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Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White Plains, NY 10604 Tel: 914-437-8500

Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

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Page 1: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Income Tax for

Small Business Owners

by Zhengman Wang lowe, MBA,CPA

aka: Mandy Wang

Westchester Office:

707 Westchester Ave, Suite LL01,

White Plains, NY 10604

Tel: 914-437-8500

Page 2: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Mandy Wang Graduated from Syracuse University with master degrees of MBA

and Accounting. She has many years of working experience with

big four accounting firm and investment bank.

Has a successful and growing CPA practice with main office in

White Plains, specialized on small businesses and international tax

accounting.

Bookkeeping/Accounting, payroll, sales tax, income tax, tax audit

representation, for

U.S. individual and families, immigrants and foreigners

Sole proprietorship, C corporations, S Corporation, partnerships,

LLCs, and non profit organizations

International Tax, Cross border investment and M&A

Also specialized on real estate taxation on buy and sale, rental

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Page 3: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Main Office Location

New York Office:

707 Westchester Ave, Suite LL01

White Plains, NY 10604

Tel: 914-437-8500

WeChat: mandywangcpa

[email protected]

www.kingtaxcpa.com

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Page 4: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Today’s Agenda

Business tax obligations

Business Expenses and Losses

Tax audit and resolution

Questions and discussion

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Page 5: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Business owners’ Year-end Tax

Responsibilities

Reporting and Filing responsibility

Tax Payment liability

Income tax

Self-employment tax

Payroll taxes

Excise tax

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Page 6: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Income Tax

Taxable if you have net profit

How income tax or loss is filed

Quarterly estimated tax calc and analysis for

payments

Year-end filing for profit or loss

Some States have minimum /entity tax

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Page 7: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Legal Entity Forms and Filing Liability

Sole Proprietorship

LLC

Partnership

S Corp

C Corp

Non profit Organization

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Page 8: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Sole Proprietorship

Liability for debts of the business

Business owner’s responsibility has no limit.

No protection of personal assets

Unexpected incident can bring disaster

Income tax filing: Sch C with owner’s 1040

Self-employment taxes must be paid together with income tax filing

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Page 9: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Limited Liability Company (LLC)

Income tax consideration:

SMLLC: disregarded entity

Multi-member LLC: partnership

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Page 10: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

S Corp

Flow through entity

Reporting on entity level: 1120S

Taxes paid on shareholder individual tax return

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Page 11: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

C Corporation

Separate entity that keep its own identity regardless of

who owns it

Entity level tax

Shareholder level tax on dividend

Or corporate level Accumulated earnings tax 39.6%

Form1120

If no dividends, no tax on shareholders

NOL carryover

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Page 12: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Taxable Income

Revenue, receipts

Can you provide proof and money trail for every Bank

Deposits?

Cash in and out

Mix business with personal

Consequence:

Tax audit

Lawsuit / court

Suggestion: Don’t

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Page 13: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Owner’s withdrawal from Business

Options to get earnings from business

Business forms and tax impact

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Page 14: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Criteria for Deducting Business &

Investment expenses

Related to profit-motivated activity

Ordinary

Necessary

Reasonable in amount

Properly documented

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Page 15: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

General Costs & Expenses 1

Your material costs, Cost of Goods Sold

Website development, webhosting, ad

Parking and tolls, gas

Seminars, conventions, meetings, trains and bus fare, air

tickets,

supplies, labor costs

Business gifts

Commissions paid

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Page 16: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

General Costs & Expenses 2

Self-employed health insurance

Education – business related

Interest expense (debt for business; business car financing, etc)

Legal/other professional fees

Subscription/license

Employee wage/contract labor

Employee fringe benefits

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Page 17: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Startup Costs

Startup and organizational expenses:

Before and during starting up your business

$5,000 deductible for current year

Amortize the rest

It has limit

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Page 18: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

