The first way to avoid a penalty here, of course, is to ask for permission rather than forgiveness—if you know you are going to need extra time to file for your returns, file for an extension before tax day using Form 4858 if you’re filing as a sole proprietor or Form 7004 if you’re operating as a corporation. While you’ll still need to pay what you expect your tax to be by tax day, this grants you extra time to get your affairs in order to file.
Maybe you’ve dabbled with the idea of renting out your property to make some extra money but are worried it’ll end up costing you more than it’s worth come tax time. Or maybe you just don’t want to deal with…
Amortization is similar to depreciation but focuses on the costs of intangible assets. It allows businesses to account for the cost of intangible assets over time. Intangible assets are non-physical assets that are expected to provide value to a business for more than a year. The most common way to amortize is to divide the cost of an intangible asset over the number of years you expect it to provide value to your business.
Accrual accounting records a monetary transaction when the good or service is delivered—so when you send an invoice or receive a bill. Cash accounting records monetary transactions when the money actually moves—so when bills or invoices are paid. Cash accounting can be preferable for tax purposes since you’re only taxed on the money you’ve actually received. Accrual accounting can make your revenue look more steady since it doesn’t represent time lag in payments.
The IRS telephone number is 1-800-829-1040, and they are available from 7 a.m. – 7 p.m. Monday thru Friday. The best time to call is early in the morning. Once you’ve set your language, do NOT choose Option 1 (regarding refund info). Choose option 2 for Personal Income Tax instead. Next, press 1 for form, tax history, or payment. Next, press 3 for all other questions. Next, press 2 for all other questions. When the system asks you to enter your SSN or EIN to access your account information, do NOT enter anything. Finally, press 2 for personal or individual tax questions. The system should then transfer you to an agent.
Dividend payments do not count as an expense! In order to account for dividend payments, you must use a Statement of Retained Earnings. The statement of retained earnings is a bridge between the income statement and the balance sheet, subtracting your dividend payments from the net income in order to calculate the retained earnings.
Cost of goods sold is the direct costs associated with producing and delivering a good or service. Only expenses that you have to make every time you produce a new product (like raw materials) count as cost of goods sold. Any expenses that would remain the same regardless of how many products you produce (like software purchases) go in business expenses. Because of this, cost of goods sold typically applies to product businesses more than service businesses.
Nothing strikes fear in the heart of small business owners more than looking at your income for the quarter or year and realizing that it’s lower than you projected—or worse, lower than the quarter or year before. You probably immediately…