![]()
Taxes and the Self-Employed
With the unstable economy, and more and more companies downsizing or going out of business, people have decided to hang up their 9-5 hats. Job security, what’s that? That, my friends, has seemingly taken a nose dive and fallen by the wayside. Seniority seems to have taken a back seat to the economic downturn. Whether you have decided to become an entrepreneur, start a business, whether that is a small business, a family owned business, a micro business, or you decide to do freelance work, The National Association for The Self-Employed (NASE) commends you, as you should be. NASE offers various resources to assist you with starting a business or building an existing business. In addition, NASE offers advice to help business owners minimize business expenses and much more. Can’t find an answer to a tax question? Ask the NASE Tax Experts here.
With the numerous tax laws and tax codes, trying to navigate the waters of U.S. tax system can be quite daunting to say the least, and the Internal Revenue Service (IRS) does not consider your lack of tax law knowledge a reasonable cause to avoid paying penalties or interest that may be incurred resulting from errors and/or omissions reflected on your tax return.
So how did the U.S. tax system and the IRS come into existence anyway?
TAX FACTS
During the Civil War, Congress passed the Revenue Act of 1861, which included a tax on personal incomes to help pay war expenses. In 1862, President Lincoln and Congress created the position of commissioner of Internal Revenue. In 1864, Congress enacted a flat rate income tax, which was ruled unconstitutional the following year by the U.S. Supreme Court because it was a direct tax not apportioned according to the population of each state. Ratified in 1913, the 16th amendment, which was originally passed by Congress on July 2, 1909, removed this objection by allowing the federal government to tax the income of individuals without regard to the population of each state. Also in 1913, the first Form 1040 surfaced after Congress levied a 1 percent tax on net personal incomes above $3,000, with a 6% surtax on incomes of more than $500,000. The first Form 1040 was introduced and used in 1913. It was a one page form that was much simpler than the form 1040 that is used today.
Form 1040 Used In 1913
Now that you know the history of the U.S. tax system, hopefully managing your business will be a little…LESS taxing for you.
Some Major Tax Changes for Tax Year 2014
Click for the PDF with charts
For more detailed information on these and other tax changes for 2014, refer to the following link:
http://www.irs.gov/uac/Newsroom/In-2014,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments
Helpful Information
Mind your business.In other words, properly manage all aspects of your business, including, but not limited to, your accounting records, finances, and employees.Save yourself time and money.Do it right the first time.
Know what you’re doing.If you don’t know how to effectively run a business, hire a person or a group of people that do.
Keep accurate financial records.Properly keeping track of your income and expenses is one of the most important things that you need to do as a business owner.There are a number of do it yourself (DIY) bookkeeping programs on the market that you can use. If you don’t want to do it yourself, hire a virtual accountant, or outsource the work.The dollars and cents of the business is not something that you want to guess at.You guessing will more than likely cause a mess which will only lead to unnecessary stress.Guess, mess, and stress, not a good combination.
Commonly Overlooked Deductions
Start-up cost.Once the business starts, you can deduct qualified expenses incurred to get the business up and running.You can elect to deduct $5,000 of those expenses in the first year, and additional amounts have to amortize over 15 years.
Business Related Meals and Entertainment.A taxpayer can generally deduct 50% cost of business meals and entertainment expenses.You must keep the receipt and properly note the business purpose on the receipt.A bank statement will suffice for expenses $75 or less.
Actual vehicle expenses.While most business owners are aware that they can deduct business related mileage, some of you may not be aware that business owners have the option of deducting actual vehicle expenses instead of mileage.The method that benefits you most is the method that you should use.
For more information regarding these and other deductible business expenses, refer to IRS Publication 535 Business Expenses.
http://www.irs.gov/pub/irs-pdf/p535.pdf
NASE continuously strives to assist you with running your business more efficiently and has proven to be a great resource for small business owners. So for those of you who are entrepreneurs, small business owners, micro business owners, and own family run businesses, tap into the resources that NASE has to offer today. Why wait? After all, procrastination is the thief of time.
By Angela Anderson