Jake Snelson - Vyde

4 Inexpensive Ways to Market Your Business

When you’re a small business owner, every dollar counts. Spending a lot of money on marketing can bring in great results, but what if you could bring in interested customers without dropping a lot of money on marketing? These 4 Inexpensive Ways to Market Your Business can help you target people who are interested in what you have to offer without breaking the bank!

Guest Post on a Blog or Podcast

A big part of growing your business is becoming a reputable source. One of the best ways to do that is to get in front of an audience. If you don’t have time to slowly grow your own audience, then guest post on a blog, or be a guest on a podcast that already reaches your target market.

When you are a guest on a blog or podcast it shows that audience that someone they trust considers you an authority on the subject. This gives you instant credibility. And people are more likely to use or buy from a business that they trust.

The best part of guest posting is that’s usually free! It’s the perfect inexpensive way to market your business.

Use Social Media

Social media is another inexpensive way to market your business. If you take the time to understand what works best on social media, you can reach a lot of people for a small amount of money. A lot of business owners get overwhelmed by which social media platforms they need to be on. There isn’t a one-size fits all option when it comes to social media. You should choose the right platforms for your business. You can learn more about the popular social media platforms here.

Social media is more than just posting and boosting your posts. Social media’s entire purpose is to bring people together around their interests. You can use this to your advantage by finding groups where you can serve the audience and then being active in those groups. If will help you see what your customers are looking for and then you can propose how your company is a solution to their problems.

Host a giveaway

Everyone loves getting free swag; so give the people what they want! Hosting a giveaway is a great way to gain followers on any of your social media channels or to grow your email list.

Hosting a giveaway can be an inexpensive way to market your business, if you do it right. You need to giveaway something that is of value, but doesn’t end up costing you too much. Giving away a product you sell or a service you offer is usually your best bet. If you want to go outside of a product or service you offer you can buy something to giveaway. Remember to read this post about how to legally operate a giveaway before you get started.

Send a press release

Sending a press release might sound old school, but it’s actually a great way to announce any new, exciting things your business is doing (plus it’s virtually free!)

The best way to keep press release costs at a minimum is to learn how to write them yourself. A quick Google search will come up with tons of resources on writing press releases. Take an afternoon to learn how to write one and then you’re ready to go!

A good press release is only effective in the right hands. If you’re a small local business, then make sure you send press releases to your local media. You never know when they’re looking for a story and they can give you great free publicity. Don’t forget new media when you’re sending your press release. Look for bloggers, YouTubers, Podcast hosts and other people in your niche. Sending a Press Release can get you featured in other outlets with big audiences, just like we talked about earlier.

Frequently Asked Questions

1. What are some inexpensive ways to market my small business?

There are several cost-effective strategies to market your small business:

Guest Post on a Blog or Podcast: Gain instant credibility by reaching a pre-existing audience without the need to build your own from scratch.
Use Social Media: Engage with your target audience on the right platforms, join relevant groups, and offer solutions to their problems.
Host a Giveaway: Attract new followers and expand your email list by offering valuable prizes without significant expense.
Send a Press Release: Announce exciting updates about your business to local media and influential bloggers, YouTubers, and podcasters for free publicity.

2. How can guest posting on a blog or podcast help my business?

Guest posting on a blog or podcast allows you to reach an established audience that trusts the host. This gives you instant credibility as an authority in your field, making it more likely that the audience will trust and engage with your business. Plus, guest posting is usually free, making it an ideal inexpensive marketing strategy.

3. Which social media platforms should I use to market my business?

The best social media platforms for your business depend on where your target audience spends their time. There is no one-size-fits-all approach. Research and understand the demographics and engagement levels of platforms like Facebook, Instagram, Twitter, LinkedIn, and TikTok. Choose the ones that align with your business goals and audience preferences.

4. What should I consider when hosting a giveaway to market my business?

When hosting a giveaway, consider offering a product or service you sell, as it provides value without significant cost. If choosing an external product, ensure it’s relevant to your audience. Also, understand the legal aspects of running a giveaway to avoid any legal issues. A well-executed giveaway can significantly boost your social media following and email list.

5. How can sending a press release benefit my small business?

Sending a press release is a cost-effective way to announce new and exciting updates about your business. Learning to write press releases yourself can minimize costs. Target local media, bloggers, YouTubers, and podcasters in your niche to increase the chances of getting free publicity. This strategy can help your business gain visibility and attract new customers.

