Deducting Start-up Expenditures
A basic financial principle of being in business:
your revenues can be offset against your expenses.
Some expenses may be only partially deductible. Other expenses may have to be depreciated, over a period of years. The basic ultimate concept – expenses working to offset revenues- is still very easy to understand and explain.
What about those expenses you rack up before your business even opens, business start-up costs? Once you open your business and start generating revenues, you can write off many of those initial business startup costs come tax time.
The rules for taking advantage of these deductions are not as straightforward as they are for your business’s ongoing expenses.
Before you start a business, you’re more than likely going to have a certain amount of startup expenses. Track your business startup costs – begin at the beginning.
Startup expenses are things associated with setting up your business or investigating the purchase of an existing business. Among the items that count as startup expenses:
- Doing an analysis of your potential market(s)
- Paying consultants
- Buying initial supplies
- Advertising your new business
- Paying employees before the business opens
Track your organizational costs, the fees associated with initially organizing your new business. Among the expenses that can qualify as an organizational cost:
- State incorporation fees
- Lawyers’ charges for drafting incorporation papers
- Initial accounting fees
Take the upfront deduction now that you’ve tracked all your business start-up costs before opening shop.
Now the good part:
You can write off up to $5,000 in business startup costs and another $5,000 in organizational expenses in the year that you start a business.
(Note: These deductions are reduced if you have more than $50,000 of either type of expense.)
Once you’ve written off that first $5,000, you can still get a tax benefit from other expenses. However, those start-up costs will have to be amortized over 15 years.
The assets you buy for your startup can be written off. However, unlike supplies and other expenses, assets have to be depreciated. There are different rules for different assets.
If you’ve taken some items from your home and never used items for business before, you could depreciate them, based on their value when you started using them in your business. Most office equipment, for example, could be written off over seven years; computers can be deducted over a five-year period.
Put off what you can – if you’re going to have to depreciate some business startup costs, it makes sense to delay purchases that can be put off until after your business opens. The same purchase made after opening could be written off in full (providing they fall under the right rules – Section 179) in the first year instead of depreciated over 15 years.
Whether it makes sense to take as many deductions of business startup costs as you can in the year you start a business depends on individual circumstances. In some cases, owners of startups may prefer to stretch out deductions over several years so that they balance out more evenly against eventual revenue streams. A tax pro can advise you on the best expense- and tax-planning strategies for your own startup venture.
Start-up costs do not include deductible interest, taxes, or research and experimental costs.
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter B > PART VI > § 195
Deducting Business Expenses – IRS page
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The Definitive Guide to Getting Your Offer in Compromise Approved by the IRS
An Offer in Compromise is a document that allows people who are unable to pay all of their taxes due to financial hardship to pay less than they owe the IRS. The IRS will determine how much you owe by examining the following:
- Your ability to pay
- Income
- Expenses
- Asset equity
Be warned! The IRS does not recommend an Offer in Compromise for just anyone. Rather, the IRS prefers you view it as a last resort.
How Does an Offer in Compromise Actually Work?
In a very general sense, the IRS calculates your “reasonable collection potential.” To the IRS, this term means the amount of money they realistically believe they can collect from you in the next 2 years. In order to qualify and maintain your eligibility for an Offer in Compromise, you must:
- Pay and file your taxes on time for the following 5 years
- Pay the amount the IRS offers you
- Allow the IRS to retain all tax refunds you potentially could have received during the calendar year the Offer in Compromise is approved
- Allow the IRS to retain all payments, credits, and refunds applied to your tax debts preceding the submission of your Offer in Compromise
Can You Prepare Your Own Offer in Compromise?
You absolutely can, but it’s not recommended. The IRS, as with any government organization, is a large bureaucracy filled with red tape. The amount of documentation it requires from you is significant, and if you make any minor mistake, there can be a long delay in the process. Therefore, the assistance of a CPA is recommended. However, for your information, here are some of the documents required during the process:
- IRS Form 433A and Form 656
- If you are self-employed, prepare form 433B in addition to 433A and 656
- Prepare a statement indicating the reason you believe an Offer in Compromise is reasonable
The Reality of Having Your Offer in Compromise Approved
Many shady individuals make exaggerated, and even false, claims that your tax liability will be settled for just pennies on the dollar. This is possible, but statistics have shown the IRS approved just 16% of all offers it received in 2004, accounting for a total of 19,546 offers. In the first five months of 2010, however, the IRS accepted 24% of all offers. You might be able to get this to happen on your own, however, in order to maximize your chances of success, the assistance of a CPA is recommended.
About the Author
Jeff Fouts is a tax attorney living in a small town in Georgia (Ellijay, pop. 1,584). He’s represented tax clients against the IRS in all 50 states, and in 21 foreign countries and has 18 years experience, thousands of satisfied clients and an A+ BBB Rating.
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- IRS Offer in Compromise Tax Forms, Settlement & Guidelines (backtaxeshelp.com)
- What If I Can’t Pay the Taxes I Owe the IRS in Full? (backtaxeshelp.com)
The Importance of Good Recordkeeping
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In the event that a natural disaster strikes your home or office, being well organized and redundant in your record keeping can save you or your loved ones a considerable amount time and effort getting life back to “normal” when the dust settles. Here are a few tips any taxpayer can use to help minimize potential damage:
Utilize Electronic Recordkeeping
Talk to your bank about paperless bank statements so that you will always have access to them. Instead of receiving them in the mail, they can be sent to your email or you can access your account online with a username and password.
