Category: Blog

Starting a Business – Which Entity is Right for You?

If the time has come to pursue your entrepreneurial ambitions, you should also be considering the various forms of business entities. Choice of business entity greatly determines taxation, personal liability, wages and organization of the business, so it is crucial that all aspects are understood. Below, we compare three common classifications for small business owners.

Sole Proprietorship

  • What is a Sole Prop?

A sole prop is an individual that has an unincorporated business.

  • How is it taxed?

Income or loss from the business is reported on the owner’s personal tax return.

  • What are my wages?

Net earnings are subject to a 15.3% self-employment tax.

  • What are my liabilities?

The owner is liable for 100% of business debts and activities.

 

S-Corporation

  • What is an S-Corp?

An S-Corp has no more than 100 shareholders and doesn’t have another corporation as a shareholder.

  • How is it taxed?

An S-Corp is a flow through entity. After filing form F2553 (election to be taxed as an S-Corp), income is taxed to the shareholder.

  • What are my wages?

Wages are paid to shareholders and employees for services provided and SE taxes are deducted.

  • What are my liabilities?

Debts acquired by the company are not typically passed on to the shareholder beyond the amount invested.

 

Limited Liability Company

  • What is an LLC?

An LLC has the limited liability features of a corporation, but it is usually treated as a partnership or a disregarded entity for income tax purposes.

  • How is it taxed?

Unless it elects to be treated as a corporation, LLCs will either file a partnership return (two or more members) or activities are reported on the owner’s personal tax return (single-member).

  • What are my wages?

Like a sole proprietor, members’ payments are subject to a 15.3% SE tax.

  • What are my liabilities?

Members of an LLC usually do not incur the liabilities of the company.

 

If you have additional questions regarding these different entities or how to get started with your new business, please give us a call at 949-215-9900. We look forward to hearing from you!

 

Sources:

Thomson Reuters, Small Business Quickfinder Handbook, 2015

Estimated Tax Payments – Do You Need to Make Them?

Although April 18th has come and gone, that doesn’t mean the IRS has gone away for an entire year. As a general rule, if you are a sole proprietor and expect to owe $1,000 or more in tax, you must make estimated quarterly tax payments.

Why do I need to make payments?

In a traditional W-2 job, your employer will withhold tax from your earnings; therefore, you would not be required to make estimated payments on your own. If you are self-employed, however, you are responsible for making the payments each quarter.

When do I make payments?

Period Payment Due Date
Jan 1-March 31 April 18
April 1-May 31 June 15
June 1-August 31 September 15
September 1-December 31 January 17 of next year

 

How do I calculate the payments?

You can utilize your prior year tax return as a starting point in calculating your estimated quarterly payments. You may have to make adjustments based on changes in your earnings for the current year. You can refer to Worksheet 2-1 found on the IRS website to assist you in calculating your estimated tax.

How do I make payments?

  • Apply an overpayment on your prior year tax return to your current year estimated payment
  • Pay directly from your bank account, debit or credit card online or over the phone
  • Send a check with a payment voucher Form 1040-ES

 

If you have additional questions or would like further assistance regarding estimated tax payments, please give us a call at 949-215-9900. We look forward to hearing from you!

 

SOURCES:

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

https://www.irs.gov/publications/p505/index.html

 

You’ve filed your taxes – how do you pay your bill?

The government is eager to collect your tax bill, so they have offered a number of ways for you to pay! Aside from sending in a wad of cash to the IRS, pretty much anything goes. Here’s how you can pay your bill:

Payment processor for debit or credit: Choose to pay using a third party payment processor like Visa or Amex. Debit card processing is charged a flat fee while credit card processing fees are based on percentage.

Direct pay: Pay the IRS directly from a checking or savings account.

IRS2Go: Download the IRS app to your iPhone or Android and choose the debit, credit, or direct pay option.

E-file: Schedule an electronic funds withdrawal from a bank account when E-Filing your tax return.

