IRS Small Business Tax Workshop Bob Fay, CPA November 14, 2009 [email protected].
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Transcript of IRS Small Business Tax Workshop Bob Fay, CPA November 14, 2009 [email protected].
Agenda
• Start 9:30am – IRS Workshop• IRS Code Section bob1 - $100 fine for ringing
phone. Please put on silent ring.
• Break 11:45am for Lunch• Questions and answers 12noon• Break 12:45pm lunch cleanup• State of Ohio intro – 12:55pm• State of Ohio taxes – 1pm• End 3pm
Agenda
• Federal Taxes and your new business• Forms of business organizations• Business Tax Requirements• Business Terms• Financial Statements• Federal Income taxes and SE taxes• Payroll taxes and issues• Retirement Plans• Business out of your home
Good General Advise for your new business
• Open up a separate bank account
• Use a separate credit card for business
• Get an appointment book or calendar– PDA if you can save file
• Quicken or QuickBooks
Business Tax Requirements
• Forms of business organization
– Sole Proprietorship
• Sole owner, simple to organize, easy to stop, no legal set up, owner receives all profits
• Pros and cons
Business Tax Requirements
• Forms of business organization
• Partnership
two or more people, greater financial strength, definite legal status and structure
• Pros and cons – run from these!!!!
Business Tax Requirements
• Forms of business organization
Limited Liability Company (LLC)
Very popular now, sole owner, disregarded entity by IRS, profit flows thru to owner, limited liability, easy to set up with Secretary of State of Ohio. Great for owning real estate
• Pros and cons
Business Tax Requirements
• Forms of business organization
S Corporation
Shareholders, flow thru profit to shareholders, single taxation, Form 2553 needed to be filed in first year or 75 days into year.
Pros and cons – compensation issues
Business Tax Requirements
• Forms of business organization
Regular C Corporation
Shareholders, possible double taxation, separate entity, limited liability, sell shares to others, life goes on forever, raise capital, small and large businesses
Pros and cons
Business Tax Requirements
• Bookkeeping and Accounting
• Single entry or double entry systems
• Accounting methods – cash or accrual
Business Tax Requirements
• Bookkeeping and Accounting
• Single entry or double entry systems
Checkbook to spreadsheet to tax return (Quicken)
Keeping debit and credit sides of transactions (QuickBooks)
Business Tax Requirements
• Bookkeeping and Accounting• Accounting Methods – Cash or Accrual
• Cash – report income in year received• Cash – deduct expense in year paid
• Accrual – report income in year earned• Accrual – deduct expense in year incurred
Business Tax Requirements
• Bookkeeping and Accounting
– Records needed for deductions– Time and place, business purpose– Claimed amount, business relationship– Travel and entertainment expenses
Business Tax requirements
• Recordkeeping
• Keep receipts, invoices, paperwork, bank statements, cancelled checks and etc.
• Keep some records forever
• Keep most records 6 to 7 years
• Quicken or QuickBooks
Business Tax Requirements
• EIN – Employer ID Number
• SS-4 Form (IRS.GOV)
– Needed if paying wages– Needed if not wanting to use social security
number– Needed if business starts a pension plan– Needed if Corporation or Partnership
Business Terms
• Financial Statements
• Profit or Loss – Income Statement– Reports income and expenses over a period
of time
• Balance Sheet– Assets and Liabilities as of a certain date
Financial Statements
• Income Statement – Profit or Loss
• Reports income less expenses
• Income – sales, receipts, for products and services sold to customers.
• Expenses – bills paid out to suppliers, overhead expenses, utilities, rent, maintenance, payroll, etc.
Financial Statements
• Income Statement – Profit or Loss
Entertainment expenses – meals, shows, tickets – 50% deductible
Travel expenses – 100% deductible
Auto expenses – Actual expenses vs. mileage allowance
Financial Statements
• Income Statement – Profit or Loss
Auto Expenses – Actual expenses – gas, oil, ins, maint,
repairs, depreciation, etc
Commuting miles – not deductible
Standard mileage rate – 55 cents 2009Standard mileage rate – 95% of the time
Financial Statements
• Income Statement – Profit or Loss
Home in the office expensesRegular use, exclusive use, Form 8829
Mortgage interest, real estate taxes, insurance, utilities, repairs to office room
Percentage of house being used as office – applied to expenses for entire house
Financial Statements
• Income Statement – Profit or Loss
Health Insurance – 100% deductible on page 1 of Form 1040 for Schedule C businesses.