What is the Kiddie Tax?

The Kiddie Tax is a tax applied to a child’s unearned income. When children under the age of 18 make $2,100 or more in unearned income, that income is taxed at the guardian’s tax rate. Unearned income is considered any gifts of stock or other investments. The Kiddie Tax does not apply to earned income (income made through employment.)

The Internal Revenue Service (IRS) uses the Kiddie Tax to discourage parents to put investments in their children’s names to try and reduce their taxes. The original law only applied to children under 14; however, the law was changed to include a wider age group. The law now applies to:

Any children under 18
Children who are 24 or under and are full-time students.

If your child owes Kiddie Tax it should be reported on their tax return. You can report Kiddie Tax on the parent’s tax return but it can affect deductions and credits, so it’s best to file a return for the child.

When you are filing a return for a child you will need the parent’s information. Here’s how to determine which parent’s information to use:

If parents are married filing jointly use the primary taxpayer’s information. (They will appear first on the tax return.)
If the parents have never been married use the parent with the highest taxable income.
If the parents are divorced use the custodial parent’s information.

Kiddie Tax Scenario

Dennis and Janet Feinstein gifted their daughter DeeDee a stock that pays out approximately $3,000 a year. Joanna was gifted this stock when she was 12 years old; she is now 17.

The first two years she had this stock her profits were under the Kiddie Tax requirements so she did not have to pay any tax on it. However, for the last three years she has made $3,000 a year. Because it exceeds the $2,100 for the Kiddie Tax DeeDee has to pay taxes on her stocks.

Dennis and Janet make $85,000 a year, which puts them in the 25% tax bracket. DeedDee’s stock are taxed at her parent’s tax rate, so she will pay $750 in taxes on her stocks.

Dennis will prepare DeeDee’s tax return using his information, because he is the primary taxpayer in their family. DeeDee will have a separate tax return filed in her name to pay the taxes on her unearned stock income.

DeeDee’s stock can be taxed under the Kiddie Tax until she is either no longer a full-time student or until she’s 24, whichever comes first.

What is a Joint Return?

A joint return is a tax return filed on the behalf of a married couple. Filing a joint return means that both parities share the tax liability. A joint return is also referred to as married filing jointly.

Only legally married couples can file a joint return. In order to file a joint return for any year you have to have been married on or before the last day of the year. If your spouse dies, the widowed spouse can still file a joint return for that year. However, going forward they would have to file a single return. If you get divorced at any point in the year you cannot file a joint return for that year.

Couples filing a joint return may benefit from:

Lower tax rates
Higher standard deduction
All information for a couple reported on one return, rather than having to file individually

Joint Return Scenarios

Joint Return: Newlyweds

Jason and Isabel were married on New Year’s Eve of 2016. When it came time to pay their 2016 taxes, they discussed what kind of tax return they should file with their accountant. He suggested a joint return. Even though they weren’t married for very much for 2016, they were still married on the last day of the year and they qualified for a joint return. However, if Jason and Isabel had been married at midnight, it would have been considered a 2017 wedding and they would have had to file single for 2016.

Joint Return: Widowed

Joel recently lost his wife of 10 years. When he goes to file taxes for the year, he can still file a joint return. However, after this year he would no longer qualify for a joint return. He does have a few options on filing returns. Joel can file as single, head of household or surviving spouse. He can discuss with his accountant which would provide the most benefits for him and his dependents.

Joint Return: Divorce

Ivan and Jessica were married for most of 2016; however, they divorced in November of 2016. Even though they were married for a majority of the year, they must both file single tax returns for 2016 and going forward until they remarry.

Frequently Asked Questions:

1. What is a joint return?
A joint return is a tax return filed on behalf of a married couple, where both spouses share the tax liability. It is also known as “married filing jointly.”

2. Who is eligible to file a joint return?
Only legally married couples can file a joint return. You must be married on or before the last day of the tax year to qualify. Widowed spouses can file jointly for the year their spouse passed away, but must file single thereafter.

3. What are the benefits of filing a joint return?
Couples filing a joint return may enjoy lower tax rates, a higher standard deduction, and the convenience of reporting all their information on one return instead of filing separately.

4. Can a couple who got married at the end of the year file a joint return?
Yes, as long as you were married on or before December 31st of the tax year, you can file a joint return, even if you were married late in the year.

