Tag: Income Tax
Fraudulent Tax Surge to 181%
Sanjiv Gupta CPA - 8 years ago
The IRS has been tricked of $1.9 Billion tax refunds on 335,341 tax return claims. Recorded as of March 4, 2011, in an audit supervised by the Treasury Inspector General for Tax Administration, fraudulent tax surge incidents shot up to a shocking 181% rise within a year. Taxpayers are trying out different ways to con the IRS by claiming huge refunds. This has alarmed the Internal Revenue Service. As a consequence, the unit has adopted stricter means this year to screen tax audit papers and issue clearance.Tim Gagnon, the assistant academic specialist of Accounting Northeastern University, suggests that a weak economy is probably a major reason behind increasing events of fraudulent tax claims. People react sensitively to tax pressure in a downsized economy. They count on every penny to improve their refunds or to curtail tax liability. This they often do by claiming tax- breaks on programs/ credits they did not receive, TIGTA reported.Popular tax-scam sources are Earned Income Tax Credit, Child tax credit, adoption credit, real-estate or home buyer tax credit and vehicle credit programs. EITC meant to facilitate lower-income taxpayers has aided as much as 23-28% fraudulent activities. Adoption credit claims sucked out $3.9 million while Homebuyer Tax credit and Vehicle credit also played an active part as smart tax scam sources.According to the TIGTA report, 88% of tax-return claims were filed by prisoners in 2011. This should have alerted the IRS screening; Gagnon said, as they should have inspected two things: first the source of income for such prisoners and second the risk factors that led the prisoners to file for tax-deduction. Apart from intentional fraudulent claims another obvious reason that pushed the scam forward was that laxity on the part of tax-filers. Typically the ones, who filed they're tax- return papers on their own, made numerous mistakes; outdated calculation, incorrect claims, etc. anther consideration is that the IRS introduced a whole new set of Tax rules at the end of the year. By this time most people had already prepared their tax-return documents and had no time to evaluate the new rules. All these together resulted in a Fraudulent Tax surge. However, there is always a good side to bad things. The scaling tax-scam incidents will be a wake-up call for the IRS inspectors. Audits through electronic filing have increased by almost 9%. The system will help increase efficiency to better analyze taxpayers' files and identify errors in minimum time.
900,000 Did Not file a 2010 State Income Tax Return
Sanjiv Gupta CPA - 8 years ago
The Franchise Tax Board (FTB) recently announced that it is contacting more than 900,000 people who did not file a 2010 state income tax return. FTB collects information about taxpayers by using more than 400 million income records. Tax Board gets information about non-filers from third parties such as banks, employers, IRS, state departments, and other sources.Moreover, FTB compiles information from occupational licenses and mortgage interest payments. Using such information allows FTB to contact those who earned the income in the State of California but did not file the tax return.According to a recent post on the FTB website, last year, FTB collected more than $574 million through these efforts.Once FTB contacts a taxpayer, Individuals have 30 days to file their State Tax Return or show why they are not required to file. If the required return is not filled, FTB makes a tax assessment based upon the information it has collected. In addition to tax assessment, taxpayer is also billed an interest, fees, and penalties of up to 50% of the tax due. What to do if you receive such notice and/or have not filed the tax return?You can respond to the letter by visiting FTB Website here. You simply enter the Notice Number and respond to the request. You should be very careful in response as anything you write or tell to FTB becomes evidence and stays on their records. Therefore, It is highly recommended that you consult with your CPA or Tax Attorney to address the issue immediately. Not responding to the letter will simply escalate the issue and increase the penalties. Tax professionals experienced in dealing with IRS and FTB can quickly identify the problem and take corrective actions.Our office can also help you with all kinds of audits include filing previous year tax returns. We can sit down with you to learn about the problem and come with a game plan to reduce the tax liability.
