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Michael A. Gordon, CPA Not Your Basic Bean Counter

Welcome to the 2018 Gear Up 1040 Seminar with Michael A. Gordon, CPA. Explore the latest updates on Schedule C for sole proprietors and learn about the advantages, disadvantages, and new regulations. Don't miss out on this valuable resource!

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Michael A. Gordon, CPA Not Your Basic Bean Counter

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  1. 2018 Gear Up 1040 Seminar Welcome!! Michael A. Gordon, CPA Not Your Basic Bean Counter

  2. 2018 Gear Up 1040 Seminar Welcome!! Michael A. Gordon, CPA Not Your Basic Bean Counter

  3. A Research Resource

  4. Things Learned Here Today!

  5. Questions??

  6. Please be courteous… Please turn your cell phone off (or to silent mode), and take any telephone calls out in the corridor. Thank you, Your friendly neighbor

  7. Other Items Breaks Lunch Emailing the Gear Up instructors Don’t distract those near you

  8. 305 Chapter 21 - Schedule CStillThe Most Popular Way To Do Business Gear Up Tax Seminars Presented by: Michael A. Gordon, CPA Not Your Basic Bean Counter

  9. Chapter 21 Sole Proprietor – Schedule C Chances of Being Audited – 2016 Fiscal Year • All Tax Returns .6% • All individual returns .7% Schedule C $100-$200K 2.2% Schedule C $200K+ 1.9% • C Corporations 1.1% • S Corporations .3% • Partnerships .4% Source: IRS Data Book 2016

  10. Chapter 21 Sole Proprietor – Schedule C Advantages and Disadvantages Advantages • Simplicity • No balance sheet required (WARNING) • Easy to start and easy to stop doing business • No payroll reporting for owner • Single level tax Disadvantages • All income subject to self-employment tax • No limit of liability

  11. Chapter 21 Sole Proprietor – Schedule C Who Must File Schedule C All Trades or Businesses with one owner Separate Schedule C for each business Single Member LLC Husband and Wife Joint Venture (the very misunderstood QJV rules)…page 306, item F.

  12. Chapter 21 Sole Proprietor – Schedule C What’s New Method of accounting Pg. 310, item C Hobby-related expenses Pg. 310, item H Meals and entertainment Pg. 314, item L Excess business losses Pg. 315, item VII The “sharing” economy Pg. 317, item VIII The “marijuana” economy Pg. 319, item IX

  13. Chapter 21 Sole Proprietor – Schedule C What’s New At this point, based on time remaining, we will venture into the book and cover some “other” issues…see next slides.

  14. Chapter 21 Sole Proprietor – Schedule C Statutory Employees…pg. 305 • Time to re-learn these rules. • They file a Schedule C. • This will/may become a BIG deal for the QBID…may have some W-2’s that are NOT checking the box! • See New Case….pg. 306

  15. Chapter 21 Sole Proprietor – Schedule C Qualified Joint Venture…pg. 306 IRC 761(f)….why did Congress enact this set of rules? Hint: gender issues. Page 306, item F covers the rules. Pay special attention to F.4.b. and F.4.c. CYA issues….my worksheets. WARNING: Why do we care? Because of the onerous failure to file penalties.

  16. Chapter 21 Sole Proprietor – Schedule C Qualified Joint Venture…pg. 306 WARNING: When a qualified QJV exists, you can no longer file ONE Schedule C with both names on it and bifurcate the net income over to 2 SE Forms. You must EITHER file a 1065 OR file 2 separate Schedule C’s. What’s the big deal? Your client will make YOU pay the assessed late filing penalties!

  17. Material Participation – Reg. 1.469-5T 311 Chapter 21 Sole Proprietor – Schedule C • More than 500 hours • Substantially all participation (including hours spent by non-owners) • More than100 hours and as much as anyone else (including non-owners) • Significant participation activity • Materially participated 5 out of last ten years • Personal service activity and materially participated any 3 prior years • Based on facts and circumstances

  18. Material Participation – Reg. 1.469-5T 311 Chapter 21 Sole Proprietor – Schedule C • I highly recommend reading this entire regulation regularly with your staff. • We have a binder on each desk with all of this and more. www.mikegordoncpa.net

  19. Material Participation – Reg. 1.469-5T Chapter 21 Sole Proprietor – Schedule C Questions: • Can a Schedule C business be “passive”? YES. • If it shows income, is it subject to SE? YES.

  20. Material Participation – Reg. 1.469-5T Chapter 21 Sole Proprietor – Schedule C IRC 469 IRC 1402 The mythical bridge between IRC 469 and IRC 1402

  21. Material Participation Chapter 21 Sole Proprietor – Schedule C • Real errors I have caught… • New client comes to you. You review prior year return(s). • This client has had a Schedule C hardware store for 25 years. • Schedule C consistently shows LARGE net income ($100,000+) • Client also has Schedule E rentals showing losses ($100,000)

  22. Material Participation Chapter 21 Sole Proprietor – Schedule C • Real errors I have caught… • You see Form 8582 showing the rental losses as suspended. • You go over the 7 tests for material participation with the client and learn that he has not “materially participated” for 6 years.

