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    Business Tax - 5 reasons small business pay too much presentation 021011   handouts Business Tax - 5 reasons small business pay too much presentation 021011 handouts Document Transcript

    • 2/10/20115 Reasons Small Business PayToo Much in Taxes…and How to Make it Stop!Presented by: Paul Redfern, CPApredfern@redferncpa.com760.634.1120 E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 REASON 1: E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 Basics : E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 1
    • 2/10/2011Resources Prior performance Industry Records ProfitCents.com Hoovers.com Library – Industry Data Accountant (specialization in your field) SBDC GoalsE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024Tips E-Myth Revisited: always be prepared to sell your business in 5 yrs Basics of tax, pay now or pay later Try to figure out when will your deductions be necessaryE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024Temporary Vs. Permanent Tax Differences Temporary differences ___________ versus ____________ _______________ methods 401k versus Roth 401k Permanent differences ________________investments vs. ____________ Health Savings Accounts ______________________E N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 2
    • 2/10/2011REASON 2: E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 Bookkeeping Keys: So you will E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024Basic Definitions Bookkeeping: Accounting: E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 3
    • 2/10/2011So Why Don’t Businesses Keep GoodRecords? 1. 2. 3. 4. E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 Bookkeeping Tips 1. Separate bank account 2. Accounting Software 3. Accountant REVIEW 4. 4 Habitual Entry 5. Monthly Reconciliation 6. BE HONEST WITH YOURSELF E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 REASON 3: E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 4
    • 2/10/2011TIPSE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024Types of Business Organization Sole Proprietorship Schedule C Partnership Form 1065 Limited Liability Companies (LLC) Form 1065 S Corporations Form 1120S Corporations Form 1120E N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024How Taxes Work Gross Income (Adjustments) =AGI (Itemized Deductions or, $5,700 or $11,400 ) (Exemptions =$3,650) (E i $3 650) =TAXABLE INCOME CreditsE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 5
    • 2/10/2011 Tax Basics Payroll Taxes About 14% Federal Income Tax Rates Between 10% and 35% California Tax Rates C lif i T R t Between 1.25% and 9.55% E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 Basic Example Assumptions: Married Sole Proprietor – Professional Services Consultant No Kids Spouse Does Not Work Does Not Own a Home E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024Revenue $109,365Business Expenses (10,310)Net Income $99,055SE Tax $12,345 E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 6
    • 2/10/2011Tax Example Cont’dFORM 1040Gross Income $99,055Adjustments ½ SE Tax (6,998)AGI $92,057 $92 057Standard Ded (11,400)Exemptions (7,300)Taxable Income $73,357Fed IT $11,027CA IT $ 2,717 E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 Tax Example Cont’d SE Tax $13,996 Fed IT $11,027 CA IT $ 2,717 TOTAL $27,740 % of N Income f Net I 28% Fail to enter $100/wk of expenses, costs $2,246/year in extra taxes Every $1 Missed mean Extra $0.47 in taxes E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 California LLC Fee (plus $800) Gross But < LLC Fee Income > $250k $499k $900 $500k $999k $2,500 $1M $4.9M $6,000 $5M And over $11,790 E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 7
    • 2/10/2011REASON 4:E N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 2006: ¾ of Taxpayers rec’d Refunds. Avg Refund = $2,379 $2 379 Lose $2,000 over 10 yearsE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024TIPSPlanMonitor your businessMAKE MONEYE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 8
    • 2/10/2011Financial Statements shows Income and Expenses shows Assets, Liabilities & Net Worth Assets shows how cash comes in and leaves your companyE N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024DEDUCTION TIPSThink in Terms of _____________ and ________________Great Deductions:•••E N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024Travel and Transportation Travel Expenses VERSUS Transportation Expenses ______________versus ________________ E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 9
