Shopping from the comfort of one’s own home has been a luxury that more consumers have been enjoying every year. Online retail sales are projected to be over $300 billion dollars in the next five years due to popularity and convenience. Products such as clothing, electronics, and household goods are purchased at the click of a button and delivered to a customer’s front door. When starting an e-commerce business you must conduct thorough market research as part of the inbound marketing process. Professionals need to identify who their potential buyers are and what products these buyers are eager to purchase. This information will allow a business owner to optimize how their customers will access products and services on a daily basis. Once the general concept of the products and services have been decided upon, one must find out how much consumers are willing to pay for the product. Professionals must create a price analysis that considers the cost to make, conduct, or provide the product or service. Business owners need to be satisfied with their bottom line to understand where their business is presently and where they want it to go in the future. Next, one must create a competitors analysis. This analysis will allow a small business owner to create a website where they design and describe products better than their opposition. Consumers will then be more inclined to purchase from the organization rather than the opposition due to the products unique value and presentation.  Successful inbound marketing will be the difference between an e-commerce business that flourishes from the start and one that struggles immediately.

                Equally important to inbound marketing is outbound marketing. Now that all the market research has been completed, you have enough knowledge to advertise and promote the product or service being offered by the company. Sales campaigns can be used to encourage people to shop regularly or buy more products. This will keep customers interested and encourage more action on your website. Using marketing avenues such as radio, newspaper, or online networks may be used to draw attention to your product or service as well. However, please understand that these avenues can cost a sufficient amount of money. If you decide to engage in these direct marketing tactics, be sure to use market research to optimize your options. While advertising and promotions focus on the product or service, public and media relations should be focused on the entire organization. Make sure the business has a good reputation and work diligently to gain customer feedback. Exercising outstanding customer service and keeping customers satisfied can be the key to extending the life of the business during difficult stretches. The best ways to stay in business is to have high customer retention and to have your most frequent clients refer new customers. Outbound marketing delivers the message of the business to the customer and puts the business owner in a position to sell products and become profitable.

                Through the next ten years e-commerce will continue to flourish as the best way to get products and services quickly and easily. New entrants to the industry focus on outbound marketing before thoroughly exploring inbound marketing which leads to business failure.  Effective inbound marketing often leads to less difficult outbound marketing which allows a business owner to break into the e-commerce industry and prosper easily and often.

We so often focus these days on the cost of getting a higher education.  Clearly, as the statistics show, there is the cost of NOT getting a higher education.  Nevertheless, the price these days of a college education is beyond an academic matter.  For 2010, the average cost for a private four-year college is $26,273 per year.  For the average public, a four-year college education would cost $7,020 (source: http://www.collegeboard.com/student/pay/add-it-up/4494.html).  These prices are up 5.5% from last year, even during the worst recession since the 1930s.

Fortunately, there will be additional relief for many parents and students under the American Recovery and Reinvestment Act.  Within this Act is the American Opportunity Tax Credit, which has renamed the existing Hope Credit.  The good news is that unlike the Hope Credit, where the credit could only be claimed for two years of post-secondary education, the new credit covers the first four years.  Another significant change for the credit is what constitutes “qualified tuition and qualified expenses.”  Course materials are now covered, such as necessary books, supplies and equipment.

The calculation of the credit is rather simple: the credit is 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of qualified expenses.  Thus the maximum credit per student is $2,500.

The eligible credit amount will reduce your tax liability, dollar for dollar.  If your credit exceeds your total tax liability, 40% of it will be refunded to you.

To qualify for the maximum credit, your modified adjusted gross income cannot exceed $80,000 for single filers ($160,000 for joint filers).  Between $80,000 and $90,000 for single filers, the allowable credit is gradually reduced ($160,000 to $180,000 for joint filers).  The American Opportunity Tax Credit is available for tax years 2009 and 2010.

