Tax Savvy for Small Business: A Complete Tax Strategy Guide Twenty first Edition
Genres: Business & Money
Book Preface
If mastering the tax code were a prerequisite to starting a business, no one would dare. Luckily, the basics of federal taxes are right here in this book. And once you grasp the fundamentals, you can pick up the rest as you go along, perhaps with the help of a tax adviser. As the well-worn phrase goes, “It’s not brain surgery.”
This book is for the typical small business in the United States—one that takes in less than $5 million and has fewer than 20 employees. Even if you sometimes need the help of a professional, this book will help you make informed tax decisions and put more money in your pocket at the end of the year.
You will learn:
•the best way to deduct business expenses and write off purchases
•the tax benefits of each business ownership structure: sole proprietorship, partnership, limited liability company, or corporation?
•what kinds of records to keep and how long to keep them
•the best ways to hire help, taxwise
•top fringe benefits for small businesses
•ways to legally minimize taxes and lower your odds of an audit, and
•what to do if the IRS ever challenges your business tax reporting or sends you a tax bill you don’t agree with.
Owning and operating a small business, full or part time, has been called the little guy’s tax shelter. The self-employed get tax benefits for expenditures not allowed to “wage slaves.” In effect, you are sharing expenses (as well as profits) with Uncle Sam—and, in most cases, with your state as well.
This book explains, in plain English, how to take advantage of the many tax benefits available to small business owners. We will show you how:
•Personal expenses can become partially deductible: your home, car, computer, meals, and education.
•Retirement plans can shelter part of your venture’s income from taxes, accumulate earnings tax deferred, and provide income for your golden years at a lower tax rate.
•Family members—young and old—can be put on the payroll to reduce a family’s overall tax bill.
•Travel and vacations can qualify in whole or in part as deductible business expenses.
Sound interesting? With all of these possibilities, your business can earn less than if you were working for someone else, and you still can come out ahead. Of course, by going into business, you might be trading an eight-hour-a-day job for a 24-hour one. But for many of us, it is worth it.
This book has been updated to cover the tax changes enacted by Congress in 2020 in the wake of the coronavirus (COVID-19) pandemic. Some of the tax rates, contribution and deduction amounts, and other numbers in this book change annually. Others are subject to change by Congress at any time. We provide the most current numbers available at the time this book is published. Check the IRS website for any updated rates and numbers. We will keep you posted on significant changes to the tax numbers and laws through our website (see “Get Updates to This Book on Nolo.com,” below).
We know you put your energy, resources, and money into getting your business venture started or keeping it running. Let us help by giving you the practical information you need to make the best tax choices and decisions.
Table of Contents
Introduction
1 Tax Basics
How Tax Law Is Made and Administered: The Short Course
Where to Find Tax Rules
Marginal Tax Rate and Tax Brackets
What Is—And Isn’t—Income
A Word About Tax Shelters
The Alternative Minimum Tax (AMT)
2 Deductible Business Expenses
What Is a Deductible Business Expense?
Is It a Current or Future Year Expense?
Top Deductions for Businesses
The General Business Credit
Vehicle Expenses
How and Where to Claim Expense Deductions
3 Writing Off Long-Term Business Assets
Tax Treatment of Business Costs
The De Minimis Safe Harbor
Bonus Depreciation
Section 179: Expensing Business Assets
Depreciating Business Assets
How to Report Depreciation and Section 179 Deductions
Inventory
Tax Basis of Business Assets
Leasing Instead of Buying
When You Dispose of Business Assets: Depreciation Recapture
Tax Errors in Depreciation
4 Bookkeeping and Accounting
Why You Need a Bookkeeping System
Should You Hire a Bookkeeper?
Bookkeeping Basics
What Kinds of Records to Keep
How Long Records Should Be Kept
Bookkeeping Methods of Tracking Income and Expenses
Timing Methods of Accounting: Cash and Accrual
Accounting Periods: Calendar Year or Fiscal Year
5 Business Losses and Failures
Unincorporated Business Losses
Incorporated Business Losses
6 Tax Concerns of Employers
Employer Identification Numbers
What Are Payroll Taxes?
Reporting and Depositing Payroll Taxes
Classifying Workers: Employee or Independent Contractor?
Misclassifying Employees as Independent Contractors
IRS Filing and Payment Requirements for Employers
Record Keeping for Your Workers
7 Sole Proprietorships—Solos, Freelancers, and Independent Contractors
What It Means to Be a Solo—From a Tax Perspective
To Be or Not to Be—A Solo
Solo Income and Expenses
Solos’ Tax Forms: Schedule C Is Your Friend
What If My Solo Biz Loses Money?
