accounting and tax best practices for small businesses

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  1. 1. Accounting & Tax Best Practices for Small Businesses & Their Owners
  2. 2. Best Practices o Structuring your company o Accounting refresher o Financial statements o Bookkeeping basics o Taxes (income, sales, payroll, etc.) o 2014 tax planning
  3. 3. Choosing a Structure Making the Decision Sole Proprietorship Partnership LLC S-Corp C-Corp How easy is it to setup? How expensive is it to setup? Am I stuck with double taxation? How flexible is the structure (e.g. # of members, distributions)? I want to go public in the near future Will I be personally liable for my companys debts?
  4. 4. Double Taxation Smith Inc. LLC or S-Corp Smith Inc.s Profit $ 100 60% of the profit (your portion) 60 Taxed at 40% (24) You pocket $ 36 C-Corp Assume You own 60% of Smith Inc. You pay tax at 40% The corporate tax rate is 35% Dividends are taxed at 20% All profits are distributed Smith Inc.s Profit $ 100 35% corp tax (35) After-tax profit 65 60% of the profit paid to you as a dividend 39 20% dividend tax (7.8) You pocket $ 31.2
  5. 5. Double Taxation Smith Inc. Cant I just pay myself a salary instead of paying dividends? Yes How limited is limited liability? Generally, pretty limited Piercing the corporate veil common for failure to pay trust fund liabilities i.e. Withheld payroll or sales tax owed to the government
  6. 6. Financial Statements 101 o Types of Assurance o Audit o Review o Compilation Most Stringent Least Stringent o Why would I pay an external accounting firm for financials?
  7. 7. Accounting Methods Cash Accrual Timing of revenue and expenses is based on cash inflows and outflows Does not show what you owe or what is owed to you Commonly used for small- business tax returns, even if books are kept using the accrual method More accurately reflects real life Shows money owed to you and money you owe As company grows, may be required to use Accrual method for tax return
  8. 8. Bookkeeping Basics o Record of all transactions o Common Options o Quickbooks Industry leader, desktop and browser-based options o Xero Browser-based, targets small business owners o Generates Balance Sheet & Income Statement
  9. 9. Bookkeeping Best Practices o Keep your books up to date o Do not overlap business and personal, use separate bank accounts and credit cards o Engage an external accounting firm to review your books monthly or quarterly
  10. 10. Small-Business Tax Basics o Income tax o Sales tax o Payroll tax o LLC fees
  11. 11. Income Tax o Payments due quarterly o Estimate year-end profit to determine quarterly payments o Corporate tax return is due 3/15, can be extended to 9/15 (4/15 & 10/15 for partnerships, LLCs & individuals) o Even if extended, full payment is due 3/15 or 4/15
  12. 12. Sales Tax o Am I selling a product? Services generally do not incur sales tax o Do I have nexus? o In-state sales usually lead to sales tax o Complicated rules to determine nexus, largely based on targeting sales efforts in the state o Payment frequency based on sales volume o No statute of limitations!
  13. 13. Payroll Tax o Fica, Medicare, FUI, SUI o Payroll services (e.g. Paychex, ADP) handle Payroll administration and, if you choose, tax filings and payments for you o PEO services (a.k.a. leased employees) put your employees on their payroll and lease them back to you o Mandatory employee notifications
  14. 14. Personal Income Tax Timeline o March Get a K-1 from your business o April File your personal tax return & pay 1st estimate o June/Sept Pay 2nd & 3rd estimates o Nov Project your businesss profits and personal income. Determine your estimated tax liability for the year o Dec/Jan Pay 4th estimate, determine Dec or Jan state payment based on AMT
  15. 15. Choose entity type Check name availability Register entity with the state, receive filing receipt & certificate of organization Obtain EIN (Business ID #) from the IRS Choose managing member Make S- Election Choose officers Open a business bank account Choose a bookkeeping system LLC S-Corp Payroll? Sales tax? Register for state unemployment insurance, workmens comp & disability PEO Service? Yes Payroll Service? File quarterly payroll tax returns & make tax payments No No Register for sales tax in every state you will collect and pay Yes Collect sales tax at point of sale File sales tax returns and make tax payments Outside Vendors? File & issue 1099s as required Yes Entity Structure LLC Consider purchasing a general business insurance policy LLC Fee & UBT Est. Tax NYC Est. Tax S-Corp Profitable? Projections & personal income tax estimates Yes
  16. 16. Accounting & Tax Best Practices for Small Businesses & Their Owners @wffacpa Wagner, Ferber, Fine & Ackerman @talenttechlabs Talent Tech Labs

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