If you would like a free consultation with the experts that provide this information, please contact 866-840-1829 x5438

S corporations have been around since the 1980s and are considered the most popular entity choice for closely-held businesses. It’s easy to understand why this entity has gained so much popularity since its conception. Aside from providing shareholders with the same liability protection afforded to the shareholders of C corporations, S corporations allow the income, deductions and tax credits to flow through to shareholders, regardless of whether distributions are made. Thus, income is taxed at the shareholder level and not at the corporate level. Also, income from the S corporation is not subject to employment taxes and certain corporate penalty taxes do not apply to this hybrid entity.

According to data provided by the IRS, about 68 percent of S corporation returns filed misreported at least one item. Deducting ineligible expenses was determined to be the most frequent error on the returns. There were also a lot of mistakes found in the calculation of the basis of shareholders when claiming losses that flowed through to their personal returns. The amount of losses that a shareholder can claim on his tax return is limited to his basis in the S corporation. Apparently, tracking basis remains to be one of the biggest challenges for shareholders.

In addition, it appears that a large number of S corporations failed to pay adequate wages to shareholders for the services that they render to the company. A reasonable compensation is required to be paid to shareholders who are deemed employees because of the work that they perform for the corporation. Not doing so would lead to the underpayment of employment taxes and the IRS will re-characterize the profits and levy interest and penalty for non-compliance. This is considered a serious issue by the GAO, who announced that the net shareholder compensation underreporting equaled roughly $23.6 billion!

The IRS has not released any clear guidance on what tantamount to reasonable compensation and this is seen to hinder compliance and enforcement. Studies show that the average S corporation allocates about 41.5% of the profit to shareholders in the form of salaries and the remaining 58.5% in the form of K-1 distributions. Among tax professionals, however, the following practices have been resorted to when determining how much is reasonable:

• Using industry averages and surveys
• Finding salary data online at various websites that offer salary calculators
• Determining how much comparable employees are paid by comparable corporations

 The IRS generally agreed with the Government Accountability Office’s recommendations and that indicates more audits will be performed on S corporations in the near future. Now that the IRS is beginning to take a harder look at S-corporations, both the shareholders and their tax professionals should carefully evaluate if the deductions taken on the tax return could withstand intense scrutiny, determine if the salary paid to the shareholder/employee is reasonable, re-calculate the basis of the shareholders and be vigilant in maintaining good business records.

Because the S corporation is such a popular strategy for our clients, we will be keeping a close eye on these issues.  We here at the Tax Club are committed to assisting you with any or all of your tax issues. Please contact us for a free tax consultation at (866)840-1829.

“The American people are responding with generosity and compassion to the devastating earthquake in Haiti, donating their hard-earned money and time so that those who are suffering may soon find relief,” said the Chairman of the House Ways and Means Committee, Charles Rangel. He is joined by ranking member Dave Camp, majority whip James Clyburn and Republican whip Eric Cantor in introducing this legislation. This move is intended to encourage the American people to contribute generously to the relief efforts mobilized around the world in the wake of the catastrophic earthquake in Haiti last week.  This impoverished country is asking for fiscal help to start the long process of rebuilding and restoring order to its communities.

The IRS allows contributions to domestic, tax-exempt, charitable organizations that provide assistance to people in foreign lands to qualify as tax-deductible contributions for federal income tax purposes, provided that the U.S. organization has full control and discretion over the use of such funds. Contributions to foreign organizations generally are not deductible. Contributions to benefit specific individuals or families are also not deductible. For individuals, the deduction is made on Schedule A, Itemized Deductions, and the amount that may be deducted is limited to 50% of the adjusted gross income. However, the non-deductible portion may be deducted on the taxpayer’s future tax returns. To qualify as a tax deduction, the donations must be substantiated by a bank record or a written communication from the charity showing the name of the organization, the date when the contribution was made and the amount of the contribution.

To avoid being victimized by phony scams that proliferated in the aftermath of the earthquake, the public is advised to be vigilant and to check the track record of each organization before making their donations. Fraudulent schemes may be perpetrated through the telephone, internet, e-mail or in-person solicitations. Check with the IRS if you have a specific charity in mind and would like to verify if it is a qualified organization. Some organizations, such as churches or government institutions, may be qualified even though they are not listed on the IRS website.

