Introduction 1
About This Book 1
Foolish Assumptions 2
Icons Used in This Book 3
Where to Go from Here 4
Part 1: Understanding Small Business Taxes 5
Chapter 1: Small Business Taxes 101 7
Valuing Year-Round Tax Planning 8
Factoring taxes into small business decisions 8
Checking out common tax mistakes 9
Noting How Corporate and Individual Tax Reform
Impacts Small Business 12
Checking out corporate income tax rate reduction and simplification 12
Reducing individual income tax rates 12
Noting 20 percent deduction for pass-through entities 13
Enjoying better equipment expensing rules 14
Increasing maximum depreciation deduction for automobiles 14
Limiting interest deductions 14
Reducing meal and entertainment deductions 15
Eliminating the health insurance mandate 15
Revising rules for using net operating losses 15
Understanding the Different Types of Taxes You Pay and Your Tax Rates 16
Defining total taxes and taxable income 16
Your marginal income tax rate for federal income taxes 17
State income taxes 18
Corporate income tax rates 20
Employment (payroll) taxes 21
Sales taxes 22
Chapter 2: Making Important Business Decisions 23
Choosing Your Business Entity 24
Sole proprietorships 25
The incorporation decision 26
One step further: S corporations 32
Partnerships 34
Limited liability companies (LLCs) 35
Valuing Employee Benefits 37
Retirement plans 38
Health insurance plans 38
Other benefits 42
Benefits that are deductible for corporation owners 44
Chapter 3: Retirement Accounts and Investments for Small Businesses 45
Beginning with Retirement Account Basics: Tax Breaks,
Penalties, and Saving Guidelines 46
Instant rewards: Upfront tax breaks 46
Ongoing tax breaks on your investment earnings 47
Additional tax credits for lower-income earners 47
Retirement account penalties for early withdrawals 48
Guidelines for saving (but not excessively) 49
Surveying Your Retirement Account Options 50
Maximizing your retirement plan's value 51
Checking out your choices 52
Selecting Top-Notch Investments for Your Retirement Account 54
Considering fund advantages 54
Maximizing your chances for fund investing success 57
Understanding and using index funds 59
Considering exchange-traded funds 59
Using asset allocation in your retirement fund portfolio 61
Selecting the best stock funds 62
Investing in the best exchange-traded funds 65
Balancing your act: Funds that combine stocks and bonds 66
Finding the best bond funds 67
Developing Realistic Investment Return Expectations 70
Estimating your investments' likely future returns 71
Compounding your returns 73
Chapter 4: Real Estate and Your Small Business 75
Deciding Whether to Work out of Your Home 76
Researching local ordinances and issues 76
Controlling costs 77
Separating your work life from your personal life 78
Doing a cost comparison 79
Leasing Space for Your Business 79
Leaning toward leasing 79
Leasing burdens of retail businesses 80
Negotiating a lease 80
Buying Business Property 82
Taking stock of your financial situation 82
Doing a rent-versus-buy analysis 83
Evaluating leases as a real estate investor 83
Chapter 5: Estate Planning 87
Determining Your Estate's Tax Concerns 88
Understanding the federal estate tax exemption 88
Figuring out your taxable estate 89
Examining estate tax rates 89
Surveying special estate tax treatment afforded small businesses 89
Reducing Expected Estate Taxes with a Few Strategies 91
Giving away your assets 91
Leaving all your assets to your spouse 94
Buying cash-value life insurance 95
Setting up trusts 97
Getting advice and help 99
Part 2: Ongoing Tax Jobs 101
Chapter 6: Keeping Track of Your Small Business Revenues and Costs 103
Establishing an Accounting System for Your Business 104
Separating business from personal finances 104
Documenting expenses and income in the event of an audit 105
Keeping current on income, employment/payroll and sales taxes 106
Reducing your taxes by legally shifting income and expenses 107
Keeping Good Tax Records for Your Small Business 108
Ensuring a complete and accurate tax return 108
Setting up a record-keeping system 109
Deciding when to stash and when to trash 110
Watching out for state differences 111
Replacing lost business records 111
Chapter 7: Form 1040 Filing Options 113
The New and Improved Form 1040 113
Tackling the Income Lines 115
Line 1: Wages, salaries, tips, etc. 116
Line 2a: Tax-exempt interest 117
Line 2b: Taxable interest 117
Lines 3a and 3b: Ordinary dividends and qualified dividends 118
Lines 4a and 4b: Total pensions and annuities 118
Lines 5a and 5b: Social Security benefits 119
Line 7: Adjusted gross income 120
Line 8: Standard deduction or itemized deductions (from Schedule A) 120
Schedule 1: Additional Income and Adjustments to Income 121
Line 12: Business income (or loss) 121
Line 13: Capital gain (or loss) 122
Line 14: Other gains (or losses) 123
Line 17: Rental real estate, royalties, partnerships, S corporations, trusts, etc. 123
Line 18: Farm income (or loss) 123
Line 19: Unemployment compensation 124
Line 21: Other income 124
Adjustments to Income 125
Line 23: Educator expenses 126
Line 24: Certain business expenses of reservists, performing artists, and fee-basis government officials 126
Line 25: Health savings account deduction 127
Line 27: Deductible part of self-employment tax 128
Line 28: Self-employed SEP, SIMPLE, and qualified plans 128
Line 29: Self-employed health insurance deduction 129
Line 32: IRA deduction 129
Line 33: Student loan interest deduction 130