Business Tax Strategy That Will Save You Money
Sanjiv Gupta CPA - 8 years ago
The wise follow the simple path. If your wisdom has failed to save on your tax-cuts then here is what you must do. If you are a “cash basis” taxpayer then you have to pay considerable attention to “time” your income and your deductions. Clear? Well, it simply means that you don’t have to pay taxes on incomes that you have not received. Also in the same manner if you make any expense on a tax-deductible commodity/product, then you can apply for a tax deduction and thereby cut down upon your taxable income.Common people are not all-knowledgeable about taxation policies. The obvious escapes them and in the stance to do something extra-ordinary they confuse things more often. Now, this is a bad and expensive habit. You can save a considerable amount of tax by simply timing your purchases.For example, Taxpayers who fall into the same tax- cohort for two consecutive years can shrink their taxable income by postponing income to the following year while calculating all deductions into the current year.For those who fear to jump into the larger tax-slab is required to do the opposite. It’s risky to negate future possibilities.Tax- riddle: suppose you have fallen under a 28% tax-slab category this year and the next year your ranking will go as low as 15%, your company needs a business computer. How will you time your purchase?Yes perfect! The current tax-year. That’s right. The best way of taking full advantage of the tax-slabs is to generate income and delay or deter expenses.A cautionary word: if you are a “cash basis” taxpayer then make sure you know what constructive receipt means. For example, your mail inbox has a pending check invoiced on December 31, 2011, but cant deposit it before 1 Jan 2012 then how are you to time your income? Simple calculate it under the 2011 tax-year.If you know how to time your income then your tax-slabs will come down automatically. Keep the deductible expenses for the year when you fall into the higher tax bracket. This plan actually works.Still confused, don’t worry – the staff at our office can help you time your purchases. Simply give us a call or send us an email.
Freelance? Get Ready For IRS Audit
Sanjiv Gupta CPA - 8 years ago
Do you make money freelancing or doing consulting work? You need to be extra careful with your tax returns as there is a good chance that your return may be audited. So, get ready in advance and avoid future trouble.“It is no secret that freelancers and self-employed people get audited more often than others,” said Sanjiv Gupta CPA. He further explained that with a huge IRS budget there are more free agents than ever, the I.R.S. wants to take a closer look at self-employed and freelance professional’s growing numbers and make sure they’re doing their taxes correctly.In recent years the number of people doing consulting and freelancing has increased mainly due to layoffs and hiring freeze. Consulting is a great option for expert professionals but one needs to be careful when it comes down to filing taxes.Similarly, Small business owners are at risk of being audited. According to recent surveys, if you’re a sole proprietor, you’re almost three times as likely to get audited as a corporate filer. This may be a good reason to incorporate your business. According to IRS, auditing small businesses is not because they don’t like small mom and pop shops but its because they are more likely to find errors and omission in small business owner tax returns.Small business owners should consult with their Certified Public Accountant to make sure taxes are filed properly. This will significantly reduce their chances of being audited. At the very least, you will have peace of mind that there are no errors in your tax return.
Tax Issues Affected by Estate Planning
Sanjiv Gupta CPA - 8 years ago
It is wrongly judged that estate planning is free from income tax compliance. The truth is that when a client is filing for an income tax return, the individual has to plan meticulously on how to itemize properties so that tax expense can be curbed to some extent. Careful practitioners try to balance both factors: estate arrangement techniques and tax compliance. Following are some important points that a practitioner should keep in mind while planning estate arrangements for a client: Family Loan: One of the most popular wealth management methods is to transfer property rights/ loan out cash to family members. For instance, it’s easier for a son/daughter to pay back “intra-family loan” at minimum interest (under IRC sec. 7872) than to clear home loan debts, taken from a bank or a private creditor. Also, the family sentiment which helps heirs put up with financial problems is one reason which makes an intra-family loan more popular. To go by the proceeding, an intra-family loan agreement document is drafted. It acts as a promissory memorandum. The practitioner, it is advised should keep a copy of this document. The creditor charges a minimum interest from the benefactor who, as per rules and terms penned in the loan agreement, is required to pay back the debt amount. Most of the agreements are time-bound and the tax returns are filed in the name of the lender. In case the interest amount falls within a tax-return deductible slab, it must be shown by the borrower.Also, the income and the interest payment terms should be in sync as per the loan agreement doc. The borrower should not skip payments; otherwise, the whole purpose of revenue management becomes futile. Compensation Issues: S corporation return deals with reasonable compensation possibilities which can help save payroll taxes. Under Sec. 1402(a) shareholders can apply for compensation by filing personal Form 1040. However, there are many key issues that might affect estate planning for the client. Unreasonable high compensation demand implies that a client is still interested to derive profit from a business partnership, gifts, and family property handovers. Gifting stocks or shares to heirs is one of the most