10 Most Expensive Tax  Mistakes That Cost   Business Owners      Thousands         Jaswant S Gill CPA           281-880-85...
#1: Failing to Plan“There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’...
Why Tax Planning?1. Key to financial defense2. Pro-Active results
Taxable Income                                   Earned income                                   Interest/dividends    ...
Adjustments to Income                                 IRA contributions                                 Moving expenses...
Deductions/Exemptions                                   Medical/dental                                   State/local tax...
Tax Brackets                                Rate   Single    HoH      Joint                                10%      0     ...
Tax Credits                                   Family credits                                   Education credits     Ad...
Two Kinds of Dollars     Add Taxable Income minus Adjustments to Income   Pre-Tax Dollars      minus Deductions      t...
Keys to Cutting Tax   “You lose every time you spend after-tax dollars that could have been pre-tax dollars.”1. Earn nonta...
#2: “Audit Paranoia”     Schedule C: $0-24,999   1.10%Schedule C: $25,000-99,999     1.90%    Schedule C: $100,000+       ...
#3: Wrong Business Entity              C-Corp?              S-Corp?            Partnership?            Sole Prop?
Sole Proprietorship Report net               Pay income income on                 tax on net Schedule C                  i...
S-CorporationSplit proceeds                        Pay income into “salary”                       tax on salaryand “income...
Employment Tax Comparison  S-Corp FICA        Proprietorship SESalary   $40,000     Income    $80,000FICA     $6,120      ...
#4: Wrong Retirement Plan      50,000      40,000Contribution      30,000      20,000      10,000               0         ...
Simplified Employee Pension   “Turbocharged” IRA                                 30000   Contribute up to 25% of    inco...
SIMPLE IRA   Defer 100% of income up to    $11,500                      16000   Age 50+ add $2,500 “catch    14000    up...
401(k)   Defer 100% of income up to    $16,500                       45000   Age 50+ add $5,500 “catch 40000    up”     ...
Defined Benefit Plan   Guarantee up to $185,000                               Age         Regular            412(i)   Co...
#5: Missing Family Employment Children age 7+ First $5,800 tax-free Next $8,500 taxed at 10% “Reasonable” wages Writt...
#5: Missing Family Employment Children age 7+ First $5,800 tax-free Next $8,500 taxed at 10% “Reasonable” wages Writt...
#6: Missing Medical Benefits   Employee benefit plan    – Married: Hire spouse (no salary necessary)    – Not married: C-...
MERP/105 Plan Major medical, LTC, Medicare, “Medigap” Co-pays, deductibles, prescriptions Dental, vision, and chiroprac...
MERP/105 Plan Written plan document No pre-funding required    – Reimburse employee    – Pay provider directly Bypass 7...
Health Savings Account1.    “High deductible health plan”     - $1,200+ deductible (individual coverage)     - $2,400+ ded...
#7: Missing A Home Office“Principal place of business”:1. “exclusively and regularly for administrative   or management ac...
#7: Missing Home Office   Determine “BUP” of home    – Divide by rooms    – Square footage                    1500    – E...
#7: Missing Home Office Deduct “BUP” of expenses:   – Mortgage/property taxes     (better than Schedule A)   – Utilities/...
#7: Missing Home Office   When you sell:    – Recapture depreciation    – Keep tax-free exclusion
#8: Missing Car/Truck ExpensesAAA Driving Costs Survey (2010)             Vehicle                         Cents/Mile      ...
#9: Missing Meals/Entertainment   Bona fide business discussion    –   Clients    –   Prospects    –   Referral Sources  ...
#9: Missing Meals/Entertainment How much? When? Where? Business purpose? Business relationship?
#10: Missing Tax Coaching Service   True Tax Planning   Written Tax Plan      – Family, Home, and Job      – Business   ...
Circular 230 Notification  In accordance with the provisions of US Treasury Circular 230   we advise you that this communi...