Because Congress unanimously passed a similar bill in 2005 in the wake of the Indian Ocean tsunami, it is expected that this new legislation will be passed as well. The donations would have to be made before March 1 to qualify for 2009 deductions. Please call the Tax Club at (866)840-1829 ext. 5438 if you would like to know more about claiming your Haiti aid donations on your tax return.

A need to contain the budget deficit is likely to mean that a permanent repeal of the estate tax is unlikely. At the same time, the House Christmas recess and the Senate’s focus on passing healthcare reform legislation before it leaves for the recess, creates the potential for the estate tax being in limbo for a short period.

There is an increasing likelihood that the estate tax will expire at the end of the year because of congressional inaction—only to be reinstated retroactively at 2009 levels for an interim period early next year.  If a comprehensive estate tax bill can not be passed in 2010, a provision for either a 1 or 2 year “patch” keeping the estate tax at 2009 levels is likely.

The House has passed H.R. 4154 the Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009 which would continue the estate tax exemption and top tax rate at 2009 levels.   The bill is now under consideration in the Senate, but a split among Democrats and a focus on health care is likely to have lawmakers hold off this year on debating the future of the estate tax.

A raft of tax provisions are set to end next year including the individual income tax cuts championed by President George W. Bush. The future of the estate tax could be considered along with the income tax since both taxes affect many in the business community.

The Obama administration has proposed making permanent the 2009 rate and indexing it to inflation in future years, while centrist Democrats have proposed reduced rates.

With the uncertainty, it is difficult to plan on possibilities, but there are some exclusions and deductions which are still available to help you.

During your lifetime, the gift tax exemption allows you to transfer up to $1 million of taxable gifts without paying gift tax.

You can exclude certain gifts up to $13,000 per recipient each year, $26,000 per recipient if your spouse elects to “gift-split”, without using up any of the gift tax exemption.

There is an unlimited marital deduction allowing your estate to deduct the value of all assets that pass from you to your spouse at your death, provided your spouse is a U.S. citizen.

Don’t take a wait-and-see attitude about reviewing your estate plan; review it now.  Depending on how your plan is set up, it may require updates to avoid unexpected and undesirable results.  Plus, with proper planning, you can make the most of increased exemptions.

Single taxpayers with taxable income up to $33,950 and married couples filing jointly with taxable incomes up to $67,900 qualify for the 0% rate. The 0% rate applies to any long-term capital gains that qualify for the 15% rate for other taxpayers, not just to gains on publicly-traded stock.

Because the tax rates are graduated, you may be able to benefit from the 0% rate, even if your total income may be above the threshold. Remember, we are referring to “taxable income”, NOT gross income. You are entitled to personal exemptions ($3,650 per exemption) and at least the standard deduction ($11,400 for married, and $5,700 for single). As a result, your gross income could be $15,050 higher for a married couple and $9,350 more if you are single, and still qualify for the 0% rate.

And it could be higher if you are over age 65 or if you itemize your deductions.

This break may be especially useful for a retired couple who has some potential capital gains. For example, assume a retired couple has taxable income of $40,000. In 2009 they could realize a long-term capital gain of up to $27,900, and not pay any additional tax. Before this, that capital gain would have been taxed at 15%, meaning an additional federal tax of $4,185.

If you are in a low-bracket and you are sitting on unrealized capital gains, you may have been reluctant to sell because of the built up capital gain. For 2009 and 2010 at least, you may be able to avoid the tax all together, freeing up more capital. Another opportunity presents itself for taxpayers who are supporting parents in a low tax bracket. The taxpayers could give some appreciated securities to the parents, who sell them and pay 0% tax. The amount given should stay within the annual gift tax exclusion amount of $13,000 ($26,000 if a married couple elects to “gift splitting”) to avoid owing gift taxes or using part of the lifetime gift tax exemption. The exclusion is per recipient, so the amount you can give away would be doubled if the gifts were given to each person of a married couple.

