Small Business Tax Issues for Self-Employed Individuals by Richard A. Chapo

The United States is a nation of entrepreneurs. There are literally tens of millions of self-employed individuals that enjoy pursuing their dream business. Of course, few of you enjoy the paperwork and confusing tax issues that arise from owning your own business.

Many self-employed individuals are considered “sole proprietors” or “independent contractors” for legal and tax purposes. This is true regardless of whether you are turning a hobby into a business, selling an indispensable widget or providing services to others. As a self-employed person, you report business revenue results on your personal income tax return. Following are a few guidelines and issues you should keep in mind if you are pursuing your entrepreneurial spirit.

Schedule C - Form 1040.

As a self-employed person, you are required to report your business profits or losses on Schedule C of Form 1040. The income earned through your business is taxable to you as an individual. This is true even if you do not withdraw any money from the business. While you are required to report your gross revenues, you are also allowed to deduct business expenses incurred in generating that revenue. If your business efforts result in a loss, the loss will generally be deductible against your total income from all sources, subject to special rules relating to whether your business is considered a hobby and whether you have anything “at risk.”

Home-Based Business

Many self-employed individuals work out of their home and are entitled to deduct a percentage of certain home costs that are applicable to the portion of the home that is used as your office. This can include payments for utilities, telephone services, etc. You may also be eligible to claim these deductions if you perform administrative tasks from your home or store inventory there. If you work out of your home and have an additional office at another location, you also may be able to convert your commuting expenses between the two locations into deductible transportation expenses. Since most self-employed individuals find themselves working more than the traditional 40-hour week, there are a significant number of advantageous deductions that can be claimed. Unfortunately, we find that most self-employed individuals miss these deductions because they are unaware of them.

Self-Employment Taxes - The Bad News

A negative aspect to being self-employed is the self-employment tax. All salaried individuals are subject to automatic deductions from their paycheck including FICA, etc. In that many self-employed individuals often do not run a formal payroll for themselves, the government must recapture these taxes through the self-employment tax. Simply put, you are required to pay self-employment taxes at a rate of 15.3% on your net earnings up to $87,900 for 2004. For net income in excess of $87,900, you will pay further taxes at a rate of 2.9% on the excess.

In an interesting twist that reveals the confusing nature of the tax code, you are allowed a partial deduction for the self-employment tax. Simply put, you are allowed to deduct one-half of your self-employment taxes from your gross income. For example, if you pay $10,000 in self-employment taxes, you are allowed a deduction on your 1040 return of $5,000. Many self-employed individuals miss this deduction and pay more money to taxes than needed.

Health Insurance Deduction

This used to be a very messy area for self-employed individuals, to wit, you received little tax relief when it came to your health insurance bill. This was a particular burden for small business owners when considering the astronomical cost of health insurance. All of this has changed and you now may deduct 100% of your health insurance costs as a business expense.

No Withholding Tax

Unlike a salaried employee sitting in a cubicle, you are not subject to withholding tax on your paycheck. While this sounds great, you are required to make quarterly estimated tax payments. If you fail to make the payments, you are subject to a penalty, but the penalty is not the biggest concern.

A potential and dangerous pitfall of being self-employed is failing to pay quarterly estimated taxes and then getting caught at the end of the year without sufficient funds to pay your taxes. The IRS is not going to be happy if you fail to pay your taxes and you will suffer the consequences in the form of penalties and interest. Making sure you pay quarterly estimated taxes helps avoid this situation and it is highly recommended that you follow this course of action.

Record Keeping

You must maintain complete records of all business income and expenses. Simply put, document everything. Create a filing system for each month and file every receipt, etc. All business travel expenses must be documented, including auto mileage you incur when performing business tasks. Office supply stores sell business mileage books that you can keep in your car and use whenever you travel. If you have any doubt about documenting something, just do it!

In Closing

As a self-employed individual, your focus and time is spent on making your business successful. Your focus is not on the complexities of the tax code and how to limit the amount of taxes you owe. If any of the information in this article is new to you, then it is highly likely you have paid far more in taxes than required.

About the Author

Richard Chapo is with Business Tax Recovery - Obtaining tax refunds for small businesses for overpaid taxes. Go to our article section to discover tax strategies and deductions.

Five Simple Steps to Getting Links to Your Site by Matt Colyer

Today if you want your site to survive in the search engines your going to need backlinks. Almost all the major search engines rank sites based on the number and the quality of backlinks. Besides getting a good search engine ranking with links, it also one of the most effective ways to increase a site’s traffic. So, how do you build your link popularity? In this article I’ll show you 5 simple steps that will help you build your site’s link popularity.

