Simply Junior

With the recession and surging unemployment swelling the ranks of people reinventing themselves, millions of taxpayers are setting up home-based businesses and providing their services as self-employed independent contractors. Whether your new self-employed independent contractor status is a temporary measure or part of your long-planned road map to fortune and glory, there are tax dangers (plus surprisingly lucrative income tax relief) that should grab the attention of every self-employed independent contractor.

We know the IRS is targeting self-employed independent contractors. The government estimates that 85% of the $345 billion tax gap is due to self-employed individuals – freelance professionals and independent contractors who don’t get a 1099 the way large business employees do. Being a self-employed independent contractor means you’re the boss, unfortunately it also means you’re the one on the hook for any problems with back taxes. How you handle your back tax problems will not only determine whether your business will succeed, but it also carries the real threat of jail time if you get it wrong.

To learn more ways to legitimately maximize deductions while avoiding IRS problems, check out Part 2 of this series on Tax Help Tips for Saving Money on Taxes for Freelance Professionals and Self-Employed Individuals.

Read on for my best year-end tax help tips to show self-employed independent contractors how to get the biggest income tax relief possible.

Year-End Income Tax Relief Tip #1: Did you owe back taxes because you made a mistake in your quarterly estimated taxes? If you’ve spent your life working as an employee, you may be delighted that the first money you receive as a self-employed independent contractor is a flat fee without any taxes taken out. But your joy should be short-lived, this is a case of the taxman being delayed but not denied.

Contact a tax attorney to make sure you have structured your business correctly. If you haven’t gotten tax help from a tax attorney yet, there is still time to structure your business to get the maximum income tax relief before the year end. (After that you’re stuck with your mistakes. Well, mostly. A good tax attorney or tax resolution specialist can still get you out of back tax trouble, but the best approach is to avoid owing back taxes in the first place.)

Year-End Income Tax Relief Tip #2: Are YOU really a self-employed independent contractor? Many businesses (large and small) mislabel their employees as “self-employed independent contractors” to get income tax relief and sidestep a host of state and federal laws. If your boss has you misclassified as a self-employed independent contractor and you file as one, you could be in a heap of trouble when the IRS comes knocking on either your door or your boss’s door to collect back taxes. Suddenly, all those lovely deductions go out the window and your tax bill explodes. If you feel your boss has misclassified you as a self-employed independent contractor, contact a tax attorney or tax resolution specialist immediately for some self-employed independent contractor back tax help before the year ends.

Year-End Income Tax Relief Tip #3: Are your subcontractors really self-employed independent contractors or are THEY employees? While you may be a true self-employed independent contractor, you need to establish whether your subcontractors are self-employed independent contractors or employees. According to IRS Summertime Tax Tip 2009-20, “the cost of misclassification to employers in additional taxes, as well as administrative time, or the loss of tax-favored status for employee benefit plans, can be steep.” If you’re not sure, contact a tax attorney or tax resolution specialist to get tax help immediately.

Year-End Income Tax Relief Tip #4: Want to get income tax relief on your 2009 self-employed independent contractor work by delaying paying taxes until 2011? For a host of income tax relief reasons, a self-employed independent contractor might want to defer getting paid until next year. If you did work in 2009 but don’t want to pay 2009 taxes on it, simply wait to invoice your clients until January 1, 2010. This 2009 income tax relief technique is perfectly legal for self-employed independent contractors as long as you pay taxes on that income in your 2010 tax return.

Year-End Income Tax Relief Tip #5: Get that root canal before New Year’s. The secret to income tax relief is just like the secret to great comedy…timing. A self-employed independent contractor’s medical expense deduction is limited to 7.5% of the self-employed independent contractor’s adjusted gross income. If you haven’t reached that cap yet, go have those dental procedures or that bit of elective surgery (we’re not just talking about that nose, the swimsuit season will be here again before you know it). As long as you’re under that 7.5% limit, you can get income tax relief from your standard variety medical expense deductions. A little known year-end income tax relief tip – you don’t even have to pay for the medical procedures before January 1, 2010. Just put the medical charges on plastic and pay the minimum balance. As long as you had the procedures in 2009, the deduction is good. If your medical expenses are already over the 7.5% level of your self-employed independent contractor’s adjusted gross income, you should delay breaking your leg until January 1st, 2010.

