Disclaimer
This is a simple basic course about taxes to familiarize you with tax
terminology, forms, and other pertinent information to begin your business
adventures without being so totally in the dark.
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EMPLOYER, EMPLOYEE, SELF-EMPLOYED TAXES
TAX DEDUCTIONS
PROFESSIONAL CODE
For filing requirements such as when, where and how to file, and where
you need to send or deposit payments, check with your local IRS office or
your CPA or accountant for the necessary current forms
TAXES:
Taxes are a very important part of your business. There are many forms of taxes.
You will have to understand & be aware of these. You must persevere throughout
the year to plan your deductions in order to avoid paying as much federal income
tax on your own wages or salary as you possibly can. It has been said that to
avoid is legal to evade is illegal. So, PLAN to avoid paying taxes by proper
preparation.
As a business owner, or self-employed there are many taxes you will need to be
aware of. As an employer, you will need to withhold federal income tax from your
employee’s wages. You have to pay an amount equal to the amount withheld
from the employee’s pay.
FICA: Federal Insurance Contributions Act: FICA includes Social Security &
Medicare tax. Employer & Employee both equally share 15.30 %. 12.4 % of
employee’s earned income up to an annual limit of $76,200 (for year 2000) must
be paid into Social Security, and an additional 2.9% must be paid into Medicare.
This total equals 7.65% for each of the employer and employee.
There are no income limits on Medicare taxes, so even if your income is well
above the cap for Social Security tax, you will still owe Medicare tax on the total.
You as an employer will pay the employer’s portion or half, of the employee’s tax
on certain wages, employee pays the other half, deducted by the employer from
employee’s wages.
A self –employed person will pay the entire amount of 15.30%. So, a total of
$15.30 out of each $100.00 dollars goes to S.S. & Medicare taxes.
ESTIMATED QUARTERLY TAXES:
If you are self employed you will be required to pay quarterly taxes. If you have
ever owed taxes at the end of any given year you will be required to file a form
and pay an estimated amount of what you think you will owe the IRS at the end of
the tax year. Due Dates for 2004: 4/14/ 6/15/ 9/15 and 1/15/05. This tax is based
on your year to date (YTD) profit through the month PRIOR to the due date.
Example: 6/15 estimated tax, is through 05/31st. The only exceptions to having to
pay this quarterly tax is if you did not show a profit on the prior year's return or if
you are in a declared disaster area.
TANGIBLE TAX:
This is a tax assessed by your county appraisers office and is paid yearly on your
business property in counties where applicable.
In Palm Beach County Florida for instance, you would charge .06% on certain
merchandise sales. Certain items such as vitamins and minerals are exempt from
sales tax in Florida. There are areas in the state where sales tax is higher than
others. There is no state sales tax on services such as massage therapy or
vitamins and certain food products in Florida, TN has no sales tax on the service
of massage therapy but does on Vitamins and food products. However, in some
states there is a tax on services such as massage therapy. Ohio recently initiated
such a law. Massage Therapy services, when not prescribed as medically
necessary, are now a taxable service in Ohio. Check your state to see if there is a
tax on services. And if so, what services.
If you hear of such a bill being brought before legislation in your state, get the
troops together and fight like hell against it, this is what we successfully did in
Florida, you can do it too!
INTANGIBLE TAX:
When and where applicable, this tax is assessed on non-tangible property such as
1/3 your account’s receivable in Florida for this year and goes to 0 in the year
2001. Be sure to check with your accountant or CPA for up to date information
specific for the year, your state or area.
FUTA:
FEDERAL UNEMPLOYMENT TAX ASSESSMENT
This tax is paid and reported at the end of the year. This amount varies with
conditions and situations. The only thing constant is that it is taxed only on the
first $7,000 of gross wages.
FORM 8109:
Federal Tax Deposit Coupon. Remit quarterly deposits of Federal Unemployment
Tax. (Employer’s Quarterly Deposits for FUTA).
FORM 940:
Report annual liability for Federal Unemployment Taxes by filing Employer's
Annual Federal Unemployment FUTA Tax Return
I-9 FORM:
This is the form used to establish legal US residency. This is required by
Immigration/the Justice Department for employee’s right to work in the US.
Sometimes two, or three forms of ID need to be provided to the employer.
These taxes are due four times a year, April 15th, June 15th, Sept. 15th, and January
15th and are filed using IRS FORM 1040-ES. If, after taking all your deductions,
exemptions, and credits, you don't think you will owe any more than $1,000 on
April 15 on top of what you've already paid in taxes for the year, then you're not
required to pay estimated taxes. If you did not show a profit in the previous year,
you do not owe estimated taxes. (Or if you are in a declared disaster area).
1120S FORM:
Form used to file your yearly taxes when you have incorporated using the Sub
Chapter S status.
7004 FORM:
Application for Automatic Extension to File Corp Tax Return
For 2003 years end, the forms are due by January 31st 2004. Filing this form
notifies the IRS of amounts paid and withholdings from each vendor, contractor or
other services provided. As an independent contractor, you need to be sure you
have received this from the one hiring your services. To not have this form does
not relieve you from your tax responsibilities as an independent contractor.
W-9: You will give a W-9 Form to those vendors who will most likely be earning
over $600.00 in the year. They must complete and return to you. Do NOT send
this form to the IRS. You will need this form when filling out the 1099's.