judicious ways of doing justice to estate planning. However, if the parent lender continues to extract interest amounts over a prolonged period then IRS can debate on and preside over the matter. The tricky part is that if the creditor is sanctioning gifts to GRATS (grantor retained annuity trust) that is trying to gain an absurdly low compensation then it could unveil the ‘real’ estate-arrangement plans and put at stake all possibilities to save payroll taxes. Therefore a practitioner must be alert not to stress much on compensation; rather they must understand how the process works and how it must be approached at. Grantor Trusts Grantor trusts, a very popular technique for asset protection and estate planning, must be included in the trust provisions when a client transfers his assets to an irrevocable trust. The ubiquitous revocable living trust is a common grantor trust used to segregate gift assets from inherited assets. Mostly used in determining equal share in divorce proceedings, living trusts are often used to avoid probate. The Beneficiary Defective Irrevocable Trust (BDIT) caters to the child alone and not the parent because if the trust is established by the child’s parent or any other benefactor for that matter it includes an annual demand called the Crummy power for the child/ benefactor which makes the child its rightful trust. BDIT should be handled with precision different from the traditional ones. Again all those assets’ immunity stands jeopardized under revocable living trusts if assets received as gifts or inheritance by the client are used to paying income tax. Insurance Transfer for Value Rules If an insurance transfer is not subjected to IRC Sec.101(a)(2), its proceeds then are income tax-free. Transfer for value rules is triggered only if it takes place between a corporation and a shareholder and not between two partners in a partnership. Following this life insurance transfers that appear on any return must be investigated to avoid transfer for value rules. Disregarded LLCs In order to bring down the administrative expenses of a business partnership, clients often prefer utilizing ‘single-member ignored Limited Liability companies’. The only disadvantage of this policy is that if a lawsuit is filed against the client then the executive organ of the government can investigate all personal accounts of the client. Filing a Schedule C, on the other hand, much guards income information of an individual. Schedule B: Titles To Assets In 2010 the IRS sanctioned the “asset portability” tax act. This provision allows the surviving spouse to ignore estate tax payment in a de-coupled state. However, this provision is only limited to state tax exemption policies and does not work at the federal level. The practitioners on the other hand, more often follow the traditional technique of paying a subsidy to trust in the name of the deceased. But it seems that there are many loop-holes in the asset portability act which the IRS needs to address. Non-retirement asset division, balancing property distribution, etc should be carefully planned by the practitioner so as to avoid complications while preparing Schedule B concerning Titles to Assets.
Four Commonly Missed Tax Breaks
Sanjiv Gupta CPA - 7 years ago
Once the tax returns are filed, people generally want to forget income taxes for a while. This is not the right approach. The time just after filing the returns is the apt time to think over and reflect on the process, what could have saved tax and what to do better next year to reduce tax payments in a big way. This is the time when the rules and policies are fresh in the minds so as to proceed with the tax-saving benefits analysis. Here are some of the benefits, which people usually miss to consider while filing returns.Roth IRA – The retirement benefits of IRA can be considered as a good option to invest money in, thereby reducing the taxable income portion for the current year. However one tends to forget that future withdrawals from the 401K plan attract at least minimum tax rates. This is the reason why most of the younger generation today opts for the Roth IRA schemes.The youth, at the start of their careers, are eligible for a lower tax bracket and they contribute to the Roth IRA schemes from after-tax money. The best benefit of this scheme is that in the future, when these people become old and tend to withdraw money, both the contribution and the earnings of this scheme that can be withdrawn is totally tax-free.Flexible Spending accounts – These accounts are the only way out to save taxes on expenses related to medical, child care and other personal reasons. Most of the companies offer their employees, a part of their salary in the form of these FSAs. The traditional IRS rule does not allow any deductions for medical expenses if these expenses do not exceed 7.5% of the adjusted gross income. Hence this scheme is taken by people who do not have huge medical expenses and yet need deductions that can be offset by other deductions that are not allowed like property tax and state income tax.Proper Asset Location – Classifying assets is more important than holding the assets themselves. It is important to classify the assets correctly into the taxable, tax-deferred and tax-free pockets of one’s portfolio. It is a smart move to place the bonds in the tax-deferred category as even if one gets to sell these instruments, the tax need not be paid immediately. It is also wise to keep stocks in the taxable category because this is sold rarely and tax needs to be paid only upon sales.Performing a Roth conversion in a Low-income year – When income levels drop, there is an option to convert the benefits from the IRA model to the Roth model for a nominal charge. This converts the income from the taxable category to the tax-free category. Partial conversion of benefits into the Roth model is also possible.These are the schemes that are part of the daily lifestyle of the taxpayers. However one needs just to twitch in here and there to maximize these for one’s benefits.
