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Tax seminar

  1. 1. More Taxes to Pay: When we buy – Sales Tax When we sell – Sales Tax When we save – Capital Gains Tax When we own a house – Property Tax School Tax & Local Taxes When we die – Estate Tax
  2. 2. Americans overpay their taxes by$140 BILLION a year.Your largest expense is the taxes you payin your lifetime, more than any otherexpenses combined(Food, clothing, housing, etc.)
  3. 3. The first day of the year in whicha nation as a whole has theoreticallyearned enough income to fund itsannual tax burden. Federal, state & local taxes 365 (or 366) Tax Freedom x =--------------------- days Day Total income
  4. 4. Federal, state & Local taxes $3,469 billion = = 26.89% Total Income $12,901 billion 26.89% x 365 days = 99 days = April 9
  5. 5. Year Tax Freedom Day Taxes as % of Income-------------------------------------------------------------------------------------------------------------------------1900 Jan 22 5.90%1930 Feb 12 11.70%1950 March 31 24.60%2000 May 3 33.60%2008 April 21 30.40%2009 April 13 28.20%2010 April 9 26.90% Source: IRS; Congressional Research Service; Tax Foundation. 2010
  6. 6. Days Spent Days Spent Working to Tax Freedom Working to Tax Freedom State Pay Taxes Day Rank State Pay Taxes Day RankUnited States 99 April 9 - Montana 95 April 5 33Alabama 92 April 2 42 Nebraska 97 April 7 27Alaska 85 March 26 50 Nevada 92 April 2 43Arizona 94 April 4 37 New Hampshire 96 April 6 28Arkansas 93 April 3 38 New Jersey 115 April 25 2California 104 April 14 7 New Mexico 91 April 1 45Colorado 100 April 10 17 New York 113 April 23 3Connecticut 117 April 27 1 North Carolina 97 April 7 26Delaware 100 April 10 18 North Dakota 93 April 3 39Florida 95 April 5 31 Ohio 98 April 8 23Georgia 98 April 8 24 Oklahoma 96 April 6 30Hawaii 99 April 9 19 Oregon 98 April 8 20Idaho 98 April 8 22 Pennsylvania 103 April 13 11Illinois 101 April 11 14 Rhode Island 102 April 12 12Indiana 96 April 6 29 South Carolina 93 April 3 40Iowa 94 April 4 36 South Dakota 88 March 29 47Kansas 97 April 7 25 Tennessee 91 April 1 44Kentucky 93 April 3 41 Texas 95 April 5 32Louisiana 85 March 26 49 Utah 101 April 11 15Maine 94 April 4 34 Vermont 103 April 13 9Maryland 109 April 19 4 Virginia 103 April 13 10Massachusetts 104 April 14 6 Washington 105 April 15 5Michigan 98 April 8 21 West Virginia 89 March 30 46Minnesota 103 April 13 8 Wisconsin 102 April 12 13Mississippi 87 March 28 48 Wyoming 101 April 11 16Missouri 94 April 4 35 District of Columbia 105 April 15
  7. 7. The Federal Budget DeficitBecause of the federal government’s ability to deficit-finance its operations, TaxFreedom Day moves somewhat independently from an alternative calculation thatadds the federal budget deficit to total taxes collected. In 2010, an unprecedentedbudget deficit over $1.3 trillion produces a date of May 17, fully 38 days later thanTax Freedom Day. May 17
  8. 8. "Are the services that I receive from the government wortha quarter to a third of my working life?"
  9. 9. 120+ Million (~43.4%) American People Pay no tax at all. (based upon federal income tax records - these people usually pay no stateincome or property taxes either and pay an insignificant amount of other taxes). In fact, some will soon be getting rebates for taxes that they never paid.
  10. 10. The 120+ million poor Americans, who pay NO tax, offset the effect of the less than 7 million rich taxpayers (earning over $154,000 per year), who pay more than 60% of the taxes actually collected. That means that Tax Freedom Day actually comes closerto representing the average middle-class American Than either the rich or the poor.
