Taxes and Tax Information

If you complain about paying taxes, and who doesn’t, then you need to take steps to limit the pain next April. Yep, you should always make adjustments to your finances at the end of each year.

People are unique and so are their financial situations. Whipping your finances together at the end of the year is really a matter of deducing what type of year you had. If you are a salaried employee of a business, you taxes are going to be fairly simple as are the financial moves you need to make. A business owner, on the other hand, is going to be dealing with a much more complex situation. Let’s take a closer look.

As a salaried tax payer, you are both fortunate and unfortunate when it comes to taxes. On the fortunate side, you really do not have to do much to address your tax situation. On the unfortunate side, this is because you are really restricted in regard to the steps you can take to limit your tax bill. Foremost among these steps is to maximize your contributions to pre-tax retirement vehicles such as a 401(k) account. If you have yearly bonuses coming up, try to jam them into your 401(k) so you don’t end up owing in April. In addition to this step, you should go through all your finances and deduce whether you can create any tax deductible expenses to offset your income.

If you own a small business, you already know things are a bit more complicated. In this case, you want to try to limit the profit of the business to minimize both your income tax and your self-employment tax. If you are on a cash basis accounting, are there any expenses you can take now instead of January. For instance, can you buy new computers or whatever you are going to need? So long as the expenses are legitimate, you can use this tactic to minimize your taxable income.

If your small business is complex or you own a larger business, you should really take a common sense step. That step is to sit down with a certified public account and discuss your situation. He or she can give look at your finances and offer specific steps that can be taken to reduce your tax bill for the year. The key to this approach, however, is to make the time to sit down with the accountant NOW! If you try to show up on December 30th or in January, you are limiting your options and hurting yourself.

I have a general rule when it comes to taxes. If you want to complain about the amount you pay in April, you can only do so if you take every step to limit them. If you do no planning, you can only blame yourself for the huge tax bill you end up with in April.

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There is a killer on the loose that can steal, kill, and destroy the economy: high taxes. In areas of the world where taxes are very high, economies are generally very weak. Where taxes are low, economies are usually much stronger. Clearly, the advantage for any government is to keep taxes in line in order to keep the economy humming. Let’s take a look at just how low taxes can fuel economic growth.

Some politicians fail to grasp an essential point when it comes time to raising taxes: the more taxpayers have to pay in taxes, the less discretionary money they have available to them. Specifically, high taxes hurt because:

Businesses have less to invest. The bottom line for every business is profit. When a business makes a profit, they have more money to spend on other things including: hiring additional employees, expanding their business, contributing to the local economy, etc. New employees, means more tax revenue as employees pay social security taxes, incomes taxes, etc. More profit means that the business will funnel some of those profits back into the business in the form of expanded services, a newer building, the purchase of goods and services, etc. In addition, the local economy benefits when a business is thriving through their share of property taxes paid, and discretionary funds to donate to local causes, community events, even state backed groups such as the symphony. Raise taxes too much and it will have a ripple effect on the way that businesses help out the local market.

Consumer confidence nosedives. Consumers who feel too much of a tax burden will pull back and not spend. When consumer confidence drops, everyone suffers. The purchase of vehicles, homes, discretionary goods, and the like will drop. Instead of purchasing higher end items, consumers will opt for the best prices thereby threatening entire areas of discretionary spending. On the other hand, if consumers believe that they have enough to live on, they may go ahead and purchase that new vehicle now instead of waiting a year or too. Guess what? The state government reaps a nice tax on the purchase of a new vehicle too!

Cash strapped governments often plead for additional revenue through higher taxes. Instead of resorting to automatic tax increases, taxpayers should demand that governments consolidate services, trim expenses, and put a freeze on hiring until they get their house in order. Failing that, consumers and businesses can expect stifling increases that can only hurt the economy.

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Zoning laws may be determined by your city or your county, and you should familiarize yourself with these laws so you will be able deal with any issues that may arise. First, you need to determine if your home-based business will have employees or walk-up trade. If not, the zoning questions may never arise. Home-based businesses that deal with the public or have non-family-member employees that work out of their home are more likely to have issues with with zoning laws. Before you start your business, get a copy of your local ordinances from your city or county clerk’s office, the city attorney’s office, or your public library.

