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An ex-patriot is any United States citizen living abroad. Every Ex-Pat is required to file at least two forms: A United States tax return on world wide income; and an FBar Form (TDF-90-22.1, due June 20, 2011). It is a report of foreign bank and financial accounts held world-wide.
It is possible for this taxpayer to exclude up to $92,900 of earned income and up to $13,006 for housing in the year 2011. Americans may live in a variety of places, some more expensive than others. Those in a hi-cost living area may be able to exclude even more housing expense. It is possible for both working husbands and working wives to take advantage of these exclusions. Generally, an Ex-Pat must meet a substantial residence test which involves 330 days abroad in any year. If the taxpayer is self-employed he/she must file if net earnings from self-employment are $400 or more. Tax treaties generally rule the taxability from a certain country. If, at the end of the tax year, the taxpayer is married and one is a U.S. Citizen or a resident alien and the other is a nonresident alien, it is possible to treat the nonresident as a U.S.
Please continue reading What is an “ExPat” and what taxes do ExPats have to file?
The W-2 and 1099 are Different Beasts
When I was employed in an office I received a W-2 at the end of each tax year. The 1099 will also arrive at the end of the year. The difference is that you are not an employee of the sender.
W-2
The Form W-2 is used by employers to report wages, tips and other compensation paid to an employee. The form also reports the employee’s income tax and Social Security taxes withheld and any advanced earned income credit payments. The Form W-2 is provided by the employer to the employee and the Social Security Administration.
1099
A Form 1099 is used to report payments made in the course of a trade or business to another person or business who is not an employee. The form is required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or services are paid. The form is provided by the payor to the IRS and the person or business that received the payment.
A Situation Requiring a 1099
I am starting a business with
Please continue reading The 1099 — What is it used for?
First time filer
I’ve never filed an income tax return as my own business before. Once I adopt a tax year, I fill in a return using that year. Apparently it isn’t good enough simply to fill out an application for an extension of time to file an income tax return, apply for an EIN or pay an estimated amount.
What constitutes a tax year?
You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. A tax year is usually 12 consecutive months. There are 2 kinds of tax years:
Calendar tax year (this is the one me and most people use)
(begins January 1 and ends December 31). If you start your business using the calendar year model, you’ve got finish the year using this model even if you switch from Sole Proprietor to a partnership or a shareholder in and S corporation. To override this decision, you need direct IRS approval. Additionally, you must follow the calendar tax year model if you:
keep no books have no annual accounting period Tax year
Keep some records according to one of the accounting methods described below. It boils down to:
confessing your true income, honestly logging your expenses and when you can only deduct a portion, knowing what portion to take
Accounting Method
An accounting method is a set of rules used to determine when and how income and expenses are reported. You should be careful, switching accounting methods after you’ve set one up requires IRS permission. You have to keep the same accounting method to figure out your taxable income and your books.
There are 2 basic accounting methods:
Cash Method
Report income in the tax year you receive the income. Deduct or capitalize expenses in the tax year you pay them.
Accrual Method
Use this method if you are going to have an inventory.
Q. Mom, I will probably have an online inventory of ebooks. It won’t take physical space except for a few megabytes the on the master. Is this also inventory?
A.
Please continue reading Recordkeeping for the IRS
Here is how Americans normally go into business: they start selling something and poof! they’re in business. They sell a product or a service or an idea. They do this because they want money. Money is first. Customers are first in their heads. When Americans go into business this way, it’s called a Sole Proprietorship and without even knowing it, I’m already a Sole Proprietor.It is the form of business you and I use. It’s simplest, easiest to maintain. One just says “I’m in business.” and — Poof! They are! It’s also the easiest form to escape from. One just says “That’s it. Kitchen’s closed. No more business.” and they’re done.
It’s an extremely flexible and manageable form of doing business. 85% of American businesses file on a schedule C. If there is over $400 of income, one MUST file a Schedule C even if the net result is a loss.
