Presented by Ruthie G. Reynolds , PhD, CPA, JD August 11, 2008

1. Ruthie G. Reynolds, CPA “Recordkeeping and Small Business Tax Tips”Sponsored byUSDA Rural Business DevelopmentDyer County ExtensionTennessee State University Presented by Ruthie G. Reynolds, PhD, CPA, JD August 11, 2008

2. Ruthie G. Reynolds, CPA INTRODUCTION • Impact of taxation on business • Business owners’ tax responsibility • Importance of Recordkeeping

3. MUST KNOW TAX LAW TO SAVE Ruthie G. Reynolds, CPA • Example – Internal Revenue Code provides for taxation of all income derived • Inclusions • All income from whatever source, unless IRC excludes it • Bartering • Gains on sale of assets owned • Assets or money found • Deductions • Business expenses “ordinary and necessary”

4. Ruthie G. Reynolds, CPA FEDERAL TAX TIPS • Tax credits vs. tax deductions • credit is a dollar for dollar saving • deduction savings is the tax bracket percentage • Example • There are deductions for education expense, as well as credits for education expense • Retirement plans shelter tax

5. Ruthie G. Reynolds, CPA FEDERAL TAX TIPS • Small business owners who have W2 income can adjust withholding to cover deposits for Schedule C income • If loss occurs from operations or income is low, choose straight line depreciation rather than an accelerated method such as 200% declining balance

6. Ruthie G. Reynolds, CPA FEDERAL TAX TIPS • Interest expense on the following deductible as business expenses if used for business • Auto loan • Credit card • Lines of credit • Loans • Choose Subchapter S corporation rather than C corporation if losses are expected initially • If S corporation application is not filed timely, the IRS may still grant the status if requested

7. Ruthie G. Reynolds, CPA FEDERAL TAX TIPS • No penalty on late returns having refunds • Offer in compromise to settle IRS debt are difficult • IRS payment plans are available • Abatement of penalties is possible – always ask if there is “reasonable cause” • Be aware of scams

8. Ruthie G. Reynolds, CPA FEDERAL TAX TIPS • If return not filed, IRS will file for you based on income data reported by others • Substitute for Return • Your information appearing on IRS records must be provided to you under the Freedom of Information Act • True for all 15 governmental agencies and 73 departments

9. Ruthie G. Reynolds, CPA FEDERAL TAX TIPS • You do not have to agree with an IRS decision • Reconstruction of income and expenses is legal • Should be professionally prepared • If you have an IRS dispute, you need representation

10. Ruthie G. Reynolds, CPA Recordkeeping • Keep records for at least 3 years • Law require you to provided documentation if requested • Types of records to keep • IRS and State audits • Consider keeping records electronically

11. Ruthie G. Reynolds, CPA TENNESSEE TAX TIP (not applicable to sole proprietors and partnerships) • There is a State of Tennessee business income tax It is called an excise tax • The rate is 6.5% of Tennessee taxable income, • There is a State of Tennessee business franchise tax • The rate is .25% of the greater of net worth or real and tangible property in Tennessee. The minimum tax is $100.

12. Ruthie G. Reynolds, CPA SUMMARY & QUESTIONS Commit to learning basic tax law Questions???