    • 2/10/2011 REASON 5: E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 Tips SET GOALS BUDGET FOR THOSE GOALS MONITOR ACTIVITY Investments Retirement Fixed assets Advertising Think – difference Expense and Investment E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 920245 Reasons Small Business Pay TooMuch in Taxes…and How to Make it Stop!1.2.3.4.5. E N T R E P R E N E U R I A L A C C O U N T I N G P 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024 10
    • Becker Conviser CPA Review Accounting & Reporting 1 Wages Interest Dividends State Tax Refunds Alimony Received Business Income GROSS INCOME Capital Gain/Loss IRA Income Pension and Annuity Rental Income/Loss Unemployment Compensation Social Security Benefits Other Income Alimony Paid Retirement Plans Interest Penalty Self Employed Health Insurance < ADJUSTMENTS> Tax - Self Employed FICA Education Loan Interest Educational Expenses Moving Expenses Medical Savings Accounts ADJUSTED GROSS INCOME Medical (7% %) Taxes - Paid to State < ITEMIZED DEDUCTIONS> Interest Expense Charity (up to 50%) Casualty/Theft (10%) Miscellaneous (2%) Yourself < EXEMPTIONS> { x Spouse --- Dependents TAXABLE INCOME© 2003 DeVry/Becker Educational Development Corp. All rights reserved. Rl-3
    • s:~~ Sole Proprietorshi Partnership-Tab B C Corporation-Tab C Limited Liabilitv Companv-Tab F ;,o(Jl IRS Pub. 334 541 542 541~)( IRS Form Schedule C, Form 1040 Form 1065 Form 1120 Form 11205 Form 1065****~ Entity Asole proprietorship consists of Apartnership is an organization having two Acorporation is a business entity Acorporation can elect to be taxed as an An LLC is a liability-limiting entity one individual who carries on an or more owners that functions as a trade or that carries its own legal status, S corporation by filing Form 2553. Only formed under state law. It is treated Description separate and distinct from its owners. domestic corporations with one class of as a disregarded entity, partnershipen unincorporated trade or business. business. Ajoint undertaking merely to share3 (If a husband and wife carry on a expenses or ownership of property does Acorporation cannot elect out of stock are eligible. An S corporation is limited or corporation for federal income tax.~l;D business together as partners, they not necessarily constitute a partnership. An corporate taxation. See Check the Box to 100 shareholders, and may not have For purposes of this chart, the LLCc: another corporation as a shareholder. (An!I.!. should file Form 1065, U.S. Retum LLC with two or more members is generally Rules on Page F-1. Is assumed to be a multi-member::l(l) of Partnership Income.) Exception: classified as a partnership for tax purposes. exception exists for qualified subchapter S LLC taxed as a partnership. Single­~ Husband and wife residing in a Apartnership can elect to be taxed as a subsidiaries.) Other restrictions apply. member LLCs are usually treated asoc: community property state may treat the corporation. disregarded entities taxed directlyn business as a sole proprietorship. to their owner. See the LLC Entity~~(l) Classification discussion beginning on@> Pace F-1.J: Net profit or loss is computed on Partnership income and expenses flow through ACcorporation pays tax on its profits. An S corporation is taxed similar to a Same as a Partnership In this chart.ell Taxation~ Schedule Cand is reported as income or to the partners. Income is taxed to the partner When shareholders take profits from the partnership. Income and expenses flow81C loss on the owners Form 1040. whether or not distributed. Pass-through items corporation, the distributions are usually through to shareholders. Pass-through items retain the same character in the partner as they taxable dividends (double taxation). retain the character in the hands of the had in the partnership. Personal service corporations are taxed shareholder they had in the corporation. at a hiah, flat rate. The owner is subject to SE tax of 15.3% Ageneral partners share of business income Shareholders who perform services An employee-shareholder of an S Profits are subject to income tax in the Wages of net earnings from self-employment. (including guaranteed payments) is subject to for a corporation, including officers, corporation receives wages for services same way as a partnership. Members and rendered. These wages must be reasonable. business income (including guaranteed SE tax is computed on Schedule SE SE tax. Alimited partners share of business are treated as employees. Wages of SETax and is reported as "Other Taxes" on income is not subject to SE tax unless the corporate employees are subject to Additional profits are passed through to the payments) may be subject to SE tax. See Form 1040. Deduct one-half of SE tax partner performs services for the partnership. payroll tax and withholding. shareholder and are taxable for income tax Difference