5. What happens if a couple divorces during the tax year?
If a couple divorces at any point in the year, they cannot file a joint return for that year. Both must file as single or head of household, depending on their circumstances.

What Business Records You Should Keep for Tax Purposes

Keeping business records for tax purposes can be completely overwhelming, but it’s critical in order to keep your business safe if you’re ever audited. The most overwhelming part of keeping business records is knowing what records are important. We’ll go through the Internal Revenue Service’s (IRS) recommendations on what to keep and how long to keep it.

What Kind of Business Records Should You Keep?

First, we need to identify what business records are important to keep. You should keep records showing your income and expenses, as well as any proof of tax deductions you plan to take. The IRS has a few recommendations on what to keep.

Income Records

Proving income is pretty straightforward. You’ll want to keep records so that you can accurately pay your taxes.

Income records include:

Cash register tapes
Receipt books
Invoices
Deposit information (cash and credit sales)

Expense Records

Keeping records of your expenses is an important part of bookkeeping so that you can take deductions and lower your taxable income.

You’ll want to keep records (such as receipts or invoices) showing the following expenses:

Loss of income (cancelled checks, unpaid invoices)
Travel
Business meals
Transportation
Gifts

Asset Records

If you plan on deducting any of your assets you’ll also want to keep records on them. Business assets range from office furniture to equipment and even property. You’ll have to calculate the depreciation of each asset and the gains of any asset sold. In order to do that you’ll want to keep records on the following:

When and how you acquired the asset
Purchase price
Cost of any improvements
Deductions taken for depreciation
How you used the asset
When and how you disposed of an asset
Selling price of asset
Expenses associated with the sale of assets

How Long to Keep Business Records

In most cases the IRS recommends you keep your business records for a minimum of three years.

The IRS requires that you keep records for three years after the due date of the tax return or the date you filed the tax return, whichever is later. The period of limitations to file an amendment is three years; however the IRS can audit you up to six years later. After that you are no longer required to have your tax return or documentation.

Even if these tax deadline pass, make sure that your insurance company or creditors don’t require you to keep these records longer.

Download our FREE guide: What Business Records You Should Keep for Tax Purposes and keep it at your desk as a reminder.

Frequently Asked Questions

1. What types of business records should I keep for tax purposes?

You should keep records that show your income, expenses, and any proof of tax deductions you plan to take. Specifically, you should keep income records like cash register tapes, receipt books, invoices, and deposit information. For expenses, keep receipts or invoices related to loss of income, travel, business meals, transportation, and gifts. Additionally, maintain records for any business assets, including details on purchase price, depreciation, and the sale of assets.

2. How long do I need to keep my business records?

The IRS recommends keeping your business records for at least three years. Specifically, you should retain records for three years after the due date of the tax return or the date you filed the tax return, whichever is later. While the IRS can audit you up to six years after filing, it’s generally safe to discard records after this period, unless your insurance company or creditors require you to keep them longer.

3. Why is it important to keep records of my business assets?

Keeping records of your business assets is crucial if you plan to deduct their depreciation or if you sell them. You’ll need to document when and how you acquired the asset, the purchase price, any improvements made, deductions for depreciation, how the asset was used, and details about its sale. Accurate records ensure you can correctly calculate depreciation and report any gains from sales.

4. What should I do if I’ve lost a record that the IRS might require?

If you’ve lost a record, it’s essential to try to reconstruct it. Contact the source of the document (such as the vendor or bank) to obtain a duplicate. If that’s not possible, you should create a record of the event or transaction as accurately as possible, noting the date, amount, and purpose, and explain why the original record was lost.

5. Can the IRS audit me after the three-year record retention period?

Yes, while the IRS typically audits within three years, they can extend this period to six years if they identify a significant error in your tax return, such as underreporting income by more than 25%. Therefore, it’s advisable to keep records for at least six years to be fully prepared for any potential audit.

5 Marketing Terms Every Business Owner Should Know

Marketing is an important aspect of any business, but it’s often overlooked because it can be costly. If you’re trying to save money by taking on the marketing for your business by yourself, then these 5 marketing terms will p you get started.

Lead magnet

Lead magnets are most commonly used to increase subscribers to your email lists. A lead magnet is a resource given to subscribers in exchange for signing up for your email.

Lead magnets should be irresistible. They should solve a problem. The most successful lead magnets are short and sweet so that the subscriber can quickly solve their problem. For example, a 10 page guide on how to generate more business from your Facebook page is more effective than a 10-part video series, emailed out once a week. People want to be able to get the information they need instantly rather than wait around for weeks to get all the information.

