Paying a good CPA for their services will make you wealthier, and I will prove it to you.
You might have done your own taxes when you worked part time in high school or college, and even later as you had your first job.
Maybe you still do them today? But if you are not filing a 1040 EZ (filed by folks in the simplest of all tax situations), and you have been building wealth for a few years now and have investments and are involved in other endeavors such as a side business, I highly recommend you get yourself a good CPA.
A good Certified Public Accountant (CPA) does not mean going to H&R Block. Preparers at H&R and similar shops are not qualified CPAs. CPA requirements are rigid and not within everyone’s reach. That said, a good CPA is not cheap. However, a good CPA will definitely help you expedite your financial progress in life. Don’t believe me? Understand how much you are truly paying in taxes, and then realize how much less you can be paying by taking advantage of all the favorable tax laws.
A good CPA will always be on top of recent tax legislation and ensure that you get as much benefit as your tax situation allows you to. The fees you pay are well worth the tax planning advice you can get, the tax savings as well as freeing up hours of your precious time. Not to mention all the stress and headache you will live without.
1) A good CPA can help you incorporate your business, therefore protecting your personal net worth (assets) from frivolous business related issues, and at the same time enable you to spend pre tax dollars on business expenses rather than post tax dollars like the majority of the world.
2) A good CPA can help you reduce your effective income tax rate beyond your imagination. While the rest of America pays up to half their income to the Government, you can be paying 5, 10, 15, 20 or more percent less and thereby getting ahead in life faster than the rest.
3) A good CPA will help you comply with Self Employment Taxes, another convoluted set of taxes that many do not understand and end up overpaying on. If you are an entrepreneur or going to be one, whether full or part time, hiring outside help is the fastest way to expedite your business’ growth. In fact for many it is inevitable, unless you are a Superstar and know how to do everything. Not to mention have all the time in the world to execute.
4) A good CPA will help you comply with IRS tax form 1099 reporting requirements for your business. If you are going to grow your business, you will at some point need outside help. Paying contractors and subcontractors for services rendered to your business triggers a form 1099 requirement. The good news is that all business expenses are 100% deductible. A good CPA will help you take full advantage of that as well.
5) A good CPA will advise you on how you can save more in a 401k plan than is legally allowed. If you have a side business, may it be a brick and mortar one, a website or blog, a good CPA can help you set up a SEP investment plan, or another similar alternative for persons who own their own business.
These are just a few examples. There are many more benefits to having a qualified CPA by your side. To extract even more value, make sure you pick one who understands your business. For example, if you have rental properties, select a CPA who has experience with tax matters pertaining to rental property investing.
Making money from a website or blog is a relatively new trend, and some CPAs are establishing a niche in serving clients with tax needs pertaining to their online income. If you are generating profits online, select a CPA who understands the tax situation that applies to someone who makes money online.
Trust me when I say that the few hundred or even thousand bucks you spend on a good CPA is definitely well worth it for the various reasons discussed above, and then some. A good CPA by your side is guaranteed to expedite the growth of your net worth. This is precisely what Robert Kiyosaki preaches as well in Rich Dad Poor Dad.
And if you have your guard up, no worries, this is NOT a self advertisement at all. I only have a handful of clients who I work with, and I am not cheap by any means either. So I don’t recommend me at all unless you want to pay up a storm.
As your tax situation starts to get more complicated, think about the incremental time and effort you need to spend on tax compliance. You can either spend hours to research new tax legislation that is relevant to you and do your taxes, or you can hire a good CPA and get them done better and much quicker. A CPA salary will more than pay for itself.
By taking the latter route, you will not only free up a ton of your time, but also relieve yourself of the stress (for most people) and hassle involved with tax compliance. Many people hate accounting and taxes. They find it boring, mundane and a hindrance to accomplishing their business and investment objectives. So work on your business instead, not in it.
Readers: Do you have a good CPA? Do you do your own taxes? Why or why not? What will it take for you to hire one?
Couple months back I wrote about paying self employment taxes if you are making money from a full or part time gig outside your employment.
Another important point of discussion is filing IRS tax form 1099 reporting for services you paid for during the tax year.
If you paid anyone at least $600 during the tax year for services rendered to your business, you are required by law to report these payments in a form called 1099.
Form 1099 is an information form that you (as a business owner) are required to file with the Internal Revenue Service (IRS) to report payments made to someone who is not an employee of your business for which services were rendered.
This typically means any independent contractors and subcontractors that you hired during the tax year. As it pertains specifically to online businesses, think about payments made to individuals for search engine optimization (SEO) services, internet marketing assistance, content creation, ad hoc programming and tweaking, etc.
The IRS takes form 1099 reporting very seriously. Because they allow you to claim business expenses as tax deductions when you file your income taxes, they want to make sure that they are taxing the individuals who should be claiming the same amount as income.
There is an exception to this filing requirement. If you paid someone who is based overseas for services rendered to your business, you are not required to comply with form 1099 reporting (as of 2010) unless the work was performed within the USA.
For example, I fill out and distribute form 1099 for contractors I engage in my small business. However, most of the work I outsource for my niche websites is conducted overseas by individuals and companies that are based outside the USA. Therefore I don’t file a 1099 for services rendered pertaining to my online businesses.
Anytime you engage another sole proprietor of self employed individual to render services for your business, you are required to note their taxpayer identification number or TIN. Most of the time this is their social security number. If they have incorporated as a business, they can provide you with their employer identification number or EIN.
