Small Business Taxes For Dummies

by Tyson, Eric

• ISBN13: 9781119861140
• ISBN10: 1119861144
• Edition: 3rd
• Format: Paperback
• Copyright: 2022-02-15
• Publisher: For Dummies

Summary

Get your taxes right the first time and save $ 

If you run a small business, you’ve likely got more work than you already feel able to handle. The last thing you need is to be running around trying to figure out your taxes at the last minute. So, if you need a hands-on guide to small business taxes that doesn’t mess around, look no further than Small Business Taxes For Dummies. 

In this book, nationally recognized personal finance expert Eric Tyson clearly and concisely delivers the best methods to save on your taxes and make the process as easy as possible. You’ll get the latest info about all the newest tax deductions and credits (including COVID-19-related breaks), as well as location-specific incentives and other little-known tips. 

You’ll also find: 

• Expanded discussions of new retirement account options for small business owners 
• The latest advice on how to deal with online and software tax prep and filing options to make life easier at tax time 
• Explorations of likely new changes coming  

A can’t-miss resource for small business owners, managers, and employees, Small Business Taxes For Dummies is the book to help you make sure you don’t pay more than you need to pay at tax time! 

 

Author Biography

Eric Tyson is a nationally recognized personal finance counselor, writer, and lecturer. He is author of the best-selling Investing For Dummies and Personal Finance For Dummies, as well as co-author of Home Buying For Dummies, House Selling For Dummies, Real Estate Investing For Dummies, and Taxes For Dummies.

