IRS Small Business Tax Workshop.ppt

							IRS Small Business Tax
      Workshop
      Bob Fay, CPA
    November 14, 2009
   bobfaycpa@juno.com
                     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 2009
  Standard mileage rate – 95% of the time
        Financial Statements
• Income Statement – Profit or Loss

  Home in the office expenses
    Regular 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
– Most Common Plans for Small Businesses

– IRAs

– SIMPLE

– SEP

– 401k
           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 Answers
  Thank you for being here
Good luck with your business
You can build a better mouse
           trap!!!
     bobfaycpa@juno.com