Between LLC Members and as an adjustment to income on line 27 of Other items, such as interest and dividends, Wages paid to employee-shareholders purposes but not for SE tax purposes. Limited Partners in a Partnership on Page Form 1040. retain their character and are passed through to must be reasonable. Dividend Double taxation of profits is avoided. F-3 for exceptions. the partners individual income tax return. distributions are not subject to SE tax. Business losses can offset other income Losses flow through to partners. Capital losses are allowed only to the L~sses flow through to shareholders. Losses flow through to members. Losses such as interest, capital gains or a Recognition of loss by a partner is limited by extent of capital gains. Net operating Recognition of loss is limited by the Recognition of loss by members is limited spouses wages if filing a joint retum. the partners basis, at-risk rules and passive loss of a corporation is carried back or shareholders basis, at-risk rules and passive by the members basis, at-risk rules and SUbject to hobby, passive activity and at activity rules. Subject to "hobby loss" rules forward against corporate income, but is activity rules, Subject to "hobby loss" rules passive activity rules. Subject to "hobby risk loss rules under Sections 183,469 under Section 183. not passed through to shareholders. under Section 183. loss" rules under Section 183. and 465, respectively. Fringe Amounts paid on behalf of employees Generally included in partners income as a Owner-employees are entitled to the Generally included in income for employee­ Same as a Partnership in this chart. are deductible: those paid on behalf of guaranteed payment. Exception: Nontaxable same tax-free fringe benefits as other shareholders owning more than 2% of stock. Benefits proprietor are not. Exception: Proprietor benefits include, among others, legal service employees (subject to discrimination Exceptions: Contributions to retirement (See Tab K) can deduct medical insurance premiums plans, educational and dependent care rules). plans; compensation for injury or sickness; and reimbursement costs under an programs and certain working condition and educational and dependent care programs; accident and health plan that covers de minimis fringe benefits and employee employee discounts: working condition and all employees. If proprietors spouse is achievement awards. de minimis fringes and no-additional-cost covered under a plan that also covers services. owner as part of family, deduction is allowed. Personal The sole proprietor is liable for all General partner personally liable for all IShareholders not liable for debts Shareholders not liable for debts incurred The degree of liability protection for LLC members varies from state to state. business debts and actions. partnership debt. Limited partners liability incurred by corporation. Liability by corporation. Liability generplly limited to Liability usually limited to investment in partnership. generally limited to amount invested.· amount invested.· • Caution: The courts may disregard the so-called "corporate liability shield" In the case of single shareholder corporations. •• In the 1040 Quickfinde~ Handbook. ••• IRS Pub. 589 regarding S corporations was last issued in 1995. .... Adisreaarded sinale-member LLC is included on the tax form of tts owner (1040, 1120, etc". .:
    • Sole Proprietorship-Tab 6** Partnership-Tab B CCorporation-Tab C SCorporation-Tab D limited liability Company-Tab F IRS Pub. 334 541 542 None*" 541 IRS Fonn Schedule C, Fonn 1040 Form 1065 Form 1120 Form 11205 Form 1065"" Organization Asole proprietorship is the easiest Apartnership is easy to organize. Awritten Acorporation is difficult and expensive An Scorporation is set up as aregular An existing partnership. can gener~lIy and business to organize. Intermingling of partnership agreement is recommended, to organize. Corporations must hold corporation. Scorporations must make register for LLC statu~ In the sta~e In . business and personal funds is allowed but not required. The agreement determines periodic board meetings and keep election to be treated as an Scorporation which it conducts busl~ess. Reglstratlo~ Administration (although not recommended). Business how income and losses are allocated to the minutes. Corporations must comply with by filing Form 2553. Certain events will is generally less complicated than forming income is reported on Schedule C, which partners. If a partnership agreement does not federal and state regulations. cause automatic termination of Sstatus. See a corporation. is filed with the owners Form 1040. exist, partnership items pass through based on Terminations on Page 0-3. partners ownership interests. Bookkeeping