Author : Wayne DaviesHere are three legitimate tax deductions for the self-employed that begin with the letter “C” Do you have these expenses in your sole proprietorship? If so, be sure to report them on your tax return

1 Contributions
By contributions, I’m referring to charitable contributions - donations you make to tax-exempt organizations (known in tax lingo as 501c3 organizations) such as churches, synagogues and other humanitarian or educational institutions that have IRS non-profit status

This is one of those tricky deductions If you are a sole proprietor and make a donation from your business checking account, you don’t actually take the deduction for this contribution on Schedule C Instead, the deduction is reported on Schedule A, Itemized Deductions So if you don’t file Schedule A, which is fairly common because IRS statistics show that about two-thirds of personal tax returns take the standard deduction, you don’t get to write off the donation

So, a word of caution to all you kind-hearted sole proprietors: do not assume that just because you made the donation from your business account, you automatically get to deduct it

Corporations (”C” corporations but not “S” corporation) do get to deduct charitable contributions as a business expense on the corporate income tax return (Form 1120), provided certain conditions are met Is that reason enough to incorporate? Probably not But hopefully you aren’t making donations merely for the tax benefits

2 Contractors
If you hire independent contractors to perform services for your business, those fees are deductible on Schedule C Line 11 is the logical place to report it, “Contract labor ”

Keep in mind that this is one of the most controversial deductions in business and a potential red flag if the IRS suspects abuse Why is that? Because many businesses pay their workers as independent contractors rather than employees merely to avoid the payroll taxes This is a big no-no and if you get caught, you’ll regret it If the IRS can prove that your contractors are actually employees, they can reclassify past compensation as wages and required you to pay the overdue payroll taxes, plus late payment penalties and interest

Now, if you have a legitimate contractor relationship with a service provider, you need not worry about this Just be sure you do things right: if you hire an independent contractor, do you have a contract? Does the contractor send you invoices? And at the end of the year, do you send him a Form 1099-MISC? The answer to those questions better be “yes ”

For me information on this topic, be sure to talk with your tax professional, or go to the IRS website, search on “independent contractor” and you’ll access an excellent article entitled “Independent Contractor or Employee”?

3 Commissions
Another common form of compensation is commissions, reported on Schedule C, Line 10 Again, if you are paying other people a commission for services rendered, be sure that these folks are truly independent contractors and not employees If they are contractors, you can report the expense on Line 10 and legally avoid payroll taxes But if they are employees, the compensation should be included on Line 26, Wages, and be subject to payroll taxes, income tax withholdings, and the small mountain of payroll paperwork that accompanies employee compensation Looking for more small business tax tips? For a free copy of the Special Report ‘How To Instantly Double Your Deductions’, visit www.YouSaveOnTaxes.com. Wayne M. Davies is author of 3 ebooks on small business tax reduction strategies.

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Author : Wayne DaviesAre you a small business owner who’s frustrated about taxes? You face a mind-boggling array of choices when it comes to figuring out what is and is not deductible on your income tax return each year And just when you think you’ve got this tax system figured out, new laws are passed and it feels like you’ve got to start all over

Perhaps the best place to begin this journey is the income tax return itself Depending on what type of entity you own, here are the main income tax forms: Schedule C (sole proprietorship), Form 1065 (partnership), Form 1120 (C corporation), and Form 1120S (S Corporation) Note: If you own a limited liability company (LLC), you’ll use one of those four forms, depending on how you choose to be treated for tax purposes These tax forms are an excellent way to begin the process of answering the question: What’s deductible?

Notice that on each of these forms, there may only be 15 or 20 specific expense categories, or line items, to help you know what to deduct For example, on Schedule C, starting with line 8, you have advertising, car and truck expenses, commissions and fees, depreciation and section 179 expense, and so forth

This list continues to line 26, wages And that’s it Only 19 expense categories Are those the only 19 deductions you can take for your sole proprietorship?

Or how about Form 1120S The expense section starts with line 7, compensation of officers, and continues on to line 18, employee benefit programs And again, that’s it Only 12 expense categories Obviously there must be more than 12 deductions you can write off for your S corporation

So if you’re thinking, “These tax forms give me only a handful of deductions to identify, but fall short of providing a comprehensive list”, you are correct So what do you do now?