  23. Material Participation Chapter 21 Sole Proprietor – Schedule C • This is an incorrectly prepared income tax return!! Are you shocked!!!!

  24. 312-313 Chapter 21 Sole Proprietor – Schedule C Cost of Good Sold

  25. Chapter 21 Sole Proprietor – Schedule C Cost of Good Sold • We may need to help our clients take a meaningful physical inventory count • How? When? Physical count? Retail method? Material items only? Cycle counts? • What about a perpetual inventory system?

  26. Chapter 21 Sole Proprietor – Schedule C Cost of Good Sold • Client asks you….. • “So, how much should the ending inventory figure be?” What do you do?!!

  27. Chapter 21 Sole Proprietor – Schedule C Cost of Good Sold • Calculate COGS% each year and keep the running total somewhere so you can look at it annually with the client. • Problem 1: Wild fluctuations. Better get an explanation and document it in the workpapers…..CYA. • Problem 2: Too low or too high. Better get an explanation and document it in the workpapers…CYA.

  28. Chapter 21 Sole Proprietor – Schedule C Cost of Good Sold

  29. Chapter 21 Sole Proprietor – Schedule C Ordinary and Necessary?Appropriate and Helpful? Don’t Laugh!!! Haircuts? Guitar lessons?

  30. 324 Chapter 21 Sole Proprietor – Schedule C Employing Family Members • Don’t get cute • Make it real • Mean, nasty IRS agent will cremate your kid under questioning! • Do NOT forget the I-9, W-4, W-2 and any other forms regularly used for payroll purposes George St. Laurent: his 4 “D’s”

  31. Polling Question I have been attending the Gear Up 1040 Individual Tax seminars for ________. • This is my first one! • One to ten years • Ten to twenty years • Long enough to remember when it was Nuts and Bolts! 1040 Individual Tax: Section C

  32. 329 Chapter 22Form 1099 – MISC Presented by: Michael A. Gordon, CPA Not Your Basic Bean Counter Gear Up Tax Seminars

  33. Chapter 22 Form 1099-Misc. Just a few forms!!! Would you believe 22 and counting?

  34. 328 Chapter 22 Form 1099-Misc. Due Dates and Penalties What’s New See page 333, items B and C.

  35. 335 Chapter 23:Capitalization and Depreciation Presented by: Michael A. Gordon, CPA Not Your Basic Bean Counter Gear Up Tax Seminars

  36. Chapter 23 Capitalization and Depreciation What’s New A whole lot of new stuff! Well laid out on page 336. KEY POINT: Remember the QBID! We must factor that in when deciding on depreciation to take (e.g. bonus and/or IRC 179)

  37. 365 Chapter 24Independent Contractor or Employee Presented by: Michael A. Gordon, CPA Not Your Basic Bean Counter Gear Up Tax Seminars

  38. Chapter 24 Independent Contractor or Employee Major consideration for QBID TCJA enactment will have major importance in this arena. If employee status, no QBID If independent contractor, may get a nice QBID If a “statutory employee”….is the W-2 correctly marked?

  39. Chapter 24 Independent Contractor or Employee Four Types of Workers Common law employees Statutory employees Statutory non-employees Independent contractors

  40. Chapter 24 Independent Contractor or Employee Statutory Employees Considered employees for FICA and Medicare withholding They receive W2 Forms Statutory box will be checked Report W2 income on Schedule C Deduct related expenses on Schedule C Do not prepare Schedule SE

  41. Chapter 24 Independent Contractor or Employee

  42. Chapter 24 Independent Contractor or Employee Statutory Employees Who are they: • Drivers distributing beverages, meat vegetables, fruits, bakery products, laundry or dry cleaning • Life insurance agents full time - primarily for one company • Home workers • Travelling sales agents

  43. Chapter 24 Independent Contractor or Employee Statutory Nonemployees Who are they: • Workers paid relative to their sales • Perform under a written contract • Must be a direct seller • Licensed real estate agents • Licensed real estate appraisers

  44. Chapter 24 Independent Contractor or Employee Can Worker Receive Both W2 and 1099 IRS has a bias against “dual service” Some exceptions: • Officer (W2) and director (1099) • Officer (W2) and salesman (1099) • Real Estate Agent (1099) and bookkeeper (W2)

  45. Chapter 24 Independent Contractor or Employee • It’s not a matter of choice • Even if both the employer and the worker are in agreement • Remember: a HIPPO is always a HIPPO no matter how you dress it up!! • It’s a matter of facts and circumstances

  46. Chapter 24 Independent Contractor or Employee THE REAL ISSUE, FOR MOST OF OUR CLIENTS?

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