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As we move into 2011 it is always a good idea to learn from other peoples’ tax mistakes of 2010. Last Year Tax Courts and the Internal Revenue Service shed light on a number of tax regulations that could help small businesses be more meticulous. Some of the cases include helping land owners save, and a reminder to be extremely thorough when considering a business deal.

The rulings for small businesses in 2006 were significant because they reminded people of common problems and things they needed to be versed on.

After increasing problems with people convincing appraisers to raise their estimated worth of charitable donations for tax deduction purposes, the IRS wants people to think twice about getting greedy with their charitable giving, or those who file returns with inflated appraisals will be penalized under Congress legislation.

The IRS is giving a bird-eye view to appraisals and if there are any reasons for them to challenge it, they will.

Another common mistake relates to IRS rules concerning estates. Under IRS rules, if 35 percent or more of a decedent’s estate value is tied up in business ventures, its beneficiaries would no longer have to worry about paying it all at once, but instead they can pay it over a ten year period.

Now, just because a piece of property brings in cash, does not mean it qualifies as a business venture.

In order to qualify, the land must be an active trader business. That means you have to be a property manager as well as an owner.

A family-owned corporation got into trouble with the IRS when it neglected to pay taxes on what the IRS considered transfers of equity. The family shareholders made occasional transfers of money or property to the corporation, but because of poor record keeping, it was unclear whether those transfers were loans or gifts. The transfers would only be tax free if they were loans.

Usually, when the shareholders needed money, the corporation would occasionally make payments to the shareholders on those transactions. The IRS said that that indicated the original transfers were equity, not debt.

The tax court sided with the IRS, but on appeal, a higher court concurred with the corporation saying that despite poor record keeping, it looked like debt.

In addition, to continue to retain their small business status, corporations with earnings cannot, for more than 2 years in a row, have passive income that exceeds 25 percent of its income. That passive income could include royalties, rent from property the corporation or its interest lease out, or deposits from tenants if the corporation is not active in managing the properties. That is not a good thing because you’ll then be taxed on two levels instead of one.

It is advisable that if you have an S Corporation (designated small business) that you become acutely aware of what type of entities you’re acquiring and what type of business you’re doing, because it could become a tax fiasco.

There is a bright spot, however: if you’ve fallen into a more passive form of income, time is usually on your side, so you can act reasonably to maintain your status.

It is advisable to consult a tax professional before making drastic decisions. Consulting a qualified tax expert before considering a business transaction of any kind can save you time, money and trouble in the future.

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Consumer advocates are not pleased about a new loan that financial institutions have tied to tax refund and which hit the market long before tax season arrived.

Called ‘pay-stub’ loans, the way this works is that consumers can get an early refund based on their last paycheck. Mind you, there is a disparity between the traditional refund anticipation loans and the pay-stub loans, in that the traditional loans are not available until late January or early February when employers send out W-2 forms reporting final earnings, taxes already withheld and other necessary information.

As a way to meet holiday expenses, tax preparers started promoting the loans in November instead of waiting until the beginning of January, which is the month when most pay-stub loans are prepared. As a result of that, Americans should expect to see a radical change in sales from the loans, says Chris Keeley, a spokesman for Neighborhood Economic Development Advocacy Project.

According to consumer advocates, pay-stub loans are too expensive, and offers more risk than the traditional refund loans. One way they are risky is that the absence of a W-2 form increases the chance of basing a loan on incomplete or missing information. For example, a tax preparer may not be aware of an IRS lien on the refund to pay child support, a student loan debt, or a client’s other sources of income.

Tax preparers and banks disagree by saying that pay-stub loans are good in that they provide consumers with more choices to receive funds, and that there are no hidden costs and the conditions of the loans are fully open to the consumers.

HSBC bank says that they make sure people are not only informed about the terms and costs of the loan, but that consumers receive prices that are reasonable.