Gifts of appreciated securities also could be made to children in low tax brackets, but the gifts would have to be made to adult children. Recent changes in the “Kiddie Tax” will prevent high income parents from giving securities to their minor children to sell and pay 0% capital gains taxes. To avoid the restrictions, the children must be over 21 or over 23 if they are full-time students. The restrictions also can be avoided if the children do not qualify as dependents on their parents’ tax return by providing more than 50% of their own support and earning income. Youngsters who do not meet those exceptions must have incomes less than $1,900 to qualify for the 0% rate.

If you require a free consultation with The Tax Club, please feel free to call us at 866-840-1829 x5438

You may be thinking how can I save money replacing my windows? The answer is through Federal Tax Credits. As part of the US stimulus plan, there are a significant amount of generous tax breaks for everything from replacing doors to installing geothermal heating systems. Fixing up your home has never made so much economic sense.

So let us learn how to save the world and get money while doing it. The following appliances and or improvements will save you 30% of their cost up to $1,500. Let’s keep in mind that this Federal Tax Credit expires on December 31^, 2010. Hopefully, Congress will pass a new bill that extends this great benefit.

• Biomass Stoves
• Heating, Ventilating, Air Conditioning (HVAC)
• Insulation
• New Roofs (Metal or Asphalt)
• Water Heaters (non Solar)
• Windows & Doors.

I know you may be thinking bigger, like placing a solar energy system in your home, or a wind turbine system. What kind of credit do you receive then? Listed below you will see the improvements that can give you a credit of 30% of the cost with no upper limit. This means if the improvements costs $100,000, you will receive a credit for $30,000. This credit will expire on December 31, 2016.

• Geothermal Heat Pumps
• Small Wind Turbines
• Solar Energy Systems

(for more information on qualified  appliances and improvements please visit www.energystar.com)

It is important to note that a credit is better than a deduction because it decreases the amount owed in taxes dollar per dollar, while a deduction simply decreases the amount of income before taxes are calculated.

In addition to federal tax credits, it is important to note that some states also offer an additional green tax credit. While the federal government is allowed to operate with a budget deficit, in general, states are not, which is the reason your state might not offer this credit. Please visit www.dsireusa.org to find out if your state offers any benefits or not. Oregon deserves to be mentioned due to their substantial green tax credits offered to both homeowners and business. For additional information please don’t hesitate to contact The Tax Club.

Deducting vehicle expenses for the business

            Vehicle expenses incurred for a business purpose could be expensed if you are driving from one work location to another or driving from your home office to meet with clients or attend to daily business activity. Commuting from home to work is not considered a business expense and is not deductible. However, contractors and self- employed individuals are exceptions to this rule and can claim their mileage to and from work as a business expense.

            The IRS provided two methods of deducting vehicle expenses for a business purpose, the standard mileage rate method and actual vehicle expense method. In the first year that a new vehicle is available for business use, the right method should be determined to get the maximum benefit from this deduction. To be able to use the standard mileage rate method each year, it should be used in the first year that a vehicle is used for the business. If in the following year it is determined that the actual expense method is more beneficial, the option of using this method is still available. It is important to know that if the actual expense method is chosen in the first year that a vehicle is placed in service, the standard mileage rate method can no longer be used. If a leased vehicle is used for a business purpose and the standard mileage rate method is used, the same method must be used the entire lease period.

Keeping track of expenses

If a vehicle is available for both personal and business use, the expenses must be divided based on the percentage of use. The percentage of use can be determined by calculating the miles driven for each purpose. It is also important to note that the vehicle expenses claimed for business purpose should be reasonable and appropriate. As an example, vehicle expenses for an e-commerce business should be considerably less than those for a truck driver based on the nature of the activities. Record keeping and maintaining proof of the expenses is needed in order to substantiate the expenses claimed on your tax return. 

In order to be able to claim a deduction, the IRS requires that a mileage log be maintained in order to support the business nature of the expenses. The mileage log should include the date, beginning and ending odometer reading and a brief description of the trip.