Usually the problems arise when neighbors complain, and the zoning boards are required to deal with the complaints. If employees and customers are going in and out of your home, making noise, or parking by the neighbors’ homes, your neighbors will probably bring this to the attention of the zoning commission. Also, your hours of operation may also be an issue if you are open early in the morning or late at night and you disturb your neighbors. If your biggest problem is your neighbors, try talking to them about your business ahead of time to help allay their fears. If you meet with resistance from neighbors, you may be able to negotiate a resolution.

The amount of space your business is uses in your home usually cannot be greater than the actual living area. This is called “space percentage,” and it can lead to a zoning issue. Also, the type of merchandise you are selling may also be restricted in a residential area if you are using chemicals or other items that have an unpleasant odor. Most zoning laws allow a nonpolluting home businesses, as long as any home containing a business is used primarily as a residence and the business activities don’t negatively affect neighbors.

You may also be in breach of zoning laws if you post a sign for your business in your yard, and you should read up on signage laws in your area before you post a sign. You may be able to find other business owners in the area who have similar zoning issues, and you can organize a local business campaign to try to change your zoning laws to make them more favorable to home-based businesses.

In many cities and counties, if a planning or zoning board rejects your business, you can appeal or request a variance from the city council or county board of supervisors. You are more likely to suceed if you have the support of all affected neighbors and other businesses in the area. Because of the prevalance of home-based businesses, some communities are working to amend ordinances that prohibit home-based businesses entirely to allow “traditional home-based businesses” that are unobtrusive.

In an effort to protect residential property values, most subdivisions, condos and planned-unit developments create special rules called Covenants, Conditions and Restrictions (CC&Rs) that govern many aspects of property use. When you purchased your home, you received a copy of the CC&Rs, and you should read them carefully to be sure that you are allowed to operate a business in your home. Rules pertaining to home-based businesses are often significantly stricter than those found in city ordinances and they are more zealously enforced. If you violate these homeowner’s restrictions, the homeowner’s association or property management company could obtain an injunction to stop the business activities, and you could be facing stiff fines.

(u)(b)Legal issues affecting home-based businesses(/u)(/b)

The first thing you must do is establish a business entity for your new venture. You need to take this vital step for your business to protect yourself from liability issues. You will also need to apply for a business license before you start selling anything if your state requires one. If your state does not require a license, you may be required to have a reseller’s certificate. Research your state’s business laws and get the proper license or certification.

Many home-based business overlook their need for insurance. Unless you are covered already, you will need to provide your own health, dental, and life insurance. You will also need liability and business property insurance to protect your business and its assets if an accident or other unexpected event affects your business. If you have employees working in your home-based business, you must consider whether you will provide health insurance for them. Also, research the OSHA standards to determine if your home-based business is subject to them.

Tax laws that govern your home-based business

Your tax situation will change when you start your home-based business. Because new tax laws are passed every year, you need to hire a good accountant to be sure you are compliant. Even if you have done your own taxes for years, owning a business means that you will need different tax forms and schedules. It is well worth the cost of a good accountant to be sure that your deductions are viable and that you are paying the correct amount of tax.

State taxes regarding deductions, income tax, and sales tax vary from state to state. Contact your state’s tax office for specific information about how taxes are calculated and collected in your state. The Internal Revenue Service can be researched on-line at www.irs.gov to learn about the tax laws you will be facing. The IRS Web site provides comprehensive information for small businesses and also lists a toll-free number if you need more help. Spend some time at the IRS Web site until you feel comfortable with the new.

You can also get good information from the Small Business Association site on tax laws and other business issues. Another good resource is Nolo Press that sells books, e-books, and guides specifically about small business tax issues. Their Web site also offers free information. If you plan to hire employees, you need to be aware of employment taxes and other issues that face business owners. You will need to set up a system for federal withholding tax, state tax, and other employment taxes, and you need to report and pay the taxes withheld to the appropriate government agency.

Jo Ann Joy, Esq., MBA, CEO
The future of your business starts here!

You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at joannjoy@Indigo Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. I have many published articles, and I will send any article to you free of charge. Most consultations are free.

For information about other important legal, tax, and business topics, free copies of articles, or EBooks, please visit our website at u>www.IndigoBusinessSolutions.net. Copyright 2006. All rights reserved. Indigo Business Solutions is a registered trade name.

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