Year-End Income Tax Relief Tip #6: Pay your state taxes before the ball drops. As a self-employed independent contractor, one of the best income tax relief strategies is to pay your state estimated tax before December 31st. If you pay by December 31, 2009 you get the deduction (on your federal return) in 2009. You can also charge these expenses on your credit card(s) in 2009 and receive the deduction in 2009, even though you won’t be paying for them until 2010. If you are having issues paying your estimated state taxes, a tax attorney can give you tax help to get the maximum income tax relief possible.

Year-End Income Tax Relief Tip #7: Make your stock market losses work to your advantage. If your personal portfolio has taken a nose dive, realize your tax losses before New Year’s Eve. Long term capital losses can be used to offset long term capital gains, and up to $3,000 of ordinary income, with any remainder carried forward for use in future years. This is about getting income tax relief not whether you made the right investment choices. If you still believe those stocks will go up again, buy them back on January 1st. Keep in mind that some mutual funds can have high capital gains distributions even as they lose money. The best income tax relief advice is to ditch these first because they are hitting you with a double whammy. As a self-employed independent contractor you have access to some of the best retirement accounts out there like a SEP-IRA. To understand which investing should be done as part of a retirement account, and which should be in your personal portfolio and when to take losses for maximum income tax relief, get tax help from an experience CPA or tax attorney.

Year-End Income Tax Relief Tip #8: Give your personal gifts before Rudolph goes flying. As a self-employed independent contractor, you can give a friend or family member up to $13K annually before the year end without having to pay gift taxes. (Your spouse can give that same amount to the same individual.) You can also give that same amount to your child’s or grandchild’s tax-free 529 education plan. If you haven’t funded such a plan yet, you can make a single contribution covering five years of gifting. That’s $65,000 you can give per donor per recipient tax-free. (Your spouse can match that contribution as well.)

Year-End Income Tax Relief Tip #9: Give gifts to clients: Gifts to clients are limited to $25 per recipient per year, BUT if the gift has your embossed logo on it and tells about your services, it isn’t a gift, it is an advertising or promotional expense. There is a fine line here, a quick call to a CPA or tax attorney for year-end tax help will help you stay on the right side of the law.

Year-End Income Tax Relief Tip #10: Take your retirement contribution to the max. Self-employed independent contractors have the best income tax relief vehicle the federal government has ever offered. While individual worker contributions to a simple IRA max out at $11,500, if you’re under 50 in 2010 ($14,000 if you’re over 50), how is this for serious income tax relief, as a self-employed independent contractor you can use SEP-IRAs to contribute 25% of your wages (or up to 20% of your Schedule C income) up to a maximum of $49,000. The income tax relief to a self-employed independent contractor are massive. A tax lawyer or CPA an give you the tax help to set up the right retirement vehicle for you.

I know that this is a long list but the income tax relief you can get from just paying attention to the calendar is huge. These 20 self-employed independent contractor tax help tips can make the difference between being a Grinch and having a Happy New Year. Your call.

For more information on achieving a tax resolution for your back taxes or IRS debt, visit www.taxresolution.com for a free tax relief consultation or call 866-IRS-PROBLEMS.

What’s been happening with the real estate market in the United States over the last few years? With unemployment and foreclosure numbers (and bailouts) at all time highs, how long is this recession going to last? Are the experts really able to predict what the economy and real estate market is going to do in the future?

How we got here. If you haven’t heard, the primary reason there are so many foreclosures is because some of our alleged “leaders” decided that almost everyone in the country should own a home, even if they couldn’t afford it (I say “alleged leaders” because true leaders would admit their mistakes and take corrective action, not blame everyone else and give bailouts to banks, but that’s beside the point). Many Americans over-leveraged their incomes and homes by buying more than they could afford. That, coupled with high levels of credit card debt and unemployment, created this economic “consumer unfriendly” climate.

With all the doom and gloom we hear every day, it’s good to see some encouragement once in a while, isn’t it? A few days ago I saw a billboard that said “Recessions 101: the funny thing about recessions is that they end.” How true. In most cases, an economy cannot go down forever. There’s a cycle, and it will turn around. The question is when?

