Small Biz and LLCs Tax Prep
Small Business Tax Preparation
Posted July 17, 2019
Starting and running a small business can be very challenging, but very exciting. Probably more of a pain in the butt, yet most business owners start a company to do something they love. That passion can be a great motivator, but it can also be a detractor. Proper small business tax preparation and planning, recordkeeping of your business tax deductions and money handling is a must. This is just the operational stuff- you also have to consider entity structure, exit strategies, risk mitigation, retirement planning and all that hoopla.
Basic Types of Small Business Tax Returns
Before we get too far along, there are some basics to get out of the way. You might already know all this stuff but there are others who don’t so please bear with us as we run through some small business tax preparation scenarios-
|Trade Names, DBAs
|Schedule C, Individual Tax Return.||1040|
|Single Member LLC||Schedule C, Individual Tax Return.||1040|
Husband and Wife
|Community Property State– Schedule C, Jointly Filed Individual Tax Return.||1040|
|Common Law State– Partnership Tax Return. The Revenue Code is clear on this, yet most tax professionals and attorneys mess it up. It’s hard to enforce.||1065|
|Multi-Member LLC||Partnership Tax Return.||1065|
|S Corp Election||S corporations do not exist. Rather an underlying entity, such as an LLC, elects to be taxed as an S Corp. Therefore a corporate tax return is filed.||1120S|
The rest of this page is written for the small business owner who does not need a partnership (Form 1065) or corporate (Forms 1120 or 1120S) tax return. If you want more information on business tax returns, preparation fees and how it all works, please click on the button below-
LLC Tax Preparation
If you are a sole proprietor or a single-member LLC (SMLLC) without an S corporation election, your small business transactions will be reported on Schedule C of your personal tax return (Form 1040). As you might know, a single-member LLC is considered a disregarded entity, therefore it does not have a separate small business tax return- this is a common misconception. Our fee for this tax return preparation is typically $500 to $700 which includes August and November tune-ups. Where you fall in this range will depend on how much stuff you have going on. Good organization can overcome complexity… then again, being disorganized can make the simplest of small businesses seem like a full audit of Google. Either way we can help- it’s what we do all day, every day.
For example, many small business owners have a home office, yet they might also have another work location. This needs to be handled correctly to not have the home office disallowed. Automobiles? Should the company own it or should you? Mileage deduction or actual expenses? These too must be properly discussed and accounted for on your tax returns. We will also help with SEP IRA (old school) or solo 401k plan (new school) contributions calculations, and determine what the best course of action is.
If you created a limited liability company with your spouse, you can elect to be treated as a qualified joint venture only if you live in a community property state. The IRS views a multi-member LLC (MMLLC as opposed to SMLLC) as a partnership, and therefore the IRS is expecting a partnership tax return on Form 1065 and K-1s issued to the partners. Yuck.
For small business tax preparation, click on the Get Started button above or use this button-
Small Business Tax Deductions
There are several tax deductions available to small business owners regardless if you are an LLC, partnership or an entity taxed as an S Corp. The obvious ones like printer paper and business cards are easy. But what about cell phones? What is the business use of a shared family plan? How about home offices? Meals and Entertainment- is it 50% or 100%? When can a meal be 100% deducted? Spoiler alert- a pizza party for the office is 100% deductible, but if the office is just you, then No. But if the office is you and your spouse, then Yes. Boom!
Self-employed health insurance and health savings accounts (HSAs) can be tricky, and many small business owners leave money on the table by deducting these on Schedule A versus Form 1040. This little “gotchya” could cost you several hundred dollars in taxes. Have you considered a Health Reimbursement Arrangement (HRA) or a Flexible Spending Account (FSA) for deducting dependent care benefits? Being a business owner has long hours and lousy pay- squeeze as much out of it as you can!
These are the type of things the Watson CPA Group will consult with you. Oftentimes the taxpayer or small business owner gets in trouble because he or she did not understand the rules. Once you know the rules and how to apply the rules, owners can take advantage of small business tax deductions without worry or concern. Please click on the button below for more information-
Self Employed 401k Plan
Once you launch your shiny new small business, you might also consider the several small business retirement plans which include solo 401k plans, profit sharing plans, cash balance and defined benefits pensions. For example, with a solo 401k plan or self employed 401k plan piggybacked with a defined benefits pension, you could sock away over $192,000 at age 50. All tax deferred if you like, which could yield a savings of over $86,000 (assuming a 45% marginal tax rate with federal and state). Wow!
Can’t contribute to a Roth IRA because you make too much? Perhaps a solo 401k plan with Roth option is your best bet with high contribution limits and no income phaseouts. Fidelity, TD Ameritrade, Schwab, etc. offer solo 401k plans, but they do not have a Roth option in the plan provision. The Watson CPA Group is a 401k plan third party administrator (which means we created our own 401k plan document) that has a Roth option. In turn, the big boys at Fidelity, TD Ameritrade and Schwab will honor our 401k plan document to be the custodian of your 401k. Huh? Contact us for more information!
Note how we purposely did not mention SEP IRAs. These are old school and are usually designed to be crisis management tools (after the fact) rather than good planning tools and more product self employed retirement plans. Read more about the various self employed retirement options, including retirement tax bombs and the difference between tax deferral and tax savings below-
S Corp Package
The Watson CPA Group specializes in S corporations which have a small number of shareholders, and are often just a one-person show. Did you know that 95% of all S Corps have only one shareholder, and 99% of all S Corps have three or fewer shareholders? Because small business is a core competency for us, we have created an S corp package that includes the following (No, the S doesn’t stand for stormtrooper)-