Important documents you receive regarding finances and taxes, such as W-2s and tax returns, can be scanned to your computer and stored on an external hard drive or CD for safekeeping. You should keep these external storage devices in secure locations with important documents like your medical directives and powers of attorney, wills and trusts, birth and marriage certificates.
You also might consider using an online service to back up your computer’s hard drive. These services will store all of the information on your computer on their servers. That way, all of your files are backed up and can be easily recovered if your computer is lost or damaged.
Whether or not you choose to utilize paperless recordkeeping, you should keep physical copies of documents which are difficult to replace in at least one secure location. Secure locations include household safes, fireproof boxes, or safe deposit boxes. You should also consider storing a second set of those documents in a secure location as well.
Keep Evidence of Valuable Belongings
In order to ensure that you can claim your valuable lost property if it is lost or damaged, you should make lists of the objects in each room of your house and be sure to note their value. You should also take digital photos or videos of the belongings in your home. Just be sure to store copies of those files in a secure place. Business owners should create lists to record your possessions by category, such as office furniture and fixtures, information systems, motor vehicles, equipment, etc. Again, be sure to store the pictures, videos, or lists you make in a secure location so that they cannot be stolen or damaged by water and/or fire.
Have a Plan
It is important to have a way to receive information about extreme weather conditions before and after they occur. NOAA Weather Radios send out warnings and post-messages in the event of earthquakes, avalanches, oil spills, floods, and more. Be sure to keep working batteries in yours at all times. Also, be ready to take action if a disaster were to hit; have an emergency plan that you go over annually. Communicate this to your family, employees, or customers, and practice it if necessary.
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The Missouri 1099-G in 2012
Missouri now provides 1099-G information online over a secure server that is available anytime.
Form 1099-G reports the amount of refunds, credits and other offsets of state income tax during the previous year that must be reported on your federal income tax return if you itemized your deductions last year.
If you are expecting one you can go to https://sa.dor.mo.gov/tax/1099g/ Fill out the following information:
Hit continue and it will give you your information. If you want to print this for your tax return specialist there is an option for that.
Clients of mine, please do this.
If you prefer to use the telephone to obtain your 1099-G information, you may call (573) 526-8299. The same information required above is also required for the telephone inquiry system.
What is Form 1099-G?
Form 1099-G will provide tax information that may need to be reported on your Federal Income Tax Return. It reports the amount of refunds, credits, and offsets of state income tax during the previous year. Depending this information maybe taxable on your Federal return if you claimed the amount as an itemized deduction last year. Click here for more information and answers to Frequently Asked Questions.
Negotiate your debts with the IRS
Choosing a tax professional to formally negotiate your debts with the IRS
As the tough new rules on bankruptcy laws hit the debt industry, debt settlement is often chosen as a more palatable option for all the debtors in the US. Debt settlement is an agreement with the debtor and the creditor to settle an outstanding balance for an amount that is lower than what you actually owe. However, there’s a huge difference between owing debt to a private organization and the government. The government can take any step to recuperate the money from you and therefore, you need to be careful about the steps that you take in order to clear your dues. Just like you settle your credit card debts, have you thought about settling your IRS tax debt? Do you know whether or not it’s possible? If answered no, read on.
What is Offer in Compromise (OIC)?
The IRS or the Internal Revenue Service has recently revised all the instructions for their OIC in 2006 in response to all the changes in the tax law under the Tax Increase Prevention and Reconciliation Act. When you’re drowning in a sea of IRS tax debt, the OIC is the only worthy way out of the tax debt cycle as you can settle your debt for an amount that is less than what you actually owe. Though there are many ways in which you can get out of debt, most debtors choose Offer in Compromise as they can get the opportunity of repaying a lesser amount.
How to choose a tax professional for completing your IRS OIC
An Offer in Compromise is a time-consuming process and most people take at least 12 to 24 months to achieve complete resolution of their tax woes. Despite waiting for the long period of time, the chances of succeeding are pretty slim. Research reveals that only 17% applicants succeed in reducing their IRS tax debt through debt settlement or OIC. Since the entire process is complex enough, there are many debtors who prefer seeking help of the tax professionals to protect themselves from unnecessary scams.
The debtors often hire a tax professional who helps them with hiring a tax professional to prepare the documentation of the entire process and also to negotiate with the IRS. The tax professionals may charge you hefty fees of about $1,500 to $3,000 for the accuracy that they’ll provide you with the Offer in Compromise documentation. The tax professional should be well-versed with negotiating with the IRS consultants as without this skill, it would become tough to manage.
How to stay aware of the scams associated with settling your IRS tax debt
There are many unscrupulous tax professionals who will quote some unaffordable price for the offer. Such professionals may prepare the form but will not assist you throughout the documentation and will also avoid negotiating on your behalf. You should look for someone who is experienced in dealing with the revenue officers along with a pleasing personality.
Therefore, when you’re knee deep in IRS tax debt, make sure you take the best step forward to opt for debt settlement. Follow the advice mentioned above so that you can successfully complete the entire process and secure a debt free life.
This is a Guest Post by Shawn Ambrose who is a financial writer. He loves to contribute articles to financial websites, blogs and communities. Some topics covered by him are debt consolidation basics, settling your credit card debt, pros and cons of IRS tax debt settlement and so on.
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