As an accountant, I often see clients who try to run their businesses based on advice received from unqualified 3rd parties and it makes me sad. Sad because over time, these businesses that could be thriving get hit with fines and penalties from regulatory agencies. In order to address these problems, I need to first talk about what makes our current system so great, and that is known as specialization. Specialization does not assume that you can’t do something. Specialization assumes that you can not do everything effectively and efficiently at the same time, and therefore the amount of money you spend to have it handled by a professional is worth it. A tailor should not try to be a lawyer, and vice-versa, because it’s not worth either one’s time or effort to do so. With that said, here are a few quick answers for questions I get frequently:
Q: Will I be taxed if I sell my Home?
A: The answer here is depends (just like many other answer you’ll get from me). Are you single, and made a profit of over $250K after sale costs (highly unlikely in today’s market)? If the answer is yes to both questions, then yes, you will be part of the lucky few to get taxed on your sale.
Q: I am from (let’s say) Germany, here on a non-resident visa, and would like to start an S corporation. Can you help me?
A: Unfortunately I can’t help non-resident set up an S corporation, and please don’t believe anyone who says he/she can either. But you are in luck as you have other options.. The C corporation may be the right option for you, or even LLC. I would recommend you speak with an attorney or experienced accountant before going any further in your plans.
Q: How do I do payroll? Can I just fill out the unemployment report since that’s the only thing that requires quarterly reporting of personal info?
A: Payroll is a complicated process for most business owners, as there are multiple steps in completing it timely and accurately. What I can tell you in general is that there are at least 3 reports that you’ll have to complete and pay the taxes for in order to “do payroll.” Federal, State, and Employment Security (unemployment). I would highly recommend seeing a reputable accountant though as there are laws and regulations that need to be followed in order to do them right.
Q: Do you think I can do my own taxes with XYZ software?
A: Sure you can! And Why Not? You can also pull your own teeth, give yourself a haircut and heal your broken leg. Just because you can do these things, doesn’t mean you should as I wouldn’t recommend doing any of them.
Q: But why?
A: This is a really long topic, but here are a few examples. Software over time gets better, and with a 1040EZ, you most certainly can do it yourself and not miss out on much. However if you are doing anything more complicated than a 1040A, you are missing out by doing it yourself. For example, did you know that in order to deduct your gambling losses, you need to have won as much as your deductions? So your losses at the casino unfortunately are not deductible if you don’t have winnings to net them against.. Your software doesn’t tell you that, but don’t worry, the following year, IRS will be happy to send a letter to your house reminding you of this very issue (plus interest). More examples you say, sure. Your software may ask you about how much you have spent for education this year, but there are different laws about the level of education and the breaks you get in return. So if you are a grad student filling out the slot for the HOPE scholarship, you are in store for a nasty surprise next year as IRS demands its tax credits back.
And there are a million other scenarios such as the ones mentioned above that only an experienced accountant or a tax attorney can help you with. So my advice, see a professional, it’ll be cheaper than doing it yourself.