Let us create a 3d Digital eBook for you! DigyCat.com
Tax Trap #2 -- Double Taxation: Isnt Once Enough?
Have you been thinking about incorporating your smallbusiness or self-employment activity? The advantagesare many!
For starters, you'll be protecting yourself and your familyfrom the possible of a business ending lawsuit. Forming acorporation is Step One on the path known as "AssetProtection" -- you are moving from the world of unlimitedliability to the world of limited liability.
(NOTE: For further insight into the legal advantages ofincorporating, check out the article: "It Can Happen To You:Why Any Sole Proprietorship Is A Risky Business" athttp://www.YouSaveOnTaxes.com/happen-to-you.html)
From a tax standpoint, there are both advantages anddisadvantages to incorporating. Yes, forming a corporationcan either reduce your taxes or increase your taxes,depending on what type of corporation you create.
There are two main types of corporations: "C" Corporationsand "S" Corporations -- and which type you choose can makeall the difference in the world of taxes.
NOTE: The question of "C" Corp vs. "S" Corp has no effecton the asset protection provided by your corporation.This is a tax issue, not a legal issue.
A "C" Corporation can lead you into a Tax Trap known as "double taxation". Yes, income from a "C" Corporation canactually be taxed twice -- once when it's earned on thecorporate level and again when it's paid to you, the shareholder, in dividends.
There are several ways to avoid double taxation. Oftenthe easiest way is to tell the IRS that you choose tobe an "S" Corp instead of a "C" Corp. The profits ofan "S" Corp are not taxable to the corporation; instead,those profits are reported directly on the shareholder'spersonal income tax return and are therefore onlytaxed once.
And once is enough, don't you think!
Of course, any article on Choice of Entity must containthe old disclaimer, "Consult your tax professional" -- I am not prescribing a one-size-fits-all approach tothis issue. But for many small biz owners and self-employedfolks, the "S" Corporation is a good fit becauseit provides protection from personal liability andavoids the nasty tax trap of double taxation -- twogreat benefits worth checking into.
Should you incoporate your sole proprietorship and thendecide that the "S" Corporation is the right fit,you must inform the IRS that your corporation is choosing"S" Corporation status by filing Form 2553, which is,in effect, an application to become an "S" Corporation.
IMPORTANT:If you incorporate and do not file Form 2553, you areautomatically considered to be a "C" Corporation by the IRS.In other words, to be a "C" Corporation, you just incorporate; there is nothing you have to do to inform theIRS you want to be a "C" Corporation.
There are critical rules regarding how and when to fileForm 2553, so be sure to read the instructions carefully,or check with your tax pro.
Failure to file Form 2553 on time or filing Form 2553incorrectly results in a rejection of your corporation's"S" Corp application, and the corporation is then by defaulttreated as a "C" Corp, subject to double taxation, thevery trap you were trying to avoid.
To download a copy of Form 2553, go to:http://www.irs.gov/pub/irs-pdf/f2553.pdf
The instructions for filing Form 2553 are found here:http://www.irs.gov/pub/irs-pdf/i2553.pdf
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
Taxes - Google News
This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news
Small Business Tax Deductions for Year End 2004
As a small business owner, it's wise to familiarize yourself with some key deductions that may reduce your tax bill for 2004.Employee Benefit Plans - You may deduct contributions to employee benefit plans (such as health insurance plans and retirement plans).
IRS Lock-In Letters - What's An Employer To Do?
Employers often ask employees to designate the amount of tax withholdings for paychecks. Occasionally, employees will fail to withhold a sufficient amount in the eyes of the IRS.
Home Based Business Tax Deductions
Running a home based business reaps many wonderful tax deductions that other businesses some times may not claim. Unfortunately to many small business owners end up paying the government taxes every year because they are unaware or several small business deductions that are available.
How To Claim CHILD TAX CREDIT The Right Way And Add An Extra $2,000 To Your Refund
A Taxing Investment
April 15 - The most dreaded day of the year is right around the corner. Are you ready? Some of the most neglected (and misunderstood) tax issues are those related to your investments.
Rearrange Your Affairs For Maximum Tax Savings
One way to maximize your business profits is by reducing your taxes.Frequently, income and other taxes could be lowered significantly if only the taxpayer were willing to plan ahead.
