From the IRS: Tax Tips for Starting a Business

Tax Tips for Starting a Business

When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are five IRS tax tips that can help you get your business off to a good start.

1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file.

2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

3. Employer Identification Number. You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can
apply for it online.

4. Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.

5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.
The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees. Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

Get all the tax basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.

Additional IRS Resources:
• IRS Tax Calendar for Businesses and Self-Employed
• Publication 505, Tax Withholding and Estimated Tax
• Publication 334, Tax Guide for Small Business
• Publication 225, Farmers Tax guide
• Publication 535, Business Expenses
• Publication 587, Business Use of Your Home
• Publication 510, Excise Taxes
• Publication 538, Accounting Periods and Methods

IRS YouTube Videos:
• Small Business Health Care Tax Credit – English | Spanish | ASL
• IRS Online Tax Calendar – English | Spanish | ASL
• Simplified Home Office Deduction – English | Spanish | ASL

IRS Podcasts:
• Small Business Health Care Tax Credit – English | Spanish
• IRS Online Tax Calendar – English | Spanish
• Simplified Home Office Deduction – English | Spanish

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From the IRS: Federal Tax Help for Landscapers and Gardeners is Just a Click Away

Federal Tax Help for Landscapers and Gardeners is Just a Click Away

If you are a self-employed landscaper or gardener, visit IRS.gov for all your federal tax needs. Be sure to view the IRS webinar “Business Taxes for the Self-Employed: The Basics.” Here are some topics included in the webinar or on IRS.gov that you should know:

• Accounting Method. An accounting method is a set of rules about when to report income and expenses. Many small businesses use the cash method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Find out more in IRS Publication 538, Accounting Periods and Methods.

• Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. You may have to pay self-employment tax as well as income tax if you make a profit. Self-employment tax, or SE tax, includes Social Security and Medicare taxes. You may need to pay your taxes by making estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

• Tax Forms. There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form. Use Schedule SE, Self-Employment Tax, to figure your SE tax. If you owe this tax, make sure you file the schedule with your federal tax return.

• Allowable Deductions. You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in the gardening or landscaping industry. A necessary expense is one that is helpful and proper for your trade or business. View the webinar “Small Business Owners: Get All the Tax Benefits You Deserve” to learn more.

• Business Use of a Vehicle. If you use your car or truck for your business, you may be able to deduct the costs to operate the vehicle for the business use. Refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses for details.
Follow the IRS on Twitter! The IRS has three key accounts: @IRSnews, @IRStaxpros and @IRSenEspanol.

Additional IRS References:
• Small Business and Self-Employed Tax Center
• IRS Video Portal
• Online Learning and Educational Products
• e-News for Small Businesses
• Publication 583, Starting a Business and Keeping Records
• Publication 505, Tax Withholding and Estimated Tax
• Publication 334, Tax Guide for Small Business
• Publication 535, Business Expenses

IRS YouTube Videos:
• Estimated Tax Payments – English | Spanish | ASL
• IRS Tax Payment Options – English | Spanish | ASL
• Record Keeping – English | Spanish | ASL
• IRS Online Tax Calendar – English | Spanish | ASL
IRS Podcasts:
• Estimated Tax Payments – English | Spanish
• IRS Tax Payment Options – English | Spanish
• IRS Online Tax Calendar – English | Spanish

From the IRS: How does ACA affect Employers with fewer than 50 employees?

Find out how ACA affects Employers with fewer than 50 Employees

Most employers have fewer than 50 full-time employees or full-time equivalent employees and are therefore not subject to the Affordable Care Act’s employer shared responsibility provision.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year. Employers with 50 or fewer employees can purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace.

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year, and divides that total number by 12.

Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees’ premium costs and generally, after 2013, if they purchase coverage through the SHOP.

All employers, regardless of size, that provide self-insured health coverage must file an annual information return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for coverage provided during 2015.

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca. 

From the IRS: Find out how ACA affects Employers with 50 or more Employees

Find out how ACA affects Employers with 50 or more Employees

Some of the provisions of the Affordable Care Act, or health care law, apply only to large employers, which are generally those with 50 or more full-time equivalent employees. These employers are considered applicable large employers – also known as ALEs – and are subject to the employer shared responsibility provisions and the annual employer information return provisions. For example, in 2016 applicable large employers will have annual reporting responsibilities concerning whether and what health insurance they offered in 2015 to their full-time employees.

All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015.

