Cristina said...
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Deborah

Term Life Insurance

Dear Ashish, thank you very much for posting on my blog.
Every business has some uniqueness, and yet at the same time they have some similarities to other businesses. The questions you have asked cannot be applied to every business as a general rule. The market, the structure, the service or product, and the volume each business generates is different. Sometimes strategies have to be changed in order to accomodate the change in business such as increase in sales or downturn in economy. I suggest you meet with an accountant and discuss this in detail.

Best wishes,
Ashraf S. Mehdi



Ashish said...
Hi AshrafI was searching for blog abt IT consulting and i found your blog.I am intersted in starting an IT staffing?Consulting firm . i want to know abt TAX.I m in Dallas.Initially i am the only employee in my company , as seccond jobsay i have one contractor working at client place on 1099 with my company
My Questions Are?
Is it necessary for me take salary as employee ?
Can i hire any one part time on 1099 to run my company ?
What if my company dont do any business in year ?

In short, how much fund require start and run an IT staffing company.

Dear Suresh, thank you for posting on my blog.

You have incorported your business and also got your first client on contract basis, CONGRATULATIONS. Now what?

Don't panic, you are in control of your business and finances, and you will retain the control as long as you abide by the rules and regulations imposed by various agencies that include IRS (your favorite uncle SAM) and state and local govermental agencies.

Follow these simple steps:

Since you are in a service industry you do not have to worry about collecting sales tax, maintaining sales tax records, file and pay sales tax. However, as you are being treated by your wife's company as an employee, she as an employer is required to pay you wages, withhold payroll taxes from your paycheck i.e. social security, medicare, federal and state income tax withholdings, make federal and state withholding tax deposits and file payroll tax reports i.e. 941 and SUTA reports on a quarterly basis.

ANY expense that can reasonably be proved to be incurred for business purpose i.e to carry on the business activity is a business expense. Some expenses are Accounting, Bank Service Charges, Travel, Business Meals, Internet e.t.c. Maintain records to prove the business purpose for the expense.

If you are familiar with accounting then you can do it yourself or have a professional accountant prepare your accounting records or financial statements on a monthly basis (this is my recommendation). Financial statements will help your understand and manage your business and they will also help you understand cost centers, which is very crucial.

Last but not least. Prepare and file your yearly business income tax return. This is seperate return than your personal 1040 return. If you are on a calender year (I assume) then your business tax return will be due on March 15th of each year as long as you are in business.

I hope this information is helpful to you.

Regards,
Ashraf S. Mehdi


Disclaimer
The steps listed above is only a partial list. They may change depending upon serveral factors such as business structure, industry e.t.c. This list is a general list that applies to most businesses and is not customized to reflect your business in particular. Please consult your personal accountant or tax advisor to customize it for your business use.




You Wrote:

Dear Ashraf,I hit upon your blog on the web, where you are providing some free advise. I could not find a way to post a question your blog. Hence I am sending you this email. My wife recently Incorporated a small business in the State of NC in the area of IT Consulting Services. She has received the Federal EIN. I am an employee of this company working in a contract position for which the money was paid into the business checking account by the client company. I am trying to figure out what all I need to do next in terms of payroll taxes to be paid to Federal, State, etc. Also, what are the expenses (such as mileage, phone, internet connnection, etc.) I can deduct under the small business.

Also, I would like to know what are the other forms and steps I need to follow in the context of this small business setup. Any help you can provide will be much appreciated.

Thanks
Suresh

Hugh, if you are a resident of NY and are also a student you do qualify for a education credit. However, your credit may be limited depending upon your AGI. For more information follow this link
http://www.tax.state.ny.us/pdf/publications/income/pub10w_1207.pdf

I hope this helps and thankyou for posting on my blog.


Ashraf S. Mehdi

Rick, thanks for posting your question on my blog.

Before deciding which state forms and or state returns you would need to file, find out which state residency (NY, GA or CT) do you have as of year end i.e. 12/31/2008 (I believe you are talking about 2008 and not 2007). If you lived in NY for most of 2008 then you would be a NY resident.

Since, you will be working as an employee in CT, you will need to file a CT return regardless of whether or not you will be a CT resident. As far, filing NY or GA return, your forms will be based on answering the above question. If you are a NY resident then you would need to file a NY State return as a resident and non resident return for CT. Make sure to allocate your earnings to CT (for wages earned in CT), also don't forget to claim NY education credits.

I would need additional information to answer your question regarding whether or not your parents should claim you as a dependent. But based on the information you have provided it would be beneficial to you as well as your parents to file seperate returns and you claim the education expenses on your personal return.

