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The Tax Man Cometh
February 5, 2014
OVERVIEW

Introduction to Business/Taxation
Choosing a CPA
Changes in Tax Laws
Income & Expenses
Payroll
Estimated Tax Payments
Tax Planning
State Taxes
Miscellaneous Information
INTRODUCTION INTO
TAXATION

Starting a new Business:
•Register with the IRS (SS-4).
•Register with the Department of Revenue (UBI Number).
•Separate Checking Account & Credit Card.
•QuickBooks.
•Comparative Financial Statements / Budgets.
INTRODUCTION INTO
TAXATION

Starting a new Business:
•Keep Business & Personal Separate.
•Transfer Amounts from Business Account to Personal Account.
•Find a CPA, Banker & Attorney.
•Being a Business Owner vs. Running a Business.
INTRODUCTION INTO
TAXATION

Types of Business:
•Sole Proprietor – Form 1040
•Partnership / LLC – Form 1065
•S – Corporation – Form 1120S
•C – Corporation – Form 1120
INTRODUCTION INTO
TAXATION

Things to remember when doing business or taxes:
•Just the facts please.
•What’s your source?
•“Gray Area.”
•Substance over Form.
ADVICE FOR CHOOSING A TAX
RETURN PREPARER

When speaking with a CPA, ask them for background information:
•Where did they go to school?
•Are they a Certified Public Accountant?
•Are they members of a professional and ethical organization?
•Are they licensed?
•How long have they been in business?
•Is their office open all year?
•IRS Notices, Audits & Appeals.
ADVICE FOR CHOOSING A TAX
RETURN PREPARER

Good rules to remember when communicating with your
CPA:
•Review your tax return with your CPA.
•Always ask questions!
•Understand the “Big Picture”.
•Manage cashflow with paying taxes.
•Don’t fall for the “Hand on the Stomach”.
•Avoid the “yes man”.
INTRODUCTION INTO
TAXATION

Gross Income
(Ordinary Income / Short Term Capital Gain /Long Term Capital Gain)

Deductions
Adjusted Gross Income
Taxable Income
Total Tax
Credits
Payments
Tax Liability
INTRODUCTION INTO
TAXATION
Basic Formula for Federal Income Tax

Income (broadly conceived)
Less: Exclusions (income that is not subject to tax)
Gross Income
Less: Deductions
Taxable Income

$ xx,xxx
(x.xx)
$ xx,xxx
(x.xx)
$ xx,xxx

Federal income tax
Less: Tax credits
Federal tax liability
Less: Withholdings & estimate payments
Tax owed or (refund)

$ xx,xxx
(x.xx)
$ xx,xxx
(x.xx)
$ xx,xxx
INTRODUCTION TO TAXATION
STATUTE OF LIMITATIONS
Period of Limitations..IF

THEN the period of
limitation is:

1.

You owe additional tax and situations (2), (3), and
(4), below, do not apply to you

3 years

2.

You do not report income that you should report,
and it is more than 25% of the gross income
shown on the return

6 years

3.

You file a fraudulent income tax return

No limit

4.

You do not file a return

No limit

5.

You file a claim for credit or refund after you file
your return.

Later of 3 years or 2
years after tax was paid
TAX LAW CHANGES

Tax Laws are in the current state of flux and should be constantly
monitored for changes. For example there were 55 tax law changes
as of January 1, 2014:
•State and Local Sales Taxes.
•Deduction for certain expenses for School Teachers.
•Premiums for Mortgage Insurance Deduction.
•Exclusion of Discharge of Principal Residence Debt.
•Research & Development Tax Credit.
•Credit for Non-Business Energy Property.
•Bonus Depreciation.
GROSS INCOME

Gross Income is everything unless the IRS indicates to the contrary:
•Cash.
•Property.
•Barter.
•Gross income needs to reconcile to your banks statements, Federal
Tax Return and State Tax Return.
EXPENSES

No expenses are allowed unless the IRS indicates to the contrary:
•Ordinary and Necessary.
•Current Expense vs. Capital Expense.
•So what if you have receipts……...
•Substance over Form or Law vs. Want.
• Meals & Entertainment.
• Clothes and Dry Cleaning.
• Car Expenses.
• Personal Expenses.
DEPRECIATION EXPENSE

You can depreciate property that meets all of the following
requirements:
You must own the property.
The property must be used in a business or held for the production
of income.
The property must have a determinable useful life which must be
longer than one year.
The property must be something that wears out, decays, gets used
up, becomes obsolete or loses value from natural causes.
FIXED ASSET LIVES

Computer Software – 3 Years.
Auto’s – 5 Years.
Computers – 5 Years.
Computer Equipment – 5 Years.
Furniture & Fixtures – 7 Years.
Rental Building – 27.5 Years.
Commercial Building – 39 Years.
SALE OF BUSINESS PROPERTY

When you sale your business assets consider the following
•Short Term Capital Gain
•Long Term Capital Gain
•Ordinary Income Recapture
•Section 1231
•

Section 1245

•

Section 1250
RETIREMENT PLANS

•IRA
•Roth IRA
•Simple
•401(k)
•Roth 401(k)
PAYROLL TAXES

Most tax agencies require electronic payments & deposits.

