Accounting & Tax Best Practices for Small Businesses & Their Owners
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
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 company’s debts?
“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
“Double Taxation” – Smith Inc.
Can’t 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
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?
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
Bookkeeping Basics
o Record of all transactions
o Common Optionso Quickbooks – Industry leader, desktop and
browser-based options
o Xero – Browser-based, targets small business owners
o Generates Balance Sheet & Income Statement
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
Small-Business Tax Basics
o Income tax
o Sales tax
o Payroll tax
o LLC fees
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
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 taxo 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!
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
Personal Income Tax Timeline
o March – Get a K-1 from your businesso April – File your personal tax return &
pay 1st estimateo June/Sept – Pay 2nd & 3rd estimateso Nov – Project your business’s 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
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, workmen’s 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
Accounting & Tax Best Practices for Small Businesses & Their Owners
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@wffacpa
Wagner, Ferber, Fine & Ackerman
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