Table of Contents

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 3

Beyond the 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 13

Noting 20 percent deduction for pass-through entities 13

Enjoying better equipment expensing rules 14

Increasing maximum depreciation deduction for automobiles 15

Limiting interest deductions 15

Reducing meal and entertainment deductions 15

Eliminating the health insurance mandate 16

Revising rules for using net operating losses 16

Considering the SECURE ACT of 2019 and COViD-19 Relief Tax Acts 16

Contemplating Potential Upcoming Tax Law Changes 17

Understanding the Different Types of Taxes You Pay and Your Tax Rates 18

Defining total taxes and taxable income 19

Your marginal income tax rate for federal income taxes 19

State income taxes 21

Corporate income tax rates 22

Employment (payroll) taxes 23

Sales taxes 24

Chapter 2: Making Important Business Decisions 25

Choosing Your Business Entity 26

Sole proprietorships 26

Deciding whether to incorporate 28

One step further: S corporations 35

 Partnerships 37

Limited liability companies (LLCs) 38

Valuing Employee Benefits 39

Retirement plans 40

Health insurance plans 41

Other benefits 45

Benefits that are deductible for corporation owners 46

Chapter 3: Retirement Accounts and Investments for Small Businesses 47

Beginning with Retirement Account Basics: Tax Breaks,

Penalties, and Saving Guidelines 48

Instant rewards: Upfront tax breaks 48

Ongoing tax breaks on your investment earnings 49

Additional tax credits for lower-income earners 49

Retirement account penalties for early withdrawals 50

Guidelines for saving (but not excessively) 51

Surveying Your Retirement Account Options 52

Maximizing your retirement plan’s value 53

Checking out your choices 54

Developing Realistic Investment Return Expectations 57

Estimating your investments’ likely future returns 57

Compounding your returns 59

Selecting Top-Notch Investments for Your Retirement Account 61

Considering fund advantages 61

Maximizing your chances for fund investing success 63

Understanding and using index funds 65

Considering exchange-traded funds 66

Using asset allocation in your retirement fund portfolio 67

Selecting the best stock funds 69

Investing in the best exchange-traded funds 71

Balancing your act: Funds that combine stocks and bonds 72

Finding the best bond funds 73

Chapter 4: Real Estate and Your Small Business 77

Deciding Whether to Work out of Your Home 78

Researching local ordinances and issues 78

Controlling costs 80

Separating your work life from your personal life 81

Doing a cost comparison 82

Leasing Space for Your Business 82

Leaning toward leasing 82

Leasing burdens of retail businesses 83

Negotiating a lease 83

Buying Business Property 85

Taking stock of your financial situation 85

Doing a rent-versus-buy analysis 86

Evaluating leases as a real estate investor 86

Chapter 5: Estate Planning 91

Determining Your Estate’s Tax Concerns 92

Understanding the federal estate tax exemption 92

Figuring out your taxable estate 93

Examining federal estate tax rates 93

Surveying state estate tax rules 93

Surveying special estate tax treatment afforded small businesses 95

Reducing Expected Estate Taxes with a Few Strategies 95

Giving away your assets 97

Leaving all your assets to your spouse 99

Buying cash-value life insurance 99

Setting up trusts 102

Getting advice and help 103

Part 2: Ongoing Tax Jobs 105

Chapter 6: Keeping Track of Your Small Business Revenues and Costs 107

Establishing an Accounting System for Your Business 108

Separating business from personal finances 108

Documenting expenses and income in the event of an audit 109

Keeping current on income, employment/payroll and sales taxes 110

Reducing your taxes by legally shifting income and expenses 111

Keeping Good Tax Records for Your Small Business 112

Ensuring a complete and accurate tax return 112

Setting up a record-keeping system 113

Deciding when to stash and when to trash 114

Watching out for state differences 115

Replacing lost business records 115

Chapter 7: Form 1040 Filing Options 117

Sizing Up the New and Improved Form 1040 117

Tackling the Income Lines 119

Line 1: Wages, salaries, tips, and so forth 120

Line 2a: Tax-exempt interest 121

Line 2b: Taxable interest 121

Lines 3a and 3b: Qualified dividends and ordinary dividends 122

Lines 4a and 4b: IRA distributions and taxable amount 122

Lines 5a and 5b: Total pensions and annuities 122

Lines 6a and 6b: Social Security benefits 123

Line 7: Capital gain (or loss) 124

Line 8: Other income from Schedule 1, line 9 124

Line 11: Adjusted gross income 124

Line 12a: Standard deduction or itemized deductions (from Schedule A) 124

Line 13: Qualified business income deduction 125

Schedule 1: Additional Income and Adjustments to Income 126

Line 3: Business income (or loss) 127

Line 4: Other gains (or losses) 128

Line 5: Rental real estate, royalties, partnerships, S corporations, trusts, and so on 128

Line 6: Farm income (or loss) 129

Line 7: Unemployment compensation 129

Line 8: Other income 129

Adjustments to Income 131

Line 11: Educator expenses 131

Line 12: Certain business expenses of reservists, performing artists,and some government officials 32