How To Fix Taxes – After You File
Sanjiv Gupta CPA - 7 years ago
There are chances of mistakes to happen while filing an income tax return. In the hurry to file tax returns, people may tend to miss out on basic details and realize it once the filing is done. In such cases, there is a guideline issued by the Internal Revenue System which explains what needs to be done if the errors are found out after filing the returns. Eric Smith, a spokesman at the IRS explains briefly about this process.Whether filing an amended return is necessary or not, depends on the nature of the errors of the taxpayer. Some of them make mistakes in the arithmetical calculations or miss to attach a form. These errors do not need amended returns because there is a step by step process in the IRS to check for calculation errors or missing forms. These kinds of errors are automatically spotted by the IRS and letters are sent to the taxpayers to revise their filing. The public need not spend their time and effort for filing amended returns for these kinds of errors.There are certain other gross mistakes like misreporting of income. This error changes the final tax amount payable by the taxpayers of the government. These errors need an amended return. Benson Goldstein, who is the senior technical manager at the American Institute of Certified Public accountants, suggests that errors like people finding a forgotten 1099 Form or incorrect filing status, deductions or credits require amended returns from the taxpayers. The IRS has an inbuilt system in place to find out the nonreported income, missing to include all the 1099 forms, etc. and these people are picked up for questioning and audit.Some may file returns to claim deductions, which they were not aware of earlier or to correct a deduction or claim that they had incorrectly applied for earlier, but were not actually eligible. However, Goldstein pointed out, a majority of the taxpayers file amended returns so that they can claim extra refunds if any. However, Mr. Goldstein insists that, while filing for extra refunds, the taxpayers must wait for the original refunds to hit their account, and then file for the revised return and then get the increased refund. However, after the amended return and revised tax calculations, if it is found out that the taxpayer needs to pay more tax to the government, then it would invite some extra penalty charges.Another benefit is that the IRS gives up to 3 years' time from the date of filing a wrong return, to correct the same. For example, if a return is filed wrongly in 2012 incorrectly, then the taxpayer can correct the same till the year 2015. An amended return must be sent only by email. Multiple amended returns can be sent, however, separate envelopes should be used to differentiate the year for which the return is filed. There is an option available on the IRS website to check the progress of a particular filing
Strategies To Reduce The Net Investment Income Tax
Sanjiv Gupta CPA - 7 years ago
The goal of planning net investment income tax (NIIT) is to manage the adjusted gross income and net investment in order to reduce the total amount subject to federal tax. The net investment income tax is calculated using the lesser of the net investment income or the adjusted gross income over the tax threshold amount for the year.How Is The Net Investment Income Tax Calculated?The net investment income tax is a surtax at a 3.8% tax rate of a base income. The base income is the lesser of:Net investment incomeModified AGI above the thresholdNIIT ThresholdsFiling Status of Taxpayer Modified AGISingle and Head of Household $200,000Married Filing Jointly, Qualified Widower or Widow $250,000Married Filing Separately $125,000If you are trying to reduce your net investment income tax, you could reduce the net investment income, AGI or both. If your adjusted gross income is lowered below the threshold, the net investment income wouldn’t apply to you because it created a negative amount that becomes zero. Also, if the adjusted gross income is above the threshold, reducing the net investment income and/or AGI lowers the amount of your income that is subject to net investment income tax.If you reduce your capital gains amount earned during the year, your income will be reduced and your AGI will be reduced. It is important to remember that the adjusted gross income is your total income less all the first page deductions on the first page of the IRS form 1040. All itemized deductions don’t reduce your adjusted gross income.Two Basic Net Investment Income Tax Planning StrategiesReduce AGI below the thresholdReduce your net investment incomeTax-Sheltered Investments Life Insurance. Growth in a life insurance policy is sheltered from current income taxes. Additionally, the death benefit is also tax-free. Placing assets directly into life insurance removes that investment income from net investment income and AGI. Roth 401(k) or Roth IRA plans. Qualified distributions from a Roth retirement plan are not included as income. Deferred Annuities. Consider using deferred annuities after all 401(k) and contributions to retirement plans have been maxed out. Annuities will shelter your earnings from immediately being taxed. They will help you smooth out your income and help keep your AGI under the NIIT threshold.Possibly convert Pretax Retirement