The essential tax-strategy book for entrepreneurs who call themselves "boss." Named a "Best Tax Book" by Entrepreneur Knowing the ins and outs of the tax code is vital to the health of every small business. Virtually every decision a business makes has tax consequences that can affect its bottom line -- and the IRS is always watching. Tax Savvy for Small Business provides valuable strategies that will free up your time and money for what counts -- running your business, and running it effectively. It explains how to: -deduct current and capitalized expenses -write off up to $108,000 of long-term assets each year -compare different business structures -take advantage of fringe benefits -keep records that will head off trouble with the IRS -get tax breaks from business losses -deal with payroll taxes -negotiate payment plans for late taxes -handle an audit -get IRS penalties and interest reduced -maximize retirement funds -use retirement funds as a tax break Completely updated, the 10th edition of Tax Savvy for Small Business provides the latest tax breaks, rules, forms and publications. You'll also find a list of the top 25 business deductions – the best deductions to take and how to claim them.

Deductible Expenses Introduction Small business owners and self-employed people want to maximize their tax savings. The key to legally cutting business taxes to the bone is knowing the best ways to deduct business operating expenses and knowing exactly what taxable income is. That's the focus of chapter 1. Next, in chapter 2, Writing Off Business Assets, we'll complete the picture with the rules for deducting assets purchased for your business. First, how will your business income be taxed? The U.S. government taxes a business's profits -- so the more you end up with after deducting your expenses, the more taxes you pay. and, it is a progressive tax, meaning the more you make, the higher percentage tax you pay. Consequently, the American entrepreneur has a strong incentive to keep taxable profits as low as possible, while at the same time taking home as much money as possible and enjoying as many benefits of self-employment as possible. Let's start with a simple illustration of how net taxable profits are determined in any kind of business operation. Example: Homer quits his job at the nuclear power plant and goes into business selling an automated dog walker that bart invented. Incredibly, Homer makes money, and at the end of the year determines his taxable profits as follows: Gross sales $35,000 Less cost of goods sold (manufacturing costs) - $12,000 Gross profit (before operating expenses) $23,000 Less deductible operating expenses (shipping, supplies, rent, utilities, etc.) - $5,000 Net profit (taxable to Homer) = $18,000 How much Homer will owe in federal (and maybe state) income tax on the $18,000 net profit depends on his family's total income, personal deductions, and exemptions for the kids. Wondering what you must include in your reportable income? Sales only? Bartered goods? Foreign income? Gifts? Ill-gotten gains? Fringe benefits? Inheritances? To learn what exactly is included in your sales and income figures, see Section F, below. Now let's quickly move to the heart of this chapter: expenses you can deduct from business income to get that net profit number as low as possible. A. What Is a Deductible Business Expense? Congress knows you have to spend money to make money. so, the internal revenue code (IRC) says that just about any expenditure to produce business income is deductible. Then, the tax code lays down about a million rules telling exactly how and when you can and can't deduct things. Luckily, very few restrictions apply to the average small time operator, like you and me. In this chapter we discuss the rules. Deductible Business Expenses A deductible business expense must be: ordinary and necessary for the business not extravagant, and primarily for the business (not personal). Basically, money you spend in a reasonable way, with an expectation of bringing in business revenue, is a deductible expense. 1. Ordinary and Necessary Okay, so what's an ordinary and necessary expense for a business? The tax code doesn't define it. This means we have to look at court decisions and IRS pronouncements for guidance. One court said necessary means "appropriate and helpful." Another court said that ordinary means "normal, common and accepted under the circumstances by the business community." When you consider whether an expense is ordinary and necessary, start with a commonsense approach. Most enterprises need a fixed location, for instance, and paying rent or having a home office is appropriate, normal, and common, and is thus considered both ordinary and necessary.

 

The essential tax-strategy book for entrepreneurs who call themselves "boss."

