The Tax Man Cometh ~ Business Tax Information for Entrepreneurs

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    11-Sep-2014

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Slides from Mike Patrick's presentation at Share Space Spokane of The Tax Man Cometh. A look at a lot of taxation issues facing entrepreneurs and business owners. Share Space Spokane is co-working space located in downtown Spokane, WA this presentation was part of the Avista Center for Entrepreneurship's workshop series hosted by Share Space Spokane on the 1st and 3rd Wednesday of each month. The workshops are free to attend and cover a wide range of topics including marketing, online presence, resources, business law, tax and lots more.

Transcript

  • Introduction to Business/TaxationChoosing a CPAChanges in Tax LawsIncome & ExpensesPayrollEstimated Tax PaymentsTax PlanningState TaxesMiscellaneous Information

    OVERVIEW

  • Starting a new Business:

    Register with the IRS (SS-4).

    Register with the Department of Revenue (UBI Number).

    Separate Checking Account & Credit Card.

    QuickBooks.

    Comparative Financial Statements / Budgets.INTRODUCTION INTO TAXATION

  • Starting a new Business:

    Keep Business & Personal Separate.

    Transfer Amounts from Business Account to Personal Account.

    Find a CPA, Banker & Attorney.

    Being a Business Owner vs. Running a Business.INTRODUCTION INTO TAXATION

  • Types of Business:

    Sole Proprietor Form 1040

    Partnership / LLC Form 1065

    S Corporation Form 1120S

    C Corporation Form 1120INTRODUCTION INTO TAXATION

  • Things to remember when doing business or taxes:

    Just the facts please.

    Whats your source?

    Gray Area.

    Substance over Form.INTRODUCTION INTO TAXATION

  • When speaking with a CPA, ask them for background information:Where did they go to school?Are they a Certified Public Accountant?Are they members of a professional and ethical organization?Are they licensed?How long have they been in business?Is their office open all year?IRS Notices, Audits & Appeals.

    ADVICE FOR CHOOSING A TAX RETURN PREPARER

  • Good rules to remember when communicating with your CPA:Review your tax return with your CPA.Always ask questions!Understand the Big Picture.Manage cashflow with paying taxes.Dont fall for the Hand on the Stomach.Avoid the yes man.

    ADVICE FOR CHOOSING A TAX RETURN PREPARER

  • Gross Income(Ordinary Income / Short Term Capital Gain /Long Term Capital Gain)DeductionsAdjusted Gross IncomeTaxable IncomeTotal TaxCreditsPaymentsTax LiabilityINTRODUCTION INTO TAXATION

  • INTRODUCTION INTO TAXATION

    Basic Formula for Federal Income Tax

    Sheet1

    Income (broadly conceived)$ xx,xxx

    Less: Exclusions (income that is not subject to tax)(x.xx)

    Gross Income$ xx,xxx

    Less: Deductions(x.xx)

    Taxable Income$ xx,xxx

    Federal income tax$ xx,xxx

    Less: Tax credits(x.xx)

    Federal tax liability$ xx,xxx

    Less: Withholdings & estimate payments(x.xx)

    Tax owed or (refund)$ xx,xxx

    Sheet2

    Sheet3

  • INTRODUCTION TO TAXATION

  • STATUTE OF LIMITATIONS

    Period of Limitations..IFTHEN the period of limitation is:1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you3 years 2. You do not report income that you should report, and it is more than 25% of the gross income shown on the return6 years3. You file a fraudulent income tax returnNo limit4. You do not file a returnNo limit5. You file a claim for credit or refund after you file your return.Later of 3 years or 2 years after tax was paid

  • Tax Laws are in the current state of flux and should be constantly monitored for changes. For example there were 55 tax law changes as of January 1, 2014:

    State and Local Sales Taxes.Deduction for certain expenses for School Teachers.Premiums for Mortgage Insurance Deduction.Exclusion of Discharge of Principal Residence Debt.Research & Development Tax Credit.Credit for Non-Business Energy Property.Bonus Depreciation.