Choosing the standard mileage rate

The standard business mileage rates for 2009 and 2010 are 55 cents and 50 cents per mile, respectively. Expenses such as gas, repairs, maintenance, insurance and depreciation cannot be deducted if the standard mileage rate method is used. The standard mileage rate method may not be used if it is for a vehicle for hire such as taxi or limousine services, if four or more vehicles are used by the business simultaneously or if the expenses were incurred by an employee while using a vehicle provided by his employer.

Choosing the actual vehicle expense method

The actual vehicle expense method is used if it provides a greater benefit than the standard mileage rate method. Once the actual expense method is chosen, it must be used throughout the life of the automobile. Actual automobile expenses include depreciation, gas, oil, insurance, repairs and lease payments on the vehicle.  Automobile loan interest expense is deductible for self-employed individuals but not employees. Money paid for parking and tolls are deductible for both methods. Fines are not deductible. 

Medical automobile expenses

Automobile expenses such as travel to doctors, dentists, hospitals or other qualifying healthcare facilities are considered medical expenses. The standard mileage rate for medical expenses is 24 cents per mile for 2009 and 16.5 cents per mile for 2010. Oil or gas expenses can be taken instead of mileage if the expense results in a higher deduction. Medical automobile expenses are reported on Schedule A, Form 1040.

Moving automobile expenses

Moving expenses are deductible if they are due to a change in the location of your current job or business or if you are starting a new job or business.  In order to claim moving expenses, certain tests must be satisfied such as the distance and time test. If all the tests are satisfied, you can claim your moving expenses on form 3903. The standard mileage rate for moving expenses is 24 cents per mile for 2009 and 16.5 cents per mile for 2010. Gas and oil expenses can be claimed instead of mileage if the deduction results in a greater tax benefit.

Charitable automobile expenses

The IRS also allows a deduction for automobile expenses incurred for a qualified charitable organization.  You can deduct your actual gas and oil expenses or you can also use the standard mileage rate of 14 cents per mile for 2009 and 2010. The expense is reported on Schedule A, Form 1040.

Schedule an appointment with one of the Tax Club’s specialists to see if you qualify for the automobile expense deduction on your income tax return.

Deducting vehicle expenses for the business

Vehicle expenses incurred for a business purpose could be expensed if you are driving from one work location to another or driving from your home office to meet with clients or attend to daily business activity. Commuting from home to work is not considered a business expense and is not deductible. However, contractors and self- employed individuals are exceptions to this rule and can claim their mileage to and from work as a business expense.

The IRS provided two methods of deducting vehicle expenses for a business purpose, the standard mileage rate method and actual vehicle expense method. In the first year that a new vehicle is available for business use, the right method should be determined to get the maximum benefit from this deduction. To be able to use the standard mileage rate method each year, it should be used in the first year that a vehicle is used for the business. If in the following year it is determined that the actual expense method is more beneficial, the option of using this method is still available. It is important to know that if the actual expense method is chosen in the first year that a vehicle is placed in service, the standard mileage rate method can no longer be used. If a leased vehicle is used for a business purpose and the standard mileage rate method is used, the same method must be used the entire lease period.

Keeping track of expenses

If a vehicle is available for both personal and business use, the expenses must be divided based on the percentage of use. The percentage of use can be determined by calculating the miles driven for each purpose. It is also important to note that the vehicle expenses claimed for business purpose should be reasonable and appropriate. As an example, vehicle expenses for an e-commerce business should be considerably less than those for a truck driver based on the nature of the activities. Record keeping and maintaining proof of the expenses is needed in order to substantiate the expenses claimed on your tax return.

In order to be able to claim a deduction, the IRS requires that a mileage log be maintained in order to support the business nature of the expenses. The mileage log should include the date, beginning and ending odometer reading and a brief description of the trip.

Choosing the standard mileage rate

The standard business mileage rates for 2009 and 2010 are 55 cents and 50 cents per mile, respectively. Expenses such as gas, repairs, maintenance, insurance and depreciation cannot be deducted if the standard mileage rate method is used. The standard mileage rate method may not be used if it is for a vehicle for hire such as taxi or limousine services, if four or more vehicles are used by the business simultaneously or if the expenses were incurred by an employee while using a vehicle provided by his employer.

