1. CARMEN WEYLAND, CPA
Owner of Fit Books Accounting, LLC
Using my 20 years of real world small
business experience to help business
owners and administrators -
Trust their financial information
Make informed business decisions
Prepare for tax obligations
C W E Y L A N D @ F I T B O O K S AC C O U N T I N G . C O M
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2. ACCOUNTING – A PRACTICAL GUIDE
TO WHAT YOU REALLY NEED TO
KNOW
SCORE Business FundamentalsWorkshop
March 12, 2016

3. AGENDA
• Getting started – entity type selection, EIN, cash vs. accrual
• Taxes – estimated tax payments, payroll taxes, and sales taxes
• Managing cash
• Bookkeeping and payroll
• Selecting your professional team

4. GETTING STARTED

5. DECISIONS, DECISIONS, DECISIONS
Entity type
• One of the most important decisions you will make when you form your business!
• This is a LEGAL decision that can have major tax and ownership flexibility
consequences down the road.
• Many factors to consider such as what you plan to do with your business.
• Are you going to sell it? Do you plan to have investors? Do you plan to hire
employees? Are you in a high risk industry?
Cash versus accrual accounting basis
• Does your business require the accrual basis of accounting? Will your business or
nonprofit require an audit?

6. OPTIONS FOR ENTITY TYPE BY TAX
SOLE PROPRIETOR
• You and your business are one
and the same
• One tax return: Form 1040,
Schedule C
• Requires EIN (covered later) if
hiring employees

7. FLOW THROUGH
ENTITIES
• Limited Liability Company (LLC)
• Single Member (taxed like a sole
proprietor) files Form 1040, Sch
C
• Multi-Member files Form 1065
• Elect C Corp files Form 1120
• Elect S Corp files Form 1120S
• General Partnership – Files
Form 1065 or elect C Corp files
Form 1120
• C corporation
• B corporation
• Both file Form 1120
FLOW THROUGH WITH
PAYROLL
OPTIONS FOR ENTITY TYPES BY TAX
TAXED ENTITIES
• S corporation
• Entity type is LLC or
corporation that elects to be
taxed as an S corp
• Files Form 1120S
• Shareholders/members receive
Form K-1 (a form included in
the Form 1120S) and report the
K-1 information on their
individual tax returns (Form
1040)
Hint – Work with both your CPA and attorney when selecting an entity type for your business.

8. WHAT IS AN EIN AND DO I NEED ONE?
Employer Identification Number (EIN)
Sole proprietorship can use your social security number. If one of the below applies,
then you need an EIN for your business:
• If you are going to have employees
• Your business is required to file its own tax return (partnership, S corp, C corp)
• Most banks require an EIN for a business checking account
• How do I get an EIN – Apply Online
• https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-
Employer-Identification-Number-(EIN)-Online

9. CASH BASIS
Customer invoiced on December 26, 2016
and paid on January 2, 2017.
ACCRUAL BASIS
CASH VERSUS ACCRUAL ACCOUNTING
Which year was the revenue taxable?
Answer: 2017
Cash (payment) not received until next year.
Customer invoiced on December 26, 2016
and paid on January 2, 2017.
Which year was the revenue taxable?
Answer: 2016
Work completed in 2016 and invoiced.
Scenario: Contractor – Job A completed on December 24, 2016 for $1,000.

10. PAY FOR QUALITY ADVICE NOW
AVOID COSTLY MISTAKES LATER

11. EVERYONE’S FAVORITE TOPIC -
TAXES

12. FEDERAL INCOME TAX
• Business income is taxed at each owner’s
federal income tax rate.
• Business income is generally sales less
ordinary and necessary business expenses
and other expenses such as depreciation on
purchases of equipment and interest from
business loans.
• Owners cannot be paid wages (except for
“guaranteed payment” in a partnership)
• Payments to owners are called
“distributions” and are NOT a business
expense.
• Business income is also subject to self-
employment tax.
• Self-employment tax is similar to social
security and Medicare tax (similar to
payroll tax).
• Self-employment tax is calculated on
Schedule SE of Form 1040.
• For estimating purposes the tax rate to
use is 15.3%.
SELF-EMPLOYMENT TAX
SOLE PROP, LLC, AND PARTNERSHIPS
FEDERAL TAXES – 2 KINDS