Check with your CPA, accountant or local IRS office to be sure you are in
compliance of all taxes and tax related issues. You may also find out a lot by
going to www.google.com and type in the search window, IRS or Taxes etc..
MORE TAX INFORMATION
You may benefit when you obtain equipment that can give you a tax credit.
An example may be an electric massage table that can be used for the
handicapped or disabled, because it may qualify under the ADA. Ask your
accountant. Also, ask the person who sells the equipment to provide you the
paperwork to turn into the IRS for such a credit. An example would be Jim
Craft from Comfort Craft for his Comfort Craft Tables.
TAXABLE EARNED INCOME
CREDIT CARD CHARGES (IF you accept credit cards for payment)
CASH
CHECKS
DIVIDENDS
Always be sure to hire an accountant or CPA but never just trust them
without knowing something about taxes yourself.
Below are some, but surely not all, of the deductions you may be able to
deduct.
ACCOUNTING
ANSWERING SERVICE
CHARITY
COMMISSIONS
DUES
DECORATIONS
DEPRECIATION
EDUCATION
EQUIPMENT
ELECTRIC
EMPLOYEE LOAN
ENTERTAINMENT
FURNITURE
FREIGHT
IRA CONTRIBUTIONS
LABOR COSTS: (When using a leasing agency you would write one
check to cover the gross pay for all of your employees, such as FICA,
Medicare, SUTA, FUTA, Workers’ Compensation, group health, etc. and
it is all deducted under one category of LABOR COSTS. Also included
here will be the administration fee charged by the leasing agency.
LATE FEES
LAUNDRY
LEASE, i.e., office space, phone system, security, credit card machines,
etc.
LOANS
MEALS
MILEAGE
MISCELLANEOUS
OFFICE SUPPLIES
OFFICE EXPENSES
PAYROLL: (If you do not use an employee leasing agency,) FICA, FUTA,
MEDICARE, SDI, SUI, GROSS PAY, GROUP INSURANCE, FLEX SPENDING
ACCOUNTS, 401K ‘s and a multitude of other possible deductions.
POSTAGE
PRINTING AND COPYING
REFRESHMENTS
RECREATION
REIMBURSEMENTS
RENT
RETURNS
STORAGE
SUPPLIES: linens, oils, lotions, files, folders, CD’S, tapes, etc. etc.
SUBSCRIPTIONS
TAX PREPARATION
TRANSFER FUNDS
UTILITIES: Water, gas, electric, (electric can be under it’s own category
of electric.)
The IRS Requests a code on your tax return to identify your profession
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Code Sec. 162 (a) allows for ordinary & necessary business expenses incurred
during the taxable year in carrying on a trade or business. Generally, a
taxpayer must establish that the deductions are ordinary & necessary
business expenses and must maintain records sufficient to substantiate the
amounts of the deductions claimed.
Certain business expenses specified in Code Sec. 274 (d) require more
stringent substantiation. This section disallows deductions for traveling
expenses, gifts, meals and entertainment as well as for "listed property"
unless the taxpayer substantiates by adequate records or by sufficient
evidence corroborating the taxpayers own statements the:
If you are not pleased with your accountant or CPA don’t hesitate to make a
change before you get in too deep or you let your tax related information get
beyond your basic control.
If you will learn as much as you can about taxes yourself you will find it easier
to work with your accountant, providing him or her with what is needed and
in a much more orderly fashion.
TAX QUESTIONS
True/False Question
1. Three deductions beginning with “E” are:
Education Everything Entertainment
True
False
True/False Question
2. Three deductions beginning with “A” are:
Auto Advertising Accounting
True
False
True/False Question
3. Three deductions beginning with “L” are:
Legal Fees Licenses Labor Costs
True
False
True/False Question
4. Three deductions beginning with “T” are:
Taxes Telephone Travel
True
False
True/False Question
5. You can spend your money wisely to help to prevent paying taxes to the IRS by
investing in a Computer, Massage Table (s) and / or Education?
True
False
True/False Question
6. Self- Employment Tax is the tax your employer pays into the IRS on your behalf.
True
False
True/False Question
7. Sales tax is a state tax assessed on sale of certain merchandise and / or
services in some states, while not in others?
True
False
True/False Question
8. F U T A is the employer’s portion or half of the employee’s taxes on certain
wages?
True
False
True/False Question
9. If you are an independent contractor, the form you should receive from the one
hiring your services, if the amount paid in the year is over $600.00, is called a
MISC. 1099 Form?
True
False
True/False Question
10. A Schedule “C” is used for reporting your business expenses and show
business related losses or gains.
True
False
Answer 1 Schedule SE
Answer 2 Schedule C
Answer 3 1120 Form
Answer 4 W4 Form
True/False Question
12. An Employee fills out a W4 Form when they apply for a position with you?
True
False
True/False Question
13. Mileage cannot be deducted from your home to your first business related
stop?
True
False
True/False Question
14. Sub Chapter S Corporations must file an 1120s Form
True
False
True/False Question
15. Normally taxes are due on April 15th, however you may delay PAYING your
taxes until October at the latest without penalty?
True
False
True/False Question
16. You do not have to report cash received for your massage services?
True
False
True/False Question
17. Checks received from insurance companies are classified as income?
True
False
True/False Question
18. The IRS rules are sometimes not the same as those for state & local rules.
True
False
True/False Question
19. Gifts can be deducted up to a limit of $75.00 each?
True
False
True/False Question
20. Under certain circumstances, when you are self employed you must pay
quarterly estimated taxes?
True
False