Examples of lead magnets include:

Cheat Sheets
Reports
Quizes
Resource Library
Training Videos
Free Trials of Programs
Free Shipping
Coupon Codes

Your lead magnet should be targeted towards your audience. How can you solve a problem in their lives? Answering this one question can help you create a solid and successful lead magnet.

Call to Action

A call to action (CTA) is how you convert readers or viewers into customers. A CTA encourages people to take action, whether that is signing up for your newsletter, calling your offices or even repinning your posts on Pinterest. It’s a way to encourage people to interact with your business.

Effective CTAs are simple but powerful. The CTA should tell your reader what they’re getting out of interacting with your company; (this is where you can push your lead magnet) and how to take action. A CTA can be as simple as: “Get Started” or “Sign Up Now.”

A call to action is more than just text. Use design elements to catch the eye of your readers and lead them towards your CTA. Color is a great way to do this. Try making your CTA color the same as your logo so that readers can associate your business and the solution to their problem.

Search Engine Optimization

Search Engine Optimization (SEO), is a critical part of marketing. It’s more than just a marketing term to understand, it’s almost a language within itself. Search Engine Optimization is used to improve your website’s rankings on search engines, which helps people find your site.

SEO has changed a lot in the last few years. There are still key aspects that search engines look for such as:

Title Tags
Keywords
Image Tags
Internal Link Structure
Inbound Links

However, SEO is much more than keywords. Search engines are looking for quality content that is helpful to readers. If you stuff your website full of keywords without any substance it can actually hurt your website.

Site structure and design are also important aspects of SEO. A quality website is going to rank higher, so it’s good to invest in making your website well designed and well optimized.

Churn Rate

Churn rate is the percentage of customers lost over a period of time. It can also be used to calculate the value of each customer lost. Knowing your churn rate is important so that you understand how much each new customer is costing you. You need to be able to know if customers are sticking around long enough to cover the acquisition costs.

Calculating churn rate is very easy. Start by taking the number of customers lost during a certain time period and divide it by the overall number you had when the time period started. The result is your churn rate. For example if you started your quarter with 600 email subscribers and you lost 60 of them over the quarter, your churn rate equation would look like this: 60 / 600 = .10 or 10%.

You can do this for any time period: a month, quarter, year etc. You just don’t want to include any new customers you acquired during the time frame when you’re calculating the churn rate.

Editorial Calendar

An editorial calendar is important to help you stay on track with your marketing goals. Editorial calendars can be used to create content, plan campaigns, reach out to your target market and more.

It’s important to be posting new blog content on a regular basis (this helps with your SEO!) You’ll also want to be posting consistently to social media to increase your reach. An editorial calendar can help you plan out all of these so that your social media presence goes along with your website. An editorial calendar can also help you keep track of things that are out of the ordinary, but need to be dealt with, like posting about holidays.

Overall an editorial calendar is an essential organizational tool for businesses.

Hopefully, these marketing terms will do more than just increase your vocabulary. If you learn how to implement them in your business it can help your marketing efforts increase.

Frequently Asked Questions

1. What is a lead magnet and how can it benefit my business?

A lead magnet is a valuable resource offered to potential customers in exchange for their contact information, typically their email address. Lead magnets are designed to attract and engage your target audience by solving a specific problem they face. Examples include cheat sheets, reports, quizzes, and free trials. An effective lead magnet can increase your email subscribers and generate leads, ultimately helping to grow your business.

2. How can I create an effective call to action (CTA)?

An effective call to action (CTA) should be simple, direct, and compelling. It encourages your audience to take a specific action, such as signing up for a newsletter or purchasing a product. To create a powerful CTA, clearly communicate the benefit of taking action, use strong action verbs, and incorporate design elements like contrasting colors to make the CTA stand out. For example, “Get Started” or “Sign Up Now” are concise and actionable CTAs that guide users towards the desired action.

3. Why is Search Engine Optimization (SEO) important for my website?

Search Engine Optimization (SEO) is crucial because it improves your website’s visibility on search engines, making it easier for potential customers to find you. Key aspects of SEO include optimizing title tags, keywords, image tags, and internal link structure. Beyond keywords, SEO also involves creating high-quality, relevant content and ensuring a well-designed website. Effective SEO can lead to higher search rankings, increased website traffic, and more business opportunities.