Depreciation – assets over 1 year in life, building, equipment, furniture, not land, various lives and years for depreciation
MACRS – Section 179 limit $250,000 for 2009
Financial Statements
Balance Sheet
Assets – add value to your business. Cash, Inventory, Capital Assets, Investments
Liabilities – what you owe to others. Trade payables, bank loans, payroll taxes
Equity – Retained earnings, capital, common stock, paid in capital, excess earnings over distributions
Taxes
• Federal Income taxes– 50% of taxpayers filing a tax return in 2006
showed a total income of less than $32,000– To be in the top 10% - income over $108,000– To be in the top 5% - income over $154,000
– It is good to make money and pay taxes
Taxes
• Federal Income taxes
– Income taxes on net profit of business• Brackets from 10% to 35%• Year 2011 – 15% to 39.6% top bracket
• Self Employment tax – also known as social security tax is 15.3% of net profit.
• Ohio income tax – up to 6.5% or so
Payroll Taxes
• Who is an employee?
– The “20 questions” test.• Control, direction, place of employment,
equipment, report to, supervision, do they work for other people?
• Independent Contractor – outside professional
Payroll Taxes
• Federal Payroll taxes issues
• Gross pay - $7.30 minimum wage
• Overtime pay – 150% of regular pay over 40 hours worked in a work week
Payroll Taxes
• Federal Payroll taxes issues
• Deductions from gross pay:– Social Security tax – 6.2% of gross
• Limit $106,800 for 2009 and 2010
– Medicare tax – 1.45% of gross– Federal tax – based upon exemptions W-4– Ohio tax – based upon exemptions– City tax – percentage of gross
Payroll Taxes
• Federal Payroll taxes issues
• Employer paid taxes– Match of social security and medicare deduction– State Unemployment – first $9,000 of gross wages in
a year per employee– Federal Unemployment – first $7,000 of gross wages
in a year per employee– Workers Compensation – Tax based upon gross
wages and classification of work (manual class)
Payroll Taxes
• Federal Payroll taxes issues
• Do it right from the beginning
• Employer paid taxes– State Unemployment – THEY WILL AUDIT
YOU– Workers Compensation – THEY WILL AUDIT
YOU
Retirement Plans
– IRAs– Individual Retirement Plan
– Good for sole owner Schedule C Business with no employees
• Limit $5,000 under 50 years old• $1,000 catch up additional for 50 and older
• If working for someone else while starting your own business, limited if covered under pension plan at your workplace
Retirement Plans
– SIMPLE
– Great plan if you have employees. Under 100 employees and spouse and/or children working in the business
– No IRS tax return for plan– Can defer (employee contribution) up to $11,500
under 50 and $2,500 catch up additional if 50 and older.
– Company match of up to 3% for employee who are participating in the plan. So some employer cost,
Retirement Plans
– SEP– Simple Employee Pension Plan
– Up to 20% (25% less adjustments) effective rate, of net profit.
– Employer does have to contribute at same percentage to eligible employees.
– If still working for someone else who is covering you with a penison plan, this is an nice plan to add
Retirement Plans
– 401k Plans
– Not used by the small employer anymore. High administrative costs and government reporting rules and requirements.
– If high income employer, Safe Harbor Plan is a possible option. Minium employer contribution of 4% of participating employees.
– Deferral amounts are $16,500 for under 50 years old and $5,500 catch up additional for 50 and older.
Other Tax Issues
– Payroll tax deposits – EFTPS
– Office in the home expenses
– IRS.GOV – great web site
Good General Advise for your new business
• Open up a separate bank account
• Use a separate credit card for business
• Get an appointment book or calendar– PDA if you can save file
• Quicken or QuickBooks
Questions and AnswersThank you for being here
Good luck with your businessYou can build a better mouse