  11. 11.  Age 35-54: 28.4% Work Status work full-time 50-52 wks: 25.9% Occupation: Students (24%) Other services (16.6%) Administrative support (11.2%) Sales (11.0%) Retirees & other categories Source: Tax Foundation, Estimated data for 2004
  12. 12. Of All the Taxes - SalesTax Capital Gains Tax Property Tax School Tax NO! Local Taxes Estate Tax
  13. 13. 52% of the 27.2 million small businesses in the United States are home-based .Source: U.S. Small Business Administration Office of Advocacy, September 2008
  14. 14. There are TWO taxsystems in this country. One for One forSalaried Small/Home-Employees Based Business Owners Source: Sandy Botkin, CPA, Esq. Lower Your Taxes Big Time
  15. 15. Salaried Small/Home- Employees Based Business Owners Legally Write Off ManyPay Higher Social Expenses Thanks to the Security Tax & IRS & Congress Medicare Tax Saving THOUSANDS OFFewer Deductibles DOLLARS every year
  16. 16. Employees Small/Home Business Owners Taxed First & Spend Later Spend First & Taxed Later After-Tax $$ Before-Tax $$ After- Spent on Tax Spent on Personal Business- $$ Taxes Related Expenses Paid Expensesgas, cars, computer, travel, eat- gas, cars, computer, travel, eat-outs, Internet service, cell phone, outs, Internet service, cell phone,home office, entertainment, … home office, entertainment, …Personal Expenses: Business Expenses (ordinary andNon-Deductible necessary): Deductible
  17. 17. • Separate business bank account• Separate credit card for business expenses• DBA (Do Business As) registered with county clerk• Documentation/Proof of profit-generating activities, training, business conduct• Business record keeping system Source: “Minding Her Own Business” by Jan Zobel
  18. 18. • IRS publication 334: • Profit motive. • Ongoing efforts.• IRS reg. sec 1.183-2(b) – factors to determine business activity: • Put time and effort in carrying on the activity. • Obtain training. • Maintains complete and accurate books and records.
  19. 19. In general – There shall beallowed as a deduction all theordinary and necessaryexpenses paid or incurredduring the taxable year incarrying on any trade orbusiness. Source:
  20. 20. • Rent for an outside office • Interest on business loans• Employee salaries and benefits • Licenses• Equipment rental • Banking fees• Legal and accounting fees • Advertising costs• Car and truck expenses • Home office expenses• Travel expenses • Business-related education• Meal and entertainment expenses expenses • Postage• Supplies and materials • Professional association dues• Publications • Business liability and property• Subscriptions • Insurance• Repair and maintenance • Health insurance for employees• Expenses • Office utilities, and• Business taxes • Software used for business
  21. 21.  IRS states: must maintain records that support accurate tax returns. Documentation helps you to prove to the IRS that you are pursing a profit.
  22. 22.  Records must be permanent, accurate, and complete. (Notebook or diary) Includes sales slips, receipts, canceled checks, mileage, expenses Record within 24 hours
  23. 23.  Many of your current household expenses become business expenses Deductible from taxable income (include W-2 income) Lowered taxable income = lower tax bracket = pay less federal income tax = pay less social security tax = pay less medicare tax = reduce or eliminate AMT
  24. 24. Starting in 2011, the federal income tax ratesin effect prior to the adoption of the BushAdministration’s tax cuts in 2001 arescheduled to return. The top income tax rate isscheduled to go up to 39.6%, and the low 10%bracket will be eliminated. Will this actuallyhappen, or will Congress extend the lowerrates? It’s impossible to say.
  25. 25. Starting in 2013, Medicare taxes forhigh income taxpayers will go up by0.9% to 3.8%. The increase appliesto self-employed people with netself-employment income over$200,000.