Step 1 - Determine the type of sites you want to trade links with. Focus on sites that are related to your site’s market, don’t go after sites that are not related, it won’t help your ranking that much. To locate link partners search with your main search phrases in the search engines. Example, if your site is about cars, you could search with phrases such as car repair, tires, etc. The sites you see on the first few web pages of the search results should be your main targets. Remember to stay away from direct competitors.

Maybe the best way to Locate quality link partners is by visiting the Yahoo’s directory or ODP because all these web sites were reviewed by humans before being listed. If you decide to use a directory visit the category that’s most related to your web site, if your web site’s subject is popular enough you should find more then one category that’s related to your web site.

Step 2 - Review each web site you found carefully, check to see if they are using spam, if they are using spam, stay away, this will only hurt your web site in the long run. Remember to aim for the big money and not a quick dollar. Look to see If they have a links or some call it a resource page. If they don’t have a links page, you should most likely move on and forget about it.

You should also review their content and resources they provide. Would their content or resources be useful for your visitors? Do you feel that it’s a good resource? Is it a web site that you feel good about recommending?

Step 3 - After reviewing the web sites, you’ll need to gather information about them. First, find out the owner of the web sites name. Sometimes the owner with list his or her name on the site, usually located on the about us page. Otherwise, you can get their name is by doing a WHOIS search. There are several available you can use, just search with the phrase WHOIS lookup.

Find out their email address. Remember to get the right one, you don’t want to contact them through their support email address, instead search for their marketing or partnership email. Also find something on their web site that is unique and useful, this could be an article, an online tool or a service, use this to compliment them.

Step 4 - Create a list of all the web sites you have found related to your web site. You can list these web sites however you prefer. Personally I always rank them based on their link popularity, ranking and Page Rank. This allows you to have a good idea which ones you should target first. If your web site is new you should go after the web sites that don’t have the highest link popularity or Page Rank.

Step 5 - Finally, we are nearly done. It’s time to put all the information you have gathered into action. Send a custom e-mail to each site requesting to exchange links. Remember not to use generic e-mail link exchange request, half of the time these are deleted without ever being truly considered. State the webmaster’s name, this will show that you have at least looked at the web site.

Next, you need to mention something you liked about their web site. Who doesn’t like a nice compliment every once in while? I know I like them and you are probably the same way. Compliments can help seal the deal, they not only make the webmaster like you more, but also show that you took the time to look over their web site.

Tell them about your web site. What is offers and how it can benefit their visitors. Unfortunately many webmaster no longer care about offering a useful resource and only care about money. So, you’ll need to tell them how much traffic you get and how it can benefit both of you. Tell them exactly where you think your link should be placed on their site. Also tell them URL of where you’ll be placing their link on your web site.

About the Author

Matt Colyer began as a SEO Specialist in 1997. He founded Superior Webmaster in 2004 as a source of articles and tutorials for Web site owners looking to improve their Web site.

S Corporation – What Is It? by Richard A. Chapo

For many small businesses, the “S” corporation is the business entity of choice. The “S” in S corporation refers to a tax designation. All corporations are created the same way under state law. A small business must then chose a tax status, to wit, “C”, “S” or non-profit. Important issues concerning S corporations are covered in this article.

C Corporation v. S Corporation

Federal tax laws automatically consider every corporation to be a “C” designation. A small business, however, may elect to be designated as an “S” corporation by filing IRS form 2553. The election must be made prior to the tax year in which it is going to be effective. All shareholders must sign the election.

A C corporation stands alone for tax purposes. It must file tax returns and pay taxes on profits. Profits and losses are reported on the corporate tax return and do not pass through to shareholders. C corporations can elect any calendar month as the end of their fiscal year.

An S corporation is a pass through entity for tax purposes. It does not file a tax return for the purpose of paying taxes, but does file information returns. All profits and losses are passed through to the shareholders. In turn, each shareholder reports the profit or loss on his or her individual tax returns in proportion to their ownership interest. For instance, if you own 30% of the total issued shares, 30% of the profits or losses must be reported on your personal tax returns. S corporations must have a fiscal year-end of December 31. If you intend to eventually take your business public, you cannot use an S corporation.

Although S corporations are a tax choice, there are limitations on what corporate entities can make the election. The biggest hurdles are:

1. There can be no more than 75 shareholders;

2. Each shareholder must be a person, not a business entity; and

3. There can be only one class of stock.

Benefits

While S corporations provide relief from the tax filings of a C corporation, there are negative aspects to using them. Simply put, a C corporation can write off more expenses. S corporations may not be able to deduct certain types of insurance and costs of doing business. The list is fairly complicated, so you should speak with a tax professional prior to deciding which designation works for your business.