Line 34: Tuition and fees 131
Nonrefundable Credits: Lines 48 to 55 132
Line 48: Foreign tax credit 132
Line 49: Credit for child and dependent care expenses 133
Line 50: Education credits 133
Line 51: Retirement savings contributions credit 134
Chapter 8: Schedules C and C-EZ 135
Schedule C-EZ 135
Schedule C 136
Basic information 136
Part I: Income 141
Part II: Expenses 143
Chapter 9: The Business Use of Your Home 157
The New, Simplified Home Office Deduction 157
Filling Out Form 8829, Expenses for Business
Use of Your Home 160
Recognizing who can use Form 8829 161
Measuring the part of your home used for business 162
Figuring your allowable home office deduction 162
Determining your home office's depreciation allowance 163
Carrying over what's left 165
Understanding the Downsides to Home Office Deductions 166
Audit risk and rejection of repeated business losses 166
Depreciation recapture when selling a home with previous home office deductions 168
Chapter 10: Estimated Taxes, Self-Employment Taxes, and Other Common Forms 169
Form 1040-ES: Estimated Tax for Individuals 170
Comparing the safe harbor method to the 90 percent rule 170
Completing and filing your Form 1040-ES 171
Keeping Current on Your Employees' (and Your Own) Tax Withholding 173
Form W-4 for employee withholding 174
Tax withholding and filings for employees 174
Schedule SE: Self-Employment Tax 176
Choosing a version of Schedule SE: Short or long? 177
Completing the Short Schedule SE 180
Form 8889: Health Savings Accounts (HSAs) 181
Understanding how HSAs work and who can use them 181
Completing Form 8889 183
Part 3: Getting Help 185
Chapter 11: Dealing with Notices and Audits 187
Understanding the Basics You'll Find on an IRS Notice 188
Assessing Assessment Notices 189
Income verification and proposed changes to your tax return: Forms CP2501 and CP2000 190
Request for your tax return: Forms CP515 and CP518 190
Backup withholding notice 192
Federal tax lien notice: Form 668(F) 192
Handling Non-Assessment Notices 193
Paying interest on additional tax 194
Receiving a delinquent tax return notice 194
What You Should Know about Audits 197
Surviving the four types of audits 198
Prepping for an audit 201
Winning your audit 202
Understanding the statute of limitations on audits 203
Correcting IRS Errors 203
Keeping your correspondence short and sweet 205
Sending a simple response to a balance due notice 206
Getting attention when the IRS ignores you with the help of a taxpayer advocate 207
Amending a Return 209
More expenses than income (net operating losses) 209
The tax benefit rule 210
Taking Action Even When You Can't Pay Your Taxes 210
Reducing Your Chances of Being Audited 212
Declare all your income 212
Don't itemize 213
Earn less money 213
Don't cheat 213
Don't cut corners if you're self-employed 214
Double-check your return for accuracy 215
Stay away from back-street refund mills 215
Chapter 12: Keeping Up with and Researching Tax Strategies and Rules 217
The Benefits of Preparing Your Own Return 218
Using IRS Publications 219
Buying Software 220
Accessing Internet Tax Resources 221
The Internal Revenue Service 221
Tax preparation sites 222
TaxTopics.net 222
Research sites 223
Hiring Help 223
Chapter 13: Paying for Tax Help 225
Deciding to Hire Tax Help 225
Unenrolled preparers 226
Enrolled agents 227
Certified public accountants 227
Tax attorneys 228
Who's best qualified? 229
Finding Tax Advisors 229
Interviewing Prospective Tax Advisors 230
What tax services do you offer? 230
What are your particular areas of expertise? 231
What other services do you offer? 231
Who will prepare my return? 232
How aggressive or conservative are you regarding interpreting tax laws? 232
What's your experience with audits? 233
How does your fee structure work? 233
What qualifies you to be a tax advisor? 234
Do you carry liability insurance? 234
Can you provide references of clients similar to me? 235
Part 4: The Part of Tens 237
Chapter 14: Ten (Almost) Useful Apps and Software Packages for Small Business Tax Issues 239
Tracking Expenses with Expensify 239
Processing Sales with Square 240
Managing Transactions with EMS+ 240
Marking Miles with MileIQ 240
Managing Your Accounting with QuickBooks 241
Handling Accounting and Invoicing with FreshBooks 241
Preparing Taxes with TurboTax Self-Employed 242
Completing Taxes with H&R Block Tax Preparation and Filing Software 242
Chapter 15: (Almost) Ten Often Overlooked Tax Reduction Opportunities 243
Invest in Wealth-Building Assets 243
Fund Some Retirement Accounts 244
Contribute to a Health Savings Account 244
Work Overseas 245
Calculate Whether a Deduction Is Worth Itemizing 245
Trade Consumer Debt for Mortgage Debt 247
Consider Charitable Contributions and Expenses 247
Scour for Self-Employment Expenses 248
Married Couples Should Crunch the Numbers on Filing Separately 248
Chapter 16: Ten Resources to Turn to After Reading This Book 251
To Develop a Good Business Plan and Improve Your Small Business 251
To Whip Your Finances into Shape 252
To Select the Best Business Entity 252
To Set Up an Accounting and Financial Management System 252
To Hone Your Investment Savvy for Your (and Your Employees') Retirement Funds 253
For Help with Payroll Regulations and Employee Tax Withholdings 253
To Dig Deeper into IRS Rules and Regulations 254
To Deal with IRS Collection Efforts 254
For More Detailed Advice about All Aspects of Your Income Tax Return 254
For Assistance in Preparing Your Income Tax Return 255
Index 257