  26. 26. Effective Date Car Motorcycle Air PlaneJan 01, 2011 $0.510 $0.480 $1.29Jan 01, 2010 $0.500 $0.470 $1.29Jan 01, 2009 $0.550 $0.520 $1.24Aug 01, 2008 $0.585 $0.585 $1.07Mar 19, 2008 $0.505 $0.305 $1.07Feb 01, 2007 $0.485 $0.305 $1.07Jan 01, 2006 $0.445 $0.305 $1.07Sep 01, 2005 $0.485 $0.305 $1.07Feb 04, 2005 $0.405 $0.305 $1.07Jan 01, 2004 $0.375 $0.285 $0.995Jan 01, 2003 $0.36 $0.275 $0.955Jan 21, 2002 $0.365 $0.28 $0.975Jan 22, 2001 $0.345 $0.275 $0.965Jan 14, 2000 $0.325 $0.26 $0.88
  27. 27. You must own or lease the car and:• You must use the standard mileage rate in the first year you use a car for business or you are forever foreclosed from using that method for that car.• The car must not be used to transport persons or property for compensation or hire, for example as a taxi• You must not operate five or more cars at the same time, as in a fleet operation• You must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year, including any additional first-year depreciation or "bonus depreciation" or any method other than straight-line for its estimated useful life• You must not have claimed a Section 179 deduction or bonus depreciation on the car; and you must not have claimed actual expenses after 1997 for a car you leased, and• You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement"
  28. 28. Gas Supplies & equipment Oil change Depreciation expense Repairs & maintenance Lease payments Insurance Loan interest License & registration State & local taxes Wash & wax etcDocumentation Critical Who, When, Where, Why and How Much Recorded on a daily basis Must provide written evidence Vehicle log for a portion of the year is OK. [Temp. Reg. 1.274-5T( c )(3)(ii)].
  29. 29. 1. 52-Week Mileage Book or Daily Log. You will list every trip you take, whether for business, or personal reasons.2.Tracking Business Mileage You will record your mileage only when you use your car for business.3. Sampling Method - 90-Day Log. Keeping mileage records for a 90-day period is considered an adequate representation of the entire year. So you would keep a Daily Log for a 3-consecutive-month period, say January through March. To get your annual mileage total, you multiply the 3-month total by 4. - One-week Log. Keep a log for just one week of each month. Then you multiply that weeks mileage by 4 to get the monthly total. You must scrupulously keep an appointment book showing your business appointments all year long.
  30. 30. TOYOTA CAMRY 2001Year Start End Total Business Use Commuting Personal Use2007 78,658 86280 7622 3800 38222006 70534 78,658 8,124 4,000 4,1242005 57,967 70,534 12,567 6,000 6,5672004 38,972 57,967 18,995 12,000 3,080 3,5982003 24,286 38,972 14,686 12,638 2,0482002 20,500 24,286 2,786 2,286 5002001 5,200 20,500 15,300 380 800 14,1202000 0 5,200 5,200 3,564 1,636
  31. 31. Passenger Automobiles1st tax year $11,060 ($3,060 + $8,000 bonus depreciation)2nd tax year $4,9003rd tax year $2,950Each succeeding year $1,875 Trucks and Vans1st tax year $11,160 ($3,160 + $8,000 bonus depreciation)2nd tax year $5,1003rd tax year $3,050Each succeeding year $1,875As long as you continue to use your car for business, youcan keep taking annual deductions after the 6-yeardepreciation period ends until you recover your full basisin the car.
  32. 32.  50 miles/day business mileage 5 days/week = 250 miles/wk. 250 miles/wk x 50 weeks =12,500 Business miles/year X .585/mile = $7,310 Auto Mileage deduction Discuss business other trips, they add to miles and deduction – remember to DOCUMENT trips* Commuting to & from work is not deductible.
  33. 33.  Besides the standard mileage deduction, you can also deduct partial interests you paid on your financed car.*Example: FOR YEAR 2005 Your total mileage: 18,000 miles Your business mileage: 12,500 miles = 70% You paid the interest on your car: $2,400 You can deduct 70%: $1,680 Total Auto Deduction $8,990 * Source:
  34. 34.  The IRS states that the business trip is any trip that requires you to sleep • Away from home • Overnight • In a strange bed • Conducting business. Napping in the car does not count. * For foreign travel deductions, go to
  35. 35. Reg 1.162-2(b)(2): Must conduct business 3 of 5 days, >4 hr/day (>50% rule) Have business appointments scheduled in advance Record who, what, when, where and how much Attend training or business seminar Spouse/kids expense deduct if attend or assist Basic Deduction Guidelines: – Airline, Train, Bus, Taxis, Rental cars, etc. – Lodging, Hair styling, Dry clean, Nails – 100% of food purchased from store – 50% of meals in restaurant – No receipts are required for travel expenses under $75 per expense, except for lodging. * For foreign travel deductions, go to
  36. 36. Giant Hint:Whenever going to a business trip, take all your dirty cloth with you.