For the low-income tax filer who qualifies for the Earned Income Tax Credit, the refund anticipation loan can be harmful. Taxpayer advocate Nina Olson reports that there is an advantage to delivering the tax credit to beneficiaries without fees being taken out of it.

Fees are charged for pay-stub and traditional refund anticipation loans yearly, which can be extremely expensive. Because pay-stub loans must be paid back with a “balloon payment” in February, many tax filers who use them make the payment by taking out a traditional refund anticipation loan, which has additional expenses.

Whether or not the tax filer receives all his refund, with a pay-stub loan or a refund anticipation loan, he is responsible for paying back his loan in full.

According to H&R Block, their pay-stub loan product (Instant Money Advance Loan) is cheaper than other company’s products, and that they give clients what they need to make informed choices.

For the entire month of January JPMorgan Chase will be offering pay-stub loans for the first time, and according to bank spokesman Tom Kelly, the bank will make sure that consumers know what the costs are.

Kelly concludes by saying that there is a little more risk connected with pay-stub loans, but for consumers who want to receive their refund two to four weeks earlier than usual, then this is the way to go.

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As income tax filing season draws nearer many small business owners have began looking for an accountant or other tax professional to file their tax return.

Searching for a certified public accountant (CPA) should be done long before the beginning of tax season. Small business owners have found that when accountants are snowed under with work in March and April, it’s almost impossible for them to help new clients.

But despite the delay, when hiring a CPA firm there are some important factors you need to consider.

Find a professional who you feel comfortable working with, and who knows your line of work and the state of your personal finances.

It is important to understand that you are putting everything in someone else hand, so it’s very important who you choose to work with.

Choosing a good accountant who can satisfy your needs is not easy, but it can be done. You can start by looking for referrals from other business-people who are in the same profession as you. For example, if you own a small retail store, your tax concerns would be very much different from a doctor’s, so what you’ll look for is an accountant with both knowledge and experience in your field.

The next step after getting the names of the referrals is to interview them. And since your financial security and assets are at stake, he said it’s ok to ask probing questions about an accountant’s background and experience.

It would be in your best interest to ask for references as well. This will let you know how satisfied a customer is with the service and how well an accountant works with his or her clients.

Since there are small businesses that seek a variety of services from a CPA, it’s important to discuss fees, and the services you can expect. Find out if you are expected to pay by the hour or one lump sum for certain services.

Gone are the days when a CPA was just there to do taxes. They’re using their resources to not only prepare tax, but also to advise business-people on their business. A CPA should be willing to listen and have an interest in knowing what’s happening in the lives of their clients, and their business.

Many people are looking for an accountant who will meet with them often, and keep abreast of what’s going on in their business. For example, getting a reminder that it’s time to send in the numbers for your end-end projection.

Then there are others who are looking for a CPA who will handle their books and records for them.

Gada warns business owners who are interviewing CPAs to be aware of the what-ifs. For example, will the CPA handle the audit for you if you’re audited by the IRS or state or local tax authorities?

A CPA (http://accentaccounting.net) should also be asking questions during the initial meeting. It shows that he or she has the best interest of the client. Questions like, what areas do you need help in? Corporate taxes, individual taxes, strategic planning, estate planning, business succession show that the CPA is interested in meeting the needs of the client.

Accountants who may not know how to do something, but are willing to turn to another CPA or professional for help are strongly recommended.

Personality is essential to any working relationship and should be highly considered when selecting an accountant. Whether it’s someone who is all business, or someone who’s more personable, you should get that feeling of ‘one-on-one’ since your accountant will have intricate information on the good and bad side of how you earn a living with your business.

If you are a small business and looking for an accountant in Alabama then visit Accent Accounting a Huntsville Tax and Accounting Firm dealing with payroll, quarterly reports and income tax filing

Deducting the cost of working out of your home can be a real plus when it comes to saving on taxes. However, meeting the terms of IRS regulations can be a bit overwhelming.

