 8.75%
    8. Iowa – 8.53%
    9. Wisconsin – 7.65%

    This article will look at nine states with no income tax and explore everything taxpayers need to know about these tax-reduced territories.

    What is income tax?

    Income tax is a crucial source of revenue for state and federal governments worldwide. There are several types of income tax that you might have to pay depending on where you live.

    An individual income tax is levied on individuals’ wages, salaries or other income. States usually impose these.

    Corporate income taxes are levied against businesses and their income from business operations.

    Meanwhile, state and local income taxes are other forms of income tax that states have more power over. These are distinct from federal income taxes and subject to each state’s specific tax code. Some states, such as California, impose significant income taxes, while others levy no additional income tax.

    Related: States With the Lowest Corporate Income Tax Rates

    Why do some states charge income tax?

    Income tax is a very reliable source of income. People have to earn money to spend money, which means that levying an income tax provides local and federal governments with enough funding to build schools, maintain roads, pay law enforcement officers and fund all other types of government operations.

    Related: Plan Ahead to Avoid Tax Time Surprises

    Which U.S. states don’t have to pay taxes on income?

    Only some states charge income tax to their citizens.

    Nine states either don’t have an income tax or are set to phase out income tax shortly. These states are:

    • Alaska
    • Florida
    • Nevada
    • New Hampshire — technically, New Hampshire makes tax investment and interest income, but those taxes will be gone in 2023.
    • South Dakota
    • Tennessee
    • Texas
    • Washington State — note that Washington does charge income tax for investment income and capital gains taxes, but only for those who earn a certain amount of money.
    • Wyoming

    If you live in any of these states, you’ll take home more of your money from most sources of income, like your salaries and tips.

    Related: Taxes on Small Businesses Across the Globe, Mapped: See Where Rates Are High, Low — and Nonexistent

    Comparing states with no income tax

    Does that mean you should immediately pack your bags and try to move to one of the above states? Not necessarily. Keep reading to review each state with no income tax and compare them based on their total tax burden and other factors.

    Alaska

    Alaska is both a cheap and expensive place to live. For instance, it has no state income tax or sales tax. The total tax burden for Alaska is 5.10% — the lowest of all 50 states. On top of that, all Alaskan residents get an annual payment from the Alaska Permanent Fund Corp.

    Still, the cost of living in Alaska is higher than average because of its distance from manufacturing centers and the relative remoteness of its cities. So you can expect to pay more for things like groceries and gas.

    Florida

    Florida is a popular snowbird state thanks to its population of retirees and its warm temperatures. While the excise and sales taxes in Florida are higher than the national average, the total tax burden on Florida residents is 6.97%.

    It does have higher-than-average housing costs, but on the plus side, Florida is a relatively cheap state to live in if you want to go to school.

    Related: An Underwater Property in Florida Is Going for $43 Million. The Developer Calls It a ‘Unicorn.’

    Nevada

    Nevada’s total tax burden is 8.23%. Citizens don’t have to worry about income tax because there are high sales taxes on alcohol, gambling, purchasing groceries, buying clothes, casinos and hotels.

    New Hampshire

    Then there is New Hampshire. As mentioned above, New Hampshire doesn’t charge general income tax, but it does charge income taxes on certain things. The total tax burden for New Hampshire residents hovers at around 6.84%, which is relatively low compared to other states.

    New Hampshire is a relatively small state, and the cost of living can vary depending on where you live.

    South Dakota

    South Dakota has a total tax burden of 7.37% for its filers. Even though it doesn’t charge income tax, it does charge heavy taxes on things like cigarettes and alcohol.

    It also charges very high sales taxes and has higher than average property tax rates, making it costly to live here if you don’t have a good source of income.

    Tennessee

    Tennessee’s total tax burden on its residents is 5.74%. Due to legislation passed in 2016, Tennessee lowered taxes for unearned income for its citizens. But this only resulted in a higher sales tax rate and the overall highest beer tax rate for any state in the union, measuring in at $1.29 per gallon.

    Texas

    Texas has a total tax burden of 8.19%. Most of its taxes come from excise taxes and sales taxes because the residents hate the idea of income taxes. Note that sales taxes can be up to 8.25%in certain jurisdictions.

    Furthermore, property taxes in Texas are higher here than in most other states. Even with all that, there’s no denying that Texas has a relatively low tax burden compared to other conditions.