Line 13: Health savings account deduction 132

Line 15: Deductible part of self-employment tax 133

Line 16: Self-employed SEP, SIMPLE, and qualified plans 134

Line 17: Self-employed health insurance deduction 134

Line 20: IRA deduction 135

Line 21: Student loan interest deduction 135

Nonrefundable Credits: Schedule 3 137

Line 1: Foreign tax credit 138

Line 2: Credit for child and dependent care expenses 138

Line 3: Education credits 139

Line 4: Retirement savings contributions credit 140

Chapter 8: Schedule C: Profit or Loss From Business 141

Detailing Schedule C 142

Getting the Basics Down 143

Accounting methods 144

Material participation 146

Part I: Income 147

Line 1: Gross receipts or sales 147

Line 2: Returns and allowances 147

Line 4: Cost of goods sold 147

Line 6: Other income 148

Part II: Expenses 149

Line 8: Advertising 149

Line 9: Car and truck expenses 149

Line 10: Commissions and fees 152

Line 11: Contract labor 152

Line 12: Depletion 153

Line 13: Depreciation 153

Line 14: Employee benefit programs 155

Line 15: Insurance (other than health) 155

Line 16a: Mortgage interest 155

Line 16b: Other interest 155

Line 17: Legal and professional services 156

Line 18: Office expense 156

Line 19: Pension and profit-sharing plans 156

Lines 20a and b: Rent or lease 156

Line 21: Repairs and maintenance 157

Line 22: Supplies 157

Line 23: Taxes and licenses 158

Lines 24a and b: Travel and meals 158

Line 25: Utilities 159

Line 26: Wages 159

Line 27: Other expenses 159

Line 30: Form 8829 159

Lines 32a and b: At-risk rules 160

Chapter 9: The Business Use of Your Home 163

Checking Out the New, Simplified Home Office Deduction 164

Filling Out Form 8829 166

Recognizing who can use Form 8829 167

Measuring the part of your home used for business 168

Figuring your allowable home office deduction 168

Determining your home office’s depreciation allowance 169

Carrying over what’s left 171

Understanding the Downsides to Home Office Deductions 172

Audit risk and rejection of repeated business losses 172

Depreciation recapture when selling a home with

previous home office deductions 173

Chapter 10: Estimated Taxes, Self-Employment Taxes, and Other Common Forms 175

Form 1040-ES: Estimated Tax for Individuals 176

Comparing the safe harbor method to the 90 percent rule 176

Completing and filing your Form 1040-ES 177

Paying estimated taxes on or through the IRS website 179

Keeping Current on Your Employees’ (and Your Own) Tax Withholding 180

Form W-4 for employee withholding 180

Tax withholding and filings for employees 181

Schedule SE: Self-Employment Tax 183

Form 8889: Health Savings Accounts (HSAs) 185

Understanding how HSAs work and who can use them 186

Completing Form 8889 187

Part 3: Getting Help 189

Chapter 11: Dealing with Notices and Audits 191

Understanding the Basics You’ll Find on an IRS Notice 192

Assessing Assessment Notices 193

Income verification and proposed changes to your

tax return: Forms CP2501 and CP2000 194

Request for your tax return: Forms CP515 and CP518 195

Backup withholding notice 195

Federal tax lien notice: Form 668(F) 197

Handling Non-Assessment Notices 197

Paying interest on additional tax 198

Receiving a delinquent tax return notice 198

What You Should Know about Audits 201

Surviving the four types of audits 202

Prepping for an audit 205

Winning your audit 206

Understanding the statute of limitations on audits 207

Correcting IRS Errors 208

Keeping your correspondence short and sweet 209

Sending a simple response to a balance due notice 210

Getting help from a taxpayer advocate 211

Amending a Return 213

More expenses than income (net operating losses) 213

The tax benefit rule 214

Taking Action Even When You Can’t Pay Your Taxes 214

Reducing Your Chances of Being Audited 216

Declare all your income 216

Don’t itemize 217

Earn less money 217

Don’t cheat 217

Don’t cut corners if you’re self-employed 218

Double-check your return for accuracy 219

Stay away from back-street refund mills 219

Chapter 12: Keeping Up with and Researching Tax Strategies and Rules 221

The Benefits of Preparing Your Own Return 222

Using IRS Publications 223

Buying Software 224

Accessing Internet Tax Resources 225

Going right to the source: The IRS 225

Utilizing tax preparation sites 226

Checking out TaxTopics.net 226

Finding out more through research sites 227

Hiring Help 227

Chapter 13: Paying for Tax Help 229

Deciding to Hire Tax Help 229

Unenrolled preparers 230

Enrolled agents 231

Certified public accountants 231

Tax attorneys 232

Who’s best qualified? 232

Finding Tax Advisors 233

Interviewing Prospective Tax Advisors 234

What tax services do you offer? 234

What are your particular areas of expertise? 235

What other services do you offer? 235

Who will prepare my return? 235

How aggressive or conservative are you regarding

interpreting tax laws? 236

What’s your experience with audits? 236

How does your fee structure work? 236

What qualifies you to be a tax advisor? 237

Do you carry liability insurance? 238

Can you provide references of clients similar to me? 238

Part 4: The Part of Tens 239

Chapter 14: Ten+ Useful Apps and Software Packages for Small Business Tax Issues 241

Tracking Expenses with Expensify 241

Processing Sales with Square 242

Managing Transactions with EMS+ 242

Marking Miles with MileIQ 243

Managing Your Accounting with QuickBooks 243

Handling Accounting and Invoicing with FreshBooks 244

Preparing Taxes with TurboTax Self-Employed 244

Completing Taxes with H&R Block Tax Preparation and Filing Software 244

Chapter 15: Ten Often Overlooked Tax Reduction Opportunities 245

Invest in Wealth-Building Assets 246

Fund Some Retirement Accounts 246

Contribute to a Health Savings Account 246

Work Overseas 247

Calculate Whether a Deduction Is Worth Itemizing 247

Trade Consumer Debt for Mortgage Debt 249

Consider Charitable Contributions and Expenses 249

Scour for Self-Employment Expenses 250

Married Couples Should Crunch the Numbers on Filing Separately 250

Tax Breaks for Minority Owned Businesses and Those in Low-Income Areas 251

Chapter 16: Ten Resources to Turn to After Reading This Book 253

To Develop a Good Business Plan and Improve Your Small Business 253

To Whip Your Finances into Shape 254

To Select the Best Business Entity 254

To Set Up an Accounting and Financial Management System 255

To Hone Your Investment Savvy for Your (and Your Employees’) Retirement Funds 255

For Help with Payroll Regulations and Employee Tax Withholdings 256

To Dig Deeper into IRS Rules and Regulations 256

To Deal with IRS Collection Efforts 256

For More Detailed Advice about All Aspects of Your Income Tax Return 257

For Assistance in Preparing Your Income Tax Return 257

Index 259