My brother, Craig, is starting a new business and since I am a small business consultant and his sister (i.e., free), he has asked for my help. He asked a lot of good questions and didn't ask some that are also key to getting started on the right track. Following are some of the important things for Craig to consider:
• What is the best structure for his new business? Is he going to be a sole proprietor or have business partners? There are a number of possibilities including forming a C corporation, an S corporation, a limited liability company or a limited partnership. These are decisions he should discuss with an attorney or CPA to make sure he understands the implications, both from a legal and a tax perspective.
• After coming up with a great idea for a business and mustering the nerve to make the jump, one of the first things Craig will need is an accounting software program to maintain the financial records of the business. He is planning to have inventory so, although an off-the-shelf program should be sufficient, choosing the right one is important. This is one example where a small business consultant can be really helpful. A consultant can help him with the selection and setup of the software as well as providing on-going software support after he is up and running.
• Craig plans to hire people to work with him in his new venture. They may be classified as employees or as independent contractors, which basically will depend on how much control Craig has over their work performance. If they are classified as employees, there are numerous forms that have to be filed with the IRS and the Georgia Department of Labor. A consultant can help him apply for the proper identification numbers and educate him on the implications of paying payroll and withholding payroll taxes. The penalties for not doing these things correctly can be substantial.
• The other registrations and requirements that new businesses often overlook include applying for a business license, registering with the Secretary of State's office and filing annual business personal property tax returns.
As you can see, the business side of starting a business can be complicated. I hope that each person reading this who is considering such a venture will seek the same professional advice that my brother is lucky enough to get from his sister.
~ Pam, Small Business Department
Thursday, February 18, 2010
Friday, February 5, 2010
Parenthood: More than a tax deduction
I can't believe it has almost been a year since my son was born. As my husband worked on the third and fourth coats of navy blue paint, I was preparing for my son's birth by reading every book, magazine and website I could find. Little did we know that there was nothing we could do to fully prepare for this past year and all the joys of parenthood. Now that my son is rolling and giggling all over the house and I am preparing our individual tax returns, I realize all of the ways he has not only impacted our lives but also our tax situation.
In addition to claiming a child as a dependent, there are the child tax and the dependent care credits to consider. The child tax credit for 2009 and 2010 is $1,000 with the AGI phaseout beginning at $75,000 for singles and $110,000 for married couples. The dependent care credit allows you to claim a percentage of qualifying expenses up to $3,000 (one child) or $6,000 (more than one).
Once I returned to work, I enrolled in a flexible spending account. This account allows me to pay up to $5,000 of daycare expenses with pre-tax dollars. Taking advantage of my company sponsored flexible spending account allowed me to save more taxes than the dependent care credit.
Even though college is many years away, we opened a Georgia 529 account. All Georgia taxpayers can deduct up to $2,000 in contributions to their Path2College 529 plan account on their Georgia income tax return, per beneficiary. Any earnings from these accounts are free from federal and Georgia income tax when used for qualified education expenses.
Also, since becoming new parents, we decided to purchase a new vehicle to help protect our precious cargo. Buyers of new vehicles (not used) purchased after February 16, 2009 and before 2010 can potentially deduct the sales tax paid on the vehicle.
As you are preparing for a new child, don't forget to consider how he or she will impact your tax situation.
~Julie, Manager
In addition to claiming a child as a dependent, there are the child tax and the dependent care credits to consider. The child tax credit for 2009 and 2010 is $1,000 with the AGI phaseout beginning at $75,000 for singles and $110,000 for married couples. The dependent care credit allows you to claim a percentage of qualifying expenses up to $3,000 (one child) or $6,000 (more than one).
Once I returned to work, I enrolled in a flexible spending account. This account allows me to pay up to $5,000 of daycare expenses with pre-tax dollars. Taking advantage of my company sponsored flexible spending account allowed me to save more taxes than the dependent care credit.
Even though college is many years away, we opened a Georgia 529 account. All Georgia taxpayers can deduct up to $2,000 in contributions to their Path2College 529 plan account on their Georgia income tax return, per beneficiary. Any earnings from these accounts are free from federal and Georgia income tax when used for qualified education expenses.
Also, since becoming new parents, we decided to purchase a new vehicle to help protect our precious cargo. Buyers of new vehicles (not used) purchased after February 16, 2009 and before 2010 can potentially deduct the sales tax paid on the vehicle.
As you are preparing for a new child, don't forget to consider how he or she will impact your tax situation.
~Julie, Manager
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