There ate-fewer--requirements on Depending on income and assets, the The balance sheet on a corp.oratiOnS~he balance sheet on an Scorporations I Same as a partnership. and what type of bookkeeping system or partnership may be required to include a income tax retum must agree with income tax retum must agree with the accounting method is used in sole balance sheet with its income tax retum. the corporate books. Acorporation corporate books. An Scorporation must use Accounting proprietorships. The system must be Therefore, the partnership should use the must use adouble-entry bookkeeping double-entry bookkeeping. An Scorporation consistent, clearly reflect income and double-entry bookkeeping method. If a system. It must file all necessary must file all required payroll and income tax expenses, and allow the taxpayer partner exchanges property other than cash employment and income tax returns. retums. to file an accurate retum. The sale in exchange for an Interest in apartnership, proprietorship must use the same tax special accounting rules apply. See Contributed year as the owner. Property on Page B·6. Owner Control The owner is free to make all business Control of the business operations is divided Shareholders have control over the Shareholders have control over the IControl is divided among members. and decisions. among partners. corporation to the extent they own corporation to the extent they own voting Flexibility voting stock. stock. Transfer of Asole proprietorship is not a separate The partnership agreement may restrict the Ownership is easily transferred by Ownership is easily transferred by selling The operating agree~ent may restrict Ownership entity from its owner. "Sale" of asole sale of apartnership interest, and may control selling shares of stock. The corporate shares of stock to eligible shareholders. transfer of ownership Interests. proprietorship is actually a sale of assets. the terms of the sale. charter may place certain restrictions on The corporate charter may place certain the sale of stock. restrictions on the sale of stock. Advantages IAdvantages: Advantages: Advantages: Advantages: Advantages: and - Minimum legal restrictions. - Apartnership combines the skills and/or - Limited liability. - Limited liability and perpetual life. - Avoids certain Scorporation . - Easy to discontinue. financial abilities of several people. - Perpetual life. - Avoids double taxation of profits. restrictions. Disadvantages _ Easy to establish. - Ability to raise capital through - Profits passed through are not subject to - Avoids double taxation of profits.Il -Business usually benefits from partners who issuance ofstock. SE tax as in a partnership. - Business usually benefits from8c.n have complementary skills. - Ease of transfer of ownership. - Ability to raise capital through issuance of members who have complementary stock. skills.~i Disadvantages: - Unlimited liability. Disadvantages: - Apartnership is often easier to get into than Disadvantages: - Double taxation of profits. Disadvantages: Disadvantages: - Shareholders pay tax on eamings even if - Inconsistent treatment state to state. - May not bring in new owners or outside out of. - Corporate charter restricts types of undistributed. - Must have at least two owners to been capital contributions. - General partners are liable for actions of business activities. - Less flexibility in choosing atax year. taxed as a partnership for federal tax3 purposes.~ - Income tax cannot be deferred by other partners-unlimited liability. - Subject to various state and federal - Contribution limits to aqualified retirementtJ:7 retaining profits. - Sharing of profits. controls. plan are based on employee-shareholders - Sharing of profits.c: - Disagreements in decision making.!l!.::I - Disagreements in decision making. wages, not overall profits such as a sole roprietor or partner.m Business insurance. The limited liability characteristics of certain business entities should not be considered asubstitute for proper insurance coverage. The business owner should consider coverage to protect against fire and theft, business~::I interruption, errors and omissions, employment practices, employee benefit plans and employee dishonesty. General liability coverage, including umbrella policies for personal injury and property damage, should also be considered. See Worlcers Compensation on Page M-10.~ ... Caution: The courts may disregard the so-called "corporate liability shield" in the case of single shareholder corporations.~ .... In the 1040 Quickfinde~ Handbook.I *.. IRS Pub. 589 regarding SCorporations was last issued in 1995.~! .... Adlsreaarded single-member LLC is included on the tax form of its owner (1040,1120, etc. i: I (,t.)