All the above-listed business income tax returns include a line called “Other expenses” or “Other deductions” On Schedule C, it’s line 27 On Form 1120S, it’s line 19 On Form 1120, it’s line 26 And on Form 1065, it’s line 20 This is where you get to report all the other deductions that are not specifically mentioned on the previous lines You simply attach a separate statement that itemizes the remaining business deductions Then add up all those other deductions and transfer the total from the attached list to the main part of the tax return

This “other deductions” list can be as long as you need it to be There are dozens (even hundreds) of legitimate deductions for your business that the IRS didn’t think necessary to include on the main page of the tax return And now it’s up to you to find out what they are

There are plenty of good resources to help you compile that list of bona fide deductions The IRS website has many free publications that explain deductions, depending on your entity: Publication 334 (sole proprietorship), Publication 542 (C corporation), Publication 541 (partnership) For S corporations, there is no separate publication, so start with the Form 1120S instructions

Admittedly, IRS publications are not known for readability or comprehensiveness So if you are serious about finding out what you can deduct, do yourself a favor and spend $15 or $20 on a few well-written books about small business tax deductions Here are three of my favorites: “422 Tax Deductions for Businesses & Self-Employed Individuals” by Bernard B Kamoroff, “Small Business Taxes Made Easy: Increase Your Deductions, Reduce What You Owe, and Boost Your Profits” by Eva Rosenberg, and “Lower Your Taxes Big Time” by Sandy Botkin Looking for more small business tax tips? For a free copy of the Special Report ‘How To Instantly Double Your Deductions’, visit www.YouSaveOnTaxes.com. Wayne M. Davies is author of 3 ebooks on small business tax reduction strategies.

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Author : Wayne DaviesDid you receive a Form 1099-MISC and aren’t sure what it means and/or what to do with it? This article will answer that question

Form 1099-MISC is one of the most common tax forms in the world of the self-employed And it’s most common use is to report income made by sole proprietors who have performed services for other businesses By “sole proprietor” I’m referring to self-employed people such as independent contractors, consultants or free-lancers who are in business for themselves but do not run their business as a corporation, partnership or multi-owner limited liability company

If you fit that description of a self-employed person and performed services for another business, and that business paid you at least $600 during the year, the other business is required to send you a Form 1099-MISC by January 31 of the following year The January 31, 2009 due date happens to fall on a Saturday, so the deadline for issuing 2008 1099’s is automatically extended to the next business day of Monday, February 2, 2009 So you may have already received a Form 1099-MISC for 2008 If not, you could still get one soon

If and when you get the 1099, take a look at Box 7, “Nonemployee compensation ” This is the place on the form that your annual income from this other business will be reported And this is the income that you must be sure to include on your Schedule C, because not only did you receive that 1099, but so did the IRS In effect, then, the 1099-MISC serves the same function for the self-employed as a W-2 does for the employee - it tells you and the IRS how much income you made from one particular source

Now that you know the basic purpose of the 1099-MISC, you probably have some questions, such as:

1 What do I do if I don’t receive a 1099 from a business, when I know I performed services and received over $600 for the year? Whether or not you received a 1099, you are required to report all income

2 What do I do if I don’t receive a 1099 because I made less than $600? Sorry to sound like a broken record, but you are required to report any income you made, whether or not you received a 1099 Even if you made less than $600, just because you didn’t get a 1099 does not excuse you from reporting the income

Not getting a 1099 does not mean you don’t have to report the income If you made it, you’re supposed to report it on your Schedule C That’s the law And if you don’t report all your income, you are part of the underground economy (Shame on you!)

3 What do I do if the amount of income reported on the 1099 is incorrect? You should contact the business who issued the 1099 to resolved the discrepancy If they made a mistake, they must issue a corrected 1099 to both you and the IRS To be safe, you should wait until you receive the corrected 1099 before filing your tax return You want to be sure that the 1099 amount agrees with your Schedule C income amount If there is a difference between the total income on all your 1099’s and the amount of income on your Schedule C, the IRS will eventually catch it and send you a letter demanding an explanation Not good

4 What do I do if I receive a 1099 after I filed my return? If you included the 1099 income on your return, do nothing, because you did report the income and there should be no problem But if you didn’t report the 1099 income on your return, you must amend your return to include the previously unreported income This will result in additional tax you must pay, plus the possibility of late payment penalties and interest, depending on how much additional tax you owe and whether you pay it late Looking for more small business tax tips? For a free copy of the Special Report ‘How To Instantly Double Your Deductions’, visit www.YouSaveOnTaxes.com. Wayne M. Davies is author of 3 ebooks on small business tax reduction strategies.

