Small Business Deductions Essay

Only those personal expenditures that are allowed by the tax law are deductible as itemized deductions.

Which of the following is not a required test for the deduction of a business expense?

INCOME TAXES – As a sole proprietor all business income or losses must be reported as personal income tax. The business itself is not taxed separately.

A limited liability company consists of a single owner, or sometimes more than one owner, and are not taxed as separate business entities. All profits and losses pass through the business to those who own the company. Owners must report profits and losses on their personal tax return filing as a corporation, partnership, or sole proprietorship. If the LLC is ran by a single owner, they file a 1040 Schedule C form as a sole proprietor. Partners file a 1065 form consisting of a partnership, and a form 1120 is filed if the LLC is filing as a corporation. The LLC must be registered such as the State Corporation Commission, Department of Commerce and Consumer Affairs, Department of Consumer and Regulatory Affairs, or the Division of Corporations and Commercial Code. The great thing about an LLC is that the owner has freedom in management. The owner is able to run the organization as they see fit not answering to anyone,

The $300,000 you earned is considered earned income; therefore, it should be reported as gross income on either a Schedule C of your individual income tax return or if you have reported your company as being a LLC, you can file a LLC return.

When an independent contractor earns compensation for providing services or doing work and is classified as a self-employed individual rather than an employee, this is considered to be independent contractor income. This type of income will listed on Form 1099-MISC, which is where other types of income is listed.

There are two requirements for taxpayers to qualifies their expense as travel expenses deduction: First, the purpose of the trip must be connected with a trade or be employment related; Second, the taxpayer must be away from his tax home overnight or for a sufficient duration to require sleep or rest before returning home.

IRC Sec. 213(a) states that “there shall be allowed as a deduction the expenses paid

Required payroll deductions are those essential by law, and voluntary deductions are not legitimately required. A worker's gross pay is different in relation to their net pay because of the derivations subtracted. Four required deductions usually withheld from a worker check are Government withholdings, State tax, FICA duties and wage garnishments. Other conceivable intentional deductions are medical coverage, life insurance premiums, retirement, adaptable spending account, union levy. Intentional derivations are those that you offer and your employee acknowledge. Intentional findings are made on a pretax or after-assess premise.

Haddock Corporation currently pays John Haddock rent for the building that the company occupies. According to the Publication 535, prepared by the IRS, Haddock can only deduct the rental amount that is used specifically for the business, nothing personal (pg. 9, 2015). Since the rental property is owned by John and his son, as the tax manager I have to ensure that the amount paid for rent isn’t unreasonable. As long as the amount of the rent is reasonable compared to what the rentor would pay a stranger for the same property, then it is allowed to be deducted (Publication 535, pg. 9, 2015). The amount of rent should be based on the percentage of the businesses gross sales, so that could be why the amount is much higher than those rental properties

For my project, I ran Coffee-Roma, a coffee shop located in the business district of a large city. My simulation ran for 60 days. Over this timeframe, I hired 7 employees and earned gross revenues of $89,984.20. From those revenues, my net profit totaled $14,046.83. Below are the details of how I attempted to best run my business.

Numerous large businesses that are operating today were once started as small businesses. A new business is established to create a good or service that no other businesses have ever created or simply a product of higher quality than existing products, with the purpose of meeting customers’ needs and earning profits. Due to the technological advances at the present time, starting and operating a new business is less laborious. Nevertheless, would-be entrepreneurs should be familiar with the proper approaches to start their businesses.

Breaking down self-employment tax can be classified into two realms. First being in the form of an individual’s income derived by their trade or business and the second being the income or loss by the individual’s partnership of said trade or business. This self employment tax is levied on income in excess of $400 and is in exclusion of real estate rentals, dividends, interest, capital gains tax,

When I went back to my notes that I took during the Taxation class and think about filing a tax return with IRS I see that there are a lot of similarities between individual tax and business tax. However, weighing individual and business tax on the same gauge will evince how much they are different from each other (Pack, n.d.). Individual taxation is a type of tax return filed by an individual for both single and married taxpayers whether they have dependents or not, they will file the tax returns on Form 1040. The Form 1040 indoctrinate tax filers for information on their filing status and number of dependents, the income section includes wages, salary, taxable interest, capital gains and other types of income. filers can claim deductions for expenses, education, moving expenses and many other categories.

Work related expenses are another area where many entrepreneurs fail to receive the full tax benefits. Home office and occupancy expenses must be carefully deducted, and individuals will find they can also claim other deductions, such as union fees and tools of the trade. Many business owners fail to claim all expenses they are eligible for, thus they pay more in taxes than they truly need to.