Plans into a Roth plan. Taxpayers need to determine if this will make sense for them. The amount that is converted into a Roth plan increases adjusted gross income and income which could potentially cause income tax liability and net investment income tax liability. However, future income distributions from the Roth IRA will be exempt from tax. Passive Income StrategiesConsider investments where your investment can be depreciated. For example, rental real estate can be depreciated. Depreciation reduces the total rental income that is taxable. Another option is gas and oil investments. These offer a large deduction for depletion that can be taken upfront and a deduction for most of the intangible drilling costs. These deductions give gas and oil investments more tax advantages than many other investments. Both of these strategies help reduce the total investment income that is taxable.Many taxpayers own real estate and rent their building to directly to their own business (self rentals). These may be subject to a 3.8% net investment income tax.When taxpayers own multiple passive businesses or rental properties, they should consider how these activities are grouped to calculate passive activity loss limitations. The IRS provides taxpayers an opportunity to regroup these activities which can be a better way to handle passive losses. It can reduce the amount of income that is subject to federal tax.Strategies for Capital GainsInstallment Sales. Taxpayers that are selling major capital assets or real estate should think about using installment sales. The seller directly finances the purchase using a loan. Taxpayers will then have the choice of whether they want to spread the capital gains over a loan’s life or not. This will help smooth income for the number of years of the loan.Charitable Remainder Trusts. Property can be placed in a charitable remainder trust and the taxpayer can draw distributions over the rest of the taxpayer’s life. The remainder will go to charity. The distributions are subject to the net investment income tax but it can be done over many years. Taxpayers, for example, can sell appreciated assets from inside of the charitable remainder trust and income can be distributed over many years.Charitable Lead Trusts. Taxpayers get an upfront charitable deduction and they are able to keep the gains off of their tax returns. This is a good option for extremely generous taxpayers.
Self Employment Income Needs To Be Turned Into Pension Plan
Sanjiv Gupta CPA - 6 years ago
For people who are self-employed, had a great year and want to save for retirement, it is advised that they start a defined benefit plan by the end of the year. You are funding the pension plan: you can deduct and contributed the most and build up your benefits significantly in a relatively short time (often only 5-10 years). If you combine your defined benefit plan with a 401(k) plan, you will be able to shelter your income from taxes with a tax deduction that could reach a couple hundred thousand dollars each year. How Do I Get The Tax Deduction For This Year?To get this year’s deduction, you will have to start the plan before the 31st of December but the good news is you do not have to fund it fully until the following year before your tax filing deadline. The exact amount that you will be able to contribute is based on actuarial calculations that consider your income, years until you retire and age. Generally speaking, the older a person is, the more they can contribute. These defined benefit plans are perfect for those individuals who would like to contribute more money than they are allowed under many retirement plans including 401(k)s or SEP-IRAs.Defined benefit plans are best for small practices and owner-only businesses. Think architects, doctors, software developers or sales reps. If you are married to your business partner, you could put away large amounts of money for your retirement. These plans are also perfect for employees that have a side business for extra income and spouses that are self-employed but they are not the partner that has to contribute to the living expenses of the family. Do I Have To Make Contributions To The Defined Benefit Plan Every Year?Once your defined benefit plan is set up, you will be required to add the minimum contribution that has been recalculated for the year. It is important that you only sign up for a defined benefit plan if you are expecting 3-5 steady years with a good income. Only put in the amount you feel comfortable with. Do not let any advisors push you over that amount. Many people want to put the maximum amount in because they want to get the most take benefits; however, they need to think about the future. If your business goes out of business, you are able to close the plan.If you are not sure if you will have a steady income over the next few years, you should consider contributing a smaller about to the plan and open a 401(k). This way, in good years you can contribute to the 401(k) plan after you have made the defined benefit plan’s minimum contribution.Now is the time to start your defined benefit plan. Remember, if you want to take advantage of the tax advantages for this year’s taxes, you need to open your plan by December 31st. You have until the filing deadline to fully fund your plan and it will still count for this year’s tax return.
