This document summarizes a presentation on business taxes made by Ford Tax and Accounting, LLC. It discusses various topics related to federal and state business taxes including: choosing a business entity; deducting start-up costs, regular business expenses, and home offices; tax implications of money going into and out of a business; hiring employees and contractors; and opportunities to reduce taxes through credits and deductions. The presentation aims to increase awareness of tax obligations and identify tax savings opportunities for business owners.
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DEW14 - Business taxes made simple
1. Business Taxes Made Simple
Presented by
Ford Tax and Accounting, LLC
And
SCORE - Detroit Chapter
2. Agenda
Do you have a business partner?
Federal Taxes and Your Business
Business Facilities
Start Up Cost/Organizational Costs
“Regular” Business Expenses
Estimated Tax & Self-Employment Tax
Money In… Money Out – Tax Implications
Employees vs. Independent Contractors
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3. Agenda (con.)
Hiring Family Members
Health Care Tax Credit
S Corporation Issues
Small Business Jobs Act 2010
American Taxpayer Relief Act Of 2012
1099K Reporting
Do you need an accounting system?
Net Operating Loss (NOL)
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4. Presentation Purpose X 3
Awareness
Compliance
Opportunity
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5. Do You Have A Business Partner?
Yes!
The IRS is your business partner
The IRS allows tax breaks that lower
taxable income & allows you to pay
less tax…
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6. Do You Have A Business Partner?
Federal tax rates on Corporation
taxable income vary from 15% to 35%
Individual tax rates on Sole Proprietor
taxable income vary from 10% to
39.6%
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7. Federal Taxes and Your Business
Choice of Business Entity
Sole Proprietors
Limited Liability Company
Partnerships
S Corporations
C Corporations
Which is best choice?
It depends…
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8. Business Facilities
• Purchase
Depreciation
Cost Segmentation
• Lease
Depreciation of Leasehold Improvements
• Home
Direct/Indirect Expenses
Depreciation
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9. Start Up Cost/Organizational Costs
vs. “Regular” Business Expenses
• Start Up Cost
- 1st Year Expense “Election”
- Capitalization
• Organizational Costs
• “Regular” Operating Costs
- Ordinary and Necessary
- Current Year Deduction
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10. Estimated Tax and Self-Employment Tax
• Sole Proprietors
• Partners
• C Corporations
• S Corporations (shareholders)
NOT subject to self-employment
tax…yet?
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11. Money In… Money Out
Tax Implications for Business Owners
Money In...
Money Out…
Capital
Contributions
Equity
Financing
Debt
Financing
Loans
Officer Wages
Dividends
Return of Capital
Guaranteed
Partnership
Payments
Loans
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12. Employees vs. Independent
Contractors
• Do you have a choice?
Well… Yes and No
• “Control” is key
• Penalties
Non Filing of Information Returns
Non Payment of Payroll Taxes
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13. “Control” is Key…
• Behavioral Control
Instructions
Training
• Financial Control
Investment of Resources
Reimbursed Expenses
• Relationship of Parties
Intent of the parties
Indefinite relationship
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14. Hiring Family Members
• “Reasonable” Compensation
Children, Spouse, Parents
• Benefits to the Business
Pay Less Payroll Taxes
• Corporations vs. Sole
Proprietorships
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15. Employee Benefits
•
•
•
•
Health Insurance Premiums
Health Savings Accounts
Auto Reimbursements
Accountable vs. Non Accountable
Plans Retirement Plans
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16. S Corporation Issues
• Officers UNreasonable
Compensation
Low Salary/High Distribution
• Officers Health Insurance Premium
Paid by S Corp
Taxed as Income
Not Subject to Payroll Taxes
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17. American Taxpayer Relief Act
Of 2012 (“Fiscal Cliff”) 1
• 50% Extra 1st Year Depreciation
(extended)
-business equipment and vehicles
• Higher IRC Sec.179 Property Expense
(extended)
- qualifying equipment and
computer software
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18. American Taxpayer Relief Act
Of 2012 (“Fiscal Cliff”) 2
• Retail Businesses and Restaurants
- 15-year cost recovery period
(extended)
- qualifying leasehold
improvements
- restaurant property
- retail improvement property
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19. American Taxpayer Relief Act
Of 2012 (“Fiscal Cliff”) 3
• Payroll Tax "Holiday" of 2011-2012
Has Expired
• Higher IRC Sec.179 Property Expense
for 2013
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20. 1099K Reporting
• 1099K issued by companies that
process credit and debit cards
• Includes PayPal, Amazon, Google
• Exception if fewer than 200
transactions totaling less than
$20,000
• IRS Effort to track unreported
business income
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21. Do You Need an Accounting System?