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Business Owner Powerpoint 2011

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Business Owner Powerpoint 2011

  1. 1. 10 Most Expensive Tax Mistakes That Cost Business Owners Thousands Jaswant S Gill CPA 281-880-8500 info@jsgcpas.com www.jsgcpas.com
  2. 2. #1: Failing to Plan“There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’t prevent that.” William H. Rehnquist
  3. 3. Why Tax Planning?1. Key to financial defense2. Pro-Active results
  4. 4. Taxable Income  Earned income  Interest/dividends Add Taxable Income  Capital gains minus Adjustments to Income  Pension/IRA/Annuity  Rent/royalty minus Deductions  Alimony times Tax Bracket  Gambling winnings minus Tax Credits  Illegal income
  5. 5. Adjustments to Income  IRA contributions  Moving expenses Add Taxable Income  ½ SE tax minus Adjustments to Income  SE health insurance  Retirement minus Deductions  Alimony times Tax Bracket  Student loan interest minus Tax Credits
  6. 6. Deductions/Exemptions  Medical/dental  State/local taxes Add Taxable Income  Foreign taxes minus Adjustments to Income  Interest  Casualty/theft losses minus Deductions/Exemptions  Charitable gifts times Tax Bracket  Miscellaneous itemized minus Tax Credits deductions
  7. 7. Tax Brackets Rate Single HoH Joint 10% 0 0 0 Add Taxable Income 15% 8,501 12,151 17,001 minus Adjustments to Income 25% 34,501 46,251 69,001 minus Deductions 28% 83,601 119,401 139,351 times Tax Bracket 33% 174,401 193,351 212,301 minus Tax Credits 35% 379,151 379,151 379,151
  8. 8. Tax Credits  Family credits  Education credits Add Taxable Income  Foreign tax minus Adjustments to Income  General business  Low-income housing minus Deductions  Renovation times Tax Bracket minus Tax Credits
  9. 9. Two Kinds of Dollars Add Taxable Income minus Adjustments to Income Pre-Tax Dollars minus Deductions times Tax Bracket minus Tax Credits After-Tax Dollars
  10. 10. Keys to Cutting Tax “You lose every time you spend after-tax dollars that could have been pre-tax dollars.”1. Earn nontaxable income2. Maximize deductions and credits3. Shift income: later years, lower brackets
  11. 11. #2: “Audit Paranoia” Schedule C: $0-24,999 1.10%Schedule C: $25,000-99,999 1.90% Schedule C: $100,000+ 4.20% Partnership 0.40% S-Corp 0.40%
  12. 12. #3: Wrong Business Entity C-Corp? S-Corp? Partnership? Sole Prop?
  13. 13. Sole Proprietorship Report net Pay income income on tax on net Schedule C incomePay SE tax up to 15.3% on income
  14. 14. S-CorporationSplit proceeds Pay income into “salary” tax on salaryand “income” and income Salary IncomePay FICA up to Avoid FICA/SE15.3% on salary tax on income
  15. 15. Employment Tax Comparison S-Corp FICA Proprietorship SESalary $40,000 Income $80,000FICA $6,120 SE Tax $11,304 Net $73,880 Net $68,696 S-Corp Saves $5,184
  16. 16. #4: Wrong Retirement Plan 50,000 40,000Contribution 30,000 20,000 10,000 0 30,000 60,000 90,000 120,000 Income SEP SIMPLE 401(k)
  17. 17. Simplified Employee Pension “Turbocharged” IRA 30000 Contribute up to 25% of income 25000 Max. contribution: $49,000 20000 Must contribute for all 15000 eligible employees 10000 Contributions directed to 5000 employee IRAs No annual administration 0 30,000 60,000 90,000 120,000 SEP Contribution
  18. 18. SIMPLE IRA Defer 100% of income up to $11,500 16000 Age 50+ add $2,500 “catch 14000 up” 12000 10000 Business “match” or “PS” 8000 Contribute to IRAs 6000 No annual administration 4000 2000 0 30,000 60,000 90,000 120,000 SIMPLE Contribution
  19. 19. 401(k) Defer 100% of income up to $16,500 45000 Age 50+ add $5,500 “catch 40000 up” 35000 Employer contributes up to 30000 25000 25% of “covered comp” 20000 Max. contribution: $49,000 15000 Loans, hardship withdrawals, 10000 rollovers, etc. 5000 Simplified administration for 0 “individual” 401(k) 30,000 60,000 90,000 120,000 401(k) Contribution
  20. 20. Defined Benefit Plan Guarantee up to $185,000 Age Regular 412(i) Contribute according to age and salary 45 $80,278 $164,970 Required contributions “412(i)” insured plan 50 $133,131 $258,019 “Dual” plans 55 $211,448 $395,634 60 $236,910 $450,112 Projections based on retirement at age 62 with $165,000 annual pretax income.