13. FEDERAL INCOME TAX
• Business income is taxed at each owner’s
federal income tax rate.
• Business income is generally sales less
ordinary and necessary business expenses
and other expenses such as depreciation on
purchases of equipment and interest from
business loans.
• Owners cannot be paid wages (except for
“guaranteed payment” in a partnership)
• Payments to owners are called
“distributions” and are NOT a business
expense.
• Business income is also subject to self-
employment tax.
• Self-employment tax is similar to social
security and Medicare tax (similar to
payroll tax).
• Self-employment tax is calculated on
Schedule SE of Form 1040.
• For estimating purposes the tax rate to
use is 15.3%.
SELF-EMPLOYMENT TAX
SOLE PROP, LLC, AND PARTNERSHIPS
FEDERAL TAXES – 2 KINDS

14. S CORPORATIONS ARE TAXED
DIFFERENTLY
• Flow through income from an S corporation is subject to
federal income tax, but it is NOT subject to self employment
tax. What? I can save 15.3% in taxes!?!?
• Not entirely, S corporation shareholders are required to pay
themselves a reasonable salary as defined by the IRS.
• Through the salary the business and shareholder are paying
payroll taxes.
• S Corporations file their own tax return (Form 1120S)
• There can be tax savings to “elect” to be taxed as an S
corporation. This topic should be thoroughly explored with
your tax advisor!

15. C AND B CORPORATIONS PAY THEIR
OWN TAX
• C and B corporations pay taxes AND the individual
owners pay taxes.
• C and B corporations file their own corporate tax returns.
• Owners are paid by payroll or corporate dividends – both
of which are taxed at the individual level.
• C corporations are not as common for small businesses,
however depending on your income level a C corporation
may be a viable option.
• If you are considering a C or B corporation be sure to
explore your options with your tax advisor.

16. ESTIMATING TAXES
• Business owners are generally not subject to withholding
(payroll) – exception S, B, or C corp owner receiving a
salary.
• Estimated tax payments are made four times a year to pay
income and self-employment tax (in lieu of withholding).
• Underpaying estimated taxes throughout the year subjects
you to a penalty.
• Estimating four times a year can be difficult when your
business is new and growing. Have your accountant help
you!

17. ESTIMATING TAXES IS IMPORTANT
• If your business is making a profit and growing quickly your
tax obligation can grow quickly and can affect your cash flow!
• Example – Business owner John, a sole proprietor, profited
$30,000 in the first quarter of 2016. He is in the 25% federal
income tax bracket (his wife earns $90,000/year).
• How much would you estimate John will need to pay for his
first quarter estimated tax payment?
• $12,090 ($7,500 federal income tax +$4,590 self-
employment tax)

18. A WORD ON PAYROLL AND SALES TAXES
• Payroll and sales taxes are called “trust fund” taxes, because your business is
holding the money “in trust” until you pay the federal or state government.
• This means that the money is NOT your money, and if you do not pay this
money to the government by the due date you will be assessed penalties.
• Willful failure to pay trust fund taxes can lead to criminal charges, are not
dischargeable in bankruptcy, and the IRS will seize personal assets of
responsible persons (incorporation will not protect you).
• Remember what I said about payroll companies – this is why you want to hire
one!
• Be sure to research and understand the sales and use tax rules that apply to
your business. If you are not sure, contact the state tax department!!
• Be sure to check on the state tax laws if you are doing business in a state
other than Idaho. Many states charge taxes (Ex. Business and Occupation
taxes inWashington State) if your business has “nexus” in their state.

19. MANAGING CASH

20. RECONCILE CASH
Reconcile all your business cash and credit
card accounts monthly
12 MONTH CASH PROJECTION
CASH REALLY IS KING!
Reconcile yourself or pay an accountant to do
it for you
Reconciling ensures all your deposits and
payments have been recorded, and you are
using good information.
Project sales and expenses by month for 12
months
Update each month with actual sales and
expenses
Continue to update projected sales and
expenses – this is a living, breathing,
spreadsheet
How do you intend to manage your business cash flow?
These are both services you can hire an accountant to do for you – and it’s not that expensive!