  37. 37. (IRS pub. 463) Not-more-than-a-week travel: 100% tax- deductible even if you only doing business for 1 day and 6 days for fun. More-than-a-week travel: If more than 75% time doing business, 100% tax deductible. Otherwise, you only write off the percentage calculated as business days/total days
  38. 38.  No any limitation You can take boat or cruise to attend the Leadership School in Miami in 02/2008. You can take any ship which doesn’t have to be U.S. ships. The ship MUST be a U.S. ship if you take courses on the cruise.
  39. 39.  Deduction is to take the highest federal per dim rate and double it 2009 Dates Highest Fed. PDR Daily Limit 01/01-06/30/2009 349 698 07/01-08/30/2009 323 646 09/01-09/30/2009 424 848 10/01-12/31/2009 411 822
  40. 40.  Example: A business trip from New York to England by cruise or boat. The federal per diem rate is $424 per day. You can write off $424 x 2 = $848 per day.
  41. 41. Travel Days Count as Business Days When driving to destination, the total days on travel need to follow the 300- miles-per-day rule. Example: Drive from Washington DC to Orlando for 800 miles. The travel days should not greater than 6 days (round-trip).
  42. 42.  Sandwich weekends and federal holidays between business days, even if you don’t do any work. Exception: Assume you left on Sunday and supposed to come back on Thursday. The air fare is very expensive ($1300). If you come back on Sunday, the air fare is very cheap ($450). In this case, you can come back on Sunday. The Friday, Saturday and Sunday will be count as business days even if you only have fun on these days. (Your expense should be less than the savings.)
  43. 43. Travel With Family Members You drive from Washington DC to San Francisco to attend the local seminars. If your whole family will go together, you can only deduct all your own expenses. But you can deduct the highest single-person-room rate. Assume your hotel expense is $170 for your whole family per day. If the highest single-person- room rate is $160, you can write-off $160 per day although your whole family stay in more than 1 rooms.
  44. 44. Per Diem Method of Substantiating the Amount of Travel Costs- The time, place and business purpose must still be substantiated through adequate documentationTax Payer M&IE +Lodging M&IE Only IE OnlySelf-employed(Schedule C or F) No Yes YesEmployer reimbursement ofunrelated employee Yes Yes YesEmployer reimbursement of10% related employee No No NoUn-reimbursed employee(Form 2106, sch A) No Yes Yes
  45. 45. Effective Date: 10/01/2009 – 09/30/2010 Location M&IE ($) Greensboro, NC 56 Miami, FL 66 Dallas, TX 71 Ocean City, MD 71 New York 71 Los Angeles 71
  46. 46. M&IE Total $46 $51 $56 $61 $66 $71ContinentalBreakfast/ 7 8 9 10 11 12BreakfastLunch 11 12 13 15 16 18Dinner 23 26 29 31 34 36Incidentals 5 5 5 5 5 5
  47. 47.  You and spouse go to see parents in CA Parents are clients, days you meet with them to discuss products = business days Post ad in newspaper to generate leads and schedule appt in advance of trip to turn other days into business days. Allowed 2 days for weekend – no business Travel days count as business days Conduct business more than 4 hours a day
  48. 48.  $350 x 2 for plane tickets $270 for rental car while in CA $500 Lodging ($100/day x 5 days hotel) $100 training seminar or local seminar $150 buy food to contribute to family meals $280 meals ($80 x 7 days x 50%) $2,000 x 2 trips/yr = $4,000 deduction for vacations you were already takingTotal Vacation Deduction $4,000
  49. 49. IRS publication 529: Designated cell phone as your primary business phone Have internet business, deduct internet access 2nd line for fax = business line Have to receive/make business calls from home phone, deduct ½ home phone Long distance calls discussing business
  50. 50.  $600 cell phone ($50/mo)  $360 2nd line for fax ($30mo)  $300 Home Phone ($50mo x½)  $600 Internet Access ($50/mo)  $180 Business LD calls ($15/mo)  ADD $600 spouse cell if business partner  $2,640 Communications deductionTotal Communication Deduction $2,640
  51. 51.  IRS Sec. 274(a) allows a deduction for M&E only if - (1) directly related to business or - (2) associated with business Tickets given to customers as thank you or promotional gift Take friends/clients out to dinner, movie, concert, baseball game, etc. – Deduct 50% meal if business discussed Entertain at home, deduct 100% food Home Party, deduct 100% food purchased from store if business promoted directly. Must document!!