    • Form 1040 Department of the Treasury—Internal Revenue Service U.S. Individual Income Tax Return 2010 (99) IRS Use Only—Do not write or staple in this space. P For the year Jan. 1–Dec. 31, 2010, or other tax year beginning , 2010, ending , 20 OMB No. 1545-0074Name, R I Your first name and initial Last name Your social security numberAddress, N Tand SSN If a joint return, spouse’s first name and initial Last name Spouse’s social security number CSee separate L Apt. no. Home address (number and street). If you have a P.O. box, see instructions. Make sure the SSN(s) aboveinstructions. E A ▲ and on line 6c are correct. R City, town or post office, state, and ZIP code. If you have a foreign address, see instructions. Checking a box below will not L Y change your tax or refund.PresidentialElection Campaign ▶ Check here if you, or your spouse if filing jointly, want $3 to go to this fund . . . . . ▶ You Spouse 1 Single 4 Head of household (with qualifying person). (See instructions.) IfFiling Status 2 Married filing jointly (even if only one had income) the qualifying person is a child but not your dependent, enter thisCheck only one 3 Married filing separately. Enter spouse’s SSN above child’s name here. ▶box. and full name here. ▶ 5 Qualifying widow(er) with dependent childExemptions 6a b Yourself. If someone can claim you as a dependent, do not check box 6a . Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . } Boxes checked on 6a and 6b No. of children c Dependents: (2) Dependent’s (3) Dependent’s (4) ✓ if child under age 17 on 6c who: qualifying for child tax credit • lived with you (1) First name Last name social security number relationship to you (see page 15) • did not live with you due to divorce or separationIf more than four (see instructions)dependents, see Dependents on 6cinstructions and not entered abovecheck here ▶ Add numbers on d Total number of exemptions claimed . . . . . . . . . . . . . . . . . lines above ▶ 7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . 7Income 8a Taxable interest. Attach Schedule B if required . . . . . . . . . . . . 8a b Tax-exempt interest. Do not include on line 8a . . . 8bAttach Form(s) 9a Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . 9aW-2 here. Alsoattach Forms b Qualified dividends . . . . . . . . . . . 9bW-2G and 10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . 101099-R if tax 11 Alimony received . . . . . . . . . . . . . . . . . . . . . 11was withheld. 12 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . 12 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here ▶ 13If you did not 14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . 14get a W-2,see page 20. 15a IRA distributions . 15a b Taxable amount . . . 15b 16a Pensions and annuities 16a b Taxable amount . . . 16b 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17Enclose, but do 18 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . 18not attach, anypayment. Also, 19 Unemployment compensation . . . . . . . . . . . . . . . . . 19please use 20a Social security benefits 20a b Taxable amount . . . 20bForm 1040-V. 21 Other income. List type and amount 21 22 Combine the amounts in the far right column for lines 7 through 21. This is your total income ▶ 22 23 Educator expenses . . . . . . . . . . 23Adjusted 24 Certain business expenses of reservists, performing artists, andGross fee-basis government officials. Attach Form 2106 or 2106-EZ 24Income 25 Health savings account deduction. Attach Form 8889 . 25 26 Moving expenses. Attach Form 3903 . . . . . . 26 27 One-half of self-employment tax. Attach Schedule SE . 27 28 Self-employed SEP, SIMPLE, and qualified plans . . 28 29 Self-employed health insurance deduction . . . . 29 30 Penalty on early withdrawal of savings . . . . . . 30 31a Alimony paid b Recipient’s SSN ▶ 31a 32 IRA deduction . . . . . . . . . . . . . 32 33 Student loan interest deduction . . . . . . . . 33 34 Tuition and fees. Attach Form 8917 . . . . . . . 34 35 Domestic production activities deduction. Attach Form 8903 35 36 Add lines 23 through 31a and 32 through 35 . . . . . . . . . . . . . 36 37 Subtract line 36 from line 22. This is your adjusted gross income . . . . . ▶ 37For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2010)
