What is the Number One reason you pay too much tax?

What is the Number One reason you pay too much tax? Let’s brainstorm. We all pay too much tax because:

1) Our elected politicians created the complicated and convoluted monster known as the U.S. Tax Code, and this monster takes our money away.

2) Public Enemy #1 (The IRS) takes our money away.

3) Tax preparers are too busy preparing tax returns to help us take advantage of all the complicated and convoluted tax loopholes, leaving us to fight a losing battle against The Monster and its evil watchdog, the IRS.

What do you think? Are we on the right track?

I’d like to suggest one more reason, and it is really the only factor that you and I have complete control over: Bookkeeping.

There’s not much we can do about Reasons #1 and #2. And there’s a limit to how much we can do about Reason #3. But there is a tremendous amount we can do to maintain better tax records — and this, more then anything else, is the Number One reason why small business owners and self-employed people pay more tax than necessary.

Let me now prove it to you by asking this question: How did your business do last year? (By “business” I’m referring to any type of small or home-based business venture, full-time or part-time, including self-employment activities of the typical sole proprietor.) Did you have a profit or a loss? Do you even know whether you had a profit or loss?

If I called you up on the phone right now and asked you how much profit (or loss) you made in your business last year — at least 5 people out of 10 wouldn’t have a clue. If I asked you right now to tell me how much profit (or loss) you made last month, I know for a fact that 9 out of 10 couldn’t tell me.

And chances are that when tax time rolls around each year, you won’t even know how much profit you made last year for at least a month or two — after spending days and untold stressful hours trying to fix your record-keeping nightmare.

I deal with this scenario regularly: The typical small business owner or self-employed person is stressed out about taxes because his/her records are in a shambles. You know what I’m taking about, don’t you? Receipts scattered in five places, and you’ve long forgotten what they were even for. Hand-scribbled notes in your day timer. A checkbook. Twelve months worth of receipts from three different credit cards.

And now you’ve got to figure out how to put it all together in the next few weeks so you can prepare your own return or give it all to your accountant without him laughing in your face because of the total disaster your records are in.

And most folks wouldn’t even dare think about what would happen if the IRS came calling for an audit. The IRS would laugh all the way to the bank at the record-keeping disaster they find.

Most self-employed folks use a variation of the “shoe box” method — they throw all their receipts, cancelled checks, bank deposit slips and anything else business-related into a box and then come March or April they dump it out and try to figure out what the heck was what — for about 5 days straight. Is this any way to run a business?

Isn’t it time you got organized? And the easiest way to do that is to automate your bookkeeping. You are using a computer right now, correct? Then do yourself a favor and throw away any manual bookkeeping system you’ve used before and start keeping records on the computer.

There are several good programs on the market – Quicken and Quickbooks are the most well known. If you have little or no bookkeeping experience, try Quicken. Quickbooks is for those with a background in accounting.

If you are self-employed or run a small business and you do the books yourself, Quicken is the program you need. Nothing fancy or confusing. Fairly easy to learn. You’ll save hours with this program, and when you’re done, you’ll have all the info you need to do your tax return. If you take your “tax stuff” to an accountant, he’ll love you for using it.

Not only will tax time be much easier, but you’ll finally know how your business is doing at any point during the year. No more guessing about the bottom line.

Never forget this simple fact: Most people pay more taxes than they should. And the #1 reason is unreported deductions. When your record-keeping system is messy, you end up paying hundreds and even thousands of dollars in taxes that you should not have paid.

With a program like Quicken, it will take you a fraction of the time to get everything organized. And since it is specifically designed for the small and home-based business owner like yourself, it is easy to get started saving time and money.

Whether you own a small business or not we all dread the IRS. They always seem to want more money and if you fail to pay them or pay them late they’ll penalize you straight into the poor house. But as a small business owner your worries about the IRS can be much greater because you’ll now have to deal with employee payroll taxes.

With employees comes more taxes to pay and returns to file. It seems to be never ending. Death and taxes as they say are the only two inevitables in life. Oh how true. But besides having to pay those taxes and file those returns there are a couple of other stipulations that also come with those responsibilities that you may not be aware of.