Most economic experts are not in agreement about whether we’ve hit the bottom of this cycle. Still, I’ve had conversations with business owners who have weathered many real estate cycles who say we are not yet at the bottom. With government debt and spending also at an all time high, the value of the U.S. dollar is dropping rapidly, which in turn may cause inflation. What does that mean for the average American? In simple terms it means the $100 you have in your pocket may only be worth $93 next year. It also means that the debt you acquire this year will cost you more to pay off next year. It truly is a time to pay off your debts and have cash reserves in place; something which the average American is not an expert. Dave Ramsey dot com is a good resource for help accomplishing this is.

Job growth may be the number one factor that affects the real estate market, so what has the job market been saying lately? Besides the influx of temporary Census jobs, job growth has been nominal nationwide. Each state has different statistics, but across the country, the unemployment rate remains at 9.6%. As soon as we see these numbers going up consistently (actual numbers, not projections), we can most likely expect the housing market to start rising again.

In light of this info, what trends are we seeing? For the most part, people are spending less on consumer goods and saving more money. Some are even selling their homes and renting instead (or moving in with family). People are becoming adaptive and are finding ways to survive, just like our American ancestors who founded the country. Others are finding new businesses to start and are thriving.

In times like these, it’s important to take the time to keep good track of our income and expenses, and to spend less money than we make. If we do those two things, we will be sitting strong and will be ready to prosper when the economy decides to turn around. For those who don’t want to wait for the economy to turn around, find someone who is doing well in this down economy and copy their habits. You know what “they” say: if you do what someone does, you’ll get what they’ve got, every time.

It’s the second week of December and ever growing throngs of people are dipping into their savings accounts in order to stock up on Christmas gifts. This is nothing new; the ‘Christmas Rush’ has been the busiest time for all manner of retailers for decades and is the core time for high street shops and online stores to get a hefty boost to their revenue. In spite of the recession and widespread economic concerns on a global level, this year’s December spending is looking as healthy and high as ever. This isn’t however solely due to festive spirit but also heavily influenced by politics.

January 4th 2011 – V(AT) Day

On Tuesday 4th January 2011 VAT will be increased from 17.5% to 20% in the UK. Although a 2.5% increase may not sound like much, when you consider that VAT is payable on the vast majority of products and services that you purchase from stationery supplies through to online recruitment services- it all adds up. In most cases, retailers will pass on the increase to the consumer which means an extra penny or two on grocery items, all the way through to several hundred pounds more for a new car. In light of the potentially large additional costs when it comes to high value goods, many people are looking to buy larger items sooner rather than later. This rush to spend money before January 4th on top of the Christmas rush is a great short-term boost to the economy.

Potential Concerns

Aside from the obvious downside that a VAT increase impacts upon the less affluent as much as it does upon the more well off, there are other potential negative ramifications on a broader scale. For starters, the slightly higher cost of certain items may hit retailers hard – with the option of absorbing the increase themselves or passing it on to the consumer they risk either eating into their profit margins or losing business. It could also adversely affect charitable organisations – charities do not have to be VAT registered such that the maximum sum goes to the cause they represent. The flipside of this arrangement is that charities are unable to claim back the VAT they spend on items or services – as such the VAT increase could well have a noticeable impact upon the amount they ultimately raise.

The Upsides

Although 20% may sound like a high figure to many, it is in fact very much in line with the VAT levels of other European countries – on a par with Italy, Austria, Bulgaria and the Czech Republic and considerably lower than the 25% charged in Denmark, Norway, Sweden and Hungary. VAT also serves as a means of keeping income tax down, by providing a governmental revenue stream which many consumers don’t even notice.

Whether you’re for or against the forthcoming VAT rate hike in the New Year, there is nothing that can be done about it on a personal level- apart from leaving the country, and to do so for the sake of 2.5% seems a slight over-reaction!

Average Joe Prediction #1: The economy will slump into another recession by the end of 2010. This is double trouble for the Average Joe. You combine a slowing economy with high unemployment, along with the end of tax cuts and you end up with a situation that will squeeze the middle class. To combat this problem, focus your effort on keeping a reserve of cash on hand, as well as current or future sources or ideas of generating extra income quickly.