4. What is churn rate and why is it important to track?

Churn rate is the percentage of customers lost over a specific period. It’s essential to track because it helps you understand customer retention and the effectiveness of your marketing efforts. To calculate churn rate, divide the number of customers lost during a period by the total number of customers at the start of that period. For example, if you start with 600 customers and lose 60, your churn rate is 10% (60/600). Monitoring churn rate helps you evaluate customer loyalty and the cost-effectiveness of your customer acquisition strategies.

5. How can an editorial calendar help with my marketing efforts?

An editorial calendar is a strategic tool that helps you plan and organize your content creation and marketing activities. It ensures you post consistently on your blog and social media, which is crucial for maintaining audience engagement and improving SEO. An editorial calendar helps you align your marketing efforts with your business goals, track important dates like holidays, and coordinate campaigns effectively. By staying organized and proactive, you can enhance your marketing efficiency and effectiveness.

What is an Itemized Tax Deduction?

An itemized tax deduction is the alternative to taking the standard tax deduction. An itemized deduction counts all of your tax deductions in order to lower your taxable income. It requires more work than claiming the standard deduction, but it can also pay off if your itemized tax deduction is greater than the standard deduction.

Taxpayers are allowed to take personal tax deductions in the following categories:

Medical Expenses
Mortgage Interest on up to two homes
State and Local Taxes
Sale Tax
Property Taxes
Charitable Donations

If you want to claim an itemized tax deduction then you need to keep records of all the items you want to deduct. If the IRS audits you, you need to be able to prove that the deductions you took were legitimate. You should hold onto receipts or other paperwork on tax deductible items for at least seven years.

Itemized Tax Deduction Scenario

Juliet is preparing her taxes and is debating if she should claim the standard deduction or if she should itemize. In the past she has claimed the standard deduction, but over the last year she has had more tax deductible expenses.

She purchased a home in the last year and has been paying a mortgage and property taxes. Juliet also had some unexpected medical expenses when she had her appendix removed.

Because she had the bigger expenses, she is going to do an itemized deduction, which will lower the amount she has to pay in taxes.

When Juliet files her taxes she will fill out the Schedule A form. The Schedule A form lists all of her itemized deductions. The total deductions from the Schedule A form are then entered on a 1040. The deductions are subtracted from Juliet’s income to determine her taxable income.

Juliet will submit her completed taxes to the IRS through the eFile system, just like she has in previous years. Now all she has to do is wait for that tax return!

How to Create a Positive Work Environment: Put Employees First

Employees are the lifeblood of your business; however, they’re constantly fighting for that recognition. Employers don’t put employee first; customers, management and boards all come before employees. By putting employees last on the totem pole, many companies are hurting their profits.

Businesses Put Customers First

Many business owners set up their business model with a focus on the customer. It makes sense, if customers are happy, then they’ll recommend you to other people and your business will grow.

It makes sense to put the customer first, but business owners often forget to take the middleman into account. Employees are the face of your company. They’re the ones interacting with your customers. You want them to be singing your praises to your customers.

Customers also enjoy getting to know your team. they notice when there is a lot of turnover and they start to question how great a company can be if they can’t seem to keep employees around.

Instead of putting your customer’s needs above your employees, put your employees first. Treat them well. Show them you care. If they feel taken care of, then they’ll take care of your customers.

Businesses Put Management First

There is often a divide between management and employees. Even when management works closely with their employees they don’t always see the divide.

Members of management are invested in the company. Their pay and benefits are different from the employees below them, so they have a lot more reason to be invested in the company. Usually, management believes that they are taking care of their employees, but employees don’t see things the same way.

In order to put the employee’s needs first, you should foster an environment that encourages feedback. Employees should feel like they can talk with management and make suggestions that could help. If your employees feel they can’t talk about issues without being punished, then you’re creating a terrible work environment and it could lead to a lot of employee turnover.

Businesses Should Put Employees First

When employees feel used or unappreciated they don’t perform to the best of their ability. Instead of putting your employee’s needs on the back burner put them first. Make sure they are taken care of and then watch everything else fall into place.

Read the other posts in this series:

Encourage Employee Feedback

Offer Developmental Opportunities

Acknowledge Success

What is Gift of Equity? in Real Estate Deals

Understanding ‘What is Gift of Equity?’ Learn how family members can sell property below market value, impacting real estate transactions. Dive into its significance and potential tax implications for buyers and sellers.

