Category Archives: Taxes

Tax for contractors explained

When you set up your contracting business, you have an awful lot of things to think about: developing your business plan, getting financial backing where appropriate, and developing and servicing a client base. As a contractor, one of the most important parts of running your own business is getting your taxes right.

If you are working on a contract basis between different organizations, then your tax situation can become quite complex to deal with. Here are some of the liabilities you will have to face up to if you set up as a limited company as opposed to an umbrella company – more on umbrella companies shortly.

Value added tax

If your turnover annually is £82,000 or more (it often changes in each government budget), you must register for VAT, though if it’s less, you could register for the Flat Rate VAT scheme, which could save you money if you’re a first year business. There can be hefty penalties if you don’t register but should and if you are late to pay your VAT.

Corporation tax

You pay this on your annual profits. You accountant will register your company for the tax, prepare your accounts and submit them. You need to pay your CT within nine months of the company’s year-end.

National insurance

You will be liable to pay NICs (National Insurance Contributions) on all salaries you pay your staff. You will have to pay it for yourself as well, depending on the level of your salary. You could choose to pay a salary below the threshold of contributions and make it up with dividends.

Dividend tax

If your company pays you a dividend and the income is less than the higher rate of income tax, you don’t pay tax on it, nor do you pay NICs.

Income tax

As an individual limited company contractor, you need to complete a self-assessment form every year, with the return being submitted each year by January 31. It’s possible, dependent on your circumstances, that you could have to make payments on account towards your tax liability in the current year.

Umbrella companies

These are very useful vehicles for contractors dealing with many other issues in their business. Essentially you become an employee of the umbrella company and are taxed exactly as if you were a traditional employee. You can make deductions for the fee for the umbrella company as well as aspects such as pension contributions. The rest of your income is then taxed at standard Pay As You Earn (PAYE) calculations. You’ll also have to pay NICs on that income.

Payroll will be processed on your behalf by your umbrella provider, and all deductions will show on the pay slip. It takes a lot of administrative work away from you and gives you more time to dedicate to building up and developing your business.

An umbrella company can also supply all necessary insurances and full statutory employment rights.

Planning for the future

Tax is a tricky business and it’s easy to get things wrong accidentally, leaving you open to penalties. Using the professional services of an umbrella company can remove that burden of worry.

How to Avoid Continuous Scrutiny from the IRS

One thing that can certainly spell hard times for any business is an audit from the IRS. Thankfully, with some hard work and due diligence, your business can comply with the law without any problems. Below are some ways you can allow your business to avoid continuous scrutiny from the IRS.

1. Explain when Necessary

If you think something out of the ordinary on your balance sheets might get you flagged for an audit, address it pro-actively. Do this by making sure to include extra worksheets, forms or receipts that can explain the discrepancy to the IRS. Without this additional information, they may have to perform an audit to discover the source of the questionable figures.

2. Be Aware of Routine Audit Flags

Certain kinds of entries on income tax forms produce audits more routinely than others. You should be aware of what these are and take care to make sure these things are properly accounted for with a good amount of documentation. Items that routinely flag businesses for an audit include things like travel expenses, food costs, deductions for home offices, entertainment expenses, casualty losses and too many miscellaneous expenses listed on Schedule A.

3. File Promptly

It may not only be the content of your returns that produce an audit but the time frame you submit them in as well. As a general policy, always submit your returns when they are due. In fact, do so as early as possible. A late filing may create a perception of laziness or deception with the IRS and produce an audit.

4. Make Adjustments to Avoid Future Audits

Unfortunately, despite taking precautions, your business may still end up being audited by the IRS. Take Frank L. Vandersloot, CEO of Melaleuca for example, who was audited twice by the IRS in 2012. While this event may be extremely stressful, you can also use it as a learning experience. If you don’t, you won’t be able to avoid the next audit. Make sure to not repeat the same mistakes. This may require switching accountants, changing your business practices or declaring more believable deductions.

An audit by the IRS can be a terrifying experience for any business owner. What causes an audit to take place is not revealed to the public. However, if you do run a profitable company, you are at risk of being audited simply for being successful. Make sure you take every precaution possible. This will make sure that an audit doesn’t occur in the first place. If one does, you will have a higher chance of surviving unscathed.

 

Fin. Carn. for Young Adults at Lisa Vs. The Loans
Yakezie Carnival at Personal Finance Utopia
Carn of MoneyPros at Money Pros
Carn. of Fin. Camaraderie at Save and Conquer
Carnival of Retirement at Your PF Pro

Tax Advice – 6 Tips To Get The Biggest Return This Spring

Let’s face it – you don’t want to pay more in taxes than you have to. Uncle Sam gets enough of our dough already, right? You pay taxes all year, and the last thing you want to do is pay more come filing time. What’s even better is getting a larger tax refund. Here’s six ways you can do it.

1. Reconsider your filing status.
Have fun breaking this one to your spouse. Sometimes filing joint instead of married filing separately is not always the best option; sometimes you can get a better return if you file separately from one another. Your tax advisor can give you advice on which option is the best, as many factors come into play.
2. Keep track of all those deductions.
Do you travel for work? Write that down. Any expenses you accure in the act of your job, whether doctor’s visits, job-hunting, any other costs can all be deducted. Keep track of where each and every penny goes, and you can likely get a large portion of it back, or deducted from your taxes.
3. Claim the earned income tax credit.
Many people don’t claim their income tax credit, but credits give an even exchange – one credit for one dollar. Ask your tax advisor if you qualify for EIC and make sure to claim it if you want a larger refund.
4. Employment Taxes
If you’re self-employed, or have a job as an independent contractor, find out if you qualify for an employment tax credit. Since you don’t have an employer helping you pay your taxes, chances are you qualify to receive employment tax credit. Use something like ADP solutions or a similar program to keep track of your income.
5. Don’t forget donations.
Any donations you made to Goodwill, to charities, even tithes to church, can all be deducted from your taxes. The key is to keep track of them all throughout the year, as many people forget to count them.
6. Increase your IRA contributions.
Contributions to your IRA are tax deductible. Don’t forget to include them when filing, and you an increase your contributions during the year in order to deduct more.

