Do you have a Game Plan for your tax success this year? For most, it seems like it's merely a duty to comply with once a year. While, depending upon your situation, that may be true, for most, it's crucial to plan ahead. Any coach worth his/her salt would never attempt to send the team out to win the game without a Game Plan. Your tax strategy should be no different.
What follows is Part 1 of a 12-Part, monthly series.
Start by Scouting and Strategizing
Choosing a Tax Professional
With your new responsibilities, you may decide to hire a professional tax preparer to assist with your taxes—someone with experience preparing tax returns for businesses similar to yours. Enrolled agents, tax attorneys, and certified public accountants have training and expertise in federal taxes. When selecting a tax professional, ask a few questions to see if he/she offers what you are looking for:
Experience: Does the tax professional have experience in working with similar size and type businesses? Is the professional familiar with your particular line of business?
Services: Does the tax professional offer electronic filing—the safest and most efficient way to file your tax returns?
Price: What does the tax professional charge for services? If the IRS examines your return, what is the tax professional's policy on assisting you? Are they authorized to practice before the IRS – meaning, are they designated as an Enrolled Agent?
References: Ask for a list of clients you can contact.
Choosing a Business Structure
Your type of business determines which income tax form(s) you have to file. Common business structures are sole proprietorship, partnership, corporation, S corporation, and Limited Liability Company. Legal and tax considerations enter into selecting a business structure.
Sole proprietor – an individual who owns an unincorporated business by himself/herself.
Partnership – a relationship where two or more persons join together to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
Corporation – a relationship where prospective shareholders exchange money, property, or both for the corporation’s capital stock. Profits are taxed to the corporation when earned and then taxed to the shareholders when distributed as dividends.
S Corporation – a corporation, meeting certain criteria, that elects to be treated as an S corporation. Generally an S corporation is exempt from income tax; the shareholders report the S corporation’s income, deductions, loss and credits on their individual tax returns.
Limited Liability Corporation – an entity—statutorily authorized in certain states—that is characterized by limited liability for debts similar to that of a corporation, management by members or managers, and pass-through taxation similar to that of a partnership.
Employer Identification Number (EIN)
You are required to have an EIN if you answer “yes” to any of the following six questions:
1. Do you have employees?
2. Do you operate your business as either a corporation or partnership?
3. Do you file any of these tax returns: employment, excise, or alcohol, tobacco and firearms?
4. Do you withhold taxes on income, other than wages, paid to a non-resident alien?
5. Do you have a Keogh plan?
6. Are you involved with any of the following types of organizations?
a. Trusts (except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns)
b. Estates
c. Real estate mortgage investment conduits
d. Non-profit organizations
e. Farmers’ cooperatives
f. Employee plans
If you do need an EIN, use one of these four methods to apply:
n www.irs.gov, Search: online EIN
n Call EIN toll-free at 800-829-4933
n Fax a completed Form SS-4 to the FAX number in the SS-4 instructions
n Mail a completed Form SS-4 to the address in the SS-4 instructions
For additional information, or to start your game plan today, call the tax professionals at Carter Tax Incorporated. 907-569-3873