According to accountants, the deduction no longer leads to an automatic audit by the IRS as it once did. .

One of the frequent mistakes that filers make is to try to deduct space in their home that is utilized for both business and personal. The space in your home must be used solely for business purposes in order to qualify for the deduction.

Having a computer and other office supplies in your office isn’t the only way you can gain full benefits of the deduction to use your home for business. The space you use in your home to manufacture goods or to store inventory can also be deducted. That’s also the case if you run a day-care business or a nail salon in your home.

Even though you don’t have to have a separate room for your office, taking the deduction will be less complicated if you do have a room set aside for business purposes. For example, it would be hard to try and convince the IRS that your home office which serves as a part of the family room is never used by your children to do their homework or play computer games.

Wherever the space is, it must be used regularly for your business. Mind you, the space doesn’t have to be your only place of business.

If you have a home business you can deduct the expenses used to retain the business space, like a portion of the utilities, mortgage interest or rent, insurance, repairs and maintenance and other expenses pertaining to the space. The good news about being able to deduct your small business expenses is that you can also reduce the price of a portion of the home that is used for business. Generally, a house can not be depreciated.

To find out how much of your expenses you can deduct, you must divide the total square foot of the home by the square foot of the business. For example, if the business only used 10 percent of the house, and the filer had $5,000 in operating cost for the whole house, then $500.00 could be deducted.

Square footage is a sure way filers can create problems for themselves. For example, if while investigating your return, the IRS find that your business space is too big for the kind of business you run, then the size of your deduction might be challenged.

If claiming the deduction is something you plan to do, becoming knowledgeable about IRS rules would be recommended. You should first review IRS Publication 857, Business Use of Your Home which can be downloaded from the IRS Web site at irs.gov. You can also check out small business and home business tax guides that are available in bookstores.

It will also be a good idea to familiarize yourself with the IRS form you’ll need to file, 8829, Expenses for Business Use of Your Home, with instructions included. The information can be downloaded from the IRS Web site as well.

For example, if you sold your home and the space in your home office has been depreciating, you’ll have to somehow recapture the depreciation, or adjust the profit you made on your house to account for the tax break that you already got.

Another important point is that your deduction can not be bigger than the net profit you make. However, you can use the surplus to compensate for the profits in later years.

This is not the time to ponder about the home business deduction for last year. If your business space somehow didn’t meet the requirements for the deduction, it’s too late for it to be included.

What you can do is start working now, so you can claim the deduction for the 2007 tax year.

If you are a small business and looking for an accountant in Alabama then visit Accent Accounting a Huntsville Tax and Accounting Firm dealing with payroll, quarterly reports and income tax filing

To most taxpayers who can’t wait for a check to arrive from the federal government, refund anticipation loans may seem appealing, until they realize that the fees and high interest rate can drastically affect the amount they were expecting to receive.

Taxpayers should first find a way to even out their finances, and then file their taxes so they can get back what is due them.

Beginning in the last couple of years, taxpayers no longer had to wait until the end of January when they receive their W-2 forms to apply for refund anticipation loans. They can now simply take their December pay stubs to a tax preparer and receive a refund.

Consumer advocates believe that both types of loans are disadvantageous to low-income families because they are least able to afford the high fees and interest rates from their tax refunds and earned income tax credits.

Refund or Pay stub loans pose a risk for the working poor because, since tax time may be the only time they see a large amount of money, they fall prey to the idea of receiving cash sooner.

However, if the tax refund turns out to be less than you had anticipated, because of past-due child support or unpaid student loans, the filer will still be responsible for the entire amount of the loan. That, Wu said, is the disadvantage of not having a W-2 form.

Tax preparers (http://accentaccounting.net) believe that they are providing taxpayers a valuable service by making the loans available to them.

Having initiated pay stub loan last year, Jackson Hewitt Tax Service won over thousands of H&R Block and Liberty Tax Service customers.

