Free Continuing Education for Small Business
This is Tax Tips for Medical Professionals and my name is Jessica Chisholm. I am a CPA here at Huddleston tax CPAs. We are located just outside of Seattle, Washington.
Before we get started on the actual presentation, I just want to make sure that everyone is registered at smallbusinesswebcast.com. I know that some people come to us from other websites and I just want to make sure you are registered here.
I just also want to point out some of our future webcast we are having. On November 8, I will be doing a quick's QuickBooks overview. On November 16, Jennifer Zhou, a CPA in our office does Seven Tax Tips for the Self-Employed. On November 23, we have Tax Tips for Lawyers with Lance Hulbert. On November 29, I will be doing Starting a New Business a To Do List. So if you are getting ready to start a new business that is a good one to attend. We also have a search engine optimization webcast. Then John Huddleston does LLC and S-Corps Explained Using Them to Reduce Taxes. Also, we have a year-end tax savings to do list. That would be great for year-end tax planning.
So, again, if you are not already registered at smallbusinesswebcast.com. I recommend that you get over there and get registered. So that you may be informed of our future webcasts.
So, again, if you are not already registered at smallbusinesswebcast.com. I recommend that you get over there and get registered. So that you may be informed of our future webcasts. Also, I just wanted to show you our website HuddlestontaxCPAs.com. We are available for pretty much anything accounting wise having to do with small businesses. We do tax prep and planning, small business coaching, QuickBooks training, bookkeeping, payroll, pretty much anything you need. If you are looking for a new CPA, check out our website. You don't even have to be from the Seattle area. We do work with clients from all over the country and all over the world for that matter. Okay, let's go ahead and get started with the presentation.
First thing, I want to talk about everything we are going to go over today. I'm going to talk about entity selection for your business, the auto deduction, the home office deduction and who qualifies, medical equipment, whether it is better for tax purposes, to buy or to lease, hiring family members the benefits of that. We will talk about deferring payroll taxes on owners and how that can reduce or lower your taxes in a certain year and then other miscellaneous deductions, just to keep in mind.
So, the first thing is a business entity selection. When it comes to choosing the best entity for your business you have several different choices. It just depends on what sounds best for you and your situation. The different choices are sole proprietorship, LLC partnership, C-Corporation and S-Corporation.
Sole proprietorship is the easiest to set up. All it pretty much requires is a business license with the state. But you do pay self-employment tax on 15.3% of your profits. With a sole proprietorship there is no need for a separate tax return. Your business income and expenses are reported on Schedule C of your personal Form 1040. If you just want to get going with minimal setup time, you don't want to have a separate tax return. Sole proprietorship could be the way to go for you.
Then there is the LLC. You can either be a single member LLC or a multimember LLC. Single member LLC is taxed to the sole proprietor. It's the same it's required on the Schedule C of your personal Form 1040 and you pay self-employment tax on all the profits.
Or you can elect to be taxed as an S-Corporation which I will talk about in a minute. You could see why that could possibly be a benefit. A multimember LLC is taxed like a partnership. You fill out a partnership tax return just like if you were a technical partnership.
With a partnership it's two or more owners sharing profits and losses. You do file a separate tax return Form 1065. A partnership return is a flow-through return, you do not pay any tax at the partnership level. All the income from your partnership flows through to your personal Form 1040 and is reported there. If you are an active member in the LLC or you are a general partner in a partnership you will pay self-employment tax of 15.3% on all those profits. Just like the sole proprietorship and the single-member LLC.
Up next is the C-Corporation. With the C-Corporation you pay tax at the corporate level and also on dividends that you receive from the corporation. When people talk about double taxation with corporations, they are talking about C-Corporations. The ways you can get money out of a Corporation are to take dividends or to take a salary as an owner. The dividends are taxable at the corporate level and on your personal return. There is no flow-through income onto your personal return like on the other entities.
With an S-Corporation you are able to avoid that double taxation and you can also possibly save on self-employment tax. So again you can either be an LLC and elect to be taxed as an S-Corporation or you can form an S-Corporation from the beginning. What happens with an S-Corporation is it is a flow-through entity just like the partnership. So there is no tax at the corporate level, it flows through to your personal Form 1040. You are also able to save on the self-employment tax by taking draws.
So when you have an S-Corporation you have to pay yourself as an owner a reasonable salary. Once you decide what a reasonable salary is the difference between that reasonable salary and a profit for the year can be taken as draws. Those draws will not be subject to the self-employment tax. They will still be subject to regular tax, but not to self-employment tax.
A quick and easy example of that is if your business has a net income of $100,000 for the year, and you have decided as an owner that $50,000 is a reasonable salary. Then the difference between that $100,000 profit and the $50,000 of reasonable salary you pay yourself can be taken as a draw and will not be subject to the self-employment tax. Which is essentially Social Security and Medicare.
That is just a really quick and easy overview of the different entities you can choose for your business. If any of those sound interesting to you or you are thinking of switching entities, I definitely suggest you check out John Huddleston's webcast LLC's and S-Corps Explained Using Them to Reduce Taxes. Again you can sign up for that smallbusinesswebcast.com. He goes into a lot more detail about the different entities, how it can save you money and what might be best for you.