    Related: A Texas farmer offers Elon Musk 100 acres of land to move Twitter offices from California to Texas

    Washington

    Washington has a relatively young population and an average tax burden of 8.34%. Many residents pay high sales and excise taxes, and you’ll find that gasoline prices at the pump are also higher than average.

    Combine that with higher-than-average living costs and high housing costs, and it’s clear that Washington is not among the most affordable states, even if it doesn’t charge income tax (for most).

    Wyoming

    Lastly, Wyoming is a very unpopulated state. It charges a total tax burden of 6.14% on its citizens, which includes excise, sales, (some) income and property taxes.

    While Wyoming might be cheap, keep in mind that it’s only suitable for those who are fans of the frontier lifestyle. This empty state has little going on in terms of metropolitan areas or tourist attractions besides national parks.

    Should you move to a state with no income tax?

    Moving to a state with no income tax is an attractive prospect. No one likes getting a check from their work only to see what the government takes to pay for necessary services.

    While you might rationally understand the purpose of income taxes, you might instinctively feel despondent to see your hard-earned money taken away right as you get it.

    But while it can be tempting to move to a state with no income tax, you should consider the total tax burden each state levies on its residents before proceeding. You should also consider what each state has to offer.

    Related: 4 Effective Strategies to Reduce Your Income Taxes

    For example, many people move to California, which is widely understood to be one of the most expensive states to live in. Why? It’s a beautiful state, with lots to do and job opportunities, particularly in the entertainment and tech industries.

    Similar states, like New York, Hawaii or Minnesota, might have high federal income tax rates for all taxable income and additional taxes to boot but counteract that with low local sales tax rates.

    In contrast, Wyoming might place a low tax burden on its residents. But you must have a job in farming, ranching or mining. There isn’t much to see and do in Wyoming if you aren’t a fan of the great outdoors.

    Then you have to keep business taxes in mind. Self-employed individuals might find some states better than others regarding the final tax bill or their state sales tax brackets.

    Factors like healthcare, pensions and dividend income can make states like Alabama, New Jersey, Illinois and others throughout the United States attractive places to live and work.

    Therefore, don’t immediately pick one of these states and move just because it doesn’t have personal income tax on your earned income. Income taxes are valuable and vital for the government, and in many cases, they can help to fund some of the most enjoyable and profitable parts of state economies.

    What’s the bottom line on states with no income tax?

    There are plenty of states you can move to throughout the US without an income tax. These might be ideal states to move to in the future or states in which to start a business.

    But remember that these no-income tax states have advantages and disadvantages; consider the total tax burden imposed on you and future businesses in each state before setting out for “greener” pastures.

    Looking for more helpful articles to expand your financial knowledge? Check out Entrepreneur’s Money & Finance resources here.

    Entrepreneur Staff

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  • 14 Tax Deductions Your Small Business Might Be Overlooking

    14 Tax Deductions Your Small Business Might Be Overlooking

    Opinions expressed by Entrepreneur contributors are their own.

    While there are other benefits, one of the most important reasons you’re in business is to make money. And it stands to reason that if you’re in business, you’d like to keep as much of what you generate as possible. That could be why so many people hate paying taxes.

    But if you’re doing your bookkeeping correctly, you’ll find there are ways to keep some of the value your business generates. All you want to do is pay your fair share. And keep what’s left to run a successful small business or grow that business into something even bigger.

    Above all, remember that you pay taxes on your profit, and your profit is your income minus your ordinary expenses; you report this to the IRS every year on Schedule C. So when you sit down to do your taxes or hand your information over to your tax accountant, you should be sure you’ve tracked every single business expense.

    Related: These Are the Top Tax Filing Mistakes Made by Small Business Owners (and How to Avoid Them)

    What deductions are obvious? Anything you buy that directly affects your business and is used for your business. If you’re in construction, it’s the cost of your equipment and raw materials. If you’re a web designer, it’s the software you use. Look at Schedule C and you’ll see the obvious ones: advertising, office expenses, licenses, utilities and more.

    You need to be careful defining some expenses, especially if you’re running your business out of your home. Yes, you can deduct the part of your home that you use exclusively and regularly for business. But if you work weekdays at your home office and watch football from it on Sunday, it’s not exclusive to your business. If you only do your month-end bookkeeping in it — even if that’s all you do in it — once-a-month office use is not considered regular use.

    But when you’re assembling your receipts or downloading expense data from your small business financial management system to provide to your tax accountant, there are certainly some expenses that you might not have thought to include. There may be other expenses you claim that are not eligible deductions. If filed in error, these mistakes could cost you fines — or worse — if you’ve deducted more than you should have or are permitted to.