Phone or online: Pay online or by phone with the Electronic Federal Tax Payment System. This option requires enrollment.

Check or money order:  Send a check or money order out to the U.S. Treasury. Be sure to include your contact information, tax year and your social security number or EIN on the document in case it gets lost. You also need to include your payment voucher or related tax form.

 

If you haven’t filed your 2015 tax return or you have questions regarding paying your tax bill, give us a call at 949-215-9900. We look forward to hearing from you!

 

Sources:

https://www.irs.gov/uac/Ways-to-Pay-Your-Tax-Bill

Mileage Tracking Apps: Which is Worth the Download?

Are you still keeping a running spreadsheet to record business mileage on your car? Stop – there’s an app for that!

If you’re a small business owner or a contractor, your vehicle’s mileage is tax deductible. Here we take a look at three (free) popular mileage tracking apps to see which one is worth the download.

 

Mile IQ

  • Very user friendly with simple tutorial upon creating account
  • Auto drive detection – you never have to manually enter a trip
  • Categorize personal or business trips and specify purpose (meals, entertainment, etc)
  • Send monthly reports via email
  • User is limited to only 40 drives per month (unlimited $5.99/month or $59.99/year)

 

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TaxMileage

  • Data connected is to TaxMileage server – so you can access reports from any device
  • No auto drive detection function
  • Can’t email reports
  • User is not limited to certain number of drives per month

 

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Everlance

  • Specific for freelancers
  • Auto drive detection
  • Categorize personal or business trips
  • Pie chart overview of trips and finances
  • Track revenue and expenses
  • Calculate taxable income for the year
  • No trip limit
  • Easily add photos and receipts
  • Export reports

 

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Overall, the clear stand out was Everlance. For small business owners or contractors, it is incredibly convenient to be able to utilize the income and expense functions along with the mileage tracker. There is also no trip limit. However, if Everlance has too many features that aren’t necessary for you, Mile IQ is a great choice for those looking for a user friendly experience. Coming in third was TaxMileage. One of the biggest downfalls, in our opinion, is its lack of that auto drive detection feature – although some may prefer this!

If you haven’t filed your taxes yet and need help accounting for last year’s miles, give us a call at 949-215-9900. We look forward to hearing from you!

The IRS Can Audit You Back Farther Thank You Think

While we never anticipate it will happen to us, there is always that lingering possibility that you might get audited by the IRS. In the past, the statute of limitations was three years. However, there are caveats to this. Recently, the statute of limitation has doubled to six years, in some cases.

 

The IRS can go back and audit you under the following conditions:

3 years

This is the normal statute of limitations on tax audits. It’s important to note, however, that if you file an extension, the statute does not begin at the deadline in April. It starts on the date that you file.

6 years

The IRS is authorized to go back up to SIX years if you exclude more than twenty five percent of your stated gross income. They can also go back this far if you excluded more than $5,000 of FOREIGN income such as interest made on an overseas account.

Forever

Basically the IRS can go back and audit you at any time if you just fail to file altogether or you exclude certain tax forms. In addition, if you fail to report foreign assets or there is potential fraud, there are no time limits.

 

If you need help learning about and preparing your taxes this year or would like more information on the statute of limitations, please visit our live chat at our website (www.semaphoretax.com) to get in contact with one of our experienced tax professionals, or call us at 866-736-2444. We’re excited to hear from you!

 

Sources:

http://www.forbes.com/sites/robertwood/2016/01/15/beware-irs-now-has-six-years-to-audit-your-taxes-up-from-three/#1bef2c284216

http://www.cbsnews.com/news/how-far-back-can-the-irs-audit-you/

http://www.forbes.com/sites/robertwood/2014/04/03/how-long-can-irs-audit-it-all-depends-on-you/#1099215d9597

Scanning Apps: Which is worth the download?