Uncle Sam is Ready...Are You? Organizing Tips for Tax Time
Anyone who is closely related to an accountant knows that there are not four, but five seasons in a year: Spring, Summer, Fall, Winter, and 'Tax Season.' During the other seasons, we accumulate leaves, snow, and mosquito bites.
10 Thoughts on Tax Offer in Compromise
Beware of advertisements that claim to settle tax debts for "pennies on the dollar". Check the Offer In Compromise requirements to see if it is right for you.
The Annual Gift Tax Exclusion: Getting The Edge
Whether helping the kids with a down payment on their first home, paying the premiums on a life insurance policy in an irrevocable trust, or moving appreciated assets to a younger generation, annual gifting will touch the lives of millions of Americans. But before the transfer is made, an investor should spend some time looking at the investment and the tax ramifications of the property to be passed.
Access to E-records by Taxing Authorities: A Case for Pakistan (Part II)
All tax authorities to e-commerce transactions should investigate the record retention requirements of each other's respective jurisdictions.In September 1998 Revenue Minister Dhalinal of Canada;"?Interpretation Circular 78-10RS and 779R (Book and Record Retention/Destruction) will be revised to explain the Department's views with respect to the electronic environment.
Save Money on Taxes - Is the Only Way to Get Your Tax Savings is to Sleep With an IRS Agent?
Tilting the Tax Laws in Your Favor.In order to accelerate your movement along the wealth building curve, you absolutely MUST have your own business.
Keeping Your Own Money - NOT Handing It Over To The Taxman
Most people trying to make a crust online (or offline for that matter) are so focused on doing just that, they ignore taking simple steps to ensure that they hang on to just as much of it as they can. Instead, they hand over large lumps of their hard-earned money in tax, usually in one of two mistaken beliefs.
Reducing Taxes Through Dividend-Salary Mix Calculations
Should I take wages or dividends from my privately ownedcorporation? What is the best way of taking money out of my company? In other words, what will result in theleast amount of income taxes?A Canadian accountant will perform a dividend-salary mix calculation to determine the best way of withdrawing money from the corporation.Even though Canadian income tax laws are different from other jurisdictions, some of the same principles of tax planning will still apply.
Tax Trap #4 -- The Quagmire of Depreciation
If you are a Small Business Owner or Self-Employed Person,there's one especially lucrative tax break that not onlyputs money in your pocket, it also makes the filing ofyour business tax return much simpler.What am I talking about? It's called the Section 179deduction, and if there's one tax break you need to understand, this is it.
Tax Help Secret: Avoiding the Entreprenuers Curse
Your days as an entrepreneur and businessperson are consumed with one primary activity; making money. Whether you think in terms of growing your business, getting the word out there, or some fancy new marketing technique, your days and weeks and months in business are focused on that one group of activities.
IRS Certifies 2006 Toyota Hybrid for Clean Fuel Deduction
The Internal Revenue Service has certified the 2006 Toyota Highlander Hybrid as being eligible for the clean-burning fuel deduction. This certification means that taxpayers who purchase one of these hybrid vehicles new during calendar year 2005 may claim a tax deduction of up to $2000 on Form 1040.
IRS Statute of Limitations: Do Taxes Ever Expire?
Many Americans believe that an IRS debt is a debt for life and that the tax collector can hound them to the grave. Thankfully, that is not the case and there are statutory time limits on the ability of the IRS to examine and collect taxes.
Employment Taxes - What Are They?
If you have employees, you are responsible for paying a variety of taxes at the federal, state, and local levels. You must also withhold certain taxes from the paychecks of your employees.
Amending Procedural Laws for Collection of E-taxation
The electronic transaction ordinance defines the certificated copies in which are to be presented for adjudication. Where any law requires or permits the production of certified copies of any records, such requirement or permission shall extend to print outs or other forms of display of electronic documents where, in addition to fulfillment of the requirements as may be specified in such law relating to certification, it is verified in the manner laid down by the appropriate authority.
Highlights of IRS List of 2005 Tax Scams
Each year, the IRS lists various scams taxpayers get caught up in. The top 2005 scams include several that manipulate laws governing charitable groups, abuse credit counseling services or rely on refuted arguments to claim tax exemptions.
PrimeNews Domain Is For Sale - $5,000 For Enquiries eMail Us
© www.PrimeNews.biz - 2012