Small Business Tax Deductions

Size: px

Start display at page:

Download "Small Business Tax Deductions"

Martin Percival Fletcher
5 years ago
Views:

1 Small Business Tax Deductions 15 th Edition Stephen Fishman, J.D.

2 Chapter 1 Tax Deduction Basics... 1 Learning Objectives... 1 Introduction... 1 How Tax Deductions Work... 1 Types of Tax Deductions... 1 You Only Pay Taxes on Your Business Profits... 2 You Must Have a Legal Basis for Your Deductions... 2 You Must Be in Business to Claim Business Deductions... 2 How Businesses Are Taxed... 2 Basic Business Forms... 3 Tax Treatment... 4 Spouses Who Co-Own a Business... 6 The Value of a Tax Deduction... 7 Federal and State Income Taxes... 7 Self-Employment Taxes... 8 Total Tax Savings... 9 What Businesses Can Deduct... 9 Start-Up Expenses... 9 Operating Expenses Capital Expenses Pass-Through Tax Deduction Inventory Businesses That Lose Money Figuring a Net Operating Loss Carrying a Loss Back Carrying a Loss Forward Review Questions Review Answers Chapter 2 Are You Really in Business? Learning Objectives Introduction What Is a Business? Profit Test Behavior Test Tax Consequences of Being a Hobbyist Review Questions Review Answers Chapter 3 Start-Up Expenses Learning Objectives Introduction What Are Start-Up Expenses? Starting a New Business Common Start-Up Expenses Costs That Are Not Start-Up Expenses Buying an Existing Business Expanding an Existing Business When Does a Business Begin? Retail Businesses Manufacturers Knowledge Workers Service Providers An Existing Business... 26

3 Claiming the Deduction If Your Business Doesn t Last 15 Years Organizational Expenses Review Questions Review Answers Chapter 4 Business Operating Expenses Learning Objectives Introduction Requirements for Deducting Operating Expenses Ordinary and Necessary Current Expense Business-Related Reasonable Operating Expenses That Are Not Deductible Tax Reporting Review Questions Review Answers Chapter 5 Deducting Long-Term Assets Learning Objectives Introduction What Is a Long-Term Asset? Deducting Inexpensive Property: The De Minimis Safe Harbor and Materials and Supplies Deduction 40 The De Minimis Safe Harbor The Materials and Supplies Deduction Deducting Long-Term Personal Property: Bonus Depreciation, Section 179, Regular Depreciation Property Eligible to Deduct Mixed-Use Property When to Take Your Deduction How Much You Can Deduct Disposing of Long-Term Property Listed Property Bonus Depreciation Property That Qualifies for Bonus Depreciation Calculating the Bonus Amount Class-Wide Requirement Opting Out of the Bonus Bonus Depreciation Percentages Section 179 Expensing Deducting Repairs and Improvements Regular Depreciation When to Use Regular Depreciation How Regular Depreciation Works First-Year Depreciation Depreciation Methods Depreciation Rules for Listed property Deducting Real Property Land Buildings Building Improvements Intangible Assets Tax Reporting and Record Keeping Leasing Long-Term Assets Review Questions Review Answers ii

4 Chapter 6 Inventory Learning Objectives Introduction What Is Inventory? Supplies Are Not Inventory Incidental Supplies Long-Term Assets Deducting Inventory Costs Nonincidental Materials and Supplies Deduction Current Deduction for Inventory Maintaining an Inventory Review Questions Review Answers Chapter 7 Office Expenses Learning Objectives Introduction Qualifying for the Home Office Deduction Threshold Requirement: Regular and Exclusive Business Use Additional Requirements Storing Inventory or Product Samples at Home Corporation Employees Calculating the Home Office Deduction How Much of Your Home Is Used for Business? What Expenses Can You Deduct? Simplified Home Office Deduction Method How the Simple Method Works Is the Simplified Method a Good Deal? IRS Reporting Requirements Sole Proprietors LLCs and Partnerships Deducting an Outside Office or Workplace Renting an Outside Workplace Buying an Outside Workplace Review Questions Review Answers Chapter 8 Car and Local Travel Expenses Learning Objectives Introduction Deductible Local Transportation Expenses Travel Must Be for Business Commuting Is Not Deductible The Standard Mileage Rate How the Standard Mileage Rate Works Requirements to Use the Standard Mileage Rate The Actual Expense Method How the Actual Expense Method Works Record-Keeping Requirements Vehicle Depreciation Deductions Leasing a Car Other Local Transportation Expenses When Clients or Customers Reimburse You Reporting Transportation Expenses on Schedule C Corporations, LLCs, and Partnerships Using Your Own Car Using a Company Car iii

