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
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