Average Joe Prediction #2: The stock market will gyrate in wild up and down swings with mostly sideways movement, perhaps ending 2010 at the 8000-8500 level. The 2011 market may trend lower, to perhaps the 6000-6500 level by year end 2011. Media will not admit to continual signs of economic weakness and hope for a return of a bull market. People like “Cramer” on TV will insist the market is oversold and that now is the best time to buy.

For the Average Joe, you may want to consider investments that include financial stocks supported directly or indirectly by the government. These may be the only safe havens that can provide returns. Small and mid-capped stocks might get thrown under the bus since they do not have the strength to combat higher taxes, health care reform and slow markets.

Average Joe Prediction #3: Oil prices will go up, and gas will end 2010 at $3.25 per gallon on average, while 2011 will yield prices at the $4-$5.00 per gallon level. This might seem high, but considering the current BP disaster, the government in conjunction with the oil industry, will start price hikes for a number of reasons. The biggest reason will be to help pass legislation on cap and trade, to pressure the public that alternative energy is the best way to go. The other factor will be the BP disaster, and its inflated effect on the oil markets.

The rug will be pulled out from under the Average Joe in this case, with price hikes taking people by surprise. A good hedge for this problem is to simply conserve fuel by purchasing fuel efficient vehicles. 30 to 40 miles per gallon sub compact cars, as well as car pooling can keep this item in line on your budget.

Average Joe Prediction #4: Possible changes in currency/dollar value. In this case inflation or deflation may be the outcome by 2011. For the Average Joe, you can prepare for this scenario by forming alliances with other people and businesses that like to barter or trade goods and services, rather than paying for them with devalued or overvalued dollars.

Staff Retrenchment Isn’t The Answer
Retrenchments occur because they save money. In almost every business, wages and other staff costs are the biggest or second biggest expense. Retrenching 20% of 50,000 or 10,000 staff saves huge amounts of money. And you still have 40,000 or 4,000 employees remaining to reorganize to share the workload.

Retrenching 5 of 20 or 2 of 10 employees produces modest savings. And in a busy small business it’s more difficult for 20 staff to do the work of 25 or 8 to do the work of 10 than for 40,000 to be reorganized to do the work of 50,000.

Retain Your Staff: Reduce Your Profits
Are you prepared to work on reduced profit margins so that you can retain staff? Almost all your competitors will retrench staff, reduce prices and cut costs. But their service standards will drop. Their revenues will fall. They might maintain a 25% gross profit. But 25% of severely reduced recession revenues may be less than 20% of pre recession revenues. Your objective is to maintain a viable business for the next 2-3 years so that you can regain good gross profit as quickly as possible.

Be Ready For Intense Competition
Recessions create competition. Expect your competitors to use all sorts of tactics to frankly, put you out of business. They’ll reduce prices, extend credit lines, offer bulk discounts, target your best clients and staff and even spread misinformation about your financial viability. Don’t be surprised when this happens. Be ready for it.

It’s Bargain Time
Recession time is bargain time. I don’t advocate wanton spending merely to “snap up” bargains. But during a recession, you should also be able to negotiate lower prices from suppliers. You may even be able to renegotiate and extend current leases at favourable terms. Of course, you must have the cash flow to support such expenses. Don’t overextend just for a “good price”.

Recessions Create Winners As Well As Losers
During the Great Depression, employees who kept their jobs, even with reduced wages, improved their living standards. Wages may have reduces by 50%. But prices for commodities such as eggs, milk, meat, bread, sugar and similar staples fell by up to 80%. Many companies too, stayed in business with reduced revenues. But their expenses also fell. And they gained new clients from businesses which closed. It may be doom and gloom for many. But if you can survive you should also thrive. Make recession a positive self fulfilling prophecy for your business.

Conclusion
When your business survives the recession, it will be leaner and better focussed. You’ll have better systems, better expense control, higher performance standards, more dedicated customers and more committed staff. Put simply, you’ll have a far more effective business than you had prior to the recession. And that’s the biggest benefit of all.