IRS Audit, IRS Audit Help, IRS Audit Process
Independence Day
July 4, 2013 - IRS Audit, IRS Audit Help, IRS Audit Process
Ever since I was a little girl, Fourth of July has been of on my favorite holidays. In my little town we had a great celebration. The children decorated their bicycles to ride with the floats in the parade through town. The town’s fire truck sounded it’s horn and gave short blasts of the siren. We ate hot dogs and ice cream. And, of course, we always looked forward to the fireworks!
Do you know what the fireworks represent? Think about the words of the Star Spangled Banner: “The rockets red glare, the bombs bursting in air…”
What was this American Revolution all about? You guessed it. TAXES! The original “tea party” in Boston, Massachusetts was the beginning of this long-brewing war. The people settling the American colonies were unhappy paying taxes to the King of England. They did not want taxation without representation.
This article is not about any political posturing. It is totally about income taxes. I am not just an Audit Specialist. I am also an Income Specialist. I always hope you have to pay a LOT of tax because I want you to have made a LOT of money. At the same time, I want you to pay your lowest legal tax and not a penny more.
An individual pays tax on their individual income. A business owner has several choices. If you choose to file your business taxes as a sole proprietor, you will report your business income and expenses using Schedule C on your 1040 personal income tax return.
If you choose to be a Limited Liability Company, LLC, you will file your Articles of Organization. Now you may choose to be taxed as a corporation or as a “disregarded entity.” This is just a fancy way of saying Schedule C.
If you choose to be taxed as a corporation, you file Articles of Incorporation. You may also qualify to elect “S” Corporation status. This “S” status is not available to everyone corporation. The “S” corporation does not pay tax on its profits. Those profits pass through to the shareholders. The “S” corporation profit is included in the individual shareholders’ taxable income.
The “S” corporation must be sure to pay a fair wage to the owner or shareholder who works in the business. They cannot pass through their entire profit as dividend to avoid employment tax issues.
A regular or “C” Corporation will pay tax on their net business income. The net income is the result of subtracting business expenses from total, or gross, income. When the “C: Corporation declares a dividend and pays that dividend to the stockholder, that stockholder also pays tax on the dividend income. This is why the “C:” corporation is subject to what is called double taxation.
The freedom of choice is one of our great rights we have as Americans. We are fortunate to be able to choose the type of entity that best suits our business. Enjoy your red, white, and blue holiday. Keep your business “in the black”. And stick with me to learn the rules of this tax game so you can play to win. Beat, not cheat, the IRS. Keep more of what’s yours from becoming theirs, spelled the-IRS.