Thursday, July 23, 2009

How To Start A Business: Partnerships

A partnership is a for-profit business association of two or more persons. Partners can include individuals, groups of individuals, companies, and corporations. Partnerships are highly adaptable in form and vary in complexity. Each partner shares directly in the organization's profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and independently liable for the partnership's debts.

The business component of a partnership is defined broadly by state laws in accordance to the Uniform Partnership Act. These statutes establish the basic legal rules that apply to partnerships and will control many aspects of your partnership's life unless you set out different rules in a written partnership agreement. Don't be tempted to leave the terms of your partnership up to these state laws because they were designed as one-size-fits-all fallback rules in the absence of a written partnership agreement. If you are going to create a partnership agreement , some of the items that should be included in your agreement are:

  • Name of partnership.
  • Contributions to the partnership.
  • Allocation of profits, losses, and withdraws.
  • Partner's agency authority.
  • Partnership decision making.
  • Management duties.
  • Admitting new partners
  • Withdrawal or death of partners
A partnership must file an annual information return using Form 1065 to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return using Form 1040 and Schedule E. If you do business as a partnership, the the partnership will be liable for paying employment taxes if you hire employees, and certain excise taxes. Some of the forms you will need for employment taxes are Form 940, Form 941 and Form 8109-B.

For more information see Publication 541 or consult your accountant or tax attorney.

Partners are not employees and should not be issued a Form W-2's. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions. As a partner, some of the taxes you will be responsible for paying are self employment taxes and estimated taxes.

The advantages of operating a business as a partnership are:

  • You have a shared financial commitment.
  • You can pool together resources, expertise and strengths.
  • There are limited start up costs.
The disadvantages of operating a business as a partnership are:
  • Partners are personally liable business debts and liabilities.
  • There may be unequal commitment in terms of time and finances.
  • There may be personal disputes with the partners.
  • Partners may have different visions or goals for the business.

Sunday, July 19, 2009

Business Organization: Sole Proprietor

As the the economy continues to shed jobs, some unemployed people are turning this opportunity into a chance to start their own businesses and turn their passions into money making endeavour. In this series on "How To Start Your Own Business" I will examine the different types of business structures, the types of forms you will need to file for federal tax purposes, and the advantages and disadvantages of each business structure.

The first type of business structure I will discuss is the sole proprietorship. The sole proprietorship is the most common type of business structure chosen for small businesses. A sole proprietor is someone who owns an unincorporated business by himself or herself. The owner or proprietor is responsible for all business transactions and is personally liable for all debts and liabilities incurred by the company. The owner pays taxes on income from the business as part of his or her personal income tax. Normally this is done by filing Form 1040 and either a Schedule C or a Schedule CEZ. Sole proprietors need to comply with licensing requirements in the states in which they're doing business, as well as local regulations and zoning ordinances. Some of the other types of federal taxes you may be responsible for as a sole proprietor are self employment taxes, excise tax, and various other taxes if you hire employees.

Self Employment Tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You will file your self employment taxes using Schedule SE along with your 1040 form.

Employment Taxes are paid only if you hire employees to work for your business. Some of the taxes you will be required to pay are:

  • Social Security and Medicare taxes.
  • Federal Income Witholding Taxes
  • Federal Unemployment (FUTA) Taxes.

For more information on employment taxes see Publication 15.

Excise Taxes are paid if you are involved in

  • Manufacture or sell certain products.
  • Operate certain kinds of businesses.
  • Use various kinds of equipment, facilities, or products.
  • Receive payment for certain services.
Advantages of a Sole Proprietorship
  • A sole proprietor has complete control and decision-making power over the business.
  • Sale or transfer can take place at the discretion of the sole proprietor.
  • No corporate tax payments.
  • It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners who often find it difficult to attract investors.
  • Minimal legal costs to forming a sole proprietorship.
  • Few formal business requirements.

Disadvantages of a Sole Proprietorship

  • The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.
  • All responsibilities and business decisions fall on the shoulders of the sole proprietor.
  • Investors won’t usually invest in sole proprietorships.

Wednesday, July 15, 2009

Tips On How To Start A Business

For a variety reasons, including economic, social, and technological, starting a new business is more popular than ever with entrepreneurs in the USA. Many successful corporations began as home businesses and were able to transform themselves into major corporations as they increased sales and expanded their operations. As a result of technological advances, anyone with a cell phone, a computer with a high speed connection, and an idea can start and run a successful business.

If you are starting a new business this summer, you should be aware of federal tax responsibilities. Here are the top seven things you should know if you are planning to open a new business this year.

  1. As a small business owner, you must decide what type of business organization you are going to use. The type of business organization you choose will determine the type of tax forms you will using in order to file taxes. The most common types of business entities are sole proprietorships, partnerships, limited liability corporations(LLC), C corporations and S corporations.

  2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

  3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. You can apply for an EIN by using Form SS-4 or you can file online at, or you can aply by phone. This EIN is your permanent number and can be used immediately for most of your business needs, including opening a bank account, applying for business licenses, and filing a tax return by mail. However, no matter how you apply (phone, fax, mail, or online), it will take up to two weeks before your EIN becomes part of the IRS' permanent records. You must wait until this occurs before you can file an electronic return, make an electronic payment, or pass an IRS Taxpayer Identification Number matching program.

  4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

  5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used. A calendar year ends on December 31 while a fiscal year ends on a date of your choosing. Governmental organizations normally use a fiscal year that ends on June 30 and begins on July 1.

