The Tax Man Cometh The Tax Man Cometh February 5, 2014 February 5, 2014
The Tax Man Cometh ~ Business Tax Information for Entrepreneurs
Sep 11, 2014
Slides from Mike Patrick's presentation at Share Space Spokane of The Tax Man Cometh. A look at a lot of taxation issues facing entrepreneurs and business owners.
Share Space Spokane is co-working space located in downtown Spokane, WA this presentation was part of the Avista Center for Entrepreneurship's workshop series hosted by Share Space Spokane on the 1st and 3rd Wednesday of each month. The workshops are free to attend and cover a wide range of topics including marketing, online presence, resources, business law, tax and lots more.
Share Space Spokane is co-working space located in downtown Spokane, WA this presentation was part of the Avista Center for Entrepreneurship's workshop series hosted by Share Space Spokane on the 1st and 3rd Wednesday of each month. The workshops are free to attend and cover a wide range of topics including marketing, online presence, resources, business law, tax and lots more.
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The Tax Man ComethThe Tax Man ComethFebruary 5, 2014February 5, 2014
Introduction to Business/TaxationChoosing a CPA
Changes in Tax LawsIncome & Expenses
PayrollEstimated Tax Payments
Tax PlanningState Taxes
Miscellaneous Information
OVERVIEW
Starting a new Business:
•Register with the IRS (SS-4).
•Register with the Department of Revenue (UBI Number).
•Separate Checking Account & Credit Card.
•QuickBooks.
•Comparative Financial Statements / Budgets.
INTRODUCTION INTO TAXATION
Starting a new Business:
•Keep Business & Personal Separate.
•Transfer Amounts from Business Account to Personal Account.
•Find a CPA, Banker & Attorney.
•Being a Business Owner vs. Running a Business.
INTRODUCTION INTO TAXATION
Types of Business:
•Sole Proprietor – Form 1040
•Partnership / LLC – Form 1065
•S – Corporation – Form 1120S
•C – Corporation – Form 1120
INTRODUCTION INTO TAXATION
Things to remember when doing business or taxes:
•Just the facts please.
•What’s your source?
•“Gray Area.”
•Substance over Form.
INTRODUCTION INTO TAXATION
When speaking with a CPA, ask them for background information:•Where did they go to school?•Are they a Certified Public Accountant?•Are they members of a professional and ethical organization?•Are they licensed?•How long have they been in business?•Is their office open all year?•IRS Notices, Audits & Appeals.
ADVICE FOR CHOOSING A TAX RETURN PREPARER
Good rules to remember when communicating with your CPA:•Review your tax return with your CPA.•Always ask questions!•Understand the “Big Picture”.•Manage cashflow with paying taxes.•Don’t fall for the “Hand on the Stomach”.•Avoid the “yes man”.
ADVICE FOR CHOOSING A TAX RETURN PREPARER
Gross Income(Ordinary Income / Short Term Capital Gain /Long Term
Capital Gain)Deductions
Adjusted Gross IncomeTaxable Income
Total TaxCredits
PaymentsTax Liability
INTRODUCTION INTO TAXATION
INTRODUCTION INTO TAXATION
Income (broadly conceived) $ xx,xxxLess: Exclusions (income that is not subject to tax) (x.xx)Gross Income $ xx,xxxLess: Deductions (x.xx)Taxable Income $ xx,xxx
Federal income tax $ xx,xxxLess: Tax credits (x.xx)Federal tax liability $ xx,xxxLess: Withholdings & estimate payments (x.xx)Tax owed or (refund) $ xx,xxx
Basic Formula for Federal Income Tax
INTRODUCTION TO TAXATION
STATUTE OF LIMITATIONS
Period of Limitations..IF THEN the period of limitation is:
1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you
3 years
2. You do not report income that you should report, and it is more than 25% of the gross income shown on the return
6 years
3. You file a fraudulent income tax return No limit
4. You do not file a return No limit
5. You file a claim for credit or refund after you file your return.
Later of 3 years or 2 years after tax was paid
Tax Laws are in the current state of flux and should be constantly monitored for changes. For example there were 55 tax law changes as of January 1, 2014:
•State and Local Sales Taxes.•Deduction for certain expenses for School Teachers.•Premiums for Mortgage Insurance Deduction.•Exclusion of Discharge of Principal Residence Debt.•Research & Development Tax Credit.•Credit for Non-Business Energy Property.•Bonus Depreciation.