18 Phones

First local line at home is non-deductible

2nd line for business use

Cell phone

Long distance calls

International phone card

Internet

Page 19: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Business Travel

Airline, train, bus, taxi, car rental

Baggage, shipping, cleaning,

Lodging & Meal

Standard meal allowance or actual cost

100% ded of food purchased from store

Lavish or extravagant not allowed

Training /business seminar

Phone, fax, computer rental, printing, misc

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Page 20: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Business Travel

Separating costs:

Trip primarily for business

Trip primarily for personal reasons

Travel expenses for another individual

Spouse or family, not

Business associate, yes

Proof of bona fide business purpose

Convention agenda/program, ticket, brochures, notice,

public info, meeting log, customer’s presence,

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Page 21: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

21 Car/Truck for business use

Car rental, car lease payment

For the portion of business use

Your own car:

Standard Mileage rate deduction

56cents/mile

Parking/toll

Or

Actual vehicle expense deduction

Gas, oil, tire, repair, vehicle insurance, etc

Depreciation

Parking/toll

Page 22: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Entertainment Expenses

You can deduct ordinary and necessary expenses to

entertain a client, customer, or employee if

The expenses meet the directly-related test or

The associated test

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Page 23: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Nondeductible Entertainment

Expenses

Club dues or membership fees for

Business, Pleasure, Recreation, or any social purpose

Country clubs,

Golf and athletic clubs

Airline clubs

Hotel clubs,

etc

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Page 24: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

24 Business use of home, home office

To be eligible, you must have net profit

Must be exclusively for Business Use

% of total square feet

Options: actual expenses or simple method

Actual expenses

Mortgage interest

Real estate taxes

Utilities (elect, gas, water)

Home owners insurance

Repair

Lawn services, trash removal, cleaning services

Page 25: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Section 179 Deduction

When it’s favorable to take this deduction?

Limit, pros and cons

Equipment, vehicle, computers

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Page 26: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Charity

Sole proprietors, partnerships, LLC, and S Corp can

pass through charitable contributions to the owner’s

personal tax return.

C corporations can take deduction directly, but has

income % limition.

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Page 27: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Business Losses

Business losses

In C corp

Flow through to personal tax returns

can be carried forward 20 years or back to 2 years

Key: correctly report and keep the track

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Page 28: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Tax Audit

Would you be audited?

Small business

Big corp

IRS Audit Red Flags

What to do when you get audited?

How can you prepare to be audit proof?

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Page 29: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Proof

Poor records / no proof = lose audits

Keep all receipts, cancelled checks, credit card

statements, bank statements.

Be organized

Prepare your travel and entertainment records

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Page 30: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Recordkeeping

Why you must keep

records

What kinds of records you

must keep

How to keep them

How long must you keep

them

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Page 31: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Record Keeping

What Records you need to keep:

Hand written not counted

Scanned and digital record OK

If you can’t prove, no back up, you can’t deduct =taxed

&penalized

Retention periods: 7 years or life of assets plus 7 years

1. Bank stmts, Credit cards stmt

2. Contracts –permanent

3. Home purchase and improvement records

4. Investment records, real estate records

5. Depreciation schedules, tax returns, expense records

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Page 32: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Period of Limitations

If you owe additional tax = 3 years

Underpay & report income more than 25% = 6 years

File a fraudulent return = no limited

Do not file a return = not limited

File an amended return for credit or refund = 3 years

File for loss from worthless securities or bad debts =7 years

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Page 33: Income Tax for Small Business Owners · Income Tax for Small Business Owners by Zhengman Wang lowe, MBA,CPA aka: Mandy Wang Westchester Office: 707 Westchester Ave, Suite LL01, White

Questions ?

Appointment for specific questions and consultation

White Plains Office:707 Westchester Ave, Suite LL01

White Plains, NY 10604

Tel: 914-437-8500

Wechat: mandywangcpa

[email protected]

www.kingtaxcpa.com

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