S Corporation vs. Limited Liability Company

S corporations have a definite tax advantage over limited liability companies [“LLC”]. Distributions from LLCs to shareholders are subject to self-employment tax [15.2 percent] in their entirety. Distributions from S corporations, however, can be broken down into two categories, salaries and dividends. The dividend distributions are not subject to the self-employment tax. Avoiding self-employment tax can make a substantial difference in the amount of money you take home.

In Closing

I always laugh when someone emphatically says that every business should be formed as a particular entity. Such statements are simply wrong. The “best” business entity depends entirely on the nature of your business. In many instances, S corporations are ideal.

About the Author

Richard A. Chapo is a business lawyer with SanDiegoBusinessLawFirm.com - This article is for information purposes only. Nothing in this article is intended to address the reader’s specific situation nor does it create an attorney-client relationship.

Examining the Legal Billing Rates by Mart Gil Abareta

Every time you want to avail legal assistance, your finances are also one of your biggest considerations. I’m speaking here in terms of legal billing rates. These rates really vary based on the experience, prominence and prerogative of the lawyers. Lawyer fees differ. Now, the big question is – Are these fees reasonable for clients like you? Is it just enough for the lawyers?

An article entitled “Guide to Legal Services Billing Rates” says that most lawyers will tell you that the practice of law is a noble profession dedicated to the pursuit of truth and justice. But anyone looking to hire a lawyer must realize that practicing law is first of all a business. As a result, lawyers in private practice are going to charge what the market will bear in order to make a profit from their services. Understanding this and having a basic knowledge as to how lawyers’ charge for their services may help you to negotiate the best deal when you need to hire one.

I must say that all of the payment arrangements stated in the said article are not more than enough. I think, they are just enough to compensate for the time and effort a lawyer will spend in your case. These arrangements include hourly rates, flat fees, retainers and contingent fees. The lawyer has the opportunity to choose the payment plan that you’ll have. However, the client can still open up his views if he disagrees with the lawyers’ offer. It’s still up to them to decide about the final payment arrangements.

In addition, there are certain factors impacting lawyers’ fees such as advice, outcome, overhead, experience, time and effort, difficulty of case, prominence of lawyer, geographical location, and preferred client discount. All of these affect the choice that a lawyer makes regarding the payment arrangement that the client has to comply with.

Indeed, it’s important to understand how these fees are being treated under the different payment arrangements. The decision if what type of payment best suits your paying capabilities still depends on a good communication between you and your lawyer. It may be hard to compensate for this high-paying job but then it will be your reputation that’s at stake here.

Generally, it’s always better to fairly settle everything first – especially in terms of legal billing rates – before commencing any legal proceedings. Through this, you’ll certainly have a smooth-sailing relationship with your attorney towards the success of your case.

About the Author

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The Proof of Small Claim Services by Kristine Llabres

Clarisse, a friend of a prominent personality in Long Beach ask her lawyer about small claim services, she said, “Up to what amount should it still qualified to be a small claim?”

Her lawyer nodded and said, “It depends.”

Since Clarisse does not know the law well, so she does not post further questions on her lawyer but there is still doubt in her that somehow stained the relationship of her with her very own lawyer.

Read on and be informed. There is no harm if you try to know these sorts, right?

There are several small claims courts that provide an easy means for people in their respective states to settle disputes of under $5,000 without the aid any lawyer. For instance, when it comes to minor traffic problems, accidents and disputes, landlord and tenants issues, bad checks, breaches of contracts and so on, small claim courts allow the people to seek justice without the law taking into their hands.

Even though these courts are designed to be user friendly, still the whole legal process often intimidates and confuses the lay people that prevent them from going forward with an otherwise perfect case. There is a whole industry built around legal support services.

The lawyers contact out all kinds of work including legal research, court document retrieval and filing, asset location and many others. Oftentimes, the lawyer needs the services of private investigators and expert witnesses. All of these are available to individuals seeking relief in small claim courts.

A small claim case for instance begins with a complaint and the plaintiff files the complaint with the court to start the claim. However, the defendant must be served the complaint that means that the complaint must be hand delivered to the defendant. Experienced wise process serves to know all the tricks when it comes to locating and serving evasive defendants.

Bear in mind that if the defendant has been served the complaint, the process ever must file a proof of service with the court and this usually happens 15 or 20 days before the hearing, depending on where the defendant lives. This will give the defendant time to build a defense or make counterclaim. The law says that anyone that is more than 18 not involved with the case can serve the complaint.

The process however, serves charge very reasonable fees and they know how to correctly file the proof of process. Well, it is often better and recommended to invest a little money to get the job done right and hassle free.

About the Author

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