As part of its efforts to simplify tax reporting, the IRS will offer a new simplified Home Office Deduction beginning with 2013 tax returns (the one you will file in April 2014).  To qualify for a home office deduction, a business owner must maintain an area of their home that is used “exclusively” for business and it must be the principal place of business.  Employees who have a home office must also use the space for the convenience of the employer and must not rent a portion of the home to the employer.  Many people do not realize that they do NOT need to have a separate room in their home to qualify for a home office deduction, just an area of the home that is devoted exclusively to home office use.  If you use your spare bedroom as an office, but your mom also sleeps there when she visits, then the space is not used “exclusively” for business.  With improvements in technology and the growing trend in working virtually, the Treasury Department estimates that as much as 52% of small business are now operated from a home office.  The new home office reporting is designed to make it easier for taxpayers who qualify to take a tax deduction for use of the office space in their home.  Currently you have to fill out a 43 line form, number 8829, to calculate the home office deduction.  Beginning with the 2013 tax return, you will have the option to use a much simpler form and you can deduct $5 per square foot of home office space for a tax deduction of not more than $1,500. The existing requirements to qualify for a home office deduction still apply, but you no longer have to track your actual expenses and complete the entire 8829 form in order to benefit from the tax deduction. ...read more

The IRS will no longer be automatically mailing paper tax packages.  The Internal Revenue Service has free tax forms and publications on a wide variety of topics. If you need IRS forms, here are four easy methods for getting the information you need. On the Internet You can access forms and publications on the IRS website 24 hours a day, seven days a week, at http://www.irs.gov. Taxpayer Assistance Centers There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visithttp://www.irs.gov and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select TAC Site Search and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices. At Convenient Locations in Your Community During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD. By Mail You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7:00 am to 10:00 pm local time – except Alaska and Hawaii which follow Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions by mail. You will receive your order by mail, usually within 10 days. ...read more

One of the biggest considerations when starting a new business is how that business is going to be organized legally and for tax purposes.Sole Proprietorship-Single individual owner (with the exception that a married couple can also file as a sole proprietorship)  For federal purposes you report the income for the business on Schedule C which is part of your personal individual 1040 tax return.  Generally state income is reported the same way, if you live in a state with state income tax.  While it is a good bookkeeping practice to keep track of the business's money and the individual owner's money, there really is no distinction between the two.  An individual owner can freely put money into the business and freely take money out of the business with no impact on his or her taxes.Partnership-Multiple owners and the owners may be individuals, corporations, LLC's or other partnerships.  There is no limit to the number of partners.  Generally there should be a partnership agreement where the partners agree how business profits and losses are to be allocated among themselves.  For federal tax purposes all income of the partnership "flows through" to and is reported by the individual partners on their tax returns.  While there is no federal income tax paid by the partnership, the partnership does file a separate tax return (Form 1065) to report its profits and losses and to report the allocation of those profits or losses to the individual partners.Income from the partnership is taxable to the individual owners when it earned and not when it is distributed by the partnership.  However there is generally no tax consequence to partners contributing more money to a partnership or for the partnership to distribute funds to the partners.Joint ventures, limited partnerships and limited liability partnerships are all still partnerships.  State taxation of partnerships can vary and is another reason you should consult with a tax professional to understand how a partnership will work in your unique situation.Corporation (or C-Corp)-A corporation is a separate legal entity and pays its own separate federal income tax.  It can have any number of owners and those owners may be individuals, partnerships, LLC's or other C-corps.  The corporation files a separate tax return (Form 1120) and pays its own federal income taxes.  With a few exceptions, most states also tax the income of C-Corps.  Because it is a separate taxable entity money that is distributed from a corporation to the individual owners is then taxable to the owners, usually as dividends.Limited Liability Corporation (or LLC)-The final type of entity is an LLC.  An LLC is a separate legal entity from its individual owners.  Owners of an LLC are sometimes called members.  The unique thing about an LLC is that for federal income taxes, the owners can choose how they want to be taxed.   If one individual owns the LLC, the LLC might be taxed as a sole proprietorship.  If several people own the LLC it may choose to be taxed as a partnership or the owners may choose to have the LLC taxed as a C-Corp (although this is fairly uncommon).  Once the choice is made, then the LLC will follow the same process discussed above for meeting it's federal tax obligations.  State tax reporting varies from state to state for LLC's.Some of you are saying wait, I thought there was another choice what about an S-Corporation (S-Corp).  There is often confusion about what it means to be an S-Corp.  Generally an S-Corp is not a choice of a legal form of entity.  Although some states do have S-Corp statues allowing you to set up what the state calls an S-Corp which only adds to the confusion, but more on that later.S-Corp is actually a designation for federal tax purposes only.  To be an S-Corp for federal taxes you first have to set up a C-Corp or an LLC.  So next time you hear the question "should my business be an S-Corp or an LLC?" you can say "be both".  In fact today most S-Corps are LLC's that have elected to be taxed as an S-Corp.S-Corps are taxed similar to partnerships, in that all the profits and losses "flow through" to the individual owners and are not taxed at the S-Corp level.  Like a partnership an S-Corp files it's own tax return each year (Form 1120S) to report its taxable earnings and to report how those earnings are allocated among the owners.  There are several unique tax situations for S-Corps, including the requirement that profitable S-Corp owners must pay themselves salary from the business.  Anyone considering an S-Corp should be sure they understand the tax obligations before they make that choice.The individual owners of a C-Corp or LLC file a Form 2553 with the IRS to elect to be taxed as an S-Corp.  If you happen to live in one of those states that has an S-Corp statute discussed above, you need to know that just because your state says you are an S-Corp, the IRS does not.  At least not until you file the Form 2553 and it is approved.There is no one best type of entity in which to conduct your business and it really should involve a discussion with your CPA and attorney before you decide which is best for your unique situation. ...read more