Getting taxes back is one of the greatest things about tax season, so take the steps to ensure you get as much as you can. Then, once you have your refund, you can go all out and have some fun for all your hard work.

 

How to Know Your Tax Benefits:

A tax benefit refers to a number of economic bonuses. It consists of “tax-reduction”, “tax deferring” and “tax free” investments. This benefit offer “retirement schemes” and also provides “incentive savings”. The myriad bonds like “mutual”, “state”, as well as “municipal” are offered by tax benefits. Tax benefit allows deduction on “tax returns” and aims to reduce the burden of the tax payers.

It supports other commercial activities enjoyed by the tax payers and has become an easy and amiable economic investment for them. The tax payer’s tax liability seems to be adjusted with the tax benefits. Tax benefit is also known as “energy tax credit”. People are benefited by tax benefits, because it allows a reduction in taxing as well as gives way for other activities for a person. “Life Insurances”, being a part of the tax benefit, helps people in many ways. It gives way to “Medical Insurances”, “Education Insurances”, “Retirement Schemes”, “Marriage Insurances” and provides plenty of other schemes.

These life insurance schemes help in saving money, reduce tax liabilities and ensures a person doesn’t become stressful about tax payments. Tax benefit offers a large field of benefits. Starting from “Children’s Benefit”, “Council Tax Benefit”, “Disability Living Allowance”, “House Benefit”, “Passport Benefit”, “Incapacity Benefit” and so forth. Passport benefits come along with tax benefit. It allows a person to enjoy his leisure and travel as well as be stress-free from tax payments.

Tax benefits have proven to be beneficial to the retired people because it helps them save up for their future and allows them to live a normal and tension free life. Tax benefits allow pension schemes and also take into account other commercial entities of the customer. Tax benefits help in deduction of taxes from organizations like any public organizations or even a religious organization.

Charities have deducing schemes for two and half months of a fiscal year. The fiscal policy includes all the tax beneficial investments for a fiscal year. The Union Budget had included the nature and types of tax benefit to satisfy tax-payers. The popularity of tax benefit has helped people in a large number of ways. The Union Budget had included “deduction of tax in exemption limits”, “separate deduction for pensions” and similar other schemes. It is a simple concept of calculation. The “marriage penalty” is based upon the tax payment of married couples as two individuals. The Legislature has tried to eradicate this marriage penalty from the taxing codes. Tax benefit allows a person to take his or her time and pay the loans before the deadline date and prevent their properties being ceased. Everything is planned out for the tax payers’ benefit and an easy, comfortable way for people to benefit from each and every activity of their life.

Tax benefit helps in restoration of its clients’ satisfaction and draws out schemes and plans for every step he takes in his phases of life. With all the complications involved in tax payments, the tax benefits have made it simpler for the tax payers.

Image
Source
: http://www.digitalliberty.co.uk/wp-content/uploads/shutterstock_77384059.download.jpg

 

Carnival of Retirement at Brick By Brick Investing
Carnival of MoneyPros at Thirty Six Months
Yakezie Carnival at Growing Money Smart
Finance Carn. for Young Adults at Fat Guy,Skinny Wallet

Saving Money on Personal Taxes

poundTaxes are an inevitable part of life. I don’t think any one actually enjoys handing over their hard worked for money to the Government. However, at the same time people recognize that without taxes, the country would end up in some form of anarchy. While to a small amount this sounds like a good idea, it would be anything but. Taxes go towards an abundance of public services. They may not cover all costs but often go to subsidize programs including but not restricted to public forms of transportation, education, legal proceedings, health care, national sport, culture and government media, environmental matters, food inspections, defense of the nation the creation an upkeep of roads, infrastructure etc.

While we agree taxes are a necessary part of life, one also wants to make sure they are only paying what is due and not any more. It is worth finding out what you can legally write off on your taxes to keep as much of your money as you can. There are several ways that people end up paying too many taxes. It pretty much comes down to a lack of knowledge and regulations of the law. Sometimes there could be incorrect tax codes used, sometimes the errors comes on the government side as well, not all overpaid taxes come as a result of the payee. Essentially some incorrect information is used and this ends up costing you. You must first know some basics before filing your taxes.

You need to know what your personal allowance limit is. For 2012-13 the basic amount is £8,105 but this amount changes with age. If you are 65 to 75 this goes upto £10,500 and if you are over 75, there is a small rise to £10,660. You also need to know what can be written off. In order to find this out, it is best to stay on top of the latest tax laws and information. Each year things can change and you will want to know this so you do not make a mistake either in your favor or against yourself. A good place to start is Taxation in the UK from wikipedia. Information here should up updated shortly after it is released keep it current.

While doing your taxes yourself is a practice many do for themselves. A professional accountant for taxes is always a way you can go to limit the chances of errors. They will also remove the stress of knowing if you can deduct something or not. Since they work with this constantly, they tend to know off by heart what is acceptable and what is not. If there ever is any errors and the account made the mistake, you can in turn go after them if there are any fines. If you do find errors mind you, be sure to contact the HMRC as soon as you find out and get the issue resolved.