For those of you that are new to running a business and having employees I’ll give a quick rundown of how employee taxes work. Once you opened your doors and started doing business you put yourself in position to pay payroll taxes. When you hire your first employee you’ll be responsible for withholding taxes from checks, sending in those taxes to the IRS, filing 941 quarterly tax returns, W-3 yearly returns, and issuing W-2’s.

What you might not realize is just how far the IRS will go when holding you responsible for those taxes. A responsibility that can last even past the closing of your business. Of course paying the taxes late will result in some hefty penalties. And as the number of employees in your business grows the larger your tax bill becomes. Because not only do you have to pay the taxes you withheld but you’ll need to pay the matching taxes as well. And as your tax bill grows the IRS will require you to send those tax payments in more often. You’ll go from paying on a quarterly basis to a monthly basis, down to a biweekly time frame. So as your tax burden grows the amount of time your given between payments shortens up by a lot.

Not that you can’t handle all that pressure though right? Well as if that wasn’t enough we have one more piece of good news for you. Even if your business was to go bankrupt and you still owed taxes you can be held personally liable by the IRS. The bankruptcy court will probably not protect you from having to pay those taxes.

I know of a case a few years ago about a small business owner that ran into such a problem. Due to cash flow problems trouble arose in paying bills. Eventually the trouble extended to paying the payroll taxes on time. Finally the owner was forced to file for bankruptcy protection and close the doors. Once the paperwork was filed the bankruptcy court took control of all the assets. As there wasn’t enough money in the bank account to pay the taxes in full anyway they went unpaid and were listed as the top creditor in the bankruptcy court filing. The problem seems to be the overly large IRS bureaucracy. You see the court notifies creditors of the bankruptcy and requires them to file a claim. If they don’t then they cannot receive any of the proceeds from the sale of assets. Now since the IRS was owed taxes they are supposed to receive all the proceeds up to the point of the taxes being paid. But they are still just a creditor and must file a claim. In this particular case a claim was not filed. Most likely the court documents were lost in the system.

So what does the IRS do? They hold the person that signs the 941 tax returns responsible. In this case it was to the tune of about $28,000.00. Now this could have been avoided if the taxes had been paid before the court took possession of the company but of course the owner didn’t have the means to pay anyway. There is a silver lining to the story though. The taxman that is normally the big bad bully in most cases was not here. Besides needing to provide copies of the bankruptcy paperwork and some other documents the IRS allows you to show whether you actually have the ability to pay the amount back yourself. Due to the fact you just filed bankruptcy and most likely lost your own livelihood you may not have to pay any of it. Of course each situation is going to be different .

The main thing to learn here is that you need to be aware of your responsibilities as an owner when it comes to payroll taxes. The consequences of not knowing or fulfilling your obligations could ruin not only your business but you personally.

A very important part of personal financial planning is tax planning. This article will help you take the mystery out of personal tax Planning by providing a financial planning perspective for your overall tax situation.

1. Be aware of the different types of taxes

Many people are not aware of the different types of tax systems that we have. Income: Federal, State and Local. Real estate tax. Tax on Investments: Dividends, interest, capital gain, and passive income on stocks, bonds, mutual funds, and investment real estate. Estate or Inheritance Tax: Federal and state tax due on the estate or the inheritor. Gift tax: tax on giver of large gifts. Entitlement Tax: Social Security and Medicare (FICA), Federal Unemployment (FUTA). Sales, self employment, and corporate taxation.

2. Consider working with a Qualified Tax Professional

Tax planning can be complex for many people, therefore it may be wide to work with a trusted professional tax advisor.

