Small Business Tax Tips

Here are my notes on the Intro to business taxes webinar by Corporate Tax Network on December 18, 2012, sponsored by Laughlin Associates. More than 90% of Americans pay out more in taxes than in any other expense. How can we use business vehicle to keep more of our money? New Tax Law Changes for 2012 IRS requested 5% increase in audit tax force for the year. IRS is cracking down on tax preparation industry, and the industry will become more regulated. New law requires that every tax preparer must register and take a competency test to show up-to-date information. This should result in higher quality work on taxes. Banks and other financial institutions are now required to report credit and merchant transactions. Many more tax changes in 2012 than in previous years; payroll tax has gone up 3.6% this year. Deductions for purchasing assets are now being taken away. Now that the economy is turning around, many incentives are changing. Standard deductions have changed, tax brackets are increasing. Many business tax items have also changed in 2012. Often, eligible credits are not taken by qualified taxpayers because they are unaware of it. How is Business Taxed? Sole proprietorships are taxed the highest. You are taxed on profit, not total income, so goal is to reduce profit in order to avoid taxes. LLC does not come with an inherent tax structure. Annual return can be prepared on four different sets of paperwork. This paperwork must be chosen at the beginning of the year, or immediately upon forming the LLC. S-corps need payroll to pay yourself. Profit or loss will pass through to your personal tax return. C-Corp is subject to double transaction: taxed on profit at corporate tax rate and also taxed on the money paid in salaries. Non-profits do not pay taxes, but must file. Profits are reinvested into the business. What if there is a profit/loss? Losses on the S Corp, LLC or Sole proprietorship pass through to personal returns to offset other income. With C Corps, losses carry forward to next year’s corporate filing. First year losses are fairly normal. Deduct as much as possible to save on taxes. In order to do this, you must look and act like a real business. Government cannot tax you unless you are profitable. Showing a loss results in tax benefits; profits result in tax liabilities. Get a business phone number, website, listings in professional directories, etc. How to pay yourself? Sole proprietorships are pass-through corporations for tax purposes. S Corps have two kinds of compensation: distributions and salary. The IRS requires that you pay yourself a fair and reasonable salary. Distributions are not subject to self-employment tax. C Corps pay dividends and salary. Both S and C Corps need to file quarterly payroll taxes. Taxes are paid throughout the year, and adjustments made annually. Commonly missed deductions?

Rent for home office, electric, internet, etc. Did you know that there is a recapture tax if you sell your home where you deducted costs for a home office? Meals and entertainment can be deducted, as long as it is a usual and ordinary part of doing business. Vehicle deductions for mileage or for expenses. It may make sense to sell your car to your company, or purchase a company car. Self-insured medical deductions Retirement plans Income shifting – take the money we make and spread it out; e.g. paying minors for help in the office Multiple Entity Structuring for tax benefits and income shifting Estate planning to distribute wealth without high taxes Gifting (up to $13,000 tax free), etc. IRS bookkeeping requirements Where are you doing business? Different states have different tax structures and liabilities. Business bookkeeping is time-consuming. Businesses are required to keep accurate records. How to build your business credit score Transfer all business debt into the name of the business and away from your personal credit. Paydex score is the business credit rating. Write off interest on debt as a business expense. Most common IRS penalties: -- over- or under-payment of taxes -- late or inaccurate filings --100% penalty on unpaid withholding taxes Use the tax code to your advantage by proactive planning. Contact Corporate Tax Network at 866-893-5730.