If you’re a business owner or just a financially mindful individual, keeping records of your transactions is essential. It’s also much less tedious using your phone to scan a document than finding a printer, scanner or fax machine…yes, fax machines still exist. We wanted to take a look at a few of the most popular scanning apps out there and see which one should be your next download.

 Evernote Scannable:

Scannable is definitely an app tailored to avid users of Evernote.  While you are able to email and save to Evernote, the free version does not allow you to export to different sites like other apps do.  One really cool feature is it allows you to scan business cards and save them to your contacts. It also allows you to save your scan as a jpeg or PDF. In terms of the actual scanning, you can’t easily crop the image, but the quality is still very good.

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Tiny Scanner:

Tiny Scanner, available to both iPhone and Android, is for Instagram lovers for sure. It has multiple filters to choose from and brightness adjusting features. Unlike Scannable, users are able to send their scans via Dropbox, Google Drive, Box, OneDrive, iCloud as well as Evernote. However, there is a limited amount of storage space in the free version. The scanning quality is great and you can easily crop the edges of your document. Although it only saves as a PDF, it does allow you to choose the size of the PDF export (A4, Letter, etc).

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Genius Scan:

Quality wise, Genius scan is very comparable to the other two apps. What sets it apart is an awesome magnifying tool to help you crop perfectly. Like Tiny Scanner, you can save your image as a jpeg and a PDF. The only downfall is there are so many other great features…but you have to pay. Genius Sign ($4.99) allows you to sign documents right on your phone while Genius Scan+ ($6.99) can export your receipts to Expensify to help you track your finances.

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Overall, all of the apps are a great way to keep track of receipts or send documents. From a tax perspective, it is always favorable to have a backup of all of your transactions. If you need help preparing your taxes this year, please visit our live chat at our website (www.semaphoretax.com) to get in contact with one of our experienced tax professionals, or call us at 866-736-2444. We’re excited to hear from you!

 

Get Your Finances in Shape for 2016

With the arrival of the New Year comes an influx of resolutions, many of which will soon be forgotten. New goals are set and changes are made in an effort to improve our lifestyles for the better. Many of these New Year’s resolutions focus around health and wellness, such as eating healthier or getting in shape. But what about financial resolutions? The New Year is the perfect time to reevaluate your finances, establish financial goals, and develop a strong action plan that will help you maintain your resolution year-round. It’s time to set yourself up for the most fiscally sound year yet!

 

Begin by reevaluating your 2015 finances. In order to get where you want to be, you must first look at where you were. Take note of where money was spent to gain insight about where money can be saved going forward. If you have debt, make yourself aware of everything you owe. Looking at your financial year in review is also a great way to determine your financial strengths as well as uncover areas in need of improvement. This will help you decide what it is you want to improve upon and accomplish in 2016.

 

Using the insights gained from reevaluating 2015, ask yourself, “What do I want to accomplish this year?”  Whether you want to save money, decrease debt, or simply develop smart financial habits, no goals are too big or too small as long as they are attainable and conducive to your lifestyle. The best way to keep your resolutions throughout the year is to set realistic and achievable goals.

 

Once you have decided what it is you want to achieve in 2016, you can implement a plan to help you reach your targets. When creating your plan, set two dates within the year to review your finances. Doing so will give you insight into what is working and what is not in regards to your budget, savings, spending, investments, and tax prep. The use of a financial calendar can be extremely helpful in keeping you organized and ensuring all your financial deadlines are met, especially important tax dates. The IRS provides a comprehensive tax calendar online that can help get you started. A financial calendar eliminates the element of surprise, as you will be aware and prepared for what is to come.

Creating and employing a spending budget is a key way to achieve financial stability. While it may seem obvious to spend less money than you earn, it is not always easy to adhere to. A spending budget accounts for every dollar and should you abide by it, ensures you do not overspend. And don’t forget to prepare for the unexpected when creating your budget! The best way to financially survive unplanned events is to anticipate them. Allocate a portion of your budget for emergency funds and those unexpected events won’t seem nearly as impactful. A detailed spending budget is a strong asset for anyone and everyone and is imperative in achieving your financial goals, whatever they may be.