  52. 52.  You have to have a business intentGuest: “How is your business?”You: “It is unbelievable.I never have enough businessreferrals, prospects, etc.”
  53. 53. You can deduct 50 percent of the differencebetween the cost of your meal and what itwould cost you to eat at home. You are limited to 2 Dutch treat lunches a week and up to 100 Dutch treat lunches a year. You are limited to 2 Dutch treat breakfasts a week and up to 100 Dutch treat breakfasts a year. You are limited to 2 Dutch treat dinners a week and up to 100 Dutch treat dinners a year.You can have totally 300 Dutch treat mealsa year.
  54. 54. If you split a lot of tabs and are worriedabout the IRS might challenge yourdeductions, you can save your grocery bills orreceipts from eating out for a month to showwhat you usually spend.You don’t need to keep track of whichgrocery items you eat for each meal.Instead, the IRS assumes that 50% of yourtotal grocery receipts are for dinner, 30% forlunch, and 20% for breakfast.
  55. 55.  Eating alone is never tax- deductible unless you are on a travel Never eat alone when you are NOT on a travel
  56. 56.  Dining out Going to a nightclub Attending a sporting event Going to a concert, movie, or the theater Visiting a vacation spot (a ski area or beach resort, etc.) Taking a hunting, yachting, or fishing trip Etc. Entertainment does not include activities that are for business purposes only and don’t involve any fun or amusement.
  57. 57. You must be with at least one person who canbenefit your business in some way. This couldinclude current or potential: Customers Clients Suppliers Employees Independent contractors Agents Partners Professional advisers
  58. 58.  Entertain business associates at home Cannot deduct the costs of inviting nonbusiness guests to your house with the possible exception of a business associate’s spouse Keep receipts for expenses over $75, just as you would for entertainment outside the home. Entertain your spouse at home: 0% deductible
  59. 59. Keep a record showing: Date of entertainment Business purpose of entertainment Entertainment costs Set up a guest register that includes the following columns:  Name of guest (have them sign their name)  Business Affiliation (e.g., member, V.P. Finance, etc.)  Referred by
  60. 60. If meal and entertainment expenses fit any of the followingexceptions, they are fully (100%) deductible: Recreational and social activities for employees: – This includes activities such as:  the company Christmas party and company picnic  occasional meals, such as a pizza party,  the Thanksgiving turkey or ham you give to employees Promotional activities: – For example, you provide food and beverages to members of the general public who agree to sit through your sales presentation.
  61. 61.  Tax-free de minimis fringe benefit: – This applies to expenses of providing an employee cafeteria on the employers premises and more than 50% of the employees to whom meals are provided are furnished the meals for the employers convenience. Meals and entertainment you pay for employees: – You may deduct 100% of the cost of meals and entertainment if the cost is included in the employees compensation subject to income tax withholding. Restaurants: – If you provide meals to employees at your own restaurant do not include the cost in your employees compensation. Instead, include the cost in your cost of goods sold.
  62. 62.  Make sure you document the following 6 items to support your meal and entertainment expenses: – Date – Amount (including taxes and tip) – Place – Business purpose – Name of business associate(s) – Relationship of individual(s)  customer, client, potential customer, employee. – A good habit to get into is making notes on the back of receipts, in a business diary, or calendar. Example: – 6/20/2007, lunch with Jack Jones, customer; Figaros restaurant; $75; discussed Market America business opportunity.