  6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

  7. Visit the Business section of for resources to assist entrepreneurs with starting and operating a new business.

Sunday, July 12, 2009

Tax Planning Tips For The Hurricane Season

With the 2009 hurricane season underway, there are several steps you can take in order to protect yourself against loss.

  • Create An Electronic Backup of All Important Documents

Each household should keep an electronic set of backup records in a safe place. Your backup records should include bank statements, tax returns, insurance policies etc. It is very easy to keep your records in an electronic format since many financial institutions provide statements and documents electronically, and much more financial information is available on the Internet. Even if the original records are provided only on paper, such as passports and birth cer, they can be scanned into an electronic format using any flatbed scanner or multifunctional printer that contains a scanner. With documents in electronic form, you can save them onto a backup storage device, like a portable hard drive which comes in capacities of 250gb to 750gb, or a usb flash drive which can hold up to 32gb of data. I recommend also burning a copy of your data onto a DVD (CD if you do not have a DVD burner) as a backup to your electronic backup, because we know what could happen to our electronic devices if they get wet. Whatever backup device you choose, the data should be kept current and be stored away from the original set in a special emergency bag that should be already packed in case you have to leave in a hurry.

  • Document Valuables

Another step you can take to prepare for disaster is to photograph or videotape the contents of your home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.
It is important that you keep a photographic record of your belongings in order to establish market value of items for insurance and casualty loss claims. Hard copies of your photos should be stored with a friend or family member who lives outside the area. These photos should also be stored electronically with your other documents and you should have a copy burned to a DVD.

  • Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

  • Check On Fiduary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

Thursday, July 9, 2009

NBA Lowers Its Salary Cap and Luxury Tax

The National Basketball Association has announced that the Salary Cap for the 2009-10season will be $57.7 million. The tax level for the 2009-10 season has been set at $69.92 million. Any team whose team salary exceeds that figure will pay a $1 tax for each $1 by which it exceeds $69.92 million.

The 2008-09 Salary Cap was $58.68 million and the tax level was $71.15 million. Although league-wide revenue increased 2.5% this past season, the decrease in the Salary Cap and tax level for the 2009-10 season is the result of the formula used to set the Cap and tax under the terms of the collective bargaining agreement.

Each July the league projects Basketball Related Income (BRI) and benefits for the upcoming season. They take a defined percentage of projected BRI which is currently 51% , subtract projected benefits and make adjustments based on whether the previous season's BRI was above or below projections. They then divide by the number of NBA teams (except expansion teams in their first two seasons) to arrive at the cap. The salary cap adjusts each yer and unfortunately for this year's free agents the adjustment has been downward.

Some of the items included in BRI includes Regular season gate receipts

  • Broadcast rights
  • Exhibition game proceeds
  • Playoff gate receipts
  • Novelty, program and concession sales (at the arena and in team-identified stores within proximity of an NBA arena)
  • Parking
  • Proceeds from team sponsorships
  • Proceeds from team promotions

The Luxury Tax is computed by taking 61% of projected BRI, subtracting projected benefits, and adjusting for whether the previous season's BRI was above or below projections. They then divide by the number of teams (except expansion teams in their first two seasons) to arrive at the tax level.

Associated Press


New York Times

Thursday, July 2, 2009

Amazon Ends Ties With Affiliates in Hawaii

Amazon has ended ties with affiliates in Hawaii as the company continues to protest legislation that would force it to collect sales tax in that state.

New York, North Carolina, Rhode Island and Hawaii have all passed legislation that would allow them to collect sales tax on e-commerce sites not actually physically located in the state. New York passed this legislation last year, and Amazon has begun collecting sales tax there as it challenges the law in court. Amazon has taken a different strategy against everyone else by simply just terminating it affiliate program as it did in North Carolina, Rhode Island and Hawaii. California has proposed similar legislation and Amazon has threatened that it would end its affiliate program there.

According to Forrester Research, state governments could generate $3 billion in new revenues if Web retailers had to collect taxes on all sales to consumers.

Besides New York and its home state of Washington, the company collects sales taxes from customers in states where it has a physical presence, which are North Dakota, Kentucky and Kansas.

Wednesday, July 1, 2009

Amazon Ends Affiliate Program with Rhode Island

Amazon has ended its affiliate program in Rhode Island as part of its continued efforts to fight against sales tax legislation. Amazon has taken this action just days after it announced it would be ending its affiliate in North Carolina.

As many states are trying to close budget gaps, collecting sales tax from various online retailers is a method that many states are pursuing. States such as North Carolina, Rhode Island and Hawaii have drafted legislation which would classify online retailers such as Amazon as a retailer with a physical presence -- and thus be responsible for collecting sales tax -- through its relationship with locally-based affiliates. Affiliates link to Amazon products in exchange for a percentage of its sales.

Here is what Amazon has informed its Rhode Island affiliates:

We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 29, 2009. This is a direct result of the unconstitutional tax collection scheme passed by the Rhode Island General Assembly with a veto-proof majority. As a result, we will no longer pay any referral fees for customers referred to or after June 29. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date. The governor could sign the bill -- or have his veto overridden -- any day now.

Please be assured that all qualifying referral fees earned prior to June 29, 2009 will be processed and paid in full in accordance with our regular referral fee schedule. Based on your account closure date of June 29, 2009, any final payments will be paid by September 1, 2009.

In the event that Rhode Island repeals this tax collection scheme, we would certainly be happy to re-open our Associates program to Rhode Island residents.


Columbus Ledger