H&R Block Vice President, Bernie Wilson, said that the company now has a service available for people who want their tax refund money quicker.

If a borrower opens a bank account with H&R Block and uses a debit card to access funds there is a 36 percent annual percentage rate, whereas if a borrower chooses a traditional paper process, there is a 60 percent rate. Wilson said that the loans cannot exceed more than half the expected refund, even though it’s not directly secured by anticipated tax refunds.

Wilson said the intention was for low income families to deposit their money into an account so that they can start saving. He said similar accounts are also available to refund anticipation loan borrowers.

Liberty Tax Service Chief Executive, John Hewitt, thinks that refund anticipation loans and pay stub loans are most likely safer than historical alternatives, because not only did the alternative take a percentage of the refund, but they were expensive and illegal.

However, on the other hand, Hewitt shows some uneasiness in pay stub loans in that they cost Americans too much money, and there can be a disparity between the size of the loan and the refund.

Refund anticipation and pay stub loans are discouraged by consumer groups, as well as criticized for its strong marketing by advocacy groups.

According to Chris Keeley, program associate with the Neighborhood Economic Development Advocacy Project, expensive loans that begin way before tax season are designed for low-income taxpayers, and they are doing everything they can to make the public aware of its risks.

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If you were to ask an entrepreneur what factors are most important to the success of his or her business, you’re most likely to hear – finding and keeping the right employees, affordable health insurance, protecting intellectual property and cutting through typical government red tape.

Entrepreneurs who are not earning a profit may not be concerned yet about corporate income taxes. Those who do not own their own building may not be worrying about property taxes, although they are paying them indirectly through rent or lease payment.

In order to create a healthy environment for the entrepreneurs, it is important to keep local and state taxes down.

There are some legislatures who might panic at the thought of a $1.6 billion deficit and wonder if anyone would notice an increase in taxes in certain areas, which mind you, would help the economy.

Companies with a vested interest, small businesses in and entrepreneurs will definitely notice the increase even if taxes aren’t necessarily an issue for them.

Statistics shows that if state and local taxes were lower in certain states, namely Wisconsin, those states would attract more entrepreneurs.

In a study commissioned by the Small Business Administration, Donald Bruce (University of Tennessee) and John Deskins (Creighton University), found that higher top tax rates on individual income, higher sales tax rates and the existence of state-level inheritance or gift taxes all seemed to reduce a state’s share of the national entrepreneurial stock. In their study, from 1989 to 2001, Wisconsin appeared to have had above taxes and below average entrepreneurial scores.

Even though state and local taxes are minor issues for Bruce and Deskins, they are quick to point out that states with larger state governments, as measured by state taxes per capita, seems to have lower entrepreneurial shares.

According to the Wisconsin Taxpayers Alliance, in 2006 the federal, state and local taxes amounted to 33.4 percent of personal income as apposed to 33.1 in 2005. While that may be a small increase, it shows that most citizens will not turn a blind eye to a tax increase.

From a budget balancing-perspective, increasing a major tax, like income tax or sales tax will not be a strong enough argument. The projected gap in what state agencies hope to spend and what revenues are available equals about six percent of the $26.4 billion the state expects to raise over the next two years. Doyle and lawmakers are working to keep costs down, revenue estimates rising, and a low deficit. The starting point of $1.6 billion is half of the anticipated deficit two years ago.

Cutting taxes ( http://accentaccounting.net ) on activities that encourage entrepreneurship is an area that both Doyle and lawmakers are in agreement on. One plan is increase tax credits available to angel and venture capital investors who invest in technologically advanced or high-growth start-up companies, and the other is, offering capital gains tax exclusion for investment gains that are re-invested into high-growth Wisconsin companies.

This may not be the first or last time you will hear the citizens of Wisconsin complaining about state and local taxes. But whatever you do, think smart. Smart budgeting and a growing economy (more entrepreneurs and more jobs) are two of the best remedies for the deficit.

