Getting FIT ( Federal Income Taxes) Small Business Fair

1. Getting FIT(Federal Income Taxes)Small Business Fair Leeward Community College May 7, 2017

2. Agenda Business Income & Expenses Recordkeeping Requirements On-line tax resources (time permitting)

3. Tax Guide For Small Businesses Publication 334

4. Topics: Income/Gross Receipts Expenses Start Up Costs Car & Truck Travel, Meals & Entertainment Gifts Office in the Home Depreciation Business Income & Expenses

5. Business income is the compensation you receive for providing goods and services to your customers Business Income Business income may be paid to you in the form of cash, checks, credit card receipts or other goods and services received in a trade

6. Generally, your business income does not include: Wages you receive as an employee (usually reported on form W-2) Gifts or loans you receive Business Income

7. Net Profit/Loss (Sch-C) Income - Expenses = Net profit/loss Gross Receipts or Sales (line 1) less Cost of Goods Sold (line 4) equals Gross Profit (line 7) less Business Expenses (line 28) equals Net Profit (Loss) (line 31) Net Profit (Loss) is carried to Form 1040 line 12 and Schedule SE line 1

8. Business Expenses Publication 535

9. Cost of Goods Sold The Cost of Goods Sold expense allows a business to deduct the cost of the products sold during the year Applies to manufacturers, wholesalers, retailers, or any business that makes, buys, or sells goods to produce income Does on generally apply to small businesses that provide only a service to their clients.

10. Cost of Goods Sold Cost of Goods Sold Formula: Beginning Inventory (Sch-C line 32) Plus: Purchases Cost of Labor (not yours) Materials and Supplies Less: Ending Inventory Equals: Cost of Goods Sold (Sch-C line 42) See Pub 334, Chapter 6

11. Business Expenses To be deductible, a Business Expense must be both: • Ordinary – Common and accepted in your trade or business, and • Necessary – Helpful and appropriate for your trade or business See Pub 535

12. Business Start Up Costs Any costs incurred in establishing a business are generally not deductible Instead, a taxpayer may “elect” to amortize these costs over a period of 15-years, These costs can include the costs of obtaining permits, licenses, doing marketing studies or research, training, etc. See Pub 535, Chapter 8.

13. Business Expenses Personal  vs Business 

14. Travel, Entertainment, Gift and Car Expenses Publication 463

15. Car and Truck Expenses Special record keeping requirements (a log) Two methods of computing the expense: Actual Expenses -or- Standard Mileage Rate Each method has advantages and disadvantages

16. Car and Truck Expenses Standard Rate (must keep mileage log) • Simpler than actual expenses 2. Gas and depreciation are “built in” to the standard rate and cannot be taken in addition. 3. Based on the number of business miles driven multiplied by standard mileage rate of 53.5¢ for 2017 and 54¢ for 2016 Business parking fees and tolls may be added to your standard mileage rate deduction

17. Travel Away From Home Must be outside of your geographic commute Must be overnight Must be business in nature Air travel must be primarily for business Hotel receipts MUST be kept Expenses for family members NOT deductible

18. Meals - Travel Personal meals are not deductible unless: In overnight travel status, or Related to entertaining a business client Meals are only 50% deductible Expenses for family members and related parties are NOT deductible

19. Entertainment Entertainment is only 50% deductible Cannot deduct certain entertainment expenses, e.g., health & golf club memberships Expenses for family members and related parties are NOT deductible

20. Gifts Limited to $25 per person, family or business The limit is annual, not by gift. Receipts MUST be kept as well as detailed information on the recipient Gifts to family members are NOT deductible

21. Business Use of Home Publication 587

22. Office in the Home Principle Place of Business Test: To be deductible your Home Office must be used Regularly – while you are in business Exclusively – for your business Form 8829/Schedule C (Form 1040) See Pub 587

23. Office in the Home Post 2013: optional standard allowance Simplified option for computing deduction $5 standard deduction per sq. foot 300 sq. foot maximum No affect on home related itemized deductions No depreciation deduction or recapture Regular/exclusive use requirements

24. Self-Employment Tax Publication 334

25. Self-Employment Tax Affects self-employed individuals with $400 or more of net income: Provides social security coverage Rate is 15.3% for 2017, consisting of: 12.4% for Old Age Survivors Disability Income The first $127,200 is subject to OASDI 2.9% Medicare All SE income is subject to Medicare

26. Starting a Business and Keeping Records Publication 583

27. Recordkeeping You must be able to substantiate items of income, deductions and credits. Why keep records? Track your deductible expenses & income Support your tax return deductions Scanned receipts are acceptable (and advised)

28. Recordkeeping Separate Accts. – NO CO-MINGLING! Business Checking Account Business Credit Card Business Debit Card Organize and Total your receipts by Tax Year Schedule-C, Part II Category Date (monthly)

29. General Rule: Keep your records until the period of limitations runs out or as long as they may be needed to support the income, deductions and credits on your return. How Long to Keep Records?

30. Depreciation Publication 534

31. Resources http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed Business Help Desk 1-800-829-4933 Monday – Friday 7:00 a.m. – 10 p.m. PT Forms & Publications 1-800-829-3676 Monday – Friday 8:00 a.m. – 11 p.m. PT

32. On-line resources IRS web site http://www.irs.gov/ IRS Tax Map http://taxmap.ntis.gov/taxmap/

33. On-line resources IRS SB Video Portal http://www.irsvideos.gov/SmallBusinessTaxpayer Small Business home page http://www.irs.gov/Businesses

34. Questions?