•EFTPS
•Form 941 – Employer’s Quarterly Federal Tax
Return.
•Form 940 – Employer’s Annual Federal
Unemployment Tax Return (FUTA)
•Form 1099’s
•Forms W-2’s & W-3
•Labor & Industries (State)
•State Unemployment Tax (State) (SUTA)
ESTIMATED TAXES

Individuals can base federal estimated tax payments on:
1. 90% of current tax.
2. 100% of prior year’s tax.
3. 110% of prior year’s tax if prior year’s AGI is greater than
$150,000 ($75,000 if MFS).
4. Annualization exception.
5. No penalty if tax is less than $1,000 or no tax liability in prior
year.
ESTIMATED TAXES

Estimate are due on or before the following dates:
April 15th
June 15th
September 15th
January 15th (the following year)
If you are required to pay state estimated payments consider
making last payment on or before December 31
TAX PLANNING

What?
Accelerate deductions from 2014 into 2013 or defer income until 2014.

Why?
The goal of tax planning is to cut the total tax you pay over both years, not just one.
Project your tax liability. Determine if you owe or get a refund.
Penalty Protection.
TAX PLANNING

When?
Quarterly, but no later than December 31.
Who?
Taxpayers whose income (deduction) fluctuates from year to year.
Own a Business
Taxable Event
Investment Income
K-1’s
TAX PLANNING

Purchasing new business assets.
Section 179
Use credit card to make business purchases.
Establish a Health Savings Account.
Sell investments that have losses.
Establish a retirement plan.
STATE TAXES

Log onto Washington Secure Access website:

•Labor and Industries
•SUTA

Log onto the Washington Department of Revenue:

•Business and Occupational Tax (B&O)
•Sales Tax
•Use Tax
MISCELLANEOUS INFORMATION

No matter what type of business you are please remember:
•Obtain a line-of-credit.
•Establish a Reserve Fund.
•Go Paperless.
•Use Professionals.
•Prior Success Doesn’t Predict Future Success.
•Debt is the Jester, Cash is King.
IN CLOSING

Complexity vs. Fairness
Obama Care
Tax Laws Changes are Uncertain, Unpredictable &
Unacceptable
Mike Patrick
Email: mike@mdpcpa.com
Website: www.mdpcpa.com
Telephone– (509) 315-5760
Cell Phone – (509) 998-4069
** Email Patty at patty@mdpcpa.com to sign up for my Tax / Business
Newsletter

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The Tax Man Cometh ~ Business Tax Information for Entrepreneurs

