Slides from Mike Patrick's presentation at Share Space Spokane of The Tax Man Cometh. A look at a lot of taxation issues facing entrepreneurs and business owners. Share Space Spokane is co-working space located in downtown Spokane, WA this presentation was part of the Avista Center for Entrepreneurship's workshop series hosted by Share Space Spokane on the 1st and 3rd Wednesday of each month. The workshops are free to attend and cover a wide range of topics including marketing, online presence, resources, business law, tax and lots more.

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

11. INTRODUCTION TO TAXATION

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

19. RETIREMENT PLANS
•IRA
•Roth IRA
•Simple
•401(k)
•Roth 401(k)

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
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