FAQs: Frequently Asked Questions
- I do not understand how my salary works?
Remember there are two of you. One being the entrepreneur the other being the employee of corporation. The salary is not the only amount of money that you receive from the corporation just the amount to be claimed as such. The other money you receive is your profit distributions. The reason why your net salary is so low is for the fact that most of the federal income taxes that you are required to pay are withheld from your paycheck via payments to the Financial Agent (Federal Reserve). Your paycheck is virtually bookkeeping entry. This is what accountants do, nothing you need to do special other than to pay your taxes every month.
- Does the S corporation pay taxes?
By definition the S corporation do not pay income taxes, it is a pass through entity. The net profits and your salary combined flow onto your personal return and we pay personal income taxes on the combination less our deductions such as mortgage interest, real estate taxes and charity.
- I pay for my car personally, and I still want to write it off?
Whether you pay for any item personally or not, you are allowed to get reimbursed by the corporation for the business usage of that item. This will be done as a bookkeeping entry at the end of the year. This is again what accountants do for a living nothing needs to be done by you, except to summarize and total all the expenses by the year-end.
- Can I pay for my car from my business account?
For tax reasons you should pay for all corporate expenses whether titled in your corporate name or not with any corporate payment means. (Corporate credit cards, checks, etc.) For limited liability reasons you should pay only those items corporately tilted with a corporate means. Consult your attorney.
- Am I paying for all my taxes?
When you pay your taxes during the year it is on an estimated basis. It is impossible to figure out to the penny how much we should pay exactly. It is not until that fat lady sings that we know the show is over. We must complete the tax return to figure out exactly. We are just paying an educated guess for now and we fine-tune it through out the year. If you over pay they will refund you if we under payment then we will owe taxes with a penalty. We of course try to avoid paying them with a penalty; therefore we make safe estimated payments through out the year. This is why you are advised to send me a profit and loss statement periodically through out the year.
- Where and when do I pay my Federal Taxes?
There are two separate and distinct types of federal tax payments. The first is payroll taxes and the federal reserve needs to receive this payment by the 15th of every month. You may either bring the payment directly to any commercial bank, Process through the IRS EFTPS Website, or mail the payment to the Financial Agent, Federal Tax Deposit Processing, and PO Box 970030, St. Louis, Missouri 63197. Remember to put your federal identification number on your check and to attach the 8109 coupon. There are no excuses for being late.
The other method of payment is to the Internal Revenue Service, Atlanta Georgia, 39901. Payments mailed to Atlanta are for your personal estimated tax payments. They are due to be received by 4/15, 6/15, 9/15, and 1/15. These payments are for any amounts do above the estimates that we pay via the payroll system. Many taxpayers pay via the estimated system. However they either are not in business for themselves (have S corporations) or they have very high taxable incomes. WE can pay this online now as well.
- Can I collect unemployment, since I am paying for it?
One major drawback of the S corporation is that we must pay both Federal and Florida State unemployment taxes. The most that this tax gets is 245 per year. (56 Federal, 189 State) per person on the payroll. The advantages of being on payroll more than out weigh the disadvantages. You just see the disadvantage spelled out this way at this time. Corporate officers (you) can not collect unemployment benefits unless possibly if your corporation goes bankrupt, and certain other extreme circumstances. In a nutshell, do not count on.
- When are my taxes due?
Federal 941 payroll taxes are due each month to be received by the Federal Reserve Bank by the 15th of each and every month. Unemployment taxes are due every three months 4/30, 7/31, 10/31, and 1/31 The Florida Business Report is (150) is due on April 30. Personal Income tax estimates are due on 4/15, 6/15, 9/15, and 1/15. Tangible taxes are due on 4/1 and intangible taxes are due 6/30. No extensions for payments.
- What can I write off?
The items that can be written off depend on whether or not they were used for business or not. If you keep in mind that if the expense was used in the production of income or that could lead to the production of income then it is most likely that it is deductible. I have a list of the more common expenses on my Website MYTAXGURU.COM.
- How can I write off my office in my house?
If you truly use a room in the house we first must consider whether we want to write off this room. After you hear the tax concerns you will see why. First as we break it down we write off the interest and the taxes in full anyway. Secondly we can deduct the insurance, water, utilities, repairs and maintenance, depreciation etc. in the percentage of the square footage used Vs the total of the house. As you find out the peanuts that this becomes and that then you must pay income taxes on that portion of the house when you sell it when otherwise you would not have. We suggest most of the time to forget it. However if you rent then all of these drawbacks are of course mute, and we of course deduct the business percentage of the rent.
- Should I buy or lease my auto?