  21. 21. #5: Missing Family Employment Children age 7+ First $5,800 tax-free Next $8,500 taxed at 10% “Reasonable” wages Written job description, timesheet, check Account in child’s name FICA/FUTA savings
  22. 22. #5: Missing Family Employment Children age 7+ First $5,800 tax-free Next $8,500 taxed at 10% “Reasonable” wages Written job description, timesheet, check Account in child’s name FICA/FUTA savings
  23. 23. #6: Missing Medical Benefits Employee benefit plan – Married: Hire spouse (no salary necessary) – Not married: C-corp Reimburse employee for medical expenses incurred for self, spouse, and dependents Works with any insurance – Use your own insurance – Supplement spouse’s coverage
  24. 24. MERP/105 Plan Major medical, LTC, Medicare, “Medigap” Co-pays, deductibles, prescriptions Dental, vision, and chiropractic Braces, fertility treatments, special schools Nonprescription medications and supplies
  25. 25. MERP/105 Plan Written plan document No pre-funding required – Reimburse employee – Pay provider directly Bypass 7.5% floor Minimize self-employment tax
  26. 26. Health Savings Account1. “High deductible health plan” - $1,200+ deductible (individual coverage) - $2,400+ deductible (family coverage) Plus2. Tax-deductible “Health Savings Account” - Contribute & deduct up to $3,050/$6,150 per year - Account grows tax-free - Tax-free withdrawals for qualified expenses
  27. 27. #7: Missing A Home Office“Principal place of business”:1. “exclusively and regularly for administrative or management activities of your trade or business”2. “you have no other fixed location where you conduct substantial administrative or management activities of your trade or business.” Source: IRS Publication 587
  28. 28. #7: Missing Home Office Determine “BUP” of home – Divide by rooms – Square footage 1500 – Eliminate “common areas” 100 144
  29. 29. #7: Missing Home Office Deduct “BUP” of expenses: – Mortgage/property taxes (better than Schedule A) – Utilities/security/cleaning – Office furniture/decor – Depreciation (39 years) Increase business miles
  30. 30. #7: Missing Home Office When you sell: – Recapture depreciation – Keep tax-free exclusion
  31. 31. #8: Missing Car/Truck ExpensesAAA Driving Costs Survey (2010) Vehicle Cents/Mile Small Sedan 43.3 Medium Sedan 56.2 Large Sedan 70.2 4WD SUV 73.9 Minivan 62.0 Figures assume 15,000 miles/year; $2.603/gallon gas
  32. 32. #9: Missing Meals/Entertainment Bona fide business discussion – Clients – Prospects – Referral Sources – Business colleagues 50% of most expenses Home entertainment Associated entertainment
  33. 33. #9: Missing Meals/Entertainment How much? When? Where? Business purpose? Business relationship?
  34. 34. #10: Missing Tax Coaching Service  True Tax Planning  Written Tax Plan – Family, Home, and Job – Business – Investments  Review Returns
  35. 35. Circular 230 Notification In accordance with the provisions of US Treasury Circular 230 we advise you that this communication and any attachments to this message is not intended or written to be used, and cannot beused for the purpose of avoiding tax penalties, under the IRS code, or promoting, marketing or recommending to another party any tax related matters addressed in this e-mail message or attachments. www.jsgcpas.com info@jsgcpas.com 281-880-8500
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