5 Review Questions Review Answers Chapter 9 Business Travel Learning Objectives Introduction What Is Business Travel? Where Is Your Tax Home? Your Trip Must Be for Business What Travel Expenses Are Deductible Traveling First Class or Steerage Taking People With You How Much You Can Deduct Travel Within the United States Travel Outside the United States Conventions Travel by Ship Calculating Time Spent on Business % Limit on Meal Expenses Maximizing Your Business Travel Deductions Plan Ahead Make a Paper Trail Maximize Your Business Days Take Advantage of the Sandwich Day Rule How to Deduct Travel Expenses Sole Proprietors Partnerships and LLCs Corporations Travel Expenses Reimbursed by Clients or Customers Review Questions Review Answers Chapter 10 The Pass-Through Tax Deduction Learning Objectives Introduction You Must Have a Pass-Through Business You Must Have Qualified Business Income You Must Have Taxable Income Deduction for Taxable Income Below $157,500 ($315,000 for Married) Deduction for Income Above $157,500 ($315,000 for Married) Are You a Specified Service Business? Deduction for Non-Service Businesses (Income Over $157,500/$315,000) Deduction for Specified Service Business Owners (Income Over $157,500/$315,000) Taking the Pass-Through Deduction Strategies to Maximize the Pass-Through Deduction Keep Service Business Income Below the $207,500/$415,000 Threshold Form an S Corporation Separate Service and Nonservice Business Functions File a Separate Return Review Questions Review Answers Chapter 11 Hiring Workers Learning Objectives Introduction Employees Versus Independent Contractors Tax Deductions for Employee Pay and Benefits iv

6 Employee Pay Payroll Taxes Employee Fringe Benefits Reimbursing Employees for Business-Related Expenditures Accountable Plans Unaccountable Plans No Deduction for Unreimbursed Employee Expenses Employing Your Family or Yourself Employing Your Children Employing Your Spouse Rules to Follow When Employing Your Family Employing Yourself Tax Deductions When You Hire Independent Contractors No Deductions for IC s Taxes Paying Independent Contractors Expenses Review Questions Review Answers Chapter 12 Retirement Deductions Learning Objectives Introduction Why You Need a Retirement Plan (or Plans) Tax Deduction Tax Deferral Individual Retirement Accounts IRAs Traditional IRAs Roth IRAs Employer IRAs SEP-IRAs SIMPLE IRAs Keogh Plans Types of Keogh Plans Setting Up a Keogh Plan Solo 401(k) Plans Review Questions Review Answers Chapter 13 Medical Expenses Learning Objectives Introduction The Affordable Care Act (Obamacare) Individual Health Insurance Mandate The Employer Mandate Obamacare Health Insurance Rules State Health Insurance Exchanges Open Enrollment Periods Health Insurance Premium Assistance Credits The Personal Deduction for Medical Expenses Deducting Health Insurance Costs Personal Income Tax Deduction for the Self-Employed Deducting Health Insurance as a Business Expense Tax Credits for Employee Health Insurance Adopting a Health Reimbursement Arrangement Spousal Health Reimbursement Accounts HRAs for Businesses With Multiple Employees Health Savings Accounts What Are Health Savings Accounts? v

7 Establishing Your HSA Making Contributions to Your HSA Deducting HSA Contributions Withdrawing HSA Funds HSAs for Employees Tax Reporting for HSAs Review Questions Review Answers Chapter 14 Additional Deductions Learning Objectives Introduction Advertising Goodwill Advertising Giveaway Items Website Development and Maintenance Permanent Signs Business Bad Debts Three Requirements to Deduct Bad Debts Types of Bad Debts Casualty Losses Amount of Deduction Damage to Your Home Office Tax Reporting Charitable Contributions Contributions by Proprietors, LLCs, Partnerships, and S Corporations Clothing Dues and Subscriptions Education Expenses Starting a New Business Minimum Educational Requirements Traveling for Education Entertainment and Meals Entertainment Meals Gifts Insurance for Your Business Homeowners Insurance for Your Home Office Car Insurance Interest on Business Loans Home Offices Car Loans Loans to Buy a Business Loans From Relatives and Friends Interest You Can t Deduct Limitation on Deducting Interest by Larger Businesses Legal and Professional Services Buying Long-Term Property Starting a Business Accounting Fees Taxes and Licenses Income Taxes Self-Employment Taxes Employment Taxes Sales Taxes Real Property Taxes Other Taxes vi

8 License Fees Review Questions Review Answers Chapter 15 Record Keeping and Accounting Learning Objectives Introduction What Records Do You Need? Business Checkbook and Credit Cards Records of Your Business Income and Expenses Tracking Your Business Expenses Supporting Documents Records Required for Specific Expenses Automobile Mileage and Expense Records Travel, Meal, and Gift Expenses Listed Property How Long to Keep Records What If You Don t Have Proper Tax Records? Accounting Methods Cash Method Accrual Method Tax Years Review Questions Review Answers Chapter 16 Staying Out of Trouble with the IRS Learning Objectives Introduction What Every Business Owner Needs to Know About the IRS Anatomy of an Audit The IRS: Clear and Present Danger or Phantom Menace? You Are a Prime IRS Target How Tax Returns Are Selected for Audits Eight Tips for Avoiding an Audit Tip #1: Be Thorough and Exact Tip #2: Don t File Early Tip #3: Form a Business Entity Tip #4: Explain Items the IRS Will Question Tip #5: Avoid Ambiguous or General Expenses Tip #6: Report All of Your Income Tip #7: Watch Your Income-to-Deduction Ratio Tip #8: Beware of Abnormally Large Deductions Review Questions Review Answers Glossary Index vii

Small Business Tax Deductions

Small Business Tax Deductions 14 th Edition Stephen Fishman, J.D. Chapter 1 Tax Deduction Basics... 1 Learning Objectives... 1 Introduction... 1 How Tax Deductions Work... 1 Types of Tax Deductions...