Tax advisors not only prepare your taxes but can help make decisions that will affect your future. They can serve as advisors for a whole host of matters and they can represent you if you face the dreaded audit. Consider the following when selecting a tax professional:

- Local: Someone that you can easily meet with face to face

- Personable: Someone that you can interact with and who cares about you

- Proactive: Some tax preparers simply look at your previous year’s return and plug your current numbers into last year’s format. This of course assumes that last year’s preparer knew what he/she was doing. Try to find a preparer who knows your situation. A proactive professional will ask questions that will help you anticipate changes in your tax situation to help you properly plan in advance

- Reputable: Find a professional with a good reputation. Ask people you admire for a referral.

- Skilled: Look for an accountant that is very competent. You have to be smart to obtain a degree in accounting or law.

Fees: Find out up front what they estimate their fees to be, what they charge to file electronically and whether they will represent you in an IRS audit. Avoid any ‘early refund’ ploys. Some well known tax preparation companies ‘provide’ this service which charges a hefty fee (with a lot of small print) and a lot of advertised hype for you to get your refund ‘early’. It is basically a high-interest loan. Just waiting for your actual refund will save you a lot of money.

3. Remember, tax preparation entails both art and science

The science involves the mathematical calculations that in most instances can be figured using calculators and software, and the infinite number of complex tax laws.

The art of tax planning comes into play with interpretation of any special circumstances. There are some areas of tax law that leave the government’s intentions unclear. No law can completely anticipate each person’s situation. You could call a dozen different IRS agents with the same question and get as many different answers. A proactive planner will research any unusual circumstances you may have and help you plan a course of action.

4. Doing Your Taxes Yourself?

I firmly believe in getting professional tax assistance. However, I realize that many people prefer to do their own taxes perhaps to save money, or perhaps you have cleaned up the mess a ’store front’ preparer made of your taxes and vow to do your own. It has been my experience that often the professional tax preparer has saved us the amount of their fee in our taxes. The peace of mind that the taxes are done right has a value all its own.

However, people who have prepared their own taxes at least once with paper and pencil or software usually understand taxes much better. If you self-prepare your taxes, consider having a qualified accountant review them before you send them in. They may find things you or the software might have missed.

If you made less than $54,000 in 2007, you can file your taxes electronically for free through the irs.gov website http://www.irs.gov/efile/. If you use tax software and wish to e-file be aware of the fees so that you can budget and compare prices properly. For example, a download of Turbo Tax Home and Business Federal and State for 2006 cost just under $100 and the filing fees cost around $30. Some States allow you to ‘phone in’ your State return for free.

If you choose to mail your return, go to your local post office and send it ‘Certified Return Receipt’ mail to insure that you have a record that the IRS received your paperwork. This will cost around $10 or less and will be worth every penny should the IRS contest the receipt of your return.

5. Keep great records

If you are already very organized you may read this section just to feel great about your organization skills or skip to the next section. If, however you have heard ‘get organized’ many times before and if you are the type of person who balks at the idea of organizing that mess of receipts just remember how you felt last year as tax time approached. You could become organized in only one evening of television viewing with the right tools. Arm yourself with an accordion file with at least 16 sections. Label them according to your situation or use the following sections: Auto, Bank, Business, Credit Cards, Dental, Medical, General Receipts, Grocery, Income, Insurance, Mortgage, Utilities, School, and Taxes. Now sort your receipts into these sections. Organizing your receipts will help you “Take the mystery out of…” your financial situation. Use a new accordion file every year. Not only will this help you find needed information, it will also help you find a receipt in case you need to return an item you purchased. . Your tax professional will be sending you a tax organizer the end of December or the first of January. In this organizer will be a list of information that you will need to gather. Becoming organized will help you easily gather the information you need to fill out your tax organizer.

6. Start early

Do not procrastinate on your taxes. Tax professionals are unbelievably busy January through April. Firms who prepare business returns also have a crazy March 15 business deadline. We are providing this information because we want you to get the most attention from your preparer during their craziest season. As soon as you get your organizer, begin gathering the needed papers. If you are only missing one or two pieces of information return the organizer to your accountant with a note that says what is missing. They will begin entering the information in their software. Try to get a January or February meeting with your accountant. These months are the best to meet because they will have more time to spend with you and they will be able to think proactively. If you are looking for a professional, start looking now.

