Q: Do I have to file my 1040 Electronically?

A: Yes! For the first time the IRS requires that all 2010 Form 1040s (as well as estate and trust returns) prepared by CPA firms be filed electronically. While it may seem a little scary at first – it is the safest and fastest way to submit your return. If you have a refund coming and have it direct deposited you will get your refund much faster.

Q: What if I OWE taxes and file electronically?

A: You have two options – #1 – in the same way a refund is direct deposited into your bank account, the payment to the IRS can be direct debited from your account. We can tag the payment to come out when the return is filed – or on April 15th (or the filing deadline date). Or #2 – we can go ahead and file the return electronically and provide you with a voucher to mail in with your check.

Q: What kind of entity should I create for my business?

A: This is perhaps the most frequently asked question by our clients or prospective clients. The answer is “It Depends”! While that doesn't help you a lot let me explain. First of all if you are starting a brand new business and you are not sure of your income – and you have no significant liability issues – consider NOT creating an entity until you know if you will have a successful business. If you expect significant revenue and/or there are possible liability issues – your choices of entity are – Partnership (LP, LLP or LLLP) Corporation (C or an S) Limited Liability Company (LLC or LC – taxed like a partnership usually). Of all these types on entities only one – The C Corporation – pays federal income tax at the corporate level. This can result in double taxation – meaning you pay corporate income tax on corporate income – and then later pay out the profits to yourself as a shareholder and pay taxes again. As a result we suggest you elect S Corporation status for your Corporation. (Must file Form 2553) While any entity will work for any type of business we see more service companies form S Corps or LLCs will we frequently see real estate related companies use LLPs or LPs.

Q. What are the dates my individual income tax estimated tax payments are due?

A: Estimated tax due dates are April 15, June 15, September 15 and January 15. So for 2011 – your ES payments are due on April 18, 2011, June 15, 2011, September 15, 2011 and January 17, 2012. Any time the date falls on a weekend or holiday the due date is the next business day.

Q: What is the “safe harbor” estimate tax payment amount?

A: The IRS expects to receive your tax payments ratably throughout the year as you earn your income. If you do not have enough tax withheld from your paycheck, or if you don't get a paycheck and have withholding, then you must make quarterly estimated tax payments. The IRS has developed a “safe harbor” rule that will help you avoid any underpayment penalties. For 2010 the safe harbor provides that you will not be assessed an underpayment penalty if your withholding and estimated payments equal 90% or more of the tax shown on the 2010 return or 100% of the tax on your 2009 return, whichever is less. If your 2009 AGI (Adjusted Gross Income) was $150,000 or more the 100% amount above becomes 110%.