How Solos Are Taxed
Record Keeping for Solos
When a Solo Closes Up Shop
Death of a Solo
Outgrowing the Solo
8 C Corporations
Types of Corporations
How C Corporations Are Taxed
Tax Benefits of C Corporations
Incorporating Your Business
The Importance of Issuing Section 1244 Stock
Taking Money Out of a C Corporation
Tax Pitfalls of C Corporations
Dissolving a C Corporation
9 S Corporations
An Overview of S Corporations
Should You Choose S Corporation Status?
Tax Reporting for S Corporations
How S Corporation Shareholders Are Taxed
Social Security and Medicare Taxes
Electing S Corporation Status
Revoking S Corporation Status
Dissolving an S Corporation
10 Partnerships
Partnership Tax Status
Tax Reporting
Tax Obligations of Partners
Partnership Losses
Partnership Contributions
Getting Money Out of a Partnership
Partnership Expenses
Selling or Transferring a Partnership Interest
Ending a Partnership
11 Limited Liability Companies
Taxes
Comparing LLCs With Other Entities
Operating Your LLC
Terminating an LLC
12 Qualified Personal Service Corporations
Qualified Personal Service Corporations
QPSCs and Taxes
Fringe Benefits
Transferring Shares
Dissolving a QPSC
13 Family Businesses
The Legal Structure of a Family Business
Income Splitting Lowers Taxes
A Spouse in the Business
Preserving a Family Business After Death
14 Home-Based Businesses
Business Expenses Incurred at Home
The Home Office Deduction
Calculating Your Home Office Deduction
Safe Harbor Rule for the Home Office Deduction
Tax When Selling the Home Office
A Home Business as a Tax Shelter
15 Fringe Benefits
How Fringe Benefits Save Taxes
Retirement Benefits
Motor Vehicles
Meals
Travel and Lodging
Health Benefits
Dependent Care Assistance Plan
Long-Term Care Insurance
Group Term Life Insurance
Education Benefits
Dues and Subscriptions
Driver and Bodyguard Services
Retirement Planning Services
Gifts, Awards, Discounts, and Free Services
Commuter Transportation and Parking
Working Condition Fringes
De Minimis Benefits
Adoption Assistance
Job Placement Assistance
Cafeteria Plans
Disaster Relief Payments to Employees
Special Benefits for C Corporation Employees Only
16 Retirement Plans
Advantages of Retirement Plans
Overview of Retirement Plan Types
Details About Each Type of Retirement Plan
Where to Go for a Retirement Plan
Potential Tax Problems With Retirement Plans
Withdrawing Money From Retirement Plans
Closing Your Business or Leaving Your Employer
17 Buying a Business
Buying the Assets of a Business
Buying Shares of Stock
Assigning a Price to Business Assets
State and Local Transfer Taxes
18 Selling or Closing a Sole Proprietorship
Reporting the Sale of a Sole Proprietorship
The Importance of an Arm’s-Length Deal
How to Protect Yourself From IRS Challenges
19 When You Can’t Pay Your Taxes
Low IRS Priority—Less Than $50,000
Getting More Time to Pay
Paying in Installments
What to Expect When the IRS Gets Serious
Dealing With a Monster Tax Bill
When the IRS Can Take Your Assets
20 Audits
Who Gets Audited?
How Long Do You Have to Worry About an Audit?
How the IRS Audits Small Businesses
The Auditor’s Powers
Should You Get Audit Help?
Preparing for Your Audit
What to Bring to an Audit
Don’t Rush a Field Audit
What an Auditor Looks for When Examining a Business
How to Behave at an Audit
How to Negotiate With an Auditor
Your Options After Getting an Audit Report
When Your Audit Is Final
21 Appealing IRS Audits
IRS Appeals
Contesting an Audit in Court
22 Penalties and Interest
Common Reasons for Penalties
Interest on Tax Bills
Understanding Penalty and Interest Notices
How to Get Penalties Reduced or Eliminated
How to Get Interest Charges Removed
Designating Payments on Delinquent Tax Bills
23 Help Beyond the Book
Finding Answers to Tax Questions
Finding and Using a Tax Pro
24 Answers to Frequently Asked Tax Questions
Glossary
Appendix
IRS Publications List
Forms Checklist and Due Dates
IRS Services Guide (Publication 5136)
Index
| Download Ebook | Read Now | File Type | Upload Date |
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Read Now | Epub | July 17, 2022 |
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