Effective for calendar year 2015, ALEs with 100 or more full-time or full-time equivalent employees will be subject to the employer shared responsibility provision and therefore may have to make a shared responsibility payment. This applies to employers that do not offer adequate, affordable coverage to their full-time employees and one or more of those employees get a premium tax credit. The employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.

Employers with more than 50 cannot purchase health insurance coverage for its employees through the Small Business Health Options Program – better known as the SHOP Marketplace. However, Employers that have exactly 50 employees can purchase coverage for their employees through the SHOP.

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.

From the IRS: Small Business Retirement Plan Penalty Relief Expires Soon

Small Business Retirement Plan Penalty Relief Expires Soon

You still have time to file retirement plan tax returns for your small business. Under the IRS special penalty relief program, you can avoid stiff penalties for filing late. However, you must act soon. Here are some key points you should know about this program:

• Late Filing Penalties. Plan administrators and sponsors who fail to file required forms can face penalties of up to $15,000 per return. The plan usually must file Form 5500-EZ each year.

• Penalty Relief Deadline. A special program provides penalty relief for late filers. Those who are eligible can avoid these penalties by filing late returns by June 2, 2015.

• Relief to Certain Plans. In general, this program is open to certain small business plans. These include owner-spouse plans, plans of business partnerships (together, “one-participant plans”) and certain foreign plans.

• Penalty Already Assessed. If you have already been assessed a penalty for late filings you are not eligible for this program.

• One-Year Pilot. The IRS launched this program on June 2, 2014, as a one-year pilot. It can help small businesses that may have been unaware of their plan’s filing requirements. So far, the IRS has received about 6,000 late returns under the program.

• Multiple Late Returns. You may apply for relief for multiple late returns in a single submission under this program.

• No Fee Required. The IRS does not charge a filing fee or require a payment to apply for this relief.

Additional IRS Resources:
• Revenue Procedure 2014-32
• Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan

IRS Youtube Video:
• Form 5500-EZ Pilot Penalty Relief Program – English

From the IRS: Cut Taxes and Save on Energy Bills with Home Energy Credits

You can reduce your taxes and save on your energy bills with certain home improvements. Here are some key facts that you should know about home energy tax credits:

Non-Business Energy Property Credit
• Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
• The other part of the credit is not a percentage of the cost. This part of the credit is for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
• This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
• Your main home must be located in the U.S. to qualify for the credit.
• Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
• This credit had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014. You may still claim the credit on your 2014 tax return if you didn’t reach the lifetime limit in prior years.

Residential Energy Efficient Property Credit
• This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
• Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
• There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
• The home must be in the U.S. It does not have to be your main home, unless the alternative energy equipment is qualified fuel cell property.
• This credit is available through 2016.
Use Form 5695, Residential Energy Credits, to claim these credits. For more on this topic refer to the form’s instructions. You can get IRS forms on IRS.gov/forms anytime.

From the IRS: Six Tips You Should Know about Employee Business Expenses

If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you claim allowable expenses on Schedule A, Itemized Deductions. Here are six tax tips that you should know about this deduction.

1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.

2. Expense Examples. Some costs that you may be able to deduct include:
• Required work clothes or uniforms that are not appropriate for everyday use.
• Supplies and tools you use on the job.
• Business use of your car.
• Business meals and entertainment.
• Business travel away from home.
• Business use of your home.
• Work-related education.
This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more, check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

3. Forms to Use. In most cases you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction. You can deduct the amount that is more than two percent of your adjusted gross income.

4. Educator Expenses. If you are a K through 12 teacher or educator, you may be able to deduct up to $250 of certain expenses you paid for in 2014. These may include books, supplies, equipment, and other materials used in the classroom. You claim this deduction as an adjustment on your tax return, rather than as an itemized deduction. This deduction had expired at the end of 2013. A recent tax law extended it for one year, through Dec. 31, 2014. For more on this topic see Publication 529.

5. Keep Records. You must keep records to prove the expenses you deduct. For what records to keep, see Publication 17, Your Federal Income Tax.

6. IRS Free File. Most people qualify to use free, brand-name software to prepare and e-file their federal tax returns. IRS Free File is the easiest way to file. These rules can be complex, and Free File software will help you determine if you can deduct your expenses. It will do the math, fill out the forms and e-file your return – all for free. Check your other e-file options if you can’t use Free File.
Visit IRS.gov/forms to view, download or print IRS tax products anytime.

IRS YouTube Video:
• Welcome to Free File – English