21. BOOKKEEPING

22. YOU NEED SOME KIND OF A “SYSTEM”
Tracking your sales, expenses, equipment purchases and
loans are necessary for
• Compliance – tax return, sales taxes, audit, etc.
• Managing cash flow – How do you know if you can pay yourself?
• Making informed business decisions – Am I making a profit when I
sell this widget versus that widget?

23. EXCEL
• Pros – FREE
• Cons – Time consuming to
create spreadsheet, too much
manual data entry, easy to
make mistakes, no
reconciliation or invoicing
functionality
• Pros – No learning curve, less
work to do, done correctly
• Cons – Cost will be much
more than doing the data entry
yourself, still have to get
information to your accountant
CLOUD ACCOUNTING
OPTIONS FOR A SYSTEM
OUTSOURCE
• Pros – Basic versions are
affordable ($10/month!), lots of
features such as online
invoicing and payment
collection, automatic sales tax
calculation, mobile apps for
phone and iPad
• Cons – Added expense, several
to choose from, learning curve,
experienced professional
should set it up

24. RECOMMENDED CLOUD ACCOUNTING
SYSTEMS
Highly recommend hiring an accounting professional certified in the software you are using to set up the
system for you, so it is set up correctly from the beginning. It can be expensive to fix later!!

25. BUSINESS OWNER
• Pros – FREE (sort of)
• Cons – Time (could owner’s
time be better spent doing
something else?), learning
curve
• Pros – No learning curve, less
work to do, done correctly
• Cons – Cost will be much
more than doing the data entry
yourself, still have to get
information to your accountant
BOOKKEEPER
WHO SHOULD DO THE BOOKKEEPING?
OUTSOURCE
• Pros – Can hire as employee or
subcontractor, can take
responsibility for many
administrative duties
• Cons – Cost, hiring concerns,
need for internal controls to
prevent theft

26. OUTSOURCE YOUR PAYROLL
Payroll companies are AWESOME!
• You never have to worry about what forms to file, how to find and file the
forms, what version the IRS will accept, what the different filing deadlines
are, if your payment was applied to the correct period, what you need to
file at the end of the year, sendingW-2’s…need I go on?
• Most payroll companies offer Human Resource services (lots of rules to
follow, so you don’t get sued by your employees – think overtime laws,
salary versus hourly, etc.), and several payroll companies can help you
manage employee benefits.
• You will pay more in IRS penalties and CPA fees to address IRS payroll tax
notices than it will cost you for an entire year with a payroll company!
• Use a payroll company that is in the business of payroll (hint, hint…not
QuickBooks).

27. OTHER CONSIDERATIONS
• Independent contractor versus employee
• Do your research, understand the rules, and contact the
government agencies for guidance BEFORE you make this decision.
• Idaho Department of Labor and IRS provide guidance
• http://labor.idaho.gov/dnn/idl/LaborLaws/WHFrequentlyAskedQues
tionsFAQs.aspx
• https://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Independent-Contractor-Self-Employed-or-Employee
• Record Keeping – Don’t throw away those receipts!
• https://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Recordkeeping

28. SELECT A PROFESSIONAL TEAM

29. KEY BUSINESS PROFESSIONALS
• Will help you avoid costly mistakes throughout the entire life cycle of your business
• Stuff happens! Every business/business owner should have an attorney, accountant, financial
advisor, banker, and insurance agent.
• Sometimes you’ll need multiple people of the same profession.
• Example – Accountant/bookkeeper to help you with your bookkeeping/accounting and a CPA for
your tax returns.
• Example - An attorney that specializes in designing your LLC organization documents and an
attorney that specializes in acquisitions and mergers.
• Utilize the business consultants in theTreasureValley (SCORE, BRC,WRC, SBDC)
• Your professional team needs to be vested in your success!
• You should feel comfortable talking to them and asking them questions.
• You need to understand their availability to assist you when you need them.
• They need to know what is going on with your business – BEFOREYOU DO IT!