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Tax Savvy for Small Business: A Complete Tax Strategy Guide Twenty first Edition

Tax Savvy for Small Business: A Complete Tax Strategy Guide Twenty first Edition PDF

Author: Frederick W. Daily Attorney

Publisher: NOLO


Publish Date: January 26, 2021

ISBN-10: 1413328164

Pages: 374

File Type: Epub

Language: English

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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,” 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


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


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


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


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



IRS Publications List

Forms Checklist and Due Dates

IRS Services Guide (Publication 5136)


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