Taxation by chenmeixiu



 Rationale For Teaching
      This Subject
Teaching Rationale cont’d

  1. It is critical that students comprehend
    the impact taxes will have on their lives
        a. More income will be used to pay
    taxes than on any other expense in your
    life (except, maybe, medical care)
        b. Understanding tax issues is
    essential to understanding business &
    personal finance
Teaching Rationale cont’d

 2. Associates can be employed as vets
   with payroll deductions & file a
   “Schedule C” for operating an
   independent trade or business
    – Why would one want to do this?
   A. To tax-effectively “write off” costs of
     • books from school   • instruments from school
     • computer/printer    •VCR, DSL line for VIN
     • PDA                 • CE not paid by E/R
     • digital camera      • some of auto expense
Examples of “trades
or businesses”

  • Relief veterinarian working shifts in
    general practice or at an EC
  • Supplemental income from house
    call/ambulatory large or small animal
  • Speaker/writer for veterinary
    meetings or journals, or
  • Freelance writer for lay press
Sample “trades or businesses”

   • Ultrasound services for your employer
     – purchase your own US machine - 70% of
       revenue to you, 30% to employer
   • House call acupuncture service
   • American Horse Show Association
     drug testing
Rationale for Schedule C

    B. To fund an IRS qualified profit-
      sharing plan
    C. To purchase equipment for a practice
      you plan to start someday under
      circumstances where your E/R is
      unwilling to make such purchases
    D. To develop a working knowledge of
      the U.S. tax system
But…How About Est’d Taxes?

  • If you have Schedule C income you
    must determine:
    – Whether it will exceed $400/yr, in which
      case you owe FICA & Medicare
    – How much supplemental income you will
      earn during the year so you can file
      estimated quarterly taxes to avoid
      penalties & interest
2. Understand the Rules

    • Documentation is the “name of the
    • To be deductible, receipts must have
      – date
      – name of business paid
      – parties in attendance
      – nature of or rationale for the expenditure
      – total expense incurred
    • Basic Rule is “Don’t Be A Pig”
3. Understand the Terminology
         p. 1.6

     •   Exemptions
     •   Schedule C
     •   Above the line deductions
     •   Adjusted Gross Income (AGI)
     •   Schedule A - itemized deductions
     •   Std ded - IRS gives you this for tax
         deductible expenses whether or not
         your deductions = this number
Terminology cont’d

    •   Below the line deductions
    •   Dollar for dollar deductions
    •   Effective tax rate
    •   Depreciation of tangible assets
    •   Amortization of organizational costs
    •   W-2 income (taxes withheld)
    •   1099 Income (no taxes withheld -
        relief doc) see p. 39
Let’s Review the Michelle
Ambitious Case Example

          Page 1.3
          Gatto McFerson offer p. 1.4
          Visit their web site!
          Fegley & Associates offer
          Wage statement p. 1.5
Let’s Look at Michelle’s
       Tax Return

       Taxation Hand Outs p. 2
So…what did you learn?

  • Why did Michelle save $1,175 with a
    Schedule C?
    – She turned $2,300 of income into a loss on
      a Schedule C business,
    – That meant she had to pay $325 of FICA &
      Medicare not owed with a Schedule C, &
    – Because she had higher income, she lost
      more of her educational interest & half of
      her $4,000 tuition deductions
What would Michelle have paid
w/o a Sched C or A?

  • Neither Sched A nor C tax = $10,787
  • With only a Schedule A tax = $10,305
                           saved $480
  • With only a Schedule C tax = $9,130
             saved another $1,175
  • With neither a Sched C nor a Sched A
    Difference saved now = $1,657
So…what did you learn?

  • Why not have fun earning
    more/hour preparing your tax
    return than working as a DVM?
  • If you spend 12 hours doing
    this, you’ll earn between $100
    and $138/hour for your effort!
The Risks of an IRS Audit

  1.   Correspondence audits – submission of
       documents to clarify an item on the return
  2.   Field or desk audits – meeting with an IRS agent
  3.   Incomes < $100,000 = 0.89% of which 82% were
       correspondence audits
  4.   Income $100,000-$1 million = 1.67% with 56.4%
       correspondence audits
  5.   1% of all returns in 2005 with 2-3 year wait
  6.   > $1 million 6% with 54.7% desk audits (Wall St Jl 4-
       17-07 D3)
  7.   Third type – failure to report income from a W-2 or
       1099 – arrives within a few weeks of filing

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