Choosing the actual vehicle expense method

The actual vehicle expense method is used if it provides a greater benefit than the standard mileage rate method. Once the actual expense method is chosen, it must be used throughout the life of the automobile. Actual automobile expenses include depreciation, gas, oil, insurance, repairs and lease payments on the vehicle.  Automobile loan interest expense is deductible for self-employed individuals but not employees. Money paid for parking and tolls are deductible for both methods. Fines are not deductible.

Medical automobile expenses

Automobile expenses such as travel to doctors, dentists, hospitals or other qualifying healthcare facilities are considered medical expenses. The standard mileage rate for medical expenses is 24 cents per mile for 2009 and 16.5 cents per mile for 2010. Oil or gas expenses can be taken instead of mileage if the expense results in a higher deduction. Medical automobile expenses are reported on Schedule A, Form 1040.

Moving automobile expenses

Moving expenses are deductible if they are due to a change in the location of your current job or business or if you are starting a new job or business.  In order to claim moving expenses, certain tests must be satisfied such as the distance and time test. If all the tests are satisfied, you can claim your moving expenses on form 3903. The standard mileage rate for moving expenses is 24 cents per mile for 2009 and 16.5 cents per mile for 2010. Gas and oil expenses can be claimed instead of mileage if the deduction results in a greater tax benefit.

Charitable automobile expenses

The IRS also allows a deduction for automobile expenses incurred for a qualified charitable organization.  You can deduct your actual gas and oil expenses or you can also use the standard mileage rate of 14 cents per mile for 2009 and 2010. The expense is reported on Schedule A, Form 1040.

Schedule an appointment with one of the Tax Club’s specialists to see if you qualify for the automobile expense deduction on your income tax return.

Sales taxes are imposed on the price of goods and/or services and are an important source of raising capital for state governments. Sales taxes in the United States are calculated as a percentage of the sales price and are collected by the state and local governments. Each state and city has its own tax rates and not all goods and/or services are taxed the same way. In general, most states do not impose taxes on services and on necessities.  However, food bought in restaurants is an exception and is normally taxed. Certain states also allow exemption from sales tax for certain organizations such as schools and certain non-profit organizations. These organizations may apply for sales tax exemption thru a process similar to that of a vendor applying for a sales tax permit.

The responsibility for collecting the sales tax lies on the sellers and they are required to report the sales taxes collected to the state. Resellers are not subject to the sales tax if they purchase the goods with the intention of reselling them. Your local convenience store that charges you sales tax is really acting as a middle-man saddled with the task of collecting and delivering the sales taxes to the government. The privilege to be exempt from sales tax on items that are bought and intended for resale is obtained by applying for a sales tax permit/license. This certifies a person or business as a reseller eligible for exemption from paying sales taxes on items bought for resale and requires them to withhold sales taxes from their buyers.

Businesses owners who have physical stores would withhold sales tax from all their customers unless presented with a reseller’s permit. Online sales are slightly different. There is a lack of uniform regulation and enforcement for “online stores”. To keep things simple, sales tax is normally expected to be collected when customers are from the same state as the business’ state of incorporation and where the operations and business assets are located. Sellers are not required to withhold sales tax for the state the drop shippers are located in since they do not own the drop shipping company’s operations or assets.  Therefore, they are not considered to have physical presence in the state of the drop shipper. Online stores and sales tax collection laws are not fully formed yet since this matter is fairly new. However, the states are now in the process of establishing a uniform sales tax collection and monitoring system for the internet.

In conclusion, the sales tax is a consumption tax charged at the point of purchase for certain goods and services. The end-user or the person who purchased the good for his own consumption generally carries the economic burden of paying the tax. Business owners are tasked with the responsibility of collecting and remitting these taxes to the government and will be levied with penalties and interest if they do not comply.  Since sales tax is a huge and important revenue source for state governments, compliance is strictly enforced and numerous audits are conducted to ensure that the tax is collected and remitted to the government.

The Tax Club is committed to educating the public to the best of its abilities. If you would like to speak with one of our associates for a free consultation, please contact us at 866-840-1829 x5438