    Related: Here’s Why It Pays to Track Every Tiny Business Expense

    Tax deductions you might be missing

    While Schedule C enumerates 21 types of expenses, you still might miss some perfectly legal deductions. For instance:

    1. Repairs or alterations to your home office: If you’re there all the time, then expenses like painting, re-flooring and brighter light fixtures would be deductible. Having a cleaning service for your office would be as well. The desk and file cabinets you use would also be deductible — as would the repair to the wall after your desk chair banged it up.
    2. Education: Any education or training related to what you do to earn money is deductible. Many professionals require professional development courses to keep their licenses current. Others take classes to learn how to improve their business. If it’s relevant, it’s deductible.
    3. Local travel: When you visit a client and pay to park in the lot across the street, that parking fee is deductible. If you take a toll bridge to cross the river to visit your client’s office, that bridge toll is deductible. And so is your mileage, assuming your client doesn’t reimburse you for those costs.
    4. Your website: A website is a must-have to find and connect with new and existing customers. All related costs can be deductible — paying the person who creates it for you, paying for the website to be hosted, paying for its security, paying for the pictures and copy you post to it, etc. It’s all part of advertising, which is more than paying to run a small ad on your local radio or television station.
    5. Startup costs: If this is your first year, the legal and professional fees you pay to complete and file your paperwork are deductible. Fees above the $5,000 first-year limit can be amortized over the succeeding 15 years.
    6. Research and development: If you’re creating a new product, the expenses relevant to bringing that product to market are deductible.
    7. Interest on debts: A loan you take for business purposes is tax-deductible as long as it’s an arms-length transaction. Keep track of the interest costs so you can deduct them at tax time. Your business credit card interest is also deductible.
    8. Industry publication subscriptions: Every trade has a publication that keeps its practitioners current, from Advertising Age to Chain Store Age to Industry Week. Online subscriptions are also deductible.
    9. Retirement savings for self-employed business owners: These include self-employed simplified employee pension (SEP) plans, solo 401(k) plans and Keogh or HR-10 plans.
    10. Business gifts: There’s a limit of $25 per person per year for gifts to clients. But, 100 percent of the cost of employee meals at events such as holiday parties and company picnics is deductible.
    11. Perks for your employees: Coffee in the office? That candy bowl at the front desk? 100 percent deductible. Lunch brought into the office can be fully deductible, while taking the team out for lunch is only 50 percent deductible.
    12. Club or organization membership fees: The organization must be business- or community-related, such as a chamber of commerce, trade association or a professional organization.
    13. Lawn mowing: If you receive clients at your home office, keeping the entrance to your house clean and presentable may be deductible.
    14. Childcare for solo professionals: If you’re a parent and have a home office but you need to meet a client outside the home, childcare is deductible. If you’re leaving the house to go shopping, it’s not.

    Related: 75 Items You May Be Able to Deduct from Your Taxes

    Just remember, you can’t deduct what you aren’t tracking. Prior to the 1980s, you didn’t have many options — record-keeping systems included paper, pencils and file cabinets. The late 20th century made spreadsheets an option, which required ensuring formulas were put into the correct cells as well as remembering where the related backup documentation was saved.

    The modern era has given way to even better ways of tracking information, and distilling years of accounting and bookkeeping know-how into an easy-to-use software platform. Now you can stay on top of all of the purchase orders, invoices and receipts you’ll need as a backup to your accounting records. And, have them all safe in a cloud-based system. Files, images, emails and scanned paper documents can be captured from a mobile device or a computer and stored safely online. You can categorize all transactions easily by account category and relevant tax schedule for subsequent reporting and filing.

    These systems can be accessed from anywhere your business takes you, from home office to factory floor to out-of-state business pitch. You can pull them up when needed (such as for a loan application, a meeting with your accountant or deciding on financing a business improvement).

    Consider financial document management solutions that can also automatically extract data from these documents. Instead of keying these numbers into a spreadsheet or paying your tax accountant to do this manual work, systems like Neat automatically feed financial data to accounting and tax software. These systems can make it easier to account for all of your business expenses — the obvious ones and those that can be often overlooked.

    Related: The Most Forgotten Tax Deductions Business Owners Should Take

    Jim Conroy

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  • Act Now on Your Year-End Tax Strategy to Save in 2023

    Act Now on Your Year-End Tax Strategy to Save in 2023

    Opinions expressed by Entrepreneur contributors are their own.

