Designed to help entrepreneurs navigate the realities of pre-business setup, this resource fully answers common questions such as How should initial capital funds be handled? What is the best way to categorize such money? What should be done with money for employees as withholdings and borrowed money? and How should investment funds be properly reported? Particular attention is paid to definitional terms, the nature of start-up costs, the various types of businesses and their advantages and disadvantages, the cost of goods sold, the amortization and depreciation rules, the preparation for tax audits, and the compensation of owners. Also included are the nine factors that the IRS weighs to determine if a business has a profit motive and explanations on the most common business-startup tax forms.

Holmes F. Crouch is an IRS-licensed tax professional and the author of Being Self-Employed, Decisions When Retiring, Simplifying Your Estate, and Your Trustee Duties. He lives in Saratoga, California.

1. PROFIT MOTIVE FACTORS

1-1

(1)

"Trade or Business" Defined

1-2

(1)

Material Participation Required

1-3

(1)

The Not-for-Profit Presumption

1-4

(1)

Nine Objective Factors

1-6

(1)

More Than One Business

1-7

(1)

Methods & Phases of "Starting"

1-9

(1)

Startup Costs Defined

1-12

(1)

Simplified Cost Accumulation

1-13

(1)

Timing When to be "In Business"

1-14

(1)

2. DEFERRED CAPITAL RECOVERY

2-1

(1)

What is Amortization?

2-2

(1)

The 15-Year Amortizations

2-4

(1)

How to Elect Amortization

2-6

(1)

Depreciation: Most Understood

2-7

(1)

The "Essence" of Section 168

2-9

(1)

MACRS Depreciation Methods

2-10

(1)

Special Election to Expense

2-13

(1)

Introduction to Form 4562

2-15

(1)

Part V: Listed Property

2-18

(1)

Depreciation Recordkeeping

2-19

(1)

3. COST OF GOODS SOLD

3-1

(1)

The Sequence of Income

3-2

(1)

The "Direct Cost" Subschedule

3-3

(1)

Beginning/Ending Inventories

3-5

(1)

Purchases for Resale

3-6

(1)

Raw Materials & Supplies

3-7

(1)

Meaning of "Fabrication Labor"

3-8

(1)

Nonemployee Labor: Forms 1099

3-9

(1)

Importance of Ending Inventory

3-12

(1)

Vital Role of COG Accounting

3-14

(1)

4. EMPLOYEE WITHHOLDINGS

4-1

(1)

IRS Circular E

4-2

(1)

What If Nonemployees?

4-3

(1)

When Hiring Any Employee

4-5

(1)

Separate Record on Each Employee

4-7

(1)

Payroll Ledgers & Pay Periods

4-8

(1)

Employer Quarterly Returns

4-10

(1)

FTD "Coupons" Explained

4-12

(1)

Still Another Form: 940

4-13

(1)

Taxability of Fringe Benefits

4-14

(1)

Business Expense Reimbursements

4-16

(1)

Getting Out Those W-2s

4-18

(1)

5. BANK DEPOSITS DISCIPLINE

5-1

(1)

Those Records at Your Bank

5-2

(1)

A Nightmarish Example

5-4

(1)

How It All Worked Out

5-5

(1)

How to Start Right

5-7

(1)

"Big Stub" Business Checks

5-10

(1)

Cash and Barter?

5-12

(1)

The "De Minimis" Rule

5-13

(1)

Borrowed Money

5-14

(1)

Never Touch OPTM

5-15

(1)

6. OTHER PREBUSINESS ITEMS

6-1

(1)

Common Forms of Business

6-2

(1)

Open Temporary Account(s)

6-4

(1)

Business Name & Logo

6-6

(1)

Initial Address & Letterheads

6-8

(1)

Fictitious Name Publications

6-9

(1)

Federal EIN Number

6-10

(1)

Accounting Year & Method

6-13

(1)

Entity Class Election

6-14

(1)

7. PROPRIETORSHIP: FORM 1040

7-1

(1)

Overview of Forms Required

7-2

(1)

Other Related Forms

7-5

(1)

Format/Content of Schedule C

7-7

(1)

Office-in-Home Deduction

7-9

(1)

Car & Truck Expenses

7-12

(1)

Travel, Meals, & Entertainment

7-13

(1)

Other Expenses (Specify)

7-14

(1)

Proprietorship Pros and Cons

7-16

(1)

8. PARTNERSHIP: FORM 1065

8-1

(1)

The Partnership Accounting Year

8-2

(1)

Written Partnership Agreement

8-3

(1)

Each Partner's Capital Account

8-6

(1)

Quick Overview of Form 1065

8-7

(1)

Multiple Sources of Income

8-11

(1)

Deductions Sequence Rearranged

8-11

(1)

Importance of Balance Sheets

8-13

(1)

Introduction to Schedule K-1

8-16

(1)

Figuring Each "Distributive Share"

8-19

(1)

Summary of Pros and Cons

8-20

(1)

9. LIMITED LIABILITY COMPANY

9-1

(1)

Forming an LLC

9-2

(1)

Initiating Documents Required

9-4

(1)

Information to be Maintained

9-6

(1)

Cash Starvation by Members

9-7

(1)

The "Alter Ego Liability" Rule

9-9

(1)

Single -Member Tax Filings

9-11

(1)

Multi-Member Tax Filings

9-12

(1)

LLC Pros and Cons

9-13

(1)

10. S CORPORATION: FORM 1120's

10-1

(1)

Subchapter S Overview

10-2

(1)

Counting the Shareholders

10-4

(1)

Unanimous Consent Required

10-5

(1)

Elect on Form 2553

10-7

(1)

Must First Incorporate

10-9

(1)

Overview of Form 1120's

10-11

(1)

Schedule D (Form 1120's)

10-13

(1)

From Schedule K to Schedule K-1

10-13

(1)

11. C CORPORATION: FORM 1120

11-1

(1)

Caution When "Closely-Held"

11-2

(1)

Fiscal Year: Indefinite Life

11-4

(1)

Introduction to Form 1120

11-5

(1)

Income & Deduction Items

11-7

(1)

Schedule C (1120): Uniquely Special

11-10

(1)

Tax Computation Complex

11-11

(1)

Balance Sheet Features

11-13

(1)

12. COMPENSATION OF OWNERS

12-1

Owners Are "Naturally Suspect"

12-2

(1)

Limit "Meals & Entertainment"

12-3

(1)

Nondiscriminatory Insurance Plans

12-4

(1)

"Safe Harbor" Benefits

12-7

(1)

A "Company-Provided" Auto

12-8

(1)

Livelihood Compensation Differences

12-9

(1)

Employing Spouse & Children

12-12

(1)

Qualified Retirement Plans

12-13

(1)

Annual Contribution Limits

12-16

(1)

EBSA Form 5500 for Each Plan

12-17

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