Before Starting a Business : How to Select Initial Entity Form for Your Entrepreneurial Skills, Capital-on-the-Line, and Tax Accounting Psyche

by Crouch, Holmes F.

• ISBN13: 9780944817797
• ISBN10: 0944817793
• Format: Paperback
• Copyright: 2006-06-28
• Publisher: Allyear Tax Guides

Summary

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.

Author Biography

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.

Table of Contents

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