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Author : Wayne DaviesIf you are new to the world of self-employment, it’s time for you to meet an old nemesis known as Self-employment tax

Self-employment (SE) tax is the sole proprietor’s version of the social security and Medicare tax paid by employees

In case you didn’t realize it, in 2008 employees were required to pay 6 2% social security tax on the first $102,000 of wages or salary In 2009, the amount subject to social security tax increases to $106,800 And they were also required to pay 1 45% Medicare tax on all their wages or salary, regardless of the amount

And since most employees earn less than $102,000, the end result is that most employees paid 7 65% of their compensation to the IRS Both the social security and Medicare tax are deducted “off the top” - the employee never sees this money because it is taken out of their pay and sent directly to the IRS by their employer

(Keep in mind that we are talking only about social security and Medicare tax, which are separate from and different than federal income tax, which employees must pay, too )

The employer must then match the 7 65% employee payment The employer’s share is an unavoidable business expense that reduces the employer’s profit (or increases a loss) There is no way around it

So both the employer and employee pay the same amount The end result is a hefty 15 3% total tax: 12 4% social security tax plus 2 9% Medicare tax

Well, self-employed folks (sole proprietors, independent contractors, and the like) have to pay social security and Medicare tax, too The government has given it a different name: Self-employment tax But it is really the same thing as social security and Medicare tax

And the rules are basically the same: 15 3% total, 12 4% social security tax on the first $102,000 of wages and 2 9% Medicare tax on an unlimited wage amount

But here comes the bad news - for purposes of the social security and Medicare tax, the sole proprietor must pay both the employer’s share and the employee’s share - or the entire 15 3% Ouch!

And so the sole proprietor ends up paying twice as much as the employee

Technically, there is a small reduction in the amount of Self-Employment tax paid because the sole proprietor gets to deduct the SE tax from his/her gross income

But the fact remains: the SE tax paid by the sole proprietor is almost double the social security/Medicare tax paid by the employee

If you’re a sole proprietor and you didn’t know about SE tax prior to reading this, I may have just ruined your day And for that I am sincerely sorry

And if you’re a sole proprietor and did know about the SE tax prior to reading this, I may have just ruined your day, too, because things haven’t changed in this area for many years I wish I had better news for sole proprietors on this topic, but unfortunately, I don’t

That is our system and it is was it is

What’s a sole proprietor to do? The SE tax will be a thorn in your side as long as you remain a sole proprietor This is one of the main reasons you should consider incorporating your small business and forming an S Corporation There are legal tax strategies available to the S Corporation that can reduce the SE tax Do some research in that area, or consult with your tax professional to get the details Looking for more small business tax tips? For a free copy of the Special Report ‘How To Instantly Double Your Deductions’, visit www.YouSaveOnTaxes.com. Wayne M. Davies is author of 3 ebooks on small business tax reduction strategies.

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Author : Wayne DaviesAre you a small business owner who hires independent contractors? If so, you may be required by the IRS to send out a Form 1099-MISC to those people This article will help you determine your obligation to issue those 1099’s

The basic rule works like this: Form 1099-MISC is used to report total annual payments made to self-employed people who made at least $600 during the previous calendar year This 1099 must be given or mailed to the contractor by January 31 of the following year

Note: For calendar year 2008, since January 31, 2009 is a Saturday, the deadline has been extended to the next business day (Monday, Feb 2, 2009)

The key here is whether or not the person who worked for you is self-employed Obviously, this excludes employees If you have employees, you give them a Form W-2 by January 31 (or Feb 2) to report their compensation (wages, salaries, bonuses, and withholdings) And this also means you don’t have to send out a 1099-MISC to corporations who provided services to your business