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The new “kiddie” tax rule, which increases the number of years during which a child’s investment income can be taxed at the parent’s rate, is really nothing to brag about. The reason is because most custodial accounts, especially in the early years, are not large enough for annual earnings to activate the tax.

The new kiddie taxchange, which was approved by congress, is good only until a child turns 18, as apposed to the old law where it was done away with on the child’s 14th birthday. For 2006 and 2007, a child’s investment income that exceeds $1,700 is taxed at the parent’s rate. To earn $1,700 of income, the invested principal would have to be at least $21,250, assuming an 8 percent annual yield. The first $850.00 of a child’s investment earnings will remain tax-free, whereas, the next $850.00 is taxed at the child’s rate, which is 10% for interest income and 5% for qualified dividends, and long-term capital gains. The parent’s rate can go as high as 35%.

The new rule could create a big problem for parents who had plans to give their children stocks or other appreciated assets, with the intention of shifting the tax on the gain to a lower tax bracket. Mind you it may still work, but the child will have to wait until he or she is 18 to sell the securities.

But there is good news for parents of children who are 18 and older. Beginning in 2008 long-term capital gains will become tax-free for those in the two lowest income-tax brackets, with taxable income under $33,000. If you give appreciated stocks to your children they’ll pay no tax on the gain as long as they are 18 and over and sell the shares in 2008, 2009 or 2010. According to tax expert, Bill Fleming, that is a nice bonus if your children are the right age at the right time.

There is another option if you feel that your child’s college fund will grow big enough to cause kiddie-tax problems later on. You can cash out the custodial account and transfer the money to a state-sponsored 529 college-savings plan, which will allow your savings to grow tax-deferred. If you use distributions for qualified college expenses, they won’t be subject to federal taxes. However, the 529 plan will be the best choice over the custodial accounts, if you are just starting to save for your child’s education.

A 529 plan should also be an attractive alternation because some states offer tax breaks to residents, even though contributions are not deductible on federal taxes. For example, in Connecticut, married couples can deduct 529 contributions up to $10,000 ($5,000 for individuals), no matter what their income is. With a 5% state income tax, that would save $500.00 in state taxes.

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If you are one of the millions of taxpayers who will use the services of a professional tax preparer to file your return this year, then IRS has a message for you. Use caution when selecting a preparer because the Taxpayer is ultimately responsible for his or her return even when it has been prepared by someone else.

There are several things you can look for to ensure the person you select has the appropriate qualifications to suite your needs.

Credentials

According to the IRS, only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. While other return preparers are limited to representing taxpayers only in audits regarding a return they signed as a preparer.

Investigate

You should also be as careful when selecting a tax preparer as you would when selecting a first car for your teenage daughter or a health care professional. That means contacting your local Better Business Bureau or state boards that have oversight for accountants and tax attorneys.

Inquiries

Due diligence on your part should also include checking with references. Always ask clients who have used the tax professional before for feedback on their level of satisfaction and the preparers’ performance.

Fees

You should avoid any preparer like the plague if he or she claims they can get you a larger refund than other preparers. Also be wary if a preparer offers to guarantee results or base fees on a percentage of the amount of the refund.

Availability

Since the possibility exists that your return may be audited months or years after it is filed, it is important to select an individual or firm that will be around to answer questions about the preparation of your tax return

Taxpayers are encouraged to report suspected tax fraud and abusive tax preparers to the IRS on Form 3949-A, Information Referral. If you do not wish to use Form 3949-A, you may send a letter to the Internal Revenue Service, Fresno, CA 93888.Be sure the letter includes the name and address of the person you are reporting, their taxpayer ID number, brief description of the alleged violation, an estimated dollar amount of any unreported income, and your name, address, and daytime telephone number.

If you are a small business and looking for an accountant in Alabama then visit Accent Accounting and Taxes a Huntsville Tax Accountant dealing with payroll, quarterly reports and income tax filing