 

There are numerous ways to take control of your finances. If the commitment of a financial resolution overwhelms you, start by educating yourself on the subject. There is a wealth of information and advice as well as budget and bookkeeping tools available online that can help you better understand your personal finances. Mint is a free and powerful budgeting tool that gathers all your financial information into one place, making it easy to see and understand your spending behaviors. Billguard is another budgeting tool available for Android and iPhone that works to track and protect your finances. If you are having trouble reaching your financial objectives, don’t be afraid to ask! Your local CPA can happily provide advice. Adopting smart money habits is an easy and powerful way to take control of your finances. Think before you make a purchase, pay attention to bank statements, check in with your budget every month, etc. A strong bookkeeping strategy can make all the difference.

 

Always be proactive when it comes to your finances. Learn as much as you can and implement your understandings into your day to day life. While it is never easy to keep a New Year’s resolution, a committed attitude and a solid plan can keep you from reverting back to old habits. Gaining control of your finances will not only have a positive effect on your bank account, it will also give you peace of mind and a solid financial foundation you can rely on. It’s not too late to begin your 2016 New Year’s financial resolution!

For help with your financial needs, call (866) 736-2444 today.  http://www.semaphoretax.com/

 

Written by Kaley Halliburton

 

LINKS TO TOOLS MENTIONED ABOVE:

IRS Tax Calendar

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IRS-Tax-Calendar-for-Businesses-and-Self-Employed

Mint

https://www.mint.com/

Billguard

https://www.billguard.com/

 

Tax Penalties: The Reality of Filing Late vs. Paying Late

Uncertainty, fear and confusion are only some of the familiar feelings that flood our thoughts during the inevitable tax season. If you a
re prepared, organized and don’t anticipate an outstanding balance this year, you should be sweat free. If you do, however, have an unpaid balance and don’t have the cash to pay in time, not all is lost! Make the financial decision that has the least impact on your bank account.

FILING your taxes late and PAYING your taxes late hold completely different penalties. In general, here’s what you can expect to pay for each scenario.

(Based on information provided by the IRS)

What if I don’t have the money to pay on time? (failure-to-pay penalty)

  • Every month or part of a month that the tax goes unpaid after it’s due, a 5% penalty is charged on the unpaid taxes (up to 25%)
  • If you filed on time and opted for a payment plan, the penalty drops to 25% once the plan is in effect
  • If you paid up to 90 percent of your taxes and you file for an extension, you may not be responsible for the failure-to-pay penalty (note ̶  you will still pay interest on any outstanding taxes)

What if I file late and I still owe tax? (penalty for failure to file)

  • Every month or part of a month that the return was late, a 5% penalty is charged on unpaid taxes (up to 25%)
  • If you file over 60 days past the due date, the minimum penalty is the lesser of $135 or 100 percent of unpaid tax.

 

As a general rule, it is important to always file on time regardless of if you can pay, as the penalty for failure to file is typically much higher than the failure to pay penalty.If you need help learning about and preparing your taxes this year, please visit our live chat at our website (www.semaphoretax.com) to get in contact with one of our experienced tax professionals, or call us at 866-736-2444. We’re excited to hear from you!

 

Sources:

https://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/IRS-Procedures/Collection-Procedural-Questions/Collection-Procedural-Questions-3

Social Engineering: What Attacks Look Like

Twenty minutes is all it took for Shane MacDougall to exploit a Walmart manager into giving him highly sensitive information regarding the big box superstore. From specific details on contractors and pay-cycles to operating systems, the unsuspecting manager did not skip a beat in gladly offering whatever MacDougal needed. Luckily, the social engineer and hacker orchestrated this attack to raise awareness about the issue in front a captivated audience at Defcon’s “Capture the Flag” event.