Another reason to start early is allowing yourself time to look for records, ask financial institutions for copies of lost information, or calling investment companies for statements.

7. Judicious Paycheck Tax Withholding

Many people like to overpay their taxes, so that they get a nice refund in time for vacations or other wants and needs – Kind of like a forced savings. Overpaying taxes is like a giving the government an interest free loan of your money.

Good financial management involves developing savings habits so that you set aside money in an interest bearing account from each paycheck for future needs, wants and emergencies. This helps you to avoid using credit cards for those things and not having to wait until refund time. Secondly it then allows you to manage how much you can afford or are able to put into 401(k) plans at work. This accomplishes two things, first you are managing your money better and you are saving for retirement. Saving for retirement in tax deductible retirement plans like 401(k)s will also lower your taxes, enabling you to save more for retirement and everyday needs and wants.

If you want to lower the taxes that are being withheld from your paycheck, file a new W-4 form with your employer to claim an additional withholding. Make adjustment for getting married, divorced, having children and for increasing contributions to tax deductible retirement plans. Your accountant will help you estimate this.

8. Tax planning is not the tail that wags the dog

Taxes consume a large if not the largest single percentage of your income, therefore good financial planning should strive to lessen them, by whatever means possible as allowed by law.

However, tax planning is not the only core issue of good financial planning. Tax planning works in concert with your overall goals and your individual situation.

In many areas of the country, when you get your bill for county property taxes, be prepared for a shock. They are at an all time high across the country, though the overall amounts can vary greatly depending where you live.

On top of all the other taxes that we pay, what are county property taxes used for? The individual tax rate varies from jurisdiction to jurisdiction. Also varying is as how the assessed valuation of the property is calculated on which they base the property tax. Here are the most popular uses for the high county property taxes that you are paying (and just because they are “popular” today might mean the politicians might uncover some other popular cause to fund).

• Schools Systems – In many areas of the country, more than half of each dollar you pay in county property taxes is used to fund your local school district. In most states, the largest funding school districts receive is through local property taxes. These taxes help maintain school buildings and buses, pay teacher and administrative salaries and buy books.

• Roads and Bridges- City and county property taxes are used extensively to keep roads in good working order. They remove the snow in winter, cut grass in the right of way, clear out overhanging branches and trees and make minor road and bridge repairs.

• Police and Fire Services – In most cases, your local police and sheriff’s departments as well as your local fire departments are funded by city and county property taxes. Your taxes support the buildings, vehicles and salaries of our policemen and firefighters.

• Public Libraries – Libraries are typically run by the county, so county property taxes provide their funding. Everything from building maintenance and staff salaries to purchasing new books is primarily funded through taxpayers.

• Hospitals – In some parts of the country, local hospitals receive some funding from local taxpayers. These funds are usually provided to ensure that hospitals in financial trouble don’t have to close. It is in the public’s best interest to have a hospital right in the community, so taxpayers often bear some of the financial burden of keeping the hospital afloat.

• County Government – And, of course, your county taxes fund your local county government to collect the taxes, provide the county court system, provide office space and pay salaries.

In some areas, a portion of your local city and county property taxes may also be given to the state. In most cases, however, at least 90% of the property taxes you pay stay right in your local community. When states take part of the revenue, it is usually a relatively small amount.

It is said that people complain more about their property taxes than any other taxes they pay. However, for the most part these taxes stay in the local communities. They fund the education of the children and pay for police and fire protection. So, while it is your civic duty to keep watch on how your tax dollars are spent and calculated and to speak up about unnecessary spending, local property taxes compared to other taxes tend to stay in the local community and their benefits are most visible. Further, it’s not a big stretch to demonstrate the direct benefit to the property owner.

What does every business want? Does every business want to increase sales, reduce taxes, and create a better cash flow? Or is that only what successful businesses want?

I’ll tell you what every business do want. CASH, CASH, CASH!!!! It doesn’t matter if the business is doing well or struggling. They both have something in common. Each business wants or needs more money.