The purpose of the 1099-MISC is similar to that of the W-2, but the goal here is to report income made by non-employees, not employees And this is why the annual total income of self-employed contractors is reported in Box 7 of the 1099, “Nonemployee compensation ”

In other words, the IRS is expecting you to provide a way to help them track the income of the self-employed Does all income earned by sole proprietors get reported on 1099’s? Of course not Who knows how much is unreported And self-employed people know that if they don’t get a 1099, it’s difficult and almost impossible for the IRS to figure out how much income a particular self-employed person made And so many self-employed people take advantage of this situation and only report income if they get a 1099

And so there are many self-employed people who make plenty of money but receive no 1099’s, and report no income, even though the law says they are supposed to report the income whether or not they receive a 1099

But back to you, the business that paid the money to the contractor Do you really want to be part of the underground economy? If you take a deduction for payments to independent contractors but don’t issue the corresponding 1099’s, and you get audited, you are asking for trouble Don’t go there Do the right thing and issue the 1099’s

What if the January 31 (or February 2) deadline has already passed? Go ahead and issue the 1099’s anyway Give the contractor a call right away and tell him you are sending him a 1099 as soon as possible Why not do the right thing?

For details on how to comply with the 1099 reporting rules, download the Form 1099 instructions from the IRS website or consult with your tax professional You’ll want to send Form 1099-MISC Copy B to the self-employed person right away and Form 1099-MISC Copy A, along with Form 1096, to the IRS by March 2, 2009 Looking for more small business tax tips? For a free copy of the Special Report ‘How To Instantly Double Your Deductions’, visit www.YouSaveOnTaxes.com. Wayne M. Davies is author of 3 ebooks on small business tax reduction strategies.

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Author : Jim LetourneauA common theme is emerging in the junior resource sector Companies with cash are being told to “keep their powder dry” Survival is the name of the game While we like the plucky optimism of most junior companies (as opposed to the creeping arrogance of many over funded under qualified management groups), there is no reason for investors to be putting money into a company that is hunkering down for two plus years of care and maintenance

The global financial crisis has hit the resource sector hard A powerful commodity bull market started in 2003 and most investors were expecting historical returns Jim Rogers was consistently saying “Throughout history, bull markets in commodities have lasted a long time They’ve averaged about 18 years or 19 years The shortest I could find was fifteen years; the longest was 23 years ” There is a long wait between sustainable demand for a commodity and the development of new supplies It takes about 10 years for a mine to be discovered, financed, permitted, and built The recent commodity cycle was interrupted after only 5 years

In, January 2009 most major mining companies have cut their staff by 5-10% and their uneconomic mines are being closed Projects that were going into the mine construction phase have been mothballed as there was no money forthcoming to pay for the construction If demand for metals returns (and history indicates that it will), there will be a large time lag to recommission recently closed mines It can take 6 months or longer to put together a technical team capable of running or constructing a mine The decision to proceed will require a sustained period of higher commodity prices The global economy will have to wait a few years before new commodity supplies become available We are witnessing a swift destruction of commodity supplies

The drill bit provides the hope of discovery That is what excites investors who often care little about the difference between an anomaly, discovery, or economic ore deposit When the money is flowing junior companies spend it on drilling Unfortunately, skyrocketing costs and diminishing productivity were creating a large sinkhole for investors An experienced driller can out perform a novice by 50-100% Some exploration programs came back with no drill results at all because of inexperienced field workers

Many companies were strong armed into drilling by their “investors” with little time for targeting or reinterpretation of old data The boom and bust cycles of the junior resource sector make continuity an unaffordable luxury Geologists and geophysicists are continually dusting off old projects completed by others with precious little time to incorporate new exploration methods or interpretations The recent correction of the commodity bull market has given investors a great opportunity Marginal companies are disappearing, and the strong ones are gaining a greater share of investors attention

It is time for resource investors to regroup The shares of companies with stellar management teams and strong projects are trading for less than their cash value The strongest companies with the best projects will bounce back quickly when demand for commodities return Do you research on junior resource stocks when they are unloved and under followed You will be ahead of the crowd Jim Letourneau, P.Geol. is a geologist, speaker, investment newsletter editor and investor relations specialist living Calgary, Alberta.

Jim has been blogging at http://www.jimletourneau.com since 2004.

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