I hope this information helps.

Regards,

A S Mehdi

Ricky has left a new comment on your post "Dear Visitor, Did you acquire the stocks you sold ...": Hi,I recently came across your blog and had a question for you.I'm 21 and in college and ignorant/oblivious of all things tax-related. I will be doing a summer internship in June that will pay me about 10-14k (dependent on bonus/overtime). The job is in Connecticut but I will be living in my school's dormitories in NYC and commuting. My "permanent address" (my parents home and the address I've used "officially" up until now) is in Georgia.I wanted to know what state forms I need to fill out and how my choices will affect any credits/rebates that my parents or I am eligible for. How should I file (whether independent of my parents or let them claim me as a dependent or whatever else can be done?).My parents currently make about 75-90k annually and pay for my tuition of about 46k and will pay for tuition for my brother as well starting this fall of about 15k (if that makes any difference). Any thoughts on what the optimal strategy is for me? Any and all help is very much appreciated. Please contact me at rick86 at gmail.com if I can provide any other useful information for you.Thanks,Rick

Dear Visitor,
Did you acquire the stocks you sold from your company in an ISO i.e. incentive stock options? If your answer is yes then most likely it is reported on your W-2. Please check your W-2 if the box 12 or 14 has a code V. You would also need to disclose this sale on Sch D, but make sure to increase the Basis of Stocks to eliminate any Gain or Loss.

I hope this information helps.

Ashraf S. Mehdi

Yes, the profits and losses should be allocated between all three partners. In your case, the profits or losses would be allocated between three partners for the first 6 months period with a share of 33.33% each. The percentage will change from 33.33% to 50% each for the remaining 2 partners for the remaining period of the year. You should receive a Sch K-1, if you had some losses then it will help you lower your taxable income which could also help you lower your overall tax bill.

I hope this helps. Let me know if I can be of further assistance.



Your Wrote:
Hello. I was a general partner in a very unsuccessful craft based company with two friends. I gave my share in the company to the other women on July 1 of this year -- half way through the tax year. I went from owning 33.33% of the business to 0%, and they both went from 33.33% to 50%. I received copies of their Schedule K-1 (1065) in the mail, but nothing for myself. Wouldn't their accountant still have had to fill out a Schedule K-1 (1065) for me as well because I was a general partner for 6 months this year? Thank you for your time.

Dear Ananomous,
The answer to your question depends on whether you had the following:
Were you a NC resident?
Whether you had Nexus in NC
Where is your emloyer located in NC or Florida?

If your answer is that you had nexus in NC and you were a resident during 2007 and that your employer is a NC based company or have a physical location in NC, then the chances are that you will pay NC state income taxes. However, you can write off certain expenses unreimbursed by your employer such as mileage and or travel, meals expenses (actual expenses incurred) or you can claim per diem expenses for the number of days you had to telecommute.

I hope this information is helpful to you.

Good luck.
Ashraf S. Mehdi

First, go over this checklist.
Did you file 2553 in the year 2005 or earlier? If you filed it, did you receive an approval from the IRS?
If you answered yes to both questions above, then you should have filed S Corp return instead of C Corp return.
Now, you can take these steps to correct all the errors
1) File amended Corp C return to zero our the effects of Income and Expenses.
2) File amended S Corp return explaining the reason for the amended return.
3) File your amended personal income tax return to disclose the S Corp income (loss).

I cannot tell who actually made the mistake of filing the Corp C return instead of S Corp return. Unfortunately, regardless of whose fault it is, you are at loss. If you had taxable income from your business then you are required to pay taxes and also pay the interest and penalties on the unpaid amount of taxes. The longer you wait to correct, the more you will end up paying.

I would advice that you seek some one elses help if that CPA is not willing to co-operate. You can also reach me at 919-559-2227 or asm361@yahoo.com and I will be glad to help you take care of all the issues.

Good luck and thank you for posting on my blog.

Nicole, you have two different scenerios.
One you have to claim the earnings and the expenses related to you message therapist business on Sch C as a Sole Proprietor, assuming that you have not incorporated the business. You can claim all expenses related to generating the income.

Second, you can claim the upto $4,000 if married filing joint or $2,000 if single for the tuition fees paid for your qualified education. Since, it is just the beginning of the year, you should expect to receive a 1098 form from your university. You can always request the university to provide you a copy of the 1098, in case you do not receive one in the mail. You would also need to wait until Feb 13th to file your return as the form to claim the education credits will not be approved by the IRS before Feb 13th, 2008.

Good luck and thank you for posting on my blog.