By reading this article you will learn how to increase sales, reduces taxes, and create a better cash flow year after year.

Increasing Sales

Increasing sales doesn’t have to be a hard task. If you understand the fundamentals, willing to listen and prepared to answer questions then you are on you way to success.

Every business owner knows their business can’t survive without sales. Wonder why this is a question that is always asked by my clients: “How can I increase sales?” You may find yourself as a business owner asking this question too.

Well like I tell my clients, understanding these three steps: Showing you’re an expert, seeing from your customer’s point of view and having an accountant. Is a great way to jumpstart immediate sales and keep your customers coming back.

Showing you’re an expert is easy if you know what you’re talking about. Expertise in a product or service persuades people to buy. Customers tend to purchase from businesses that have a good product or service. Customers purchase items from a person who can answer their questions, demonstrate and prove the product or service will actually benefit them and have knowledge of what their talking about.

Show your potential customers how much enthusiasm you have for your product and business. If you’re convincing enough, they will be enthusiastic too.

The better you understand your product or service from your customer’s point of view, the more you will sale. You can achieve this by knowing your customers. I write a list of words that describes my best customers, their likes and dislikes and the product or service they often purchase. This will give you an idea of what sales and what doesn’t. It will also give you an idea to innovate or improve old products or services.

Also identify why your customer is there in the first place. What is their problem and can you solve it. You have to make sure your customer will benefit from your product or service.

Be prepared to ask and answer questions. Sometimes your customer has an idea of what they need but don’t know why. It is your job to convince them the reason they need that product or service in their life. By asking them questions you can get a better understanding of their situation. Zero in on their specific problems so you can solve them easily. Focusing on this is the quickest way to a sale.

Listen to your customer. If your customer disagrees with your product or service or simply the way you’re doing business. Ask them why they feel this way and take notes. I called this learning from constructive criticism. Remember to keep this in mind but also remember not to eliminate everything your customer dislike or you will simply find yourself with nothing to sale. Learn to balance the two. Take the dislike and turn it into a like for the customer, but keep the other product or service if it was selling. By doing this you will generate a new way of doing business.

Also take your customer suggestions in consideration. It may be a reason your customer is suggesting this and truth of what they are stating. By considering it can improve business and it will also be a win-win situation. The customer gets what they want and you improve business. It’s also ok to dislike the suggestion, remember it’s only a suggestion.

Sometimes your customer will tell you what’s going on in their life, such as a daughter’s birthday or graduation. It’s important to remember these special events. You probably are wondering why? Well let me tell you…….Remembering these dates can give you an opportunity to sell your product or service to your customer. You can offer them a discount or give an incentive on these dates. Your customer will be impressed for two reasons. You remember something about their life and you appreciate their business. This will keep your customer coming back and purchasing more products or services from you in the future. It’s ok to write these dates down so you will remember. This technique only works if you communicate with your customers. Remember communication is the key. Keep in touch by mail, phone or simply state,” I know your daughter’s birthday is coming up and I know she will enjoy………………. (state a product or service you sale) the next time they walk into you store to purchase an item. Only state this if it’s close to the date. This works every time.

It’s also a good idea to remember back when you were a customer. What did you like or dislike about that certain business? What frustrated you? Was the business giving you a good deal? By answering these questions can give you a better opportunity to satisfy your customer because you were once in their shoes.

Having an accountant is essential to every successful business. Accountants have the knowledge and training to help you build a successful business. You may think you don’t need an accountant but, you are so wrong. Accounting is the key to every successful business. Accountants keep accurate financial statements and keep track of all your business transactions. So they know when your business is doing great and they know when something is wrong. You made say oh no……. I don’t need an accountant because I have accounting software which keeps my books. You may have accounting software which keeps your books, but your accounting software can’t give you feedback. Your accounting system can’t help you when you need to increase sales or help when you run into financial problems. Because your accounting system can’t speak and lacks the training, it’s only designed to keep your books. The software only knows the information you just entered. It knows just as much as you know. If you hire an accountant to keep your books, your accountant can offer information and knowledge to increase sales. Because a good accountant is trained and can come up with creative and innovated ideas to help you increase sales. Think about it an accountant is writing this article. An accountant not only helps you with increasing sales, they can also help you reduce taxes. Can your accounting software do that?