    • Form 1040 (2010) Page 2 38 Amount from line 37 (adjusted gross income) . . . . . . . . . . . . . . 38Tax andCredits 39a Check if: { You were born before January 2, 1946, Spouse was born before January 2, 1946, Blind. Blind. } Total boxes checked ▶ 39a b If your spouse itemizes on a separate return or you were a dual-status alien, check here ▶ 39b 40 Itemized deductions (from Schedule A) or your standard deduction (see instructions) . . 40 41 Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . 41 42 Exemptions. Multiply $3,650 by the number on line 6d . . . . . . . . . . . . 42 43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- . . 43 44 Tax (see instructions). Check if any tax is from: a Form(s) 8814 b Form 4972 . 44 45 Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . 45 46 Add lines 44 and 45 . . . . . . . . . . . . . . . . . . . . . ▶ 46 47 Foreign tax credit. Attach Form 1116 if required . . . . 47 48 Credit for child and dependent care expenses. Attach Form 2441 48 49 Education credits from Form 8863, line 23 . . . . . 49 50 Retirement savings contributions credit. Attach Form 8880 50 51 Child tax credit (see instructions) . . . . . . . . 51 52 Residential energy credits. Attach Form 5695 . . . . 52 53 Other credits from Form: a 3800 b 8801 c 53 54 Add lines 47 through 53. These are your total credits . . . . . . . . . . . . 54 55 Subtract line 54 from line 46. If line 54 is more than line 46, enter -0- . . . . . . ▶ 55Other 56 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . 56 57 Unreported social security and Medicare tax from Form: a 4137 b 8919 . . 57Taxes 58 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required . . 58 59 a Form(s) W-2, box 9 b Schedule H c Form 5405, line 16 . . . . 59 60 Add lines 55 through 59. This is your total tax . . . . . . . . . . . . . ▶ 60Payments 61 Federal income tax withheld from Forms W-2 and 1099 . . 61 62 2010 estimated tax payments and amount applied from 2009 return 62 63 Making work pay credit. Attach Schedule M . . . . . . . 63If you have a 64a Earned income credit (EIC) . . . . . . . . . . 64aqualifyingchild, attach b Nontaxable combat pay election 64bSchedule EIC. 65 Additional child tax credit. Attach Form 8812 . . . . . . 65 66 American opportunity credit from Form 8863, line 14 . . . 66 67 First-time homebuyer credit from Form 5405, line 10 . . . 67 68 Amount paid with request for extension to file . . . . . 68 69 Excess social security and tier 1 RRTA tax withheld. . . . 69 70 Credit for federal tax on fuels. Attach Form 4136 . . . . 70 71 Credits from Form: a 2439 b 8839 c 8801 d 8885 71 72 Add lines 61, 62, 63, 64a, and 65 through 71. These are your total payments . . . . ▶ 72Refund 73 If line 72 is more than line 60, subtract line 60 from line 72. This is the amount you overpaid 73 74a Amount of line 73 you want refunded to you. If Form 8888 is attached, check here . ▶ 74aDirect deposit? ▶ b Routing number ▶ c Type: Checking SavingsSee ▶ d Account numberinstructions. 75 Amount of line 73 you want applied to your 2011 estimated tax ▶ 75Amount 76 Amount you owe. Subtract line 72 from line 60. For details on how to pay, see instructions ▶ 76 ▶You Owe 77 Estimated tax penalty (see instructions) . . . . . . . 