The chance the IRS will target your business for a federal tax audit is usually low. However, if your tax return for your business includes certain red flags, you boost your odds of being audited. Here are a few of the most common audit triggers that are likely to grab the attention of the IRS.
Continuous losses. If you report a net loss on a Schedule C in more than two out of the last five years, the IRS may consider your business a hobby. If deemed a hobby, you can deduct expenses only up to the amount of your hobby's total income. Enjoy rebuilding cars? Great. But if you never turn a profit, don't expect the IRS to consider it more than a hobby.
If you are planning to get married this summer, or know someone taking the matrimonial plunge, here are some important tax tips every couple should know before they walk down the aisle.
Notify Social Security. Notify the Social Security Administration (SSA) of any name changes by filling out Form SS-5. The IRS matches names with the SSA and may reject your joint tax return if the names don't match what the SSA has on file.
Address change notification. If either of you are moving, update your address with your employer as well as the Postal Service. You will also need to update the IRS with your new address using Form 8822.
Whether your firm has been operating for years, or you decided over last night's coffee to start a new venture, you are sure to face the need for business credit. Entrepreneurs often ask friends and family to invest in their start-up businesses, and many draw on personal funds to launch new firms. But to address ongoing business needs – such as requirements for inventory, equipment, and real estate – most firms seek additional help from credit card companies and banks.
Your role as an executor or personal administrator of an estate involves a number of responsibilities. Did you know that part of your responsibility involves making sure the necessary tax returns are filed? And there might be more of those than you expect.
Here's an overview:
Personal income tax. You may need to file a federal income tax return for the decedent for the prior year as well as the year of death. Both are due by April 15 of the following year, even if the amount of time covered is less than a full year. You can request a six-month extension if you need additional time to gather information.
Are you looking forward to your tax refund? By now you know how much you'll be getting and approximately when the cash will land in your bank account. The only question is, what's the best way to put the money to work for you?
Here are two tax-smart ideas.
If you let the new business failure rate be your guide, you might never start your own company. Only 50 percent survive the first four or five years. Many former business owners who returned to a less-than-satisfying 8 to 5 job might tell you that their business hit the rocks when it ran out of cash. Of course, many factors can contribute to business failure. But an owner's inability to manage cash effectively — whether from neglect, lack of skill or inability to restrain spending — is a sure harbinger of trouble.
But don't the income statement and balance sheet provide a complete picture of the company's financial viability? Not necessarily. For example, your company's net worth may be climbing year after year, while cash balances are being depleted. Or, your business property is appreciating in value and your accounts receivable are increasing. Both contribute to a positive net worth, yet neither bolsters your bank account directly.
CPA Compass Blog
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