5 Important Tips For 2014 Tax Planning
Sanjiv Gupta CPA - 6 years ago
Your new goal for 2014 should be to gain a higher level of understanding about your income taxes, plan for your tax liability and get organized. This will make tax season much easier and could save you some of your hard-earned money.Below are some simple tips to help you achieve your new goal.Create a 2014 tax file. You can use a folder, bin or electronic file on your computer. Include all transactions and documents that might affect your 2014 tax return.If you use the electronic file, all you have to do is scan all your tax documents and move them into the folder on your computer. The great thing about using an electronic file is you can easily e-mail the folder to your tax preparer when it is time to file. An electronic file also takes up much less room and will not clutter your desk. It is important that you back up your electronic file so you will not lose your tax file if anything happens to your computer.Add important notes on your documents to help your tax preparer understand each transaction. You should include documents such as W2’s, K-1s, 1099s, property sale documents, escrow papers, property tax receipts, vehicle registration receipts, receipts for any tax-deductible purchases, and donation receipts.If your financial position will change this year, schedule a tax planning appointment halfway through the year. Financially altering events that occur in 2014 include marriage, divorce, having a baby, buying a home, selling a home or any other event that will affect your taxes. Do not try to set up an appointment in the middle of tax season. Waiting until the middle of 2014 will assure your tax professional will have enough time to spend with you help you adequately plan for your taxes.Fund your retirement plan. Check with your employer to see if you can contribute more to your retirement plan and confirm you are fully taking advantage of the employer match if you have a retirement plan with your employer.If you do not have a retirement plan, you need to open a ROTH IRA, IRA or other types of retirement plan. An investment house or bank can help you decide the best plan for your specific financial situation. This will help you plan for your future and will reduce your tax liability this year.Prepay your income tax liabilities. If you do not prepay your income tax liabilities timely, the IRS will penalize you. You should write down your estimated tax payments and the due dates on your calendar. For 2014, the installment due dates for individuals are April 15th, June 16th, September 15th, and January 15th, 2015.Keep up with current news relating to tax legislation. The tax laws are constantly changing. You might think you know the valuable credits and deductions but Congress might have obliterated them. Keeping up with the new tax law changes will help you take advantage of all the tax credits and deductions that are available to you.
Getting Started with Your Very Own Business Venture
Sanjiv Gupta CPA - 3 years ago
A great start-up business always starts out as an idea, but you have to transform that idea into action. That’s where many individuals can start to feel overwhelmed. It’s understandable to freeze up at the deluge of things that are required to get a business started, but getting going is actually easier than you might think.Like any big goal, if you start by breaking it down into smaller tasks, you’ll be able to tackle enough of the actions necessary to get started. Here are six ways to break down the process and simplify getting started with your own small business.Right now, aspiring entrepreneurs all across the country are planning their paths to business ownership. It’s a journey that requires a lot of hard work, and many people end up failing. But if your company survives, the rewards of entrepreneurship are well worth the obstacles you’ll face on the road to success.Choose your IndustryEvery new business starts with an idea. Maybe there’s something you are really knowledgeable and passionate about, or perhaps you think you’ve found a way to fill a gap in the marketplace. Wherever your interests lie, it’s almost guaranteed that there’s a way to turn it into a business. If you know your strengths and what you enjoy, you are more likely to tackle a business problem that is best suited to your skills and interests and is less sensitive to your shortcomings. Capitalize on your strengths, and accept input from advisors and the team on decisions outside your range. Everyone will see you as a better listener and a stronger leader who is not autocratic and knows how to tackle the many unknowns of a new business. Too many people fail because they are working on someone else’s problem. You won’t be happy in the wrong business.Another option is to open a franchise of an established company. The concept, brand following, and business model are already in place; all you need is a good location and the means to fund your operation.Once you’ve narrowed your list of ideas down to one or two, do a quick search for existing companies in your chosen industry. Learn what the current brand leaders are doing, and figure out how you can do it better. If you think your business can deliver something other companies don’t (or deliver the same thing, but faster and cheaper), you’ve got a solid idea and are ready to create a business plan.Writing the Business PlanDuring the brainstorming, you should also start thinking about your business plan. A smart entrepreneur has a vision of where he/she sees herself and the business in the foreseeable future and writing it down in a business plan helps you stay on track and focus on your goal. A business plan is an essential road map for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues.Among the possible sub-parts of your business plan includes the:Executive Summary which is the snapshot of your business plan as a whole and touches on your company profile and goals. