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The Differences Involving Enrolled Agents and CPAs

Certified Public Accountants along with Enrolled Agents are generally certified to prepare income taxes and legally represent their customers in front of the Internal Revenue Service. There are a few important differences, nevertheless. Though Enrolled Agents mostly focus on taxes, CPA's have a substantially wider emphasis than just one concentration. Because of their smaller concentration, quite a few Enrolled Agents know significantly more about taxes than a lot of Certified Public Accountants. This is not the truth in all cases due to the fact that there are many CPAs who have settled into a niche which solely involves taxes once they became licensed.
The National Society of Enrolled Agents (NSEA) defines an Enrolled Agent as a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. (according to the NSEA) In order to get certified as an Enrolled Agent, professionals have to take a 3-part examination through the IRS that covers personal tax returns, business returns, and representation. Enrolled Agents are approved to represent clientele in front of the IRS. For instance, when you need to pay back taxes, an Enrolled Agent could possibly bargain for an Offer in Compromise (OIC). When the OIC gets accepted, then you, in general, will owe a sum that is less than your old balance.
CPAs, alternatively, maintain a significantly wider concentration. Their very own emphasis features accounting, auditing, and taxes. A lot of CPAs eventually find a specialized niche that falls within one of these. This is the reason why not every CPA has as much knowledge about tax laws (along with the most current tax law changes). If that's the situation, CPAs still have the legal right to represent customers before the IRS in the same way as an Enrolled Agent. Whenever you ultimately choose a CPA to file your income taxes and handle your case in front of the Internal Revenue Service, be sure to do your research by trying to find out the level of experience that person has. Selecting a tax professional is never easy.
Enrolled Agents are often less expensive compared to services offered by CPAs and attorneys. If you stumble upon someone proficient in which he/she has worked with the IRS before, an Enrolled Agent is usually the best option.
Additionally, only work with local practitioners. Whenever you might have an income tax dilemma, don't use an agency that is commonly seen on late night television, the world wide web, or any other type of mass media (unless they are local obviously). These, like weight loss products, overpromise and provide poor outcomes. Bear in mind, if one thing looks too good to be real, it is. To illustrate, in the event you owe the IRS $25,000, you simply can't have that sum lowered to almost nothing when you're making 200 grand per year through submitting an Offer in Compromise. On the other hand, there are occasions in which an Offer in Compromise will get accepted and can lessen your financial obligations greatly. Like any other collector, the government will take something over not receiving anything at all.
Remember, do your research while finding a tax professional. Find somebody you trust but never solely depend on a single individual's suggestions. On the other hand, do not tune in to everybody's opinion as there is a lot of misinformation that shows up within the too good to be real category.

Tax Consequences of Forming a Corporation or LLC

Determining the best entity for your business is a complex but important decision that you will make.
Corporations and LLC’s offer liability protection. Without Liability Protection, anytime you interact with another person, there is a risk. From a liability standpoint, think of an LLC or Corporation as insurance for your personal assets. By operating as a Sole Proprietor or Partnership, you are personally liable for all business debts. You are also potentially liable for any lawsuits that may arise. Sole Proprietors and Partnerships also must pay self-employment tax on the net income of the business.
LLC’s are the simplest to form. They do not have formalities and record keeping requirements that Corporations have. For tax purposes, the financial data passes through to your personal return. You generally owe self-employment on your net income up to $106,800 for 2010. However, you can elect to be taxed as an S-Corporation.
S-Corporations offer the opportunity to save on self-employment taxes after paying a reasonable salary. Like a C Corp, Payroll taxes must be paid for salaries and wages. However, there is no payroll tax on the extra income your company makes.
As a business owner, you cannot abuse this benefit. You cannot take an artificially low salary with the sole intent of avoiding payroll taxes – hence the term reasonable salary.
The main drawback for an S Corporation is the lack of easy operation. There are differences in formalities and record keeping requirements. For example, you must have shareholders and stock - as well as a board of directors and officers.
C-Corporations are similar in structure to an S-Corporation. The tax on salaries and wages is essentially the same. This entity type can save money for high income earners. For example, if you (personally) are in the highest income tax bracket, you can leave a portion of your profit inside the C-Corporation. This saves tax dollars because the first $50,000 in corporate profits is taxed at the 15% rate. By splitting the income, you may be able to stay out of the top tax brackets.
The main drawbacks with a C-Corporation are the same as those of an S-Corporation. They lack ease of use, they have a more complex structure and are more formal, they require more maintenance, and they both require having to file another tax return.
Visit our website for more: www.taxes-phd.com/CorporationsLLCs.html

Tax Relief Act of 2010

The 'Tax Relief Act of 2010' was signed into law on December 17, 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 include multiple items that will affect your business's payroll, such as:
• A one-year, 2 percent reduction in the employee portion of Social Security tax from the current 6.2 percent to 4.2 percent.
• A two-year extension of the Bush tax rates currently in effect. President Obama's "Making Work Pay" provision is being dropped in favor of the 2 percent payroll tax holiday.
Other non-payroll related items include:
• A temporary, 13-month extension of unemployment benefits.
• A 100 percent deduction for business capital improvements.
• A two-year extension of current capital gains tax rates.
• A two-year estate tax rate set at 35 percent with an exemption for estates valued at up to $5 million.
• Extension of the Research and Development Tax Credit.
• Another temporary fix for the Alternative Minimum Tax
Most of its provisions of the Tax Relief Act are temporary, two-year fixes that impact 2011 and 2012 only. All of the Bush Tax Cuts that were scheduled to expire at the end of 2010 will now expire at the end of 2012.
Visit the Taxes PhD website for more.

Income Tax Changes for 2011 (2010 Filing Year)

Standard Deduction Increased
The standard deduction for those not filing Schedule A has increased.
First Time Homebuyer Credit
You may be able to claim this credit if you entered a written binding contract before May 1st, 2010 to buy the home before July 1, 2010 and completed the purchase before October 1, 2010.
Repayment on First Time Homebuyer Credit
If you claimed the First Time Homebuyer Credit for a home you bought in 2008, you generally must begin repaying it on your 2010 Tax Return.
Roth IRA's
Beginning in 2010, you can make a qualified rollover contribution to a Roth IRA regardless of the amount of your Modified Adjusted Gross Income.
Self-Employed Health Insurance Deduction
If you were self-employed and paid health insurance premiums, you may be able to include with your self-employed health insurance deduction.
Standard Mileage Rate for Deductible Mileage
For 2010, the standard mileage rates are:
• 50 cents a mile for business use
• 16.5 cents per mile for medical use
• 16.5 cents per mile for moving expenses
• And 14 cents a mile for charitable use
Personal Casualty and Theft Loss Limit
Each personal casualty or theft loss is limited to the excess of the loss over $100. This amount is different from the $500 limit for 2009.
Visit the Taxes PhD website for more.