  • 1. The Tax Man Cometh February 5, 2014
  • 2. OVERVIEW Introduction to Business/Taxation Choosing a CPA Changes in Tax Laws Income & Expenses Payroll Estimated Tax Payments Tax Planning State Taxes Miscellaneous Information
  • 3. INTRODUCTION INTO TAXATION Starting a new Business: •Register with the IRS (SS-4). •Register with the Department of Revenue (UBI Number). •Separate Checking Account & Credit Card. •QuickBooks. •Comparative Financial Statements / Budgets.
  • 4. INTRODUCTION INTO TAXATION Starting a new Business: •Keep Business & Personal Separate. •Transfer Amounts from Business Account to Personal Account. •Find a CPA, Banker & Attorney. •Being a Business Owner vs. Running a Business.
  • 5. INTRODUCTION INTO TAXATION Types of Business: •Sole Proprietor – Form 1040 •Partnership / LLC – Form 1065 •S – Corporation – Form 1120S •C – Corporation – Form 1120
  • 6. INTRODUCTION INTO TAXATION Things to remember when doing business or taxes: •Just the facts please. •What’s your source? •“Gray Area.” •Substance over Form.
  • 7. ADVICE FOR CHOOSING A TAX RETURN PREPARER When speaking with a CPA, ask them for background information: •Where did they go to school? •Are they a Certified Public Accountant? •Are they members of a professional and ethical organization? •Are they licensed? •How long have they been in business? •Is their office open all year? •IRS Notices, Audits & Appeals.
  • 8. ADVICE FOR CHOOSING A TAX RETURN PREPARER Good rules to remember when communicating with your CPA: •Review your tax return with your CPA. •Always ask questions! •Understand the “Big Picture”. •Manage cashflow with paying taxes. •Don’t fall for the “Hand on the Stomach”. •Avoid the “yes man”.
  • 9. INTRODUCTION INTO TAXATION Gross Income (Ordinary Income / Short Term Capital Gain /Long Term Capital Gain) Deductions Adjusted Gross Income Taxable Income Total Tax Credits Payments Tax Liability
  • 10. INTRODUCTION INTO TAXATION Basic Formula for Federal Income Tax Income (broadly conceived) Less: Exclusions (income that is not subject to tax) Gross Income Less: Deductions Taxable Income $ xx,xxx (x.xx) $ xx,xxx (x.xx) $ xx,xxx Federal income tax Less: Tax credits Federal tax liability Less: Withholdings & estimate payments Tax owed or (refund) $ xx,xxx (x.xx) $ xx,xxx (x.xx) $ xx,xxx
  • 12. STATUTE OF LIMITATIONS Period of Limitations..IF THEN the period of limitation is: 1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you 3 years 2. You do not report income that you should report, and it is more than 25% of the gross income shown on the return 6 years 3. You file a fraudulent income tax return No limit 4. You do not file a return No limit 5. You file a claim for credit or refund after you file your return. Later of 3 years or 2 years after tax was paid
  • 13. TAX LAW CHANGES Tax Laws are in the current state of flux and should be constantly monitored for changes. For example there were 55 tax law changes as of January 1, 2014: •State and Local Sales Taxes. •Deduction for certain expenses for School Teachers. •Premiums for Mortgage Insurance Deduction. •Exclusion of Discharge of Principal Residence Debt. •Research & Development Tax Credit. •Credit for Non-Business Energy Property. •Bonus Depreciation.
  • 14. GROSS INCOME Gross Income is everything unless the IRS indicates to the contrary: •Cash. •Property. •Barter. •Gross income needs to reconcile to your banks statements, Federal Tax Return and State Tax Return.
  • 15. EXPENSES No expenses are allowed unless the IRS indicates to the contrary: •Ordinary and Necessary. •Current Expense vs. Capital Expense. •So what if you have receipts……... •Substance over Form or Law vs. Want. • Meals & Entertainment. • Clothes and Dry Cleaning. • Car Expenses. • Personal Expenses.
  • 16. DEPRECIATION EXPENSE You can depreciate property that meets all of the following requirements: You must own the property. The property must be used in a business or held for the production of income. The property must have a determinable useful life which must be longer than one year. The property must be something that wears out, decays, gets used up, becomes obsolete or loses value from natural causes.
  • 17. FIXED ASSET LIVES Computer Software – 3 Years. Auto’s – 5 Years. Computers – 5 Years. Computer Equipment – 5 Years. Furniture & Fixtures – 7 Years. Rental Building – 27.5 Years. Commercial Building – 39 Years.
  • 18. SALE OF BUSINESS PROPERTY When you sale your business assets consider the following •Short Term Capital Gain •Long Term Capital Gain •Ordinary Income Recapture •Section 1231 • Section 1245 • Section 1250
  • 20. PAYROLL TAXES Most tax agencies require electronic payments & deposits. •EFTPS •Form 941 – Employer’s Quarterly Federal Tax Return. •Form 940 – Employer’s Annual Federal Unemployment Tax Return (FUTA) •Form 1099’s •Forms W-2’s & W-3 •Labor & Industries (State) •State Unemployment Tax (State) (SUTA)
  • 21. ESTIMATED TAXES Individuals can base federal estimated tax payments on: 1. 90% of current tax. 2. 100% of prior year’s tax. 3. 110% of prior year’s tax if prior year’s AGI is greater than $150,000 ($75,000 if MFS). 4. Annualization exception. 5. No penalty if tax is less than $1,000 or no tax liability in prior year.
  • 22. ESTIMATED TAXES Estimate are due on or before the following dates: April 15th June 15th September 15th January 15th (the following year) If you are required to pay state estimated payments consider making last payment on or before December 31
  • 23. TAX PLANNING What? Accelerate deductions from 2014 into 2013 or defer income until 2014. Why? The goal of tax planning is to cut the total tax you pay over both years, not just one. Project your tax liability. Determine if you owe or get a refund. Penalty Protection.
  • 24. TAX PLANNING When? Quarterly, but no later than December 31. Who? Taxpayers whose income (deduction) fluctuates from year to year. Own a Business Taxable Event Investment Income K-1’s
  • 25. TAX PLANNING Purchasing new business assets. Section 179 Use credit card to make business purchases. Establish a Health Savings Account. Sell investments that have losses. Establish a retirement plan.
  • 26. STATE TAXES Log onto Washington Secure Access website: •Labor and Industries •SUTA Log onto the Washington Department of Revenue: •Business and Occupational Tax (B&O) •Sales Tax •Use Tax
  • 27. MISCELLANEOUS INFORMATION No matter what type of business you are please remember: •Obtain a line-of-credit. •Establish a Reserve Fund. •Go Paperless. •Use Professionals. •Prior Success Doesn’t Predict Future Success. •Debt is the Jester, Cash is King.
  • 28. IN CLOSING Complexity vs. Fairness Obama Care Tax Laws Changes are Uncertain, Unpredictable & Unacceptable
  • 29. Mike Patrick Email: mike@mdpcpa.com Website: www.mdpcpa.com Telephone– (509) 315-5760 Cell Phone – (509) 998-4069 ** Email Patty at patty@mdpcpa.com to sign up for my Tax / Business Newsletter