    Come January 3, a new Congress will convene in Washington, DC, setting the stage for potential tax changes that could impact small and medium-sized businesses. With that in mind, it’s important for businesses to engage in certain tax planning strategies and to take advantage of tax credits that will soon expire or be phased out.

    The Employee Retention Credit (ERC) is one such credit. Created in 2020 to provide economic relief during the Covid-19 pandemic, the ERC lets businesses claim thousands of dollars in refundable tax credits to compensate for losses experienced in 2020 and 2021 while they continued to pay employees. Businesses subject to a full or partial shutdown or significant decline in gross receipts can qualify.

    Many small and midsize businesses I know are eligible for two quarters or more of credits, which can range as high as $7,000 per quarter per employee in 2020, with higher per-employee limits in 2021. But the time frame for claiming this credit is shrinking. Start planning now.

    Businesses have just three years from the time they filed their 2020 and 2021 quarterly tax returns to claim the credit. Even if you received funds from the Paycheck Protection Program (PPP) previously you can qualify for the ERC credit, but you’ll need time to gather all the necessary documentation before filing the required amended return.

    Related article: How to Obtain the Employee Retention Tax Credit (ERTC) Under the Second Round of Covid Relief

    Beware of companies advertising huge ERC payouts that are “too good to be true,” as the IRS noted in a special warning. The agency further cautioned that “improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

    Know how to find someone who can help you if a problem arises. I had a client who signed a contract with a firm that promised an ERC credit twice as large as what we projected along with lifetime audit protection, but the firm was cagey about how to handle a prospective audit and did not list addresses and phone numbers. A red flag for sure, and a reminder that taxpayers should never get too greedy.

    The importance of tax planning

    How many business owners can honestly say their accountants are advising them on tax planning, like the ERC benefit, rather than merely doing their taxes? Is yours building a tax-strategy foundation that generates recurring savings year after year?

    Take the initiative and ask your accountant what plans they have in place to generate savings year in and year out, plus what strategies they’re using to accomplish that.

    Don’t make the mistake of merely asking your accountant how you can save on taxes just before the year’s end. If you do, you may be advised to buy a vehicle for your business because the cost can be fully written off using a bonus depreciation. This is not an example of a great, forward-thinking tax strategy. And that particular deduction, by the way, will lose 20% of its value in each of the next four years, starting in 2023. It’ll be completely phased out by 2027.

    Related article: How to Give Yourself a Tax Cut

    Accountants should have a plethora of strategies to help small and midsize businesses and their owners save on taxes. For example, ask yours about research and development credits, or credits for hiring veterans and disabled individuals and members of other groups that the government has identified as facing employment barriers.

    How to avoid an audit

    It’s more important than ever to use only legal ways to limit your tax liability. Here’s a list of some dos and don’ts:

    • Don’t put your family vacation on your company’s books. If there is a business purpose for a partial business/family trip and that purpose constitutes more than 50% of the trip, document it and proportionally deduct your costs. Include notes about the purpose of the travel, your itinerary, the agendas of meetings and conferences, whom you met with, etc. The IRS has heightened record-keeping requirements for travel deductions.
    • Keep original receipts, not just credit card statements. Taxpayers often assume a credit card statement constitutes a receipt. It does not. Your expense items on a credit card receipt only will likely be denied.
    • Get in a habit of documenting all relevant expenses while you’re incurring them; and consider assigning an employee for that purpose or use technology. You’ve got to document the business reasons for the deductions claimed because there are heightened documentation requirements for business travel and for meals. You probably won’t remember all these necessary details if the IRS audits you two or three years after an event has taken place. If you fail to document actual expenses, you should deduct IRS-published travel per diems by city.
    • Don’t pay personal expenses through your company. Write a check to yourself from the company for a legitimate reason like a salary, wages or distribution. Then pay personal bills for your mortgage and electric bill out of your checkbook, not the company’s.

    Related article: The IRS Hates Telling Entrepreneurs Anything About Taxes.

    The messages are slowly sinking in. Four clients so far have told me they’ve completely revamped their internal processes to take better records. They’re spending the time to do this now because they understand it could be riskier in the future.

    Nobody knows what tax changes, if any, are in store, but there are changes already on the books that business owners should be aware of, including benefits that are slated to disappear. Act now before it’s too late.

    Bruce Willey

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