Social Engineering is manipulating human weakness to gain access to private information. With tax season approaching and refund fraud at an all-time high, it’s important for businesses to be aware of this kind of cunning criminal activity.

 

 

What do attacks look like?          

Curiosity and carelessness are what make social engineers so successful in their pursuit. Here are some of the most common forms of attack:

  • Pretexting: This, like in the Walmart case, is an instance where a hacker impersonates someone in an authority position. Hackers attempt to create a sincere story and background while also trying to form a rapport with the victim
  • Phishing: Typically in the form of an email, phishing thrives on emotions such as fear, greed and a sense of urgency. When a friend is claiming to be held hostage internationally or a company is giving away free Ray Bans, the email may just be infected with malware.
  • Baiting: Just as the name suggests, baiting uses something to lure in victims; this could be anything from signing up for a free music download or plugging in a found USB drive to satisfy curiosity.
  • Tailgating: This happens when an attacker gets access to a secure or restricted area by following in an employee or other authorized personnel.

 

Regardless of the type, a socially engineering attack could be detrimental to individuals as well as businesses this tax season. Ensure that you and you company take the necessary and extra precautions to protect your privacy.

If you think you have been a target of social engineering or need more help understanding your taxes, please visit our live chat at our website (www.semaphoretax.com) to get in contact with one of our experienced tax professionals, or call us at 866-736-2444.

 

 

http://www.chubb.com/businesses/csi/chubb19441.pdf

http://www.propertycasualty360.com/2015/05/13/businesses-beware-social-engineering-fraud-could-c

http://www.tripwire.com/state-of-security/security-awareness/5-social-engineering-attacks-to-watch-out-for/

http://money.cnn.com/2012/08/07/technology/walmart-hack-defcon/

Tax Fraud: How is the IRS Protecting you this Tax Season?

With thshutterstock_45292546-1e familiar scent of the rapidly approaching tax season in the air, the issue of security and tax fraud linger from years past.

Earlier this year, the IRS confirmed an upsetting $39 million breach where hackers made 200,000 attempts to retrieve taxpayer data. Roughly 100,000 of those attempts were successful.

Based on the August 2014 Identity Theft Report from the Government Accountability Office (GAO), the IRS paid out eighteen percent, or $5.2 billion, in refund fraud. Although areas remain where the IRS continue to fall short such as authorization controls, this year the GAO reported that the IRS showed to be making improvements.

Tax software providers are following suit by reinforcing security precautions for all users. These include password requirements, security questions and lockout functions.  At the 2015 Security Summit, IRS Commissioner, John Koskinen distinguished twenty new factors to consider when assessing fraud.  “Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season.”, says Koskinen.

This, along with the efforts of all taxpayers, will help thwart identity thieves. Here are some ways the IRS urges you protect yourself:

  • Use reliable computer security software with firewalls and virus protection
  • Create secure computer passwords
  • Avoid giving out any personal information over the phone to those claiming to be from the IRS
  • Check your credit report every year
  • Safeguard your SSN and always verify identities of those you give it to

If you think you have been a target of tax fraud or need more help understanding your taxes, please visit our live chat at our website (www.semaphoretax.com) to get in contact with one of our experienced tax professionals, or call us at 866-736-2444.

 

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor or tax advisor with respect to matters referenced in this post. Semaphore assumes no liability for actions taken in reliance upon the information contained herein.

Sources:

https://www.irs.gov/uac/Newsroom/IRS,-States,-Industry-Continue-Progress-to-Protect-Taxpayers-from-Identity-Theft

http://www.gao.gov/assets/670/665368.pdf

http://www.gao.gov/assets/670/667965.pdf

http://www.usatoday.com/story/money/2015/06/02/irs-data-breach-senate-hearing/28353983/

http://www.usatoday.com/story/money/2015/10/20/irs-identity-theft-protection-effort/74262804/