  63. 63.  $300 Theatre tickets as gifts (customers can take you as their guest and it’s still deductible) $625 Business meal ($25 x 50wk x 50%) $1500 Entertain in home – business mentioned – $50 food/drinks/week x 30 weeks $375 Home Party, e.g., Open House, Holiday, etc. – MUST have clear business function for ALL guests - products displayed and discussed, business aspect part of entertainment, etc – Document well – who, what, when, examples, photos $2,800 Entertainment Deduction Total Entertainment Deduction $2,800
  64. 64.  Must use the space exclusively and regularly (IRS sec 280A(c)(1)) for Business Separate room or area of home (Prop. Reg. 1.280A-2(g)(1)) Your home is your principal place of business Can’t be just desk in corner of living room, TV room, etc. Storage of inventory or product samples 2 methods: – Room method: % of total # of rooms – Square Footage Method: % of total square feet Must have net profit. If not, deductions are limited. Carry forward to future years. Exceptions: The storage of inventory or product samples does not have to meet “exclusive use test”. Check IRS guidelines and rules.
  65. 65. Expense Description DeductibilityDirect Things you buy only for Deductible in full your home officeIndirect Things you buy to keep Deductible based on the your entire home up and percentage of your home running used as a business officeUnrelated Things you buy only for Not deductible parts of your home that are not used for business
  66. 66.  Direct Expenses Indirect Expenses – Rent – Mortgage interest and property taxes  Save $153 in self-employment taxes for every $1000 – Depreciation – Utilities – Insurance – Home maintenance – Casualty losses – Condominium association fees – Security system costs – Etc.
  67. 67. 1. Take a picture of your home office and draw up a diagram showing your home office as a portion of your home.2. Have all your business mail sent to your home office.3. Use your home office address on all of your business cards, stationery, and advertising.4. Obtain a separate phone line for your business and keep that phone in your home office.5. Encourage clients or customers to regularly visit your home office, and keep a log of their visits.6. To make the most of the time you spend in your home office, communicate with clients by phone, fax, or e-mail instead of going to their offices. Use a mail or messenger service to deliver your work to customers.7. Keep a log of the time you spend working in your home office. This doesn’t have to be fancy; notes on your calendar will do.
  68. 68.  Assume 2000 sq ft home w/ 200 sq ft bus =10% Usual monthly expenses: – $500 mortgage interest – $250 real estate taxes – $150 home owners insurance – $300 utilities (elect, gas, water) – $300 maid and lawn services – $300 cleansers, paper products, repairs etc. – $300 depreciation (100K 30 years) MUST TAKE Total $2100/mo x 10% x 12 mo = $2,520/yr Total Home Office Deduction $2,520
  69. 69. • Hiring Your Children – to deduct $5700 for each child aged between 7 and 18 years old in 2010. - Salary, bonus, training expenses - Other ordinary and necessary business expenses• Hiring Your Legal Spouse - to deduct un-reimbursed medical-related expenses - self-insured medical reimbursement plan and travel expenses. - Co-pays for doctors visits - Annual insurance deductibles - Prescription drugs - Braces, glasses, dental• Employment agreement, duty list• Keep a weekly time sheet or time card.• Pay them by the business check.
  70. 70. In general, children who are dependents (claimed onsomeone elses tax return) must file a tax return if:- they have earned income of $5,700 or higher (this isthe standard deduction amount for 2010, the amountfor 2008 was $5,450)- they have unearned income (investment income) of$950 in 2009 ($900 in 2008)- they have gross income (both earned and unearned)in excess of the larger of $950 or their earned incomeplus $300.
  71. 71.  8 ½ hours/month x 12 = 102 hours/year $5.15 /hour x 102 hours/year = $525.30/year Benefit: deduct 100% of all medical expenses and your travel expenses.
