The tax man cometh: the IRS wants a piece of your new business.Ah, the glamorous life. No more punching the clock. No more annoying co-workers. And as for money--well, it's yours for the taking. As many would say, life for the self-employed is "all good." The Internal Revenue Service even has a welcoming committee that specifically addresses the fiscal needs of the budding business owner. Its first gift--a luxurious 15.3% self-employment tax Self-Employment Tax A tax imposed on self-employed people, who must pay this tax in order to receive social-security benefits upon retirement. Notes: The self-employment tax may be reduced if the person also pays social security and Medicare taxes through another employer. . Unlike the little drummer boy "The Little Drummer Boy" is a popular Christmas song, with words and music by Katherine K. Davis. Henry Onorati and Harry Simeone have been credited with writing the song, even though they were only the arrangers for their recordings of it. , the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. has a plethora of gifts to bring. If you're starting a business, you need to be especially aware of its offerings. For starters, there's payroll tax Payroll Tax Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax. . Say you hire someone in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of State for $8 an hour, Social Security tax at .0765% and unemployment insurance tax at 4.4% on earnings up to $7,000 will be affixed af·fix tr.v. af·fixed, af·fix·ing, af·fix·es 1. To secure to something; attach: affix a label to a package. 2. . In addition, you'll have to pay premiums on workmen's compensation Workmen's Compensation n. a former name for Workers' Compensation before the unisex title of the acts was adopted. and disability insurance. If you factor that you'll be spending between 12% and 15% on taxes and benefits, what you're actually paying employees is $9.20 an hour. Sales tax is another offering from the state. As the owner of a retail business, you would be required to collect taxes on items sold. As a business owner, you should immediately record sales tax and place the funds in a separate account, advises Randy Blaustein, an attorney and senior tax partner at the New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. accounting firm of Blaustein, Greenberg & Co. Too often business owners make the mistake of depositing money from sales tax into their business checking account, using it to pay bills. This places your business at considerable risk if you fall short when payments are due, Blaustein warns. "The money does not belong to the business owner, it belongs to the state." There are ways to thwart Uncle Sam's overtures. Simply put--deductions. You can deduct what the IRS states is "ordinary and necessary" to the operation of your small enterprise. Do you need to buy office equipment and furniture? You can deduct the first $17,500 from your first year earnings. Does conducting business mean that you have to drive? If so, you may be entitled to a deduction of up to 100%. Do you subscribe to trade journals, magazines or newspapers? Entertain clients? Attend out-of-state conferences? If you participate in any of these activities you can claim deductions and reduce your tax liability. Do not, however, claim deductions for expenses unrelated to business. Treating yourself to dinner does not fall under the category of entertainment expense. Nor is a personal vacation to the Bahamas business travel. Remember, the onus is on you to convince the IRS that you have a right to a deduction. To ease your tax burden, set aside a certain amount of money each month for federal and self-employment tax (due each quarter) and keep abreast of current laws and tax regulations. For tax advice and free small business tax guides, contract the IRS at 800-829-1040 or 800-829-4477; or http://www.irs.ustreas.gov. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion