Income Tax for
Small Business Owners
by Zhengman Wang lowe, MBA,CPA
aka: Mandy Wang
Westchester Office:
707 Westchester Ave, Suite LL01,
White Plains, NY 10604
Tel: 914-437-8500
Mandy Wang Graduated from Syracuse University with master degrees of MBA
and Accounting. She has many years of working experience with
big four accounting firm and investment bank.
Has a successful and growing CPA practice with main office in
White Plains, specialized on small businesses and international tax
accounting.
Bookkeeping/Accounting, payroll, sales tax, income tax, tax audit
representation, for
U.S. individual and families, immigrants and foreigners
Sole proprietorship, C corporations, S Corporation, partnerships,
LLCs, and non profit organizations
International Tax, Cross border investment and M&A
Also specialized on real estate taxation on buy and sale, rental
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Main Office Location
New York Office:
707 Westchester Ave, Suite LL01
White Plains, NY 10604
Tel: 914-437-8500
WeChat: mandywangcpa
www.kingtaxcpa.com
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Today’s Agenda
Business tax obligations
Business Expenses and Losses
Tax audit and resolution
Questions and discussion
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Business owners’ Year-end Tax
Responsibilities
Reporting and Filing responsibility
Tax Payment liability
Income tax
Self-employment tax
Payroll taxes
Excise tax
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Income Tax
Taxable if you have net profit
How income tax or loss is filed
Quarterly estimated tax calc and analysis for
payments
Year-end filing for profit or loss
Some States have minimum /entity tax
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Legal Entity Forms and Filing Liability
Sole Proprietorship
LLC
Partnership
S Corp
C Corp
Non profit Organization
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Sole Proprietorship
Liability for debts of the business
Business owner’s responsibility has no limit.
No protection of personal assets
Unexpected incident can bring disaster
Income tax filing: Sch C with owner’s 1040
Self-employment taxes must be paid together with income tax filing
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Limited Liability Company (LLC)
Income tax consideration:
SMLLC: disregarded entity
Multi-member LLC: partnership
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S Corp
Flow through entity
Reporting on entity level: 1120S
Taxes paid on shareholder individual tax return
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C Corporation
Separate entity that keep its own identity regardless of
who owns it
Entity level tax
Shareholder level tax on dividend
Or corporate level Accumulated earnings tax 39.6%
Form1120
If no dividends, no tax on shareholders
NOL carryover
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Taxable Income
Revenue, receipts
Can you provide proof and money trail for every Bank
Deposits?
Cash in and out
Mix business with personal
Consequence:
Tax audit
Lawsuit / court
Suggestion: Don’t
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Owner’s withdrawal from Business
Options to get earnings from business
Business forms and tax impact
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Criteria for Deducting Business &
Investment expenses
Related to profit-motivated activity
Ordinary
Necessary
Reasonable in amount
Properly documented
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General Costs & Expenses 1
Your material costs, Cost of Goods Sold
Website development, webhosting, ad
Parking and tolls, gas
Seminars, conventions, meetings, trains and bus fare, air
tickets,
supplies, labor costs
Business gifts
Commissions paid
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General Costs & Expenses 2
Self-employed health insurance
Education – business related
Interest expense (debt for business; business car financing, etc)
Legal/other professional fees
Subscription/license
Employee wage/contract labor
Employee fringe benefits
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Startup Costs
Startup and organizational expenses:
Before and during starting up your business
$5,000 deductible for current year
Amortize the rest
It has limit
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18 Phones
First local line at home is non-deductible
2nd line for business use
Cell phone
Long distance calls
International phone card
Internet
Business Travel
Airline, train, bus, taxi, car rental
Baggage, shipping, cleaning,
Lodging & Meal
Standard meal allowance or actual cost
100% ded of food purchased from store
Lavish or extravagant not allowed
Training /business seminar
Phone, fax, computer rental, printing, misc
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Business Travel
Separating costs:
Trip primarily for business
Trip primarily for personal reasons
Travel expenses for another individual
Spouse or family, not
Business associate, yes
Proof of bona fide business purpose
Convention agenda/program, ticket, brochures, notice,
public info, meeting log, customer’s presence,
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21 Car/Truck for business use
Car rental, car lease payment
For the portion of business use
Your own car:
Standard Mileage rate deduction
56cents/mile
Parking/toll
Or
Actual vehicle expense deduction
Gas, oil, tire, repair, vehicle insurance, etc
Depreciation
Parking/toll
Entertainment Expenses
You can deduct ordinary and necessary expenses to
entertain a client, customer, or employee if
The expenses meet the directly-related test or
The associated test
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Nondeductible Entertainment
Expenses
Club dues or membership fees for
Business, Pleasure, Recreation, or any social purpose
Country clubs,
Golf and athletic clubs
Airline clubs
Hotel clubs,
etc
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24 Business use of home, home office
To be eligible, you must have net profit
Must be exclusively for Business Use
% of total square feet
Options: actual expenses or simple method
Actual expenses
Mortgage interest
Real estate taxes
Utilities (elect, gas, water)
Home owners insurance
Repair
Lawn services, trash removal, cleaning services
Section 179 Deduction
When it’s favorable to take this deduction?
Limit, pros and cons
Equipment, vehicle, computers
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Charity
Sole proprietors, partnerships, LLC, and S Corp can
pass through charitable contributions to the owner’s
personal tax return.
C corporations can take deduction directly, but has
income % limition.
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Business Losses
Business losses
In C corp
Flow through to personal tax returns
can be carried forward 20 years or back to 2 years
Key: correctly report and keep the track
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Tax Audit
Would you be audited?
Small business
Big corp
IRS Audit Red Flags
What to do when you get audited?
How can you prepare to be audit proof?
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Proof
Poor records / no proof = lose audits
Keep all receipts, cancelled checks, credit card
statements, bank statements.
Be organized
Prepare your travel and entertainment records
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Recordkeeping
Why you must keep
records
What kinds of records you
must keep
How to keep them
How long must you keep
them
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Record Keeping
What Records you need to keep:
Hand written not counted
Scanned and digital record OK
If you can’t prove, no back up, you can’t deduct =taxed
&penalized
Retention periods: 7 years or life of assets plus 7 years
1. Bank stmts, Credit cards stmt
2. Contracts –permanent
3. Home purchase and improvement records
4. Investment records, real estate records
5. Depreciation schedules, tax returns, expense records
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Period of Limitations
If you owe additional tax = 3 years
Underpay & report income more than 25% = 6 years
File a fraudulent return = no limited
Do not file a return = not limited
File an amended return for credit or refund = 3 years
File for loss from worthless securities or bad debts =7 years
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Questions ?
Appointment for specific questions and consultation
White Plains Office:707 Westchester Ave, Suite LL01
White Plains, NY 10604
Tel: 914-437-8500
Wechat: mandywangcpa
www.kingtaxcpa.com
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