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My husbands business donated to a qualified charity but I cannot find where to enter it in on the schedule C. Do I put it under advertising? I know that is where I put the sponsorship of a sports team. And please do not tell me to ask an accountant we know we will only get about $80 back so paying someone $400 is not feasable. If you have any answers please let me know.
He donated cash to a qualified organization

I am a Real Estate Appraiser. Any advice on records to keep please. Are bank statements sufficient for deposits and expenses? Thanks

Are you getting ready to prepare your 2008 small business income tax returns? Here are three important changes you don’t want to miss. Two of them put more money in your pocket; the third gives more money to Uncle Sam. Mileage Rate Increase. Here’s a good one. If you use the Mileage Method to calculate your vehicle deduction, the IRS has done you a favor by increasing the mileage rate. In 2007, the rate was 48.5 cents per mile. Effective January 1, 2008, the rate was increased to 50.5 cents per mile. On July 1, 2008, the rate was increased again, to 58.5 cents per mile. Because there are two rates for 2008, the most accurate way to calculate your mileage deduction is to do two calculations: January-June miles TIMES .505 PLUS July-December miles TIMES .585. If you did a good job of tracking your mileage during the year, this calculation should be no problem. You just add up your mileage for the first six months; then do the same for your mileage for the last six months. Section 179 Increase. More good news. When it comes to deducting business equipment (aka “fixed assets” or “capital assets”), Section 179 is the small business owner’s best friend. It allows you to forget about all those complicated depreciation rules and simply deduct 100% of the asset’s cost in the year of purchase, just like your other operating expenses like office supplies, utilities, wages, etc. There have always been several critical limitations and restrictions to the Section 179 expense deduction, so be sure to consult with your accountant or read up on it yourself (IRS Publication 946, “How To Depreciate Property”, is a good place to start for free information on the topic). For example, there has always been a limit on the amount of the Section 179 deduction. The limit has been gradually increasing over the past several years, from $100,000 in 2003 to $125,000 in 2007. The 2008 limit is a whopping $250,000, so there’s a pretty good chance you don’t have to do depreciation on your return again this year. Self-Employment Tax Increase. This item is not so good. If your business is a sole proprietorship (i.e. you file Schedule C) and your profit is at least $400, you must pay the dreaded self-employment tax of 15.3% on that profit. This 15.3% tax is made up of two parts: social security tax of 12.4% and Medicare tax of 2.9%. You must pay the Medicare tax on all your profit, regardless of the amount. But there is a limit to the profit amount subject to the social security tax. In 2007, that limit was $97,500. In 2008, that limit increased to $102,000. (And just so you know, the 2009 limit has already been increased to $106,800). These rules about the social security tax portion of the self-employment tax also apply to employee wages and salaries. If your business is a corporation and you are paid as an employee of the corporation, the amount of compensation subject to social security tax has also increased from $97,500 in 2007 to $102,000 in 2008 (and to $106,800 in 2009). So all business owners, regardless of entity type, are affected by this change, which in effect, is a tax increase.

i have a small construction co. and would like to learn how to keep my taxes in order

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.

Looking for an effective tax reduction strategy for your small business? This article explains how to reduce your taxes by choosing to be taxed as an S corporation. Question: What do all the following small business owners have in common? 1) C corporation shareholders; 2) sole proprietors; 3) partnership partners; and 4) limited liability company (LLC) owners who are being taxed like a sole proprietorship or a partnership. Answer: Each of these entity types has the potential to pay less tax by choosing to be taxed like an S corporation. C corporation owners face the dreaded double taxation of corporation profits. Any corporate profits are usually taxed twice. The corporation must pay its own corporate income tax on those profits. And if the corporation distributes those profits to the shareholders as dividends, those dividends get taxed a second time on the personal income tax returns of the individual shareholders. Ouch! Sole proprietors, partnership partners and LLC owners all face the dreaded self-employment (SE) tax on their business profits. And unlike an employee, they pay twice as much SE tax (15.3%) than their employee counterparts pay in payroll tax (7.65%). What are all these small business owners to do? One option is to choose to be taxed like an S corporation. An existing C corporation that switches to S corporation status can avoid the double taxation of corporate profits. This is possible because an S corporation typically doesn’t pay any corporate income tax on profits. The profits are only taxed to the individual shareholders on their personal income tax return. End result: no double taxation. Sole proprietors, partners and LLC members can legally reduce SE tax by receiving reasonable employee compensation from the S corporation. If this compensation is less than the total business profit, the remaining profit legally avoids payroll tax, because only employee wage/salary is subject to payroll taxes. How do you “choose” to be taxed like an S corporation? This choice is made by filing Form 2553 with the IRS, Election by a Small Business Corporation. Think of this form as an application by an existing small business to be treated like an S corporation for tax purposes. Here’s how it works for each entity type: C corporation. File form 2553. That’s all there is to it. You don’t have to shut down the existing corporation; nor do you have to form a new corporation. The existing corporation continues to exist, just like it did before, as a corporation in good standing of the state in which the corporation was formed. Limited liability company. Likewise, just file Form 2553. You don’t have to shut down the LLC and/or form a new corporation. The original LLC remains intact for legal purposes. You simply submit Form 2553 in order to tell the IRS you want your business treated like an S corporation instead of a sole proprietorship or a partnership. Sole proprietors and partners. Before filing Form 2553, you must form a corporation or LLC. Once this new entity is set up, submit Form 2553. Important: There are specific rules regarding the timing of the Form 2553 filing, so be sure to read the instructions carefully or consult with your tax professional.

I was told that in California a newly registered small business could get tax refund/waiver in its first three years of operation (if business is not good), is this true or complete BS?

I own an LLC that does multiple ventures in michigan. Any information or links of all possible deductions would be wonderful. Thanks.

The advantages are incorporating your small business are many.

For starters, you’ll be protecting yourself and your family from the possibility of a business ending lawsuit. Forming a corporation is Step One on the path known as “Asset Protection” — you are moving from the world of unlimited liability to the world of limited liability.

From a tax standpoint, there are both advantages and disadvantages to incorporating. Yes, forming a corporation can either reduce your taxes or increase your taxes, depending on what type of corporation you create.

There are two main types of corporations: “C” Corporations and “S” Corporations — and which type you choose can make all the difference in the world of taxes.

NOTE: The question of “C” Corp vs. “S” Corp has no effect on 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, this type of corporate income can be taxed twice — once when it’s earned on the corporate level and again when it’s paid to you, the shareholder, in dividends.

There are several ways to avoid double taxation. Often the easiest way is to tell the IRS that you choose to be an “S” Corporation, whose profits are not taxable to the corporation. Instead, those profits are reported directly on the shareholder’s personal income tax return and are therefore only taxed once.

And once is enough, don’t you think?

Of course, any article on Choice of Entity must contain the old disclaimer, “Consult your tax professional” — I am not prescribing a one-size-fits-all approach to this issue. But for many small biz owners and self-employed folks, the “S” Corporation is a good fit because it provides protection from personal liability and avoids the nasty tax trap of double taxation — two great benefits worth checking into.

Should you incoporate your sole proprietorship and then decide 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 are automatically 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 the IRS you want to be a “C” Corporation.

There are critical rules regarding how and when to file Form 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 2553 incorrectly results in a rejection of your corporation’s “S” Corp application, and the corporation is then by default treated as a “C” Corp, subject to double taxation, the very trap you were trying to avoid.