Let us create a 3D eBook for you!
Let us create a 3d Digital eBook for you! DigyCat.com

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make


NOTE: This is the first in a series of 5 articles:"Small Business Tax Traps and How To Avoid Them"

If you're a sole proprietor, perhaps you've consideredincorporating your small business or self-employmentactivity.

And so maybe you've been wondering,"When is the best time to incorporate?"

From a legal standpoint, any time is the best time.The sooner you incorporate, the sooner you make the movefrom the world of unlimited liability to the world oflimited liability.

From a tax savings standpoint, any time is the best time.The sooner you incorporate, the sooner you will startputting more money in your own pocket and less in Uncle Sam's.

(For more about the potential tax savings of acorporation, see the second article in this series --"Tax Trap #2: Double Taxation -- Isn't Once Enough?"http://www.YouSaveOnTaxes.com/tax-trap-2.html)

But from a **tax reporting** standpoint, there is one timeof year that stands out as best: January 1st.

Why is that?

Assuming you have a sole proprietorship (or other entity,such as a partnership) that is up and running as of January 1, and assuming you then incorporate thatexisting entity on any date other than January 1,you face the possibility of filing not one buttwo business income tax returns for that year.

Here's an example to clarify this important point . . .

Let's say you've been operating your sole proprietorshipfor a few years, and in early 2005 you decide to incorporate. In January you get around to startingthe paperwork, but life gets in the way andyou finally get it done in late February. By the timeyour state processes the Articles of Incorporation,the start date of your new corporation is March 1.

For 2005, you must file a Schedule C for the periodof January 1 through February 28, when your businesswas still a Sole Proprietorship. And you must alsofile a corporate income tax return for March 1 throughDecember 31.

Maybe that's no big deal. Maybe you enjoy filingone business income tax return so much, filinga second one doesn't bother you. And it may bethat the inconvenience of filing two tax returnsin 2005 is far outweighed by the legal and taxadvantages of incorporating.

Keep in mind, too, that 2005 will be the only yearyou have to do this "double duty". In 2006 youwill only have to file the corporate income tax return.

But if you are thinking about incorporating, thebest time to do it, from a tax paperwork standpoint,is as of January 1. Only then do you have a "clean break"from the old sole proprietorship to the newcorporation.

This timing issue can also be relevant if youdecide to make the switch late in the year. Ifthe effective date of the incorporation is November 15,you will have to file a Schedule C for January 1through November 14, and a corporate return forNovember 15 through December 31. In that scenario,you should ask yourself, "Do the benefits ofincorporating outweigh the convenience of waitinguntil January 1?"

So before you decide when to incorporate, take a momentto reflect on the tax reporting consequences of incorporating on January 1 vs. any other date.

Sometimes it may make sense to wait a few weeks(as in the second example), and sometimes it makes senseto "do it now", especially when January 1 is nearby.

Wayne M. Davies is author of 3 tax-slashing eBooks forthe self-employed, available separately or as a 3-volumeset, "The Ultimate Small Business Tax Reduction Guide".http://www.YouSaveOnTaxes.com/ultimate-guide

To get your free copy of Wayne's 25-page report,"How To Instantly Double Your Deductions" visit:http://www.YouSaveOnTaxes.com


MORE RESOURCES:

Taxes - Google News

This RSS feed URL is deprecated

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news

Legislator: Delay paying property taxes - Peninsula Daily News


Peninsula Daily News

Legislator: Delay paying property taxes
Peninsula Daily News
It was voted Wednesday night out of the Senate Ways and Means Committee by a party-line vote of 14-10 and sent Thursday to the Rules Committee, prompting Van De Wege to send out a news release late Thursday morning suggesting that Republicans forced ...

and more »

Fed up with skyrocketing property taxes? Don't pay bill in full, say some state lawmakers - KOMO News


KOMO News

Fed up with skyrocketing property taxes? Don't pay bill in full, say some state lawmakers
KOMO News
SEATTLE - It's a plan you might never think would be endorsed by state lawmakers: don't pay your entire property tax bill in full, at least for now. Sen. Mark Mullet (D-Issaquah) and Sen. Dean Takko (D-Longview) say they have a plan to reduce ...

SC tax reform plan would increase cost of groceries, but cut sales taxes - The State


The State

SC tax reform plan would increase cost of groceries, but cut sales taxes
The State
An S.C. House panel unveiled a proposal Thursday to increase the taxes on groceries and power bills in the Palmetto State. But that panel also proposes cutting other taxes as part of a tax-reform package that House Speaker Jay Lucas says will make the ...

An old tax scam — with a troubling new twist - Washington Post


Washington Post

An old tax scam — with a troubling new twist
Washington Post
But because many more people have become aware of the telephone tax-payment trick and learned to ignore the threats, the schemers had to evolve. And the latest twist on this swindle is just pure evil. [Don't be fooled by fake IRS calls or emails]. The ...
Get your tax refund before you file? Here's why it's happening Detroit Free Press

all 58 news articles »

How will tax reform affect my refund next year? - AOL


AOL

How will tax reform affect my refund next year?
AOL
We know that you work hard for your money and often a tax refund may be the biggest check you get all year, so we're here to let you know how the new tax reform legislation may affect your tax refund next year. The new tax law is the largest piece of ...
Keep an eye on your tax planning even as bigger paychecks come your way Detroit Free Press

all 9 news articles »

Commerce Secretary Wilbur Ross, who called raising gas taxes a 'horrible idea,' says Trump is considering a hike - CNBC


CNBC

Commerce Secretary Wilbur Ross, who called raising gas taxes a 'horrible idea,' says Trump is considering a hike
CNBC
U.S. Commerce Secretary Wilbur Ross on Thursday confirmed that President Donald Trump is open to raising federal fuel taxes, saying it's logical to charge drivers for road improvements. Three years ago, Ross denounced calls to raise the gas tax, saying ...

and more »

Tech giants face new UK tax clampdown - BBC News


BBC News

Tech giants face new UK tax clampdown
BBC News
Some of the world's largest technology firms are facing hefty new bills as the UK government moves to fundamentally change the way they are taxed. Google and Facebook are braced for significant changes in the tax system after the Treasury told the BBC ...
Facebook and Google could soon have much higher taxes in the UK, report says CNBC
Tech giants face UK tax overhaul as Treasury says they must pay more Telegraph.co.uk

all 14 news articles »

5 Ways to Avoid Paying Taxes on Your Social Security Benefits - Yahoo Finance


5 Ways to Avoid Paying Taxes on Your Social Security Benefits
Yahoo Finance
If you file an individual return and your combined income is between $25,000 and $34,000, you may owe income tax on up to 50 percent of benefits. Earn more than that, and up to 85 percent of your benefits could be subject to taxes. For those filing a ...

and more »

How the standard tax deduction could cost you - USA TODAY


USA TODAY

How the standard tax deduction could cost you
USA TODAY
“I have my people do a quick little check that says, 'OK, how much did you pay in state income tax on your W-2s, how much have you paid for real estate tax and how much have you paid for mortgage interest?' If those are getting you close to that $12 ...

LargeFriends.com - the best dating site for plus-sized singles!
SuccessfulMatchCentral.com - the best dating site for plus-sized singles!

PreLaunchX

PrimeNews Domain Is For Sale - $5,000 For Enquiries eMail Us

© www.PrimeNews.biz - 2012

home | site map | links