    TAX LAW CHANGES

  • Gross Income is everything unless the IRS indicates to the contrary:

    Cash.Property.Barter.Gross income needs to reconcile to your banks statements, Federal Tax Return and State Tax Return.

    GROSS INCOME

  • No expenses are allowed unless the IRS indicates to the contrary:

    Ordinary and Necessary.Current Expense vs. Capital Expense.So what if you have receipts...Substance over Form or Law vs. Want.Meals & Entertainment.Clothes and Dry Cleaning.Car Expenses.Personal Expenses.

    EXPENSES

  • You can depreciate property that meets all of the following requirements:You must own the property.The property must be used in a business or held for the production of income.The property must have a determinable useful life which must be longer than one year.The property must be something that wears out, decays, gets used up, becomes obsolete or loses value from natural causes.DEPRECIATION EXPENSE

  • Computer Software 3 Years.Autos 5 Years.Computers 5 Years.Computer Equipment 5 Years.Furniture & Fixtures 7 Years.Rental Building 27.5 Years.Commercial Building 39 Years.

    FIXED ASSET LIVES

  • When you sale your business assets consider the following

    Short Term Capital GainLong Term Capital GainOrdinary Income RecaptureSection 1231Section 1245Section 1250

    SALE OF BUSINESS PROPERTY

  • IRARoth IRASimple401(k)Roth 401(k)

    RETIREMENT PLANS

  • Most tax agencies require electronic payments & deposits.EFTPSForm 941 Employers Quarterly Federal Tax Return.Form 940 Employers Annual Federal Unemployment Tax Return (FUTA)Form 1099sForms W-2s & W-3Labor & Industries (State)State Unemployment Tax (State) (SUTA)

    PAYROLL TAXES

  • Individuals can base federal estimated tax payments on:90% of current tax.100% of prior years tax.110% of prior years tax if prior years AGI is greater than $150,000 ($75,000 if MFS).Annualization exception.No penalty if tax is less than $1,000 or no tax liability in prior year.ESTIMATED TAXES

  • Estimate are due on or before the following dates:April 15thJune 15thSeptember 15thJanuary 15th (the following year)

    If you are required to pay state estimated payments consider making last payment on or before December 31ESTIMATED TAXES

  • What?Accelerate deductions from 2014 into 2013 or defer income until 2014.

    Why?The goal of tax planning is to cut the total tax you pay over both years, not just one.Project your tax liability. Determine if you owe or get a refund.Penalty Protection.

    TAX PLANNING

  • When?Quarterly, but no later than December 31.Who?Taxpayers whose income (deduction) fluctuates from year to year.Own a BusinessTaxable EventInvestment IncomeK-1s

    TAX PLANNING

  • Purchasing new business assets.Section 179Use credit card to make business purchases. Establish a Health Savings Account.Sell investments that have losses.Establish a retirement plan.

    TAX PLANNING

  • Log onto Washington Secure Access website:Labor and IndustriesSUTALog onto the Washington Department of Revenue:Business and Occupational Tax (B&O)Sales TaxUse Tax

    STATE TAXES

  • No matter what type of business you are please remember:

    Obtain a line-of-credit.Establish a Reserve Fund.Go Paperless.Use Professionals.Prior Success Doesnt Predict Future Success.Debt is the Jester, Cash is King.

    MISCELLANEOUS INFORMATION

  • Complexity vs. Fairness

    Obama Care

    Tax Laws Changes are Uncertain, Unpredictable & UnacceptableIN CLOSING

  • Mike PatrickEmail: mike@mdpcpa.comWebsite: www.mdpcpa.comTelephone (509) 315-5760Cell Phone (509) 998-4069** Email Patty at patty@mdpcpa.com to sign up for my Tax / Business Newsletter

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