The essential tax-strategy book for entrepreneurs who call themselves "boss." 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 $105,000 of long-term assets each year compare the advantages of LLCs, corporations, sole proprietorships and more 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 9th edition of Tax Savvy for Small Business provides the latest tax breaks, rules, forms and publications. List of Forms IRS Publications List Forms Checklist and Due Dates Quick and Easy Access to IRS Tax Help and Tax Products (Publication 2053A) Your Rights as a Taxpayer (Publication 1) Recordkeeping for Individuals (Publication 552) Interest and Penalty Information (Notice 433) Deposit Requirements for Employment Taxes (Notice 931) Form 2553, Election by a Small Business Corporation Form 4506, Request for Copy of Tax Return Form 4797, Sales of Business Property Form 7018, Employer's Order Blank for Forms Form 8594, Asset Acquisition Statement Form 8821, Tax Information Authorization Form 8822, Change of Address Form SS-4, Application for Employer Identification Number Form W-4, Employee's Withholding Allowance Certificate Form W-9, Request for Taxpayer Identification Number and Certification Form 1040, Schedule SE, Self-Employment Tax

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Deductible Expenses A. What Is a Deductible Business Expense? The Internal Revenue Code (IRC) says that just about any outlay to produce business income can be deducted from your business income. Then, the IRC lays down about a million rules telling you just what you can deduct and, more often, can't deduct. Luckily, very few of these IRC sections apply to the average self-employed small business owner. In this chapter we discuss the ones that do. The IRS goes by three main principles. To be deductible, an expense has to be all of the following: "ordinary and necessary" for the business sensible (not extravagant) primarily for the business (not personal). Basically, this means that any money you spend in a reasonable way, with an expectation of bringing in revenue, is a deductible expense (even if it turns out that the expenditure didn't bring in money). 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. Sometimes the answer depends on the particular nature of the business. For instance, let's say a real estate agent takes her prospects to Chez Chez for $100 lunches and martinis to discuss properties for sale. For this occupation, this is an appropriate, helpful and accepted business practice (and justified by the five-figure real estate commissions the lunch could generate). But, if Joe the plumber cleans out someone's kitchen drain for $75 and then takes his customer out to a $100 lunch, it hardly looks ordinary and necessary. You get the picture. Some folks try to push the envelope, and the IRS has pushed back. Here's a Tax Court case that makes the point. EXAMPLE: Mr. Henry, an accountant, deducted expenses for maintaining his yacht. The IRS audited him and disallowed these costs. Henry contended that since his boat flew a pennant with the number "1040" on it, it brought him professional recognition and new clients. The court held that a yacht wasn't a normal expense for an accountant, and so it was neither ordinary nor necessary. In short, the yacht was a (nondeductible) personal expense. Does your deduction pass the laugh test? Experienced tax pros can size up a client's potential tax deduction by asking themselves, "Can the expense be listed without provoking a snicker?" By this "standard," you could say in the example above that the judge laughed Mr. Henry out of court. 2. Sensible Although there's no "too big" limitation on business expenses in the tax law, IRS auditors sometimes find deductions out of proportion to the nature of the business. The tax code (IRC 162) frowns on "lavish and extravagant" expenses, but doesn't define these terms. Again, it's more of a common sense thing. For instance, it's fine for The Gap to lease a jet for travel between manufacturing plants, but not for a Sam's corner deli's owner in Miami to fly to New York to meet with his pickle supplier. 3. Personal Expenses

 

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

I. Introduction Part 1: The Basics 1. Deductible Expenses 2. Writing Off Business Assets 3. Bookkeeping and Accounting 4. Business Losses and Failures 5. Tax Concerns of Employers Part 2: The Structure of Your Business 6. Sole Proprietorships 7. C Corporations 8. S Corporations 9. Partnerships 10. Limited Liability Companies 11. 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 Sole Proprietorship 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

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

 

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"The author has more than 20 years experience... Even if you use an accountant, pick up a copy of this book for further understanding and tax management."

 

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

 

Frederick W. Daily is a tax attorney with over 20 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 in publications across the country including Money Magazine, U.S. News & World Report, the Miami Herald and the Chicago Tribune. He is the author of Stand Up to the IRS, Tax Savvy for Small Business and Surviving an IRS Audit.

Products by Frederick W. Daily, Attorney:

Appeal Your Tax Audit

Fight the IRS in Tax Court

Stand Up to the IRS

Surviving an IRS Tax Audit

Tax Savvy for Small Business

 

Tax Savvy for Small Business by Frederick W. Daily
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