TAX LAW CHANGES
Gross Income is everything unless the IRS indicates to the contrary:
•Cash.•Property.•Barter.•Gross income needs to reconcile to your banks statements, Federal Tax Return and State Tax Return.
GROSS INCOME
No expenses are allowed unless the IRS indicates to the contrary:
•Ordinary and Necessary.•Current Expense vs. Capital Expense.•So what if you have receipts……...•Substance over Form or Law vs. Want.• Meals & Entertainment.• Clothes and Dry Cleaning.• Car Expenses.• Personal Expenses.
EXPENSES
You can depreciate property that meets all of the following requirements:
You must own the property.
The property must be used in a business or held for the production of income.
The property must have a determinable useful life which must be longer than one year.
The property must be something that wears out, decays, gets used up, becomes obsolete or loses value from natural causes.
DEPRECIATION EXPENSE
Computer Software – 3 Years.
Auto’s – 5 Years.
Computers – 5 Years.
Computer Equipment – 5 Years.
Furniture & Fixtures – 7 Years.
Rental Building – 27.5 Years.
Commercial Building – 39 Years.
FIXED ASSET LIVES
When you sale your business assets consider the following
•Short Term Capital Gain•Long Term Capital Gain•Ordinary Income Recapture•Section 1231• Section 1245• Section 1250
SALE OF BUSINESS PROPERTY
•IRA•Roth IRA•Simple•401(k)•Roth 401(k)
RETIREMENT PLANS
Most tax agencies require electronic payments & deposits.•EFTPS•Form 941 – Employer’s Quarterly Federal Tax Return.•Form 940 – Employer’s Annual Federal Unemployment Tax Return (FUTA)•Form 1099’s•Forms W-2’s & W-3•Labor & Industries (State)•State Unemployment Tax (State) (SUTA)
PAYROLL TAXES
Individuals can base federal estimated tax payments on:
1. 90% of current tax.2. 100% of prior year’s tax.3. 110% of prior year’s tax if prior year’s AGI is
greater than $150,000 ($75,000 if MFS).4. Annualization exception.5. No penalty if tax is less than $1,000 or no tax
liability in prior year.
ESTIMATED TAXES
Estimate are due on or before the following dates:April 15th
June 15th
September 15th
January 15th (the following year)
If you are required to pay state estimated payments consider making last payment on or
before December 31
ESTIMATED TAXES
What?Accelerate deductions from 2014 into 2013 or defer income until
2014.
Why?The goal of tax planning is to cut the total tax you pay over both
years, not just one.
Project your tax liability. Determine if you owe or get a refund.
Penalty Protection.
TAX PLANNING
When?
Quarterly, but no later than December 31.
Who?
Taxpayers whose income (deduction) fluctuates from year to year.
Own a Business
Taxable Event
Investment Income
K-1’s
TAX PLANNING
Purchasing new business assets.
Section 179Use credit card to make business
purchases. Establish a Health Savings Account.Sell investments that have losses.
Establish a retirement plan.
TAX PLANNING
Log onto Washington Secure Access website:•Labor and Industries•SUTALog onto the Washington Department of Revenue:•Business and Occupational Tax (B&O)•Sales Tax•Use Tax
STATE TAXES
No matter what type of business you are please remember:
•Obtain a line-of-credit.•Establish a Reserve Fund.•Go Paperless.•Use Professionals.•Prior Success Doesn’t Predict Future Success.•Debt is the Jester, Cash is King.
MISCELLANEOUS INFORMATION
Complexity vs. Fairness
Obama Care
Tax Laws Changes are Uncertain, Unpredictable & Unacceptable
IN CLOSING
Mike Patrick
Email: [email protected]
Website: www.mdpcpa.com
Telephone– (509) 315-5760
Cell Phone – (509) 998-4069
** Email Patty at [email protected] to sign up for my Tax / Business Newsletter
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