Reduce Taxes

Reducing taxes is a topic every business deals with. Every business wants to pay the least amount of taxes possible legally. The key to reducing taxes is simply knowledge. Knowing your deductions, what you can deduct and what you can’t. The more deductions you have the better chance you will have in reducing taxes.

As business owners we lack the training and knowledge on taxes. So once again it’s important to have a good accountant for you to ask them questions, especially an accountant who is trained in taxes. They are trained and they know tips that will reduce your taxes significantly.

Accountants know what you can do to slash your business taxes without doing anything illegal or complicated. They know how to turn taxable income into tax-free income, without any fear of an IRS audit.

Last year I help one of my clients save $4800 on their taxes. Because as an accountant I know and take advantage of the legal loopholes that are there for you to use. Most business owners are unaware they can even use them. As a business owner you don’t suppose to know everything about taxes, you suppose to know how to run your business. So let the accountant do his/her job.

Tax laws can often be difficult to understand. How can you be expected to run your business AND keep up with all the tax rules and regulations? It’s just not possible. Many of the strategies accountants use to reduce taxes are available to all taxpayers regardless of how much money they make.

Accountants know the easiest way for business owners to reduce taxes, know if the business owner is compensating themselves incorrectly. Simply solving this problem will reduce taxes significantly.

Ask yourself theses questions. Did you know there is a way to turn non-deductible personal medical expenses into a legitimate business expense? Are you deducting personal travel expenses, like vacations? How much money are you wasting on your Retirement Plan each year? Only an accountant knows how to deduct these items correctly and in a way that will benefit you.

If you hire an accountant you don’t have to worry about making costly tax mistakes or being audited. Accountants can also analyze your last three tax returns and make sure you benefited from every tax reduction possible. I bet you didn’t know you have three years to make any changes to your taxes after they have been filed. So if the accountant discovers a tax-saving strategy that was overlooked on your return, you can file an amended return which implements the tax-saving strategy and you’ll get a refund!

Now just for a second, forget about how much money you’re going to save if you hire a good tax accountant. Just picture yourself when you realized how much money you had to pay the IRS last year without the help of a good tax accountant.

Remember, as a Business Owner you have a choice. You can keep doing your tax returns the same way and expect to get different results. Or hire a good tax accountant.
I can think of two reasons you may be skeptical about hiring an accountant. Reason number one, you already have an accountant. Every accountant isn’t train in taxes and lack important knowledge. Ask yourself this, does your accountant provide you with specific ways to reduce your taxes, or does he/she just “do the tax return”? The accountants at http://noneed2pay.accountweb.net don’t just “do tax returns” — They help business owners like you pay less tax and save money! Reason number two, you do your tax returns yourself but, you can’t possibly know everything about minimizing taxes.” Don’t you think you owe it to yourself to get a second opinion from an experienced tax accountant who does nothing all day but help business owners.

If you are doing your own business tax returns and running your own business, you just don’t have enough time to keep up on all the latest tax changes and legal loopholes available to you. Here’s a great opportunity for you to hire an experience tax accountant to help you put thousands of dollars in your pocket. http://noneed2pay.accountweb.net
Hiring a good accountant can also help you create a better cash flow.
Create A Better Cash Flow

Creating a better flow in business consist of a few key components. This is the point when your accurate bookkeeping system kept by your accountant becomes very useful. The way the business uses its money in the bank is very important if you want to succeed.
A question which is always asked by my clients is rather they should rent or lease. Well the answer to this question depends on how much money you have in the bank. Ask yourself this question will I be ok on paying my bills for up to 6 months if I purchase this item. If the answer is no, then you should lease. This can make a huge impact on the cash flow of your business.
Many businesses believe a balance budget will ensure financial health of their business. This is actual untrue. Everything you do in your business resolves around cash flow issues. Your business expenses, your sales, when your customers pay you, rather you lease or buy, and the list goes on and on.