  72. 72.  Answer phone and take messages daily. Open and check the box of products ordered Clean office, sweep floor, wash cars Enter client data into computer, write Christmas cards Watch baby Works 7.5 hours/week, or 30 hour/month Pay $12.50/hour x 30 hours/month = $375/month Deposited into a bank account that has her name and my name on it.
  73. 73.  Products given as gifts – LABEL Advertisements Flyers, Signs, Tapes, Videos, etc. Free Samples Products openly displayed in home Donations to charities, raffles Business Cards Any literature, mailing with business mention, website, etc.
  74. 74.  $25 per person per year You and your spouse are considered as one person for figuring the $25 limitation.But If you send a business gift to an individual organization without mentioning any persons name, it will be 100% deductible. If a persons name is mentioned, the $25-per-person-rule will apply.
  75. 75.  $300 Products as gifts- B-day, Xmas $500 advertise for bus partner in paper $250 products donated to raffle @ FMV $150 Gifts in form of books, tapes that promote or relate to prods or business $200 free samples to prospects/clients $300 products displayed in home $150 Printing cards, flyers, letters, etc.Total Promotional Deduction $1,850
  76. 76. 加速 折旧
  77. 77. Essentially, Section 179 of the IRS tax code allowsbusinesses to deduct the full purchase price ofqualifying equipment purchased or financedduring the tax year. That means that if you buy(or lease) a piece of qualifying equipment, youcan deduct the FULL PURCHASE PRICE from yourgross income. Its an incentive created by the USGovernment to encourage businesses to buyequipment and invest in themselves. It issometimes referred to as the "SUV Tax Loophole"or the "Hummer Deduction" because manybusinesses have used this tax code to purchasequalifying vehicles (like SUVs and Hummers.)
  78. 78. When your business buys certain pieces ofequipment, it typically gets to write them off alittle at a time through depreciation. In otherwords, if your company spends $50,000 on avehicle, it gets to write off (say) $10,000 a year forfive years (these numbers are only meant to give youan example.)Now, while its true that this is better than no writeoff at all, most business owners would really preferto write off the entire equipment purchase pricefor the year they buy it.
  79. 79.  Section 179 deductions (not available for rental activity) – Up to $125,000 in 2007 (Total Amt: $500K) – Up to $250,000 in 2009 (Total Amt: $800K) – Up to $250,000 in 2010 (Total Amt: $800K) Section 179 does come with limits - there are caps to the total amount written off ($250,000 in 2010), and limits to the total amount of the equipment purchased ($800,000 in 2010.) The deduction begins to phase out dollar for dollar after 800k, so this makes it a true small and medium-sized business deduction. However, in 2009, businesses that exceed the $250k deduction limit can take a bonus depreciation of 50% on the amount that exceeds the limit. And then also take normal depreciation on the rest. In 2010, there is no 50% bonus depreciation.
  80. 80. Tax Year Upper Limit 2002 $24,000 2003 $100,000 2004 $102,000 2005 $105,000 2006 $108,000 2007 $125,000 2008 $250,000 2009 $250,000 2010 $250,000 2011 $500,000
  81. 81.  Camera Computer HDTV Vehicle Software, etc.
  82. 82. • 2011 Deduction Limit - $500,000 (up from $250k previously). Good on new and used equipment, including new software.• 2011 Limit on equipment purchases - $2 Million Dollars (up from $800k previously).• “Bonus” Depreciation - 100% (taken after the $500k deduction limit is reached). Note, bonus depreciation is only for new equipment. This can also be taken by businesses that exceed $2 million in capital equipment purchases.
  83. 83. • Both new and used equipment qualify for Section 179 Deduction (as long as the used equipment is "new to you")• Bonus Depreciation covers new equipment only. • Bonus Depreciation is useful to very large businesses spending more than $2 million on new capital equipment in 2011; • Businesses with a net loss in 2011 qualify to deduct the cost of new equipment.