What are Gifts of Equity?

A gift of equity is when family members sell property to other family members for less than market value. The gift of equity is specifically the difference between the market value and what the buyer pays. A gift of equity can be for any amount, up to the total value of the home.

Gifts of equity don’t necessarily have to be from family members. Anyone who you’ve had a relationship with can qualify for a gift of equity.

Most lenders will allow the buyers to use the gift of equity as the down payment for the purchase. Both the buyer and the seller must sign an equity letter.

A gift of equity can have tax implications for both parties. The seller may have to pay capital gains taxes on the gift of equity. The buyer’s asset cost basis would be based on the market value not what the property was purchased for.

Gifts of Equity Scenario

Jack is looking to buy a home. His grandparents are preparing to downsize and are offering to sell him their home. Jack’s grandparent’s home appraised for $250,000. Jack can’t afford to pay that right now.

To help Jack out, his grandparents are offering to sell him their home for less than market value. Jack can pay $190,000 for his grandparent’s home. His grandparents agreed to sell him the home for $190,000.

Because Jack is related to the seller and they’re selling the house for less than market value it qualifies as a gift of equity. The gift of equity is for $60,000, which is the difference between the market value and what Jack is buying it for.

When Jack goes to get his loan he will submit an equity letter from his grandparents stating the amount of the gift, that there are no repayments expected or required and the donor’s information.

Another bonus of the gift is that Jack won’t have to put down a down payment because the $60,000 gift of equity qualifies as his 20% down payment.

Jack will have to meet any other requirements the financial institution where he gets his loan at requires to document the gift of equity.

A gift of equity offers an avenue for family or certain relationships to facilitate property transactions below market value. It serves as a significant financial benefit, allowing buyers to potentially use it as a down payment, minimizing upfront costs. However, it’s crucial to note the potential tax implications for both parties involved—the seller may encounter capital gains taxes, while the buyer’s asset cost basis aligns with the property’s market value. Despite its advantages, understanding the intricacies and tax considerations is vital before utilizing a gift of equity in real estate transactions. Always consult with professionals and adhere to the requirements of financial institutions when applying this concept in property purchases.

1. Who can provide a Gift of Equity?

Family members or individuals with a relationship can offer a gift of equity. It involves selling property to others below market value, with the difference acting as the gift.

2. How is a Gift of Equity utilized in real estate transactions?

Lenders often permit using the gift of equity as a down payment. Both buyer and seller must sign an equity letter detailing the gift’s value.

3. Are there tax implications associated with a Gift of Equity?

Yes, both sellers and buyers may face tax implications. Sellers might encounter capital gains taxes, while the buyer’s asset cost basis depends on the property’s market value.

4. Can anyone besides family members provide a Gift of Equity?

Yes, individuals with an established relationship can qualify for a gift of equity, enabling property transactions below market value.

5. How does a Gift of Equity impact down payments in real estate purchases?

A gift of equity can serve as a down payment. For instance, if the gift represents 20% of the property’s value, the buyer may not need additional down payment funds.

Who Can I Claim as Dependents on my Taxes?

Claiming dependents on your taxes helps to lower your taxes. It’s a great way to get money back for the expenses of caring for children or other adults.

Each qualifying dependent can reduce your taxable income by $4,050. In order to take that deduction, you have to understand who qualifies as a dependent. That’s what we’re here for!

Is My Spouse a Dependent?

Simply put, you should never claim your spouse as a dependent. It doesn’t matter if your spouse is employed or not, spouses aren’t dependents.

Instead of claiming your spouse as a dependent you should file jointly. When you file jointly you get the exemptions, which would be the same as claiming a dependent.

Are My Children Dependents?

Children can be claimed as dependents. In order for a child to qualify as a dependent they must meet the following requirements:

The child must be related to you. They don’t have to be a biological child, but they must be related. Step-children, adopted children, nieces, nephews, brothers or sisters all qualify.
Be under the age of 19; there are two exemptions to this. The first exemption is that a dependent can be claimed as child if they are permanently and totally disabled. The second exemption, is if a child is under the age of 24 and going to school for at least 5 months out of the year they can be claimed as a dependent.
The child must live with you. Again there are two exemptions. If a child is living with another parent, in the case of divorce, you can still claim them.
The child cannot be self-supporting. They must be dependent on you, obviously.

Are My Parents Dependents?

If you are taking care of your parents, then you can claim them as dependents. Your parent don’t have to be living with you in order to be claimed as dependents. If you are financially supporting them then you can claim them.