Buying or leasing a car is first an economic question based on how do you treat automobiles? I know nothing about maintaining a car (law school graduate) I abuse automobiles. By the time the car is up for trade, usually within three years (for me) the car is so abused that I would not get really anything on trade, therefore leasing is better for me. If for all other things being equal, then the golden rule is 15000. If the car is worth more than $15000 then you should lease or if you travel less that 15000 miles you should lease otherwise you should buy the automobile.
- The boat reimbursements
Boat reimbursements are dangerous. They are not meant to be income and therefore if sets up properly they are not, however many captains commingle there funds and therefore the deposits go into the captains bank accounts and guess who gets stuck behind the eight ball. The Captain should not have his name on any bank records of the boat to avoid liability. Of course this runs a foul of doing business as a captain. Best answer is on a case by case situation.
- Can the corporation invest in the market?
Yes the corporation can invest in the stock market and in other investments. However there are no major advantages to doing so. S Corporations are pass through entities and you must still pay income taxes on the profits of the investments earned.
- Should the corporation purchase my house for me?
We generally suggest not doing so. Although there are some advantages, the disadvantages usually more than outweigh. When selling the home if the corporation purchased the house then you must pay capital gains tax. Where if you purchased the home personally you generally do not have to pay capital gains tax.(subject to limitations)
- Should I claim all my income?
Funny thing about lying is that your mother knew when you are ling and so will the IRS. Your mother caught you because she knew your nature and the IRS has been in business long enough to know human nature. If you do not deposit all your income then your expense ratios are all out of whack. If you do not deposit all your income and you have certain toys the IRS has statistics that they know how much each different toy should cost you. They know how much a Mercedes cost to maintain with in reason. If you have a toy of some sort then you had the money to spend then you must have made the money somehow. Tax Evasion is a serious offense. Do not do the crime unless you can do the time (from Barreta TV show).
- Why not get a foreign bank account and not tell anyone?
When you do not claim all you money not only are you committing tax evasion? But shouting yourself in the foot. Although I still can get you a mortgage, you would have to put a lot of money down and pay at a high interest rate. Therefore costing you a lot more in the long run. Also you lose out on whatever gains there are in the market. Plus did you ever meet anyone who got paid in cash; they are usually the one that needs to borrow money because they blew it all.
- My boss said he will not give me a 1099-Misc:
Even though your boss does not give you any year end reporting documents your are still required to claim all your income. Keep in mind that many business including myself very rarely get a 1099 to substitute their income. Also keep in mind that even though your employer may not give you a 1099 or the like he may still submit it into the IRS as required. Then this puts you in a bad place. The IRS knows of your income and you did not report it. By the way this is happening more and more.
- Paying my taxes online- Does this subject me to an audit?
The IRS will be requiring all corporations to pay their taxes online by 2007(their goal) Currently the IRS has a 15 error rate. Meaning that the IRS makes mistakes on a taxpayers account 1 in every 6 transactions. After the online processing in their test pilot programs the IRS error rate has reduced to 1 in 10,000. This means helps us in two ways. One is that it would be less likely for us to be audited, less personal involvement and the other is that we will save time in cleaning up IRS mistakes.
- How does your fee work?
My favorite question. We do not charge for the following: When you call and talk to me, when I call and talk to you. I also do not charge if we ever get audited provided that you did not lie or mislead me during the time we prepared the tax return. All retainers are non-refundable, as we must prepare and plan some tax returns throughout the year. Our fee depends upon the complexity, time, and degree of skill needed to prepare your return. At the time of the interview I have given you a reasonable quote. Please keep in mind that the quote is just that a quote. It is not until we are finished with your tax return that we know exactly how much our fees will be. Payment is due upon completion of the Income Tax Return. You must pay our fees at that time in full unless special arrangements have been made.
- Quicken/Quickbooks-can you help?
We can help you with your quicken or quickbooks data entry. WE can either help you if you have a question or tow general for no extra charge or we can input the data for you for an extra fee- just ask. I would rather you do the data entry for tow reasons. First keeps you informed as to what is going on with your money and the other reason is that it helps me keep my fees down. However, if you are not going to do it or do not do it timely enough through out the year I will need to take this over from you. Basically because of the fact that your delay may cause you more harm than the few extra bucks I may charge you.
- How does the IRS catch you?
Like all law enforcement issues the IRS has their ways. Just keep a few things in mind. First of all the jails are full of criminals who thought they would never get caught. We have all received speeding tickets and our parents knew when we were screwing up. My point being that we are not professional criminals and as such we can not even anticipate what law enforcement may or may not find interesting enough to pursue their case against us. With this said, please keep in mind the following.
- If your toys are more than your income can support-this would be a an obvious flag
- If your expenses are out of proportion to your natural gross income
- If your calendar of ports of call does not agree to your credit card charges, ships log, cell phone bill, passport
- Friends are friends, but when the IRS comes somehow they forget your name