These are NOT an Accounting Systems
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22. Accounting System? IRS Expects…
Internal Revenue Code Section 446
Requires businesses to accurately
compute taxable income by using some
kind of “common sense” accounting
system that clearly reflects income,
transactions, and business events...
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23. Net Operating Losses
• From Business Operations
Deductible
Carry-back 2 years
Carry-forward 20 years
BEWARE OF HOBBY LOSS RULES!!!
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24. Ford Facts of (Business) Life…
• Every small business owner should
get F.A.T. analysis help
• Every small business owner should
NOT necessarily hire a CPA
• Many small business owners should
hire an Enrolled Agent and a general
accountant
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25. Common Business Tax “Opportunity”
Mistakes
• Wrong business entity
• Wrong depreciation calculations
• Wrong retirement plan
• Missing family employment
• Missing medical expenses
• Missing home office expenses
• Missing car/truck expenses
Missing meals/entertainment expenses
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26. U.S. Government study concluded…
Small Businesses
Overpay the IRS
by an Average of
$11,638!
Why does this happen?
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27. Lack of Business Tax Planning
Business tax planning should be based
on relevant parts of…
16 THOUSAND pages of Tax Code
and 70 THOUSAND pages of Tax
Regulations that contain rules for
income, deductions, and credits.
What you don’t know CAN hurt you
in your business bank account!
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28. THANK YOU!
Lyndon Ford EA, MBA
Ford Tax & Accounting, LLC
Tax Trouble Help, LLC
*Available to Speak for Other Groups*
Please connect with us on Facebook,
Linkedin, Twitter, & FREE Newsletter
(248) 792-2044 • Southfield, MI
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39. Sales Tax
Individuals or businesses that sell tangible
personal property to the final consumer are
required to remit a 6% sales tax on their
taxable retail sales to the State of Michigan.
Who needs a sales tax license?
Individuals or businesses that sell tangible
personal property to the final consumer need
a sales tax license.
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40. Use Tax
The use tax is a companion tax to the sales
tax. Use tax of 6% must be paid on the total
price (including shipping and handling
charges) of all taxable items brought into
Michigan or purchases made from out-ofstate retailers. Credit is given for tax paid to
another state.
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41. County Assesses Personal Property Tax
WHAT IS PERSONAL PROPERTY?
Personal Property is identified as the tangible
assets of a business, inclusive of all related
trade fixtures, though not real estate.
WHAT ARE EXAMPLES OF PERSONAL
PROPERTY?
Personal Property consists of office furniture,
office equipment, testing, diagnostic and
electronic equipment, machinery and
equipment, coin operated equipment, rental
DVDs, games and video tapes, computers
and computer related equipment, as well as,
all related trade fixtures of a business.
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42. The Michigan Corporate Income Tax (CIT)
was signed into law by Governor Rick Snyder
on May 25, 2011. The CIT imposes a 6%
corporate income tax on C corporations and
taxpayers taxed as corporations federally.
The CIT has one credit, the small business
alternative credit, which offers an alternate
tax rate of 1.8% of adjusted business income.
There are no other credits, except those
under the MBT election (addressed below).
Insurance companies and financial
institutions pay alternative taxes. The CIT
replaces the Michigan Business Tax (MBT) for
most taxpayers, effective January 1, 2012.
Taxpayers with less than $350,000 in
allocated or apportioned gross receipts
and/or less than or equal to $100 in annual
liability are not required to file or pay the CIT.
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