This information is typically provided in form W-9, another information form that is available on the IRS’s website at www.irs.gov. All other tax related forms can be accessed on this website as well.
Keep a separate file for each contractor and retain all the relevant forms in it. Keep track of how much you paid each contractor during the tax year. At the end of the tax year, determine which contractors you paid at least $600 for services rendered so that you can comply with 1099 reporting for each.
The form 1099 has 3 copies. The law states that you are required to send one copy of this form to each contractor no later than January 31st of the year following the tax year in which services were rendered. You are required to send one copy to the IRS (along with a 1096 transmittal form) and keep one for your personal records. The IRS needs its copy by February 28.
No matter how small or large your business operation, the IRS takes tax compliance very seriously. Failure to comply with 1099 reporting can lead to significant fines and penalties in the long run. Deliberately failing to file form 1099 can be even more damaging.
Not surprisingly, many small businesses, especially one-man run shops, often forget to file form 1099. However, everyone is treated the same by the IRS. Non-compliance with tax law is not at all tolerated by the IRS.
Penalties for not filing or late filing IRS tax form 1099 increase with passage of time. Fines can range anywhere from $15 to $50 PER FORM not filed or incorrectly filed. The IRS recognizes that mistakes can be made. Therefore if your 1099 reporting is incorrect but you correct it by August 1st of the year in which you file, there is a good chance the IRS will forgive the penalty.
In the rare cases that “intentional disregard” of the filing requirements can be proven by the IRS, the minimum penalty is $100 per 1099 form. You can just imagine the amount of fines that can accrue for multiple violations over several years.
The US tax code can’t get any more convoluted and compliance requirements can’t be any more taxing. Sure, things can be simple for the minimalist who likes to keep life simple. But if you want to get ahead in life, you will have to look forward to a complicated income tax return at some point.
A mentor of mine used to say that one of the signs of a highly financially successful individual is a complicated tax return and a heavy income tax bill. I agree with this. However, the more complicated one’s income tax return becomes, the more chances there are of overlooking important detail.
I am sure you are thinking there are a lot worst mistakes than failure to comply with IRS tax form 1099 reporting or filing one incorrectly. However, consider that if you were audited by the IRS and are discovered to have had only 10 instances of neglect, you could face fines and penalties in the thousands of dollars.
The good news is that with a sincere approach, IRS fines and penalties can be appealed. The IRS is made up of human beings like you and I who are reasonable individuals (for the most part). If you can demonstrate that you realize your mistake, have taken steps to rectify it and promise to continue to do so, there is a good chance you will get some leniency from them.
It’s never too late to comply with tax law, even if you have to go back and request retroactive forms from previous years. Don’t wait and get started today. And if you have to, get yourself an ethical CPA who is well versed in the line of business you are in to help you out.
Readers: Do you file 1099s for your business? Why or why not? Do you have any 1099 reporting stories of your own or someone you know that you can share with our readers?
Read Wiki’s material on IRS tax form 1099 reporting here.
It’s that time of the year again when we have to dig up transaction details from our files and brains in order to put together a comprehensive picture of the past twelve months. The IRS allows us to deduct as much as we can within the tax rules but many people often end up leaving money on the table because the tax code is so complex. The burden of compliance is on us.
One way to ensure we minimize money left on the table is to take our time filing taxes. In fact, once filed, we should sleep on it and revisit a couple times down the road to ensure we have indeed captured everything we need to.
In this article, our friend has provided some pretty helpful tips on filing a tax extension, which buys you more time to focus on ensuring your tax returns are as complete as possible. I know you will enjoy it.
Although the deadline to file your taxes in 2016 is April 18th, you can gain an additional 6 months of time by filing for an extension. An extension allows you the time to save money for an expected payment or gather paperwork needed to file a complete return. When filing for an extension, you avoid having to pay penalties to the IRS.
The IRS website, at www.IRS.gov, has forms that can be filled out available. The form that you need to file an extension is IRS Form 4868. Mailing the form directly to the IRS takes more time. It does still have to be postmarked by midnight on April 18th to be considered.
Make sure that the form prints clearly, first and foremost. Use a fresh pen, or one with enough ink, to fill out the form. Ensure that you have filled out every section of the form and that you have signed it. If you are married, your spouse will also need to check over the form and sign it.
Send the completed IRS Form 4868 to the IRS office in your state. Addresses for each state’s IRS office location is available on the IRS website.
Most online tax preparation websites do offer the option to file for an extension. Search their database for IRS Form 4868 or the option to file for an extension. Complete the form and make sure it is electronically signed.
Once the form is completed, the tax preparation service can send it off electronically to the IRS for approval. The IRS will mail a letter to your home alerting you that your extension request has been accepted. The letter will also include information about penalties and fees should you miss the extended date to file.
Tax filing extensions are granted rather quickly. When they are submitted online, it typically takes 1 to 3 business days for acceptance. When you choose to mail you paperwork, it can take 2 weeks. A letter will be mailed to you that will show the granted extension. It will also be noted that no penalties or interest will be accrued during the extension period.
You are only permitted one extension per tax filing year. If you do not complete your tax return by the end of the extension period, October 16th for 2016, you will be charged interested and late filing penalties. This can lead to mounting tax debt. Liens on homes and vehicles can take place, as well as wage garnishments, until the debt is paid in full.
Many people panic when they realize that “tax day” is coming soon and their return is not done. In some cases, they are not even prepared to begin their return due to being disorganized or not having the required documents. Filing an extension can have advantages and be a saving grace and takes a lot of the stress off of you for rushing to get your taxes done.