The problem with a Sole Proprietorship is that you and your business are one. There is no legal separation. Some people solve this with business insurance; others think they aren’t in an activity where they might get sued; still others use a Limited Liability Company (LLC) to provide
Please continue reading Understanding sole proprietorship
The difference between the two
A journal is a book where you record each business transaction shown on your supporting documents. You may have to keep separate journals for transactions that occur frequently.
A ledger is a book that contains the totals from all of your journals. It is organized into different accounts. Whether you keep journals and ledgers and how you keep them depends on what kind of business you are in.
Small Business Ledgers Business checkbook (Keep a second checkbook for business and make sure to write the year on the top of each page) Daily summary of cash receipts Monthly summary of cash receipts Check disbursement journal Depreciation worksheet
Please continue reading Ledgers and Journals
There are 4 types of forms you’ll have to fill out. I’ve broken each type into sections on this page:
Income Tax Income | Self-employment | Employment | Excise. Of these four, only the first two are currently of concern to me as a website designer…
No getting around it, every business with sales of $400.00 or more fills out income tax forms.
Who is everyone? Sole Proprietor (Schedule C); Partnership (Form 1065); C-Corporation(1120); S-Corporation(1120S); Limited Liability Company (filing depends on choices).
At the end of the year, W2s must be sent to employees and 1099s to any subcontractor to whom you pay more than $599.00.
What forms for Income Tax? Sole Proprietor- 1040 + Schedule C (or C) Partner in a Partnership (Individuals) - 1040 and Schedule E (various other Schedules may be needed) and a 1065 (annual return of income) Corporation- 1120 (or 1120-A) or S Corporation - 1120S S Corporation Shareholder - 1040 and Schedule
Please continue reading Forms for business taxes
Estimating a projected rate of growth is part of a businesslike approach that can be helpful if you’re trying to prove you have a real business instead of a hobby. To start a business, you have to know how much you can expect to make and how much you can expect to spend. Easier said then done. This page helps you get started.
Something like .05 (1/2 percent) per month is a steep growth rate for any new business.
Ask yourself how much more you need to make each month to make your business work. This estimate helps you know how much to put aside for taxes, how much you’ll probably need for expenses and how to set reasonable goals for yourself.
Projection Formula (how much you can expect to earn)
Take your average monthly income, multiply it by the estimated growth rate. For example: .05 (half a percent growth per month). This is actually sort of a high estimate. The formula is straight forward:
sum((month #1*.05)+(month #1))
Example:
Lets say that in January, I think my business will make
Please continue reading Estimated Projected Rate of Growth
Question: If people come and work for me for a day, are they Independent Contractors or are they Employees? How do I know the difference? Employee
An employee is someone whose work you control. Paid by the hour, day, week or month. Working at your place with your tools. Working when you say so (9-5 PM, 8-4P M, 9-12 AM, 4 days a week…). Working the way you want that person to work.
Contractor
I will contract with people for brief periods of time to do a specific thing. They are like Plumbers. They work where and when they want and with their own tools. They train themselves. Your job is to pay what the contract states. You must keep track of what you pay these people. Once over $599, you must send them (and the IRS) a 1099. You do not need to do this if they are incorporated.
If you live in California, there are some documents you need to give your independent contractors to sign. They must state that:
the workers are not illegal immigrants they are covered
Please continue reading Independent Contractor vs. Employee
You may not need an EIN number. See our post: Independent Contractor vs. Employee. Employer Identification Number
An EIN, also known as a Federal Tax Identification Number, is a nine-digit number that the IRS assigns to business entities. The IRS uses this number to identify taxpayers that are required to file various business tax returns. EINs are used by employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts and estates, government agencies, certain individuals and other business entities.
Don’t panic. Go straight to this URL:http://www.irs.gov/businesses/small/article/0,,id=97872,00.html and see if you click yes on anything. If you do, you need one and it takes you straight to the application. Nice planning HTML Public Interface team/Useability. Hope this compliment makes its way back to you someday.
Well, someday I may have employees, I don’t yet. But the thing that makes me click yes to the survey is that I am involved with non-profit agencies. For example,
Please continue reading EIN numbers
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