In order to qualify as a dependent you must pay for at least half your parent’s expenses. If more than one party is supporting the dependents, then you all must decide who is going to claim your parents.

Another requirement is that the dependent’s taxable income must be less than $4,00.

If you are taking care of your in-laws you can claim them as dependents, but only as long as the marriage exists. If the marriage ends by divorce or death then you cannot claim your in-laws.

Can I Claim My Pet as a Dependent?

It doesn’t matter if your dog is your best friend, or a loved member of your family, the tax man doesn’t consider your dog as a dependent.

Despite the fact that your pet is completely dependent on you, the IRS doesn’t allow taxpayers to claim pets as dependents. The rationale behind this rule is that human dependents will eventually become taxpayers, while animals will not.

What is a Federal Tax Lien?

A federal tax lien is used to put a lien on property, or any other assets, as collateral for unpaid back taxes. The Internal Revenue Service (IRS) can issue federal tax liens to secure payment of those unpaid back taxes.

A federal tax lien does not allow the government or the IRS to seize any assets. The government has to issue a tax levy in order to seize any property.

When the IRS places a federal tax lien, they tell all states and creditors that they are placing a lien and they are first in line for any payments. If a federal tax lien is placed against you, it will significantly lower your credit.

You can learn more about how federal tax liens can affect you on the IRS’ website.

Federal Tax Lien Scenario

Doug is a small business owner. He hasn’t paid his personal taxes in five years. The IRS has filed a federal tax lien against Doug to try and get him to pay his back taxes.

The first step the IRS will take will to be to notify Doug’s other creditors; the federal tax lien takes precedence over any other creditors. Then, the IRS will place the federal tax lien against his bank accounts, car, home and against his small business business. Although Doug has paid his business taxes, the IRS can still hold a lien against his small business for payment on his personal taxes . Once the federal tax lien is issued it will also lower Doug’s credit score. This will make it more difficult for Doug to take out any new loans.

Doug have three options in order to have the federal tax lien removed. The first option is to pay off the debt in full. The second option is to get the debt dismissed in bankruptcy court. Finally, debtors can reach a settlement with the IRS to pay or forgive the debt.

Doug is the sole proprietor of his small business so it is considered an asset that the IRS can go after when trying to get him to pay his back taxes. If Doug decides to choose to declare bankruptcy the IRS will asses if his business to determine if it has any value. If they determine that there is value in the business, then it can be taken. However, if there isn’t value in the business then the IRS won’t go after it and Doug could continue to run his business after the bankruptcy.

In order to make sure he can still run his business, Doug chose to pay his back taxes. The IRS will release the lien 30 days after the debt it paid in full.

Frequently Asked Questions

1. What is a federal tax lien?

A federal tax lien is a legal claim made by the Internal Revenue Service (IRS) on your property and assets due to unpaid back taxes. This lien serves as collateral to ensure payment of the owed taxes. While it does not allow the IRS to seize property, it establishes the government’s priority over other creditors for payment.

2. How does a federal tax lien affect my credit score?

When the IRS places a federal tax lien against you, it notifies all states and creditors, establishing its priority for any payments. This action significantly lowers your credit score, making it more challenging to secure new loans or credit. The lien remains on your credit report until the debt is fully paid or resolved.

3. Can the IRS seize my assets with a federal tax lien?

No, a federal tax lien itself does not grant the IRS the authority to seize your assets. For asset seizure, the IRS must issue a tax levy. A lien simply secures the government’s interest in your property as collateral for the unpaid taxes.

4. How can I get a federal tax lien removed?

There are three primary ways to remove a federal tax lien:

Pay the Debt in Full: Once the debt is fully paid, the IRS will release the lien within 30 days.
Bankruptcy: In some cases, debts may be discharged through bankruptcy, potentially removing the lien.
Settlement: You can reach a settlement with the IRS, such as an Offer in Compromise, to pay a reduced amount and have the lien removed.

5. Can a federal tax lien affect my small business?

Yes, if you are a sole proprietor, your small business is considered a personal asset and can be subject to a federal tax lien for your personal unpaid taxes. The IRS can place a lien on your business assets, affecting your ability to operate. In the case of bankruptcy, if the IRS determines your business has value, it may seize it. However, if the business lacks significant value, you might be able to continue operating post-bankruptcy.

Resources

Author: Jake Snelson

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