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.Company Description provides information on what you do, what differentiates your business from others, and the markets your business serves. This section of your business plan provides a high-level review of the different elements of your business. This is akin to an extended elevator pitch and can help readers and potential investors quickly understand the goal of your business and its unique proposition.Service or Product Line answers questions like what do you sell? How does it benefit your customers? What is the product life cycle? Get tips on how to tell the story about your product or service. If you have any existing, pending, or any anticipated copyright or patent filings, list them here. Also, disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.Funding Request and Financial Projection tackles the possibilities if you need funding. This provides financial projections to back up your request is critical. You should develop the Financial Projections section after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently. If you are planning to make your new business your full-time job, it’s wise to wait until you have at least some money put away for startup costs and for sustaining yourself in the beginning before you start making a profit.Marketing & Sales reveals how you plan to market your business? What is your sales strategy? Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing business-evaluation process and unique to your company. After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product.Selecting Your Preferred Business StructureAn important step in forming a new business is to choose the type of business structure you will use. There are several types of business entities to choose from, including sole proprietorship, partnership, corporation, limited liability company, and limited partnership. Each has its own advantages and disadvantages, as well as tax consequences of which you should be aware. When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. Legal and tax considerations enter into selecting a business structure.You have to decide which of these entities best suits your business objectives and needs. You can get help in making this decision from a tax practitioner, such as an accountant, enrolled agent, or attorney. A tax practitioner can also provide information about how to establish the business structure you choose.As an entrepreneur, you will have no place and no one to hide behind. Knowledge of yourself is the key to confidence, and confidence builds leadership. Building a new business requires good leadership to develop the market, attract customers, motivate the team and conquer the unknown.Register your BusinessObviously, you need to register your business and declare a proprietorship to it. But before you can do that, you have to settle on what to call it. Naming your business is an important branding exercise, but if you choose to name your business as anything other than your own personal name then you’ll need to register it with the appropriate authorities. This process is known as registering your “Doing Business As” (DBA) name.Choosing a business name is an important step in the business planning process. Not only should you pick a name that reflects your brand identity, but you also need to ensure it is properly registered and protected for the long term. You should also give a thought to whether it’s web-ready. Many businesses start out as freelancers, solo operations, or partnerships. In these cases, it’s easy to fall back on your own name as your business name. While there’s nothing wrong with this, it does make it tougher to present a professional image and build brand awareness.After you register your business, the next step is obtaining an employer identification number (EIN) from the IRS. While this is not required for sole proprietorships with no employees, you may want to apply for one anyway to keep your personal and business taxes separate, or simply to save yourself the trouble later on if you decide to hire someone else.Take Care of the LegalitiesTo run your business legally, there are certain federal and state licenses and permits you will need to obtain. For some other industries like buying and selling liquor, special certificates are needed before you start operating or else you might find yourself and business in unnecessary trouble. The form of business you operate determines what taxes you must pay and how you pay them. The following are the five general types of business taxes according to Internal Revenue Services. Income TaxAll businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return.Estimated taxGenerally, taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes, and awards, you may have to make estimated tax payments. If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax but other taxes such as self-employment tax and alternative minimum tax.If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.Self-Employment TaxSelf-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.It should be noted that anytime self-employment tax is mentioned, it only refers to Social Security and Medicare taxes and does not include any other taxes that self-employed individuals may be required to file. Excise TaxThis section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. One of the major components of the excise program is motor fuel.Manufacture or sell certain products.Operate certain kinds of businesses.Use various kinds of equipment, facilities, or products.Receive payment for certain services. Form 720 – The federal excise taxes consist of several broad categories of taxes, including the following.Environmental taxes.Communications and air transportation taxes.Fuel taxes.Tax on the first retail sale of heavy trucks, trailers, and tractors.Manufacturers taxes on the sale or use of a variety of different articlesEmployment TaxesWhen you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:Social security and Medicare taxesFederal income tax withholdingFederal unemployment (FUTA) taxAside from national laws that your business needs to abide by, there are also local state laws that you need to be aware of and observe for a smooth sailing operation. It is very important where your establishment located, and what government rules apply. The good and the bad news is that as an entrepreneur, you won’t have a manager charged with directing your efforts or peers helping you implement, and your new team will be quick to tell you only what you want to hear. Thus the burden is on you to capitalize on your strengths, find co-founders and team members to fill the gaps and find mentors and advisors you trust.
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