I. Introduction A. Taxes for Small Businesses and the Self-Employed B. How Tax Law Is Made and Administered: The Short Course C. Where to Find Tax Rules D. Marginal Tax Rate and Tax Brackets E. The Alternative Minimum Tax (AMT) Part 1: The Basics 1. Deductible Business Expenses and Income A. What Is a Deductible Business Expense? B. Is It a Current or Future Year Expense? C. Top 25 Deductions for Businesses D. The General Business Credit E. Vehicle Expenses F. How and Where to Claim Expense Deductions G. What Is -- And Isn't -- Income? 2. Writing Off Business Assets A. When Various Expenses May Be Deducted B. Section 179: Expensing Business Assets C. Depreciating Business Assets D. Tax Basis of Business Assets E. Leasing Instead of Buying Assets F. When You Dispose of Business Assets: Depreciation Recapture Tax G. Tax Errors in Depreciation 3. Bookkeeping and Accounting A. Why You Need a Bookkeeping System B. Should You Hire a Bookkeeper? C. Manual or Computer System? D. What Kinds of Records to Keep E. How Long Records Should Be Kept F. Bookkeeping Methods of Tracking Income and Expenses G. Timing Methods of Accounting: Cash and Accrual H. Accounting Periods: Calendar Year or Fiscal Year 4. Business Losses and Failures A. Unincorporated Business Losses B. Incorporated Business Losses 5. Tax Concerns of Employers A. Employer Identification Numbers B. What Are Payroll Taxes? C. Reporting and Depositing Payroll Taxes D. Classifying Workers: Employee or Independent Contractor? E. Misclassifying Employees as Independent Contractors F. IRS Filing and Payment Requirements for Employers G. Record Keeping for Your Workers Part 2: The Structure of Your Business 6. Sole Proprietorships A. What It Means to Be a Solo -- From a Tax Perspective B. To Be or Not to Be -- A Solo C. Solo Income and Expenses D. Solos' Tax Forms: Schedule C Is Your Friend E. What If My Solo Biz Loses Money? F. How Solos Are Taxed G. Record Keeping for Solos H. When a Solo Closes Up Shop I. Death of a Solo J. Outgrowing the Solo 7. C Corporations A. Types of Corporations B. How C Corporations Are Taxed C. Tax Benefits of C Corporations D. Incorporating Your Business E. The Importance of Issuing Section 1244 Stock F. Taking Money out of a C Corporation G. Tax Pitfalls of C Corporations H. Dissolving a C Corporation 8. S Corporations A. An Overview of S Corporations B. Should You Choose S Corporation Status? C. Tax Reporting for S Corporations D. How S Corporation Shareholders Are Taxed E. Social Security and Medicare Taxes F. Electing S Corporation Status G. Revoking S Corporation Status H. Dissolving an S Corporation 9. Partnerships 10. Limited Liability Companies 11. Qualified Personal Service Corporations Part 3: Thinking Small 12. Family Businesses 13. Microbusinesses and Home-Based Businesses Part 4: Fringe Benefits 14. Fringe Benefits 15. Retirement Plans Part 5: Buying or Selling a Business 16. Buying a Business 17. Selling a Business Part 6: Dealing With the IRS 18. When You Can't Pay Your Taxes 19. Audits 20. Appealing IRS Audits 21. Penalties and Interest 22. Help Beyond the Book 23. Answers to 25 Frequently Asked Tax Questions Glossary Appendix IRS Publications List Forms Checklist and Due Dates Quick and Easy Access to IRS Tax Help and Tax Products (Publication 2053-A) Index

"A completely invaluable guide... keep this on your bookshelf for future reference. Five stars (we love it)."

 

"[One of] the hottest books to help you comply with (and maybe get a refund from) Uncle Sam."

 

"This plain-English guide will show you how to make the most of your tax-deductions."

 

"[One of the] best resources to get your business growing."

 

Frederick W. Daily is a tax attorney with over 35 years experience helping individuals and small business owners make smart tax decisions and stay out of trouble with the IRS. He has been featured as a tax expert on Good Morning America and NPR, and in publications across the country including Money Magazine, U.S. News & World Report, Newsweek, the New York Times, and the Chicago Tribune. He is the author of Stand Up to the IRS, Tax Savvy for Small Business and Surviving an IRS Tax Audit.




Products by Frederick W. Daily, Attorney:



Stand Up to the IRS



Surviving an IRS Tax Audit

 

Tax Savvy for Small Business by Daily Frederick
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