  84. 84. Year Federal Income Federal Income Tax Saving Federal Income Tax Savings Tax Rate Using Section 179 Deduction Using Depreciation Deduction2008 15% $750 (15% x $5,000 total $75 (15% x $500 of total $5,000 cost) cost)2009 25% 0 250 (25% x $1,000)2010 28% 0 280 (28% x $1,000)2011 28% 0 280 (28% x $1,000)2012 28% 0 280 (28% x $1,000)2013 28% 0 140 (28% x $500)Total $750 $1,305
  85. 85.  $500 Camera $1000 ComputerTotal Section 179 Deduction $1,500
  86. 86. Knowledge Is PowerTo qualify for an education deduction, youmust be able to show that the education:- Maintains or improves skills required in your business, or- Is required by law or regulation tomaintain your professional status
  87. 87. Knowledge Is PowerDeductible education expenses include:- Tuition- Fees- Books- Other learning materials- Transportation- Travel
  88. 88. - New Distributor Training- Basic 5- ECCT Training- UnFranchise® Business Presentation- Local Seminar- District Rally- Regional Convention- Chinese Convention- International Convention- World Conference- Upper-Level Training- Moving-up Seminars- Various Professional Certificates Training Total Education Deduction $1,500
  89. 89.  Postage and Product Shipping & Handling Fee Office Supplies – pens, paper, labels, etc Office Equipment – lamps, desk, bookcase Refreshments for trainings in your home Dues and Subscriptions Legal and Professional Services Taxes and Licenses Business Bad Debts Casualty Losses Insurance for Your Business Interest on Business Loans Domestic Production Activities
  90. 90.  $150 Postage $250 Office Supplies $100 Dues and subscriptions $200 Refreshments $100 Business Bad Debts Total Other Deduction $800
  91. 91. The money you spend to get your business up andrunning. The deductible amount in the first year you are in business: – up to $5,000 before tax year 2010 – Up to $10,000 in tax year 2010 Deduct the remainder, if any, in equal amounts over the next 15 years.
  92. 92.  $8,990 Auto Mileage $4,000 Business Vacations/Travel $2,640 Communications $2,800 Entertainment $2,520 Home Office $3,200 Hire Children $1,850 Promotional $1,500 Section 179 $1,500 Education $800 Other Deductions$29,800 Business Deductions
  93. 93. Office 04-304; January 2004]. [Source: Information on Expenses Claimed by Small Business Sole Proprietor ships, General Accounting Expense Percentage Claimed1. Car and truck expenses 81%2. Utilities 68%3. Supplies (other than office supplies) 60%4. Office supplies 60%5. Legal and professional services 60%6. Insurance 54%7. Taxes 51%8. Meals and entertainment 47%9. Advertising 43%10. Repairs 40%11. Travel 31%12. Rent on business property 26%13. Home office 21%14. Rent on equipment and machinery 21%15. Interest 18%
  94. 94. TOTAL $29,800 Business DeductionsConverting Deductions to Tax Savings: If your tax bracket is 10%, you save $2,980. If your tax bracket is 15%, you save $4,470. If your tax bracket is 25%, you save $7,450. If your tax bracket is 28%, you save $8,344. If your tax bracket is 33%, you save $9,834. If your tax bracket is 35%, you save $10,430.
  95. 95. - $ 99.95 Renewal fee- $ 1200 ($100 x 12) Products ordered +$ 100 Retail profitMaximum annual expenses for this business $1200
  96. 96. Investment $1200Tax Advantage $2980 - $10430 Free Products !!! Free Services !!!Never Bankrupt !!!
  97. 97. Stand up to the IRS(Something the IRS doesn’t want you to know)
  98. 98. 1. Be Neat, Thorough, and Exact2. Mail Your Return by Certified Mail3. Don’t File Early4. Don’t File Electronically5. Form a Business Entity6. Explain Items the IRS will Question7. Avoid Ambiguous or General Expenses8. Report All of Your Income9. Watch Your Income-to-Deduction Ratio10.Beware of Abnormally Large Deductions
  99. 99.  Tax Savings are Government paying you to be in business Tax Laws favor businesses in ways that employees never benefit Thoughtful tax planning pays/saves you $$$ IMPORTANT POINTS: – save receipts – keep good records and daily calendar – document your activities, so you calculate most deductions, can prove deductions if audited & keep your accountant happy
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