77 Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. NoThird PartyDesignee Designee’s Phone Personal identification name ▶ no. ▶ number (PIN) ▶Sign Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief,Here they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.Joint return? Your signature Date Your occupation Daytime phone number ▲See page 12.Keep a copyfor your Spouse’s signature. If a joint return, both must sign. Date Spouse’s occupationrecords. Print/Type preparer’s name Preparer’s signature Date PTINPaid Check if self-employedPreparer Firm’s name ▶ Firms EIN ▶Use Only Firm’s address ▶ Phone no. Form 1040 (2010)
    • Single Filing Status [Tax Rate Schedule X, Internal Revenue Code section 1(c)]• 10% on income between $0 and $8,375• 15% on the income between $8,375 and $34,000; plus $837.50• 25% on the income between $34,000 and $82,400; plus $4,681.25• 28% on the income between $82,400 and $171,850; plus $16,781.25• 33% on the income between $171,850 and $373,650; plus $41,827.25• 35% on the income over $373,650; plus $108,421.25 Married Filing Jointly or Qualifying Widow(er) Filing Status [Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]• 10% on the income between $0 and $16,750• 15% on the income between $16,750 and $68,000; plus $1,675• 25% on the income between $68,000 and $137,300; plus $9,362.50• 28% on the income between $137,300 and $209,250; plus $26,687.50• 33% on the income between $209,250 and $373,650; plus $46,833.50• 35% on the income over $373,650; plus $101,085.50 Married Filing Separately Filing Status [Tax Rate Schedule Y-2, Internal Revenue Code section 1(d)]• 10% on the income between $0 and $8,375• 15% on the income between $8,375 and $34,000;plus $837.50• 25% on the income between $34,000 and $68,650;plus $4,681.25• 28% on the income between $68,650 and $104,625; plus $13,343.75• 33% on the income between $104,625 and $186,825; plus $23,416.75• 35% on the income over $186,825; plus $50,542.75 Head of Household Filing Status [Tax Rate Schedule Z, Internal Revenue Code section 1(b)]• 10% on the income between $0 and $11,950• 15% on the income between $11,950 and $45,550; plus $1,195• 25% on the income between $45,550 and $117,650; plus $6,235• 28% on the income between $117,650 and $190,550; plus $24,260• 33% on the income between $190,550 and $373,650; plus $44,672• 35% on the income over $373,650; plus $105,095  
    • 2010 California Tax Rate Schedules Schedule X — Single or married/RDP filing separately If the taxable income is  Over  But not over  Tax is Of amount over $0  $7,124  $0.00 Plus 1.25% $0  $7,124  $16,890  $89.05 Plus 2.25% $7,124  $16,890  $26,657  $308.79 Plus 4.25% $16,890  $26,657  $37,005  $723.89 Plus 6.25% $26,657  $37,005  $46,766  $1,370.64 Plus 8.25% $37,005  $46,766  And over  $2,175.92 Plus 9.55% $46,766  Schedule Y — Married/RDP filing jointly, or qualifying widow(er) with dependent child If the taxable income is  Over  But not over  Tax is Of amount over $0  $14,248  $0.00 Plus 1.25% $0  $14,248  $33,780  $178.10 Plus 2.25% $14,248  $33,780  $53,314  $617.57 Plus 4.25% $33,780  $53,314  $74,010  $1,447.77 Plus 6.25% $53,314  $74,010  $93,532  $2,741.27 Plus 8.25% $74,010  $93,532  And over  $4,351.84 Plus 9.55% $93,532  Schedule Z — Head of household If the taxable income is  Over  But not over  Tax is Of amount over $0  $14,257  $0.00 Plus 1.25% $0  $14,257  $33,780  $178.21 Plus 2.25% $14,257  $33,780  $43,545  $617.48 Plus 4.25% $33,780  $43,545  $53,893  $1,032.49 Plus 6.25% $43,545  $53,893  $63,657  $1,679.24 Plus 8.25% $53,893  $63,657  And over  $2,484.77 Plus 9.55% $63,657