Forums: Discussions for entrepreneurs and small business.

What are some things I can do as a new business to make tax time an easier process.  ( things to do during year to make doing my taxes easier, lowering my taxes, and staying legal).

Some Specifics:

1. All of the people that work for me are contractors. 

2. I do sell some products but my business is mostly service based.

Any general advice and or more specific advice would be appreciated.

Hi letutor !

Here`s some general things that popped to mind:

Contractors are excellent to minimize taxes & overhead costs- i.e.,
Worker`s
Comp, Soc Sec/FICA, insurance, etc. Just make sure you have adequate
documentation to support their consultant status, ie.: their business
cards,
invoices from them, an independant work location if possible and
contracts.

Find out from your Comptroller of State Taxes, whether your services are
taxable or not - you could save your customer some green, as well as,
minimize your paperwork. Products will have to have sales tax, but I`m
sure you already knew that.

Finally get yourself set up with an accounting and leger system that you
are comfortable with. I for one didn`t like the complexity and confusing
nature and price of software packages available, so I developed my own
which runs on Excel - I`ve dubbed it SmallBiz Tracker. It tracks all
expenses, billings, payroll, etc. so you can see where the money is.

Finally, I would make sure you have some kind of contract/agreement
that you have your new clients sign. It`s very important everyone knows
what to expect up front. To make sure everything`s legal, I would
recommend you let a lawyer review a "boilerplate" contract/agreement.

Anyway, I hope you find some of these suggestions useful.

Best Regards,
Bill Adelstein

Whats a boiler Plate contract agreement?

-------------------------

MonteChristo

Hi montechristo !

The term "boilerplate" refers to a general contract or agreement which you
would start editing for each client. I.e., a template which spells out all the
general stuff, to which you add the specific project details.

Hope that helps...

Bill Adelstein

The IRS has become very perticular about what constitutes a "contractor".  Here is a checklist that is generally accpeted as a test as to whether a person is a contractor or employee.  In some states the same test is used when determining responsible parties in work place injury claims. 

IRS 20-Point Checklist
How do you determine if a contractor should be paid on a W-2 or a 1099?
The IRS has established a 20-point checklist the can be used as a guideline in determining whether or not a contractor can legally be paid on a 1099. This checklist helps determine who has the "right of control." Does the employer have control or the "right of control" over the individual`s performance of the job and how the individual accomplishes the job? The greater the control exercised over the terms and conditions of employment, the greater the chance that the controlling entity will be held to be the employer. The right to control (not the act itself) determines the status as an independent contractor or employee. The 20-point checklist is only a guideline, it does not guarantee that a person is correctly classified. There is no one single homogenous definition of the term "employee." Most agencies and courts typically look to the totality of the circumstances and balance the factors to determine whether a worker is an employee.

Following are the 20-points that have been established:

1. Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
2. Does the individual receive training from your company?
3. Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
4. Must the individual personally perform the contracted services?
5. Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
6. Is there a continuing relationship between your company and the individual?
7. Must the individual work set hours?
8. Is the individual required to work full time at your company?
9. Is the work performed on company premises?
10. Is the individual required to follow a set sequence or routine in the performance of his work?
11. Must the individual give you reports regarding his/her work?
12. Is the individual paid by the hour, week, or month?
13. Do you reimburse the individual for business/travel expenses?
14. Do you supply the individual with needed tools or materials?
15. Have you made a significant investment in facilities used by the individual to perform services?
16. Is the individual free from suffering a loss or realizing a profit based on his work?
17. Does the individual only perform services for your company?
18. Does the individual limit the availability of his services to the general public?
19. Do you have the right to discharge the individual?
20. May the individual terminate his services at any time?

In general "no" answers to questions 1-16 and "yes" answers to questions 17-20 indicate an independent contractor. However, a simple majority of "no" answers to questions 1 to 16 and "yes" answers to questions 17 to 20 does not guarantee independent contractor treatment. Some questions are either irrelevant or of less importance because the answers may apply equally to employees and independent contractors.

http://www.topechelon.com/employers/contracting_classificati on.htm

I would recommend you set up a strong accounting/bookkeeping system that tracks your revenues and your expenses, so you do not have to pull your hair out at the tax time.  Generally for small businesses, it`s better to spend time on the revenue producing activities instead of trying to learn accounting systems.  I would suggest you consider outsourcing your accounting/bookkeeping needs to save time, money and keep you up to date and ready to go when the tax time comes.

-------------------------

Tiana Nelson, MBA, CMA, CFM
Summit Executive Center
http://www.summitbldg.com

Keep a good filing system and all receipts!  Helps your accountant and cuts down on your bill!

-------------------------

Dale
www.ourbestidea.com
www.maskerinsurance.com
www.maskercreations.net