Most businesses make the mistake of believing that making sales alone will improve their cash flow. This is an untrue statement. Effective cash flow management rests upon the fundamental task of forecasting with accuracy when your cash is received and when your cash is disburse. An accurate and detailed cash flow forecast used with a detailed budget, will allow businesses to anticipate potential cash flow difficulties and take actions.

All businesses should hire an accountant to prepare cash flow forecasts. Because having the right accountant to create the right cash flow strategy is important. An accountant can prepare budgeting processes, general accounting procedures and practices, billing and collections procedures, internal and external reporting, internal controls, IRS return filing and taxation, and audit requirements.

A key in any cash flow improvement effort is training and knowledge. As an accountant I have created a system which can help any business improve their cash flow issues. My system consists of keeping a detail set of books which I can evaluate and determine what I need to do for the business to create a better cash flow. I look for ways to improve the business cash flow. For instances if I see a business has a lot of customers who are paying their bills late, I quickly focus on improving this issue. Second I reduce expenses with creative cutbacks and third I will help them increase sales. This process will always solve cash flow issues. Once the business is in a secure position where they can invest money, I will encourage them to do so to create an even better business cash flow system.

As you can see increasing sales, reducing taxes, and creating a better cash flow in any business doesn’t have to be difficult, if you have the right sources and the right accountant to help you. I encourage every business to hire a good accountant to help with each of these issues. Because Brian Tracy once said, “Successful people are always looking for opportunities to help others while unsuccessful people are always asking, what’s in it for me.”
For a good accountant who has help businesses all over the world visit: http://noneed2pay.accountweb.net If doesn’t matter where you’re located they can help.

A partnership agreement is made between two or more partners, who mutually agree to set-up a business or become a part of it after the business takes off. All the parties entering a partnership deed become the owners of the company, and hold the power of decision-making. The deed specifies the mode of profit sharing, disputes solving, admission of other partners into the company in future, and various other related issues. In a partnership business, the business and its owners are treated as the same entity by the law.

Partnership agreements are easy to establish, but need absolute adherence to tax rules from the owners’ side. Most people entering into partnership deeds are relatively new in business and lose the track of legalities that need to be fulfilled for a hassle-free operation of the firm. This article aims at educating such owners about some basic tax rules that must be adhered to avoid troubles for the firm and themselves in future. Whether the firm is a General Partnership firm, Limited Partnership firm, or a Joint Venture, adherence to tax rules is necessary.

These taxes are broadly classified into two category Payroll taxes and Employer Paid taxes. Payroll taxes are deducted by the employer from the employees’ salaries and Employer Paid taxes are directly paid by the employer.

There are two major Payroll Taxes: Payroll taxes and Social Security and Medicare taxes.

Payroll Taxes;
There are two types of payroll taxes – Withholding taxes and Security and Medicare taxes. To fulfill withholding tax obligations, employers must deduct taxes from their employees’ salaries and send the amount to the authorized government agencies.

Security and Medicare taxes are deducted by the employers’ from their employees’ salaries. In this case, the employers however have to pay an equivalent amount to the government.

Employer Paid Taxes;
These taxes are paid by the employer and are not deducted from the employees’ wages. Three major employer paid taxes are Federal Unemployment Tax (FUT), State Unemployment Tax (SUT), and Federal Income Tax (FIT). The first two taxes are applicable for most of the employers and are charged to them at different rates. Amount of Federal Income tax payable by the employers depends on the nature of their businesses and business structures (whether the company is established as partnership, proprietorship, corporation or it is limited).

Besides, there is a different category of taxes applicable for retail sales and particular services: Sales and Use tax. The businessmen add such taxes to the cost of products or services that they sell. The businessmen collect such taxes from the customers upon selling goods to them and then hand the amount collected to the authorized government agencies. Manufacturers and wholesalers are exempt from such taxes; only the distributors collect such taxes from the customers.