| The answers below are intended to provide general advice and should not be relied upon without consulting your tax professional. |
GENERAL
What type of business entity should I be?
If there were always one best answer, there would be only one type of entity. We can recommend different options based upon your individual factors, which include ownership, type of business, amount of risk, personal assets owned and tax advantages sought. We can work with your legal council to ensure that all proper forms are filed from a tax perspective and that the most advantageous type of entity is formed. In general there are four types of entities:
- Sole-Proprietorships (Individual Ownership and/or Husband-Wife Ownership) Taxed on your personal 1040 on Schedule C.
- Corporations (C-Corp, S-Corp and PC) which are taxes as 1120 or 1120-S
- Partnerships (Including General Partnerships, Limited Partnerships, Husband-Wife Partnerships, FLLP -Family Limited Liability Partnerships) which are taxed on Form 1065
- LLC/LLP (Limited Liability Companies or Partnerships) The IRS really hasn't decided how to treat these entities so they can be taxed on a Schedule C of your 1040, on a 1065 like a partnership or on an 1120 if so elected.
It depends on several factors such as the number of miles you will drive each year, how long you keep a car, interest rates, residual value, cash-flow needs, type or cost of vehicle, limited purpose or general use vehicle and other, non-monetary factors that may be involved such as image or personal preference. Again, if one way was right for everyone there would only be one way.
INCOME TAX
Can I write off my purchases of fixed assets?
You can elect Section 179 treatment, wherein qualifying purchases may be expensed in the year of acquisition, subject to limitations.
What is the Section 179 election limitation amount
for assets acquired in 2001?
$24,000
What is the tax rate for capital gains?
Gain on the sale of capital assets held for more than one year is generally taxed at 20%. However, there are certain technical exceptions that should be addressed when doing any tax planning.
As a self-employed individual, how much can I contribute to my retirement plan in 2002?
For an IRA, the maximum contribution is $3,000 unless your earnings are less than $3,000. Then the maximum amount that can be contributed would be the earned income amount. For SEP and Keogh Plans, the maximum contribution that can be made is 100% of net self-employment income up to $40,000.
I sold my home this year for a gain. Will I have to pay tax on this gain?
If you owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale, then $250,000 of the gain may be excluded if you are single and $500,000 of the gain may be excluded if you are married, filing jointly.
I sold my principal residence at a loss this year.
Will I be able to deduct this loss?
No, a loss on the sale of your home is not deductible.
I loaned money to a business associate who has been released from all obligations by the bankruptcy court. Will I be able to deduct this loss?
Yes, you may deduct the unpaid portion as a short-term capital loss. This deduction is limited to $3,000 in total net capital losses per year.
What is the statute of limitation?
Generally, there is a three-year period for assessment and collection of tax. This period begins at the later of the due date of the return or the actual filing date. There are exceptions when 20% or more of your income is omitted from the return or in cases of fraud.
What should I do if my address changes?
Besides letting your accountant know you should file Form 8822 with the Internal Revenue Service notifying them of your move. <click here for the form>
How long should I keep records?
Tax returns.........................................................Permanently
Cancelled checks...............................................7 years
Insurance records..............................................Permanently
Insurance policies (expired)................................3 years
Deeds, mortgages and bills of sale.............. .....Permanently
Contracts & leases still in effect..........................Permanently
Contracts & leases (expired)..............................7 years
Bank reconciliation.............................................1 year
Payroll records...................................................10 years
PAYROLL TAX
When am I required to pay my taxes electronically (EFTPS)?
Effective January 1, 2000, the threshold that determines whether you must use the EFTPS has been increased from $50,000 to $200,000. This applies to all federal tax deposits. Additionally, once a business exceeds the new threshold, it must continue to use EFTPS in all later years. The IRS will allow businesses to make payments every three months if they have less than $2,500 in quarterly employment taxes. It replaces the current standard, which allows quarterly payments only if businesses have less than $1,000 in quarterly employment taxes. EFTPS deposits may be made via the telephone or the internet.
How often should I obtain a Form W-4 from my employees?
You should request a new Form W-4 from employees who claimed exemption from withholding last year and any time an employee wishes to change their number of exemptions.
What is the due date for making quarterly tax deposits?
Individuals subject to estimated tax payments must make them by April, June, September and January 15th of each year. Individuals may now make payments for all federal tax obligations via EFTPS on the internet.
ESTATE & GIFT TAX
How much is the unified credit for estate and gift taxes?
The amount of credit for the year 2002 is $1,000,000. This is scheduled to increase to $3,500,000 by the year 2009.
To whom may I give gifts to and what are the reporting requirements?
For the year 2002, you may give an individual up to $11,000 without any reporting requirements.
