2010 has been an interesting year. As 2010 comes to and end, I’m focused on doing what I can to close up books and get things in order. As a labor of love of my own choice, I’m blessed to be in business. Daily I am thankful for the opportunity though challenges to exist. Taxes are an element of business that I’m learning more about daily. Here are three thing I’ve learned about 2010 business taxes that I see are important.
Small Business Tax Tip: Employee vs Independent Contractor
The IRS in 2010 is making a clear effort to look at employers whom hire independent contractors to save on tax burden. The IRS uses 3 characteristics in determining relationships with businesses & workers:
- Behavioral Control is the characteristic that deal with your control over a worker. In many businesses contractors are shown what needs to be done and expected to bring to the table and ability to do the work. When you take an approach to train employees with the intention of managing the outcome of consistent work, you business worker is leaning more toward employee. This characteristic covers elements illustrating how the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control is the business characteristic dealing with your financial controls. If you hire an outside accountant to audit your books, the accountant is independent of your financial controls. However, your bookkeeper will be an employee if each day they work in your firm under your direction and daily control. This characteristic covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
- Type of Relationship is the characteristic on perception. The fact remains if your business and the worker perceive the relationship as a independent contractor your business is in a good position. I’ve worked with businesses whose contractors had businesses of their own. The relationship was more joint venture than employee. All aspects of this relationship showed the senior business being the primary and the subcontractor being the worker. This factor relates to how the workers and the business owner perceive their relationship.
Small Business Tax Tip: Cash Deductions on Cash Accounting
Most small businesses are home based and operate on a cash bases, meaning most expenses are deducted the year they are incurred. All non-corporation forms of business should consider 2010 expenses that are paid in 2011. In short, paying of a credit card bill that has fees in 2011 related to 2010 december business can be expensed to the 2010 business returns. Also cash receipts and expenditures from non business account can be expensed in 2010 as long as they are business related. It should be reviewed with your business tax advisor but in short you should consider all valid business expenses to limit your businesses tax burden.
Small Business Tax Tip: Start up cost deduction
I believe taxes can be boring. However, this element of 2010’s Small Business Tax excited me. Even if you didn’t have a business until this very moment you probably should start one right now. For you see in 2010, you can deduct up to $10,000 in start up cost this year. Prior to this year you could only deduct $5,000 in start up cost. Most people never truly itemize and show the proper attachment documentation to properly amortize their start up or expansion cost. If it is not done properly you might have to only recognize some expenses upon the sale or end of the business.
However the $10,000 you can expense can be related to starting your business so that you get the full benefit of getting rolling in the right direction. For me it means getting the right technology and assets to get the business going in the right direction. The $10,000 up front means that you d start Most small businesses operate on a cash bases, meaning most expenses are deducted the year they are incurred. Again a business that operates on a cash basis and even finances equipment to start-up the business can expense the cost in 2010.
So I would consult my tax advisor and get moving starting my business.