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2 Posts authored by: Ebong Eka

There are three letters that can make small business owners tremble…. IRS. The reality is the Internal Ebong Eka Headshot.pngRevenue Service has a job to do, just like you have a job to do for your small business.

 

As we approach Tax Day, it is important to use available tools to minimize your small business tax liability. As a CPA who has worked with many small businesses, I receive a lot of questions about how to save money while remaining compliant with the IRS.

 

CLICK HERE TO READ MORE ARTICLES FROM SMALL BUSINESS EXPERT EBONG EKA

 

If you are a self-employed small business owner, here are five ideas to help you prepare and are IRS approved.

 

1. Estimated taxes: Self-employed taxpayers are generally required to make estimated payments throughout the year. If you're not compliant with making estimated payments, you may be subject to an ‘underpayment tax penalty.’

 

The questions then become:

     a. How do I make tax payments?

     b. How do I calculate those tax payments?

 

First, making tax payments or estimated tax payments is relatively easy. Speak with your personal tax accountant, CPA, or enrolled agent to help you make payments online. Your tax professional will also be able to help you calculate your estimated taxes for each quarter.

 

RELATED: THE 5 SMALL BUSINESS TAX PLANNING TIPS EVERY SMALL BUSINESS OWNER SHOULD KNOW

 

2. Schedule C or Schedule C-EZ? You may be required to file Form Schedule C, Profit or Loss from Business, depending on the type of business you have. If you are a single member LLC, a different entity but taxed as a single member LLC or a sole proprietorship, your income from self-employment is reported on Schedule C of your personal tax return.

 

You may be eligible to use Schedule C-EZ, which is a simpler form if your business expenses are less than $5,000. Check with your CPA because your circumstances and facts may differ.

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3. Paying Self-employment tax: Self-employment tax is similar to payroll taxes for certain self-employed business owners and includes Medicare taxes and Social Security. The IRS generally requires you pay based on self-employment income. I have seen examples of small business owners having issues with the IRS because they did not realize they had to pay self-employment tax. Whether you are subject to self-employment tax depends on your situation, the type of entity that you have and the character of the income you generated. Speak with your tax advisor or CPA to determine if you are subject to self-employment tax.

 

4. What are my allowable deductions? Small business taxpayers can deduct expenses they paid to run their business that are both ordinary and necessary. An “ordinary expense” is one that is common and accepted in the industry. For example, a printer, computer or other items used in the normal course of business. A “necessary expense” is an expense that is helpful and appropriate for your trade or business, such as a particular type of paper used for proposals. Keep track of your receipts and organize them for your accountant, CPA or tax preparer.

 

5. Sole proprietors or independent contractors: Sole proprietors and independent contractors are two types of self-employed entities but similar in many cases. Taxes for those two can be very difficult if you do not plan ahead. An independent contractor is a person who works for themselves, but may not necessarily have a separate business entity in order to conduct business. Sole proprietors in many cases have a separate business entity or a “doing business as” (DBA). Additionally, independent contractors will receive Form 1099 from clients or whoever they provided services to.

 

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

 

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

 

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

 

Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

                                                                             

Bank of America, N.A. Member FDIC.  ©2017 Bank of America Corporation

The beginning of the year always brings the need for business planning and small business owners should also focus on sound tax strategies. The last thing you want to do is miss out on tax deductions that could lead to more money in your bank account. 

 

Available strategies can save time and money and because President Trump said comprehensive tax reform is a priority for the new administration, there are opportunities to plan ahead.

 

Here are the top five small business tax planning tips you need to know:Ebong Eka Headshot.png

1. Get Organized – Now!

Many small businesses owners do their own accounting instead of hiring a bookkeeper. As a result, it is easy to let organization fall through the cracks. Compile all the documents you receive throughout the year: bank statements, credit card statements, invoices, and form 1099's, as an example.

Being organized lets you track your expenses better. The IRS allows you to deduct your business expenses that are ordinary and necessary. The IRS also requires you to keep track of those expenses and document receipts. If you use an accountant, CPA, or enrolled agent, ask what he or she can do to help you start organizing. They may be able to provide you with an organizing worksheet for your expenses.

2. Give to Charity and Get a Tax Deduction

You can take a tax deduction for items and cash you donate to IRS approved charities. You can confirm if the charitable organization is IRS approved by searching the IRS website. If you donate cash, make sure you keep the receipts you receive from the charity in the event the IRS asks for them. You can also donate items like clothing, household goods, furniture, stocks and even a car. Your deduction is limited to the fair market value of the items and they must be in good condition in order to be deductible. If the non-cash items have a value greater than $500, you have to file a separate form.

Click here for more tips for tax season

3. Use Your Home Office Deduction

Many small businesses work remotely and in many cases, from home. You may be able to take the home office deduction on your tax return this year. The home office deduction is important, because it allows you to take a deduction for the space you use in your home for your small business’s office.

Before you rush to take the deduction, however, there are a few IRS requirements you need to meet to be eligible for the deduction.

     a.     Regular and Exclusive Use – According to the IRS, you must regularly use part of your home exclusively for conducting business.

     b.     Principal Place of Business – You must show that your home is your principal place of business. In other words, you must conduct business in your home.

 

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To determine the deduction, you can either use the simple formula or the regular formula. The simplified method makes it easier for small business owners to calculate and allocate expenses for the deduction. Consult your tax professional to discuss the best method to use for your business.

Related article: How Technology Can Help Small Business Owners Better Manage Cash Flow

4. Maximize Your Retirement Plans

Start planning your retirement contributions now. You can generally deduct contributions to your retirement plans from your income which reduces your taxes. There are several options for retirement plans and each plan has its own pros and cons. Here are several options:

     a.     Simple IRA

     b.     Simplified Employee Pension (SEP IRA)

     c.     Defined Benefit Plan

     d.     Solo 401(k)

     e.     Consult your financial advisors to determine the best fit for your situation.

 

5. Major Purchases? Take the Section 179 Depreciation deduction

The IRS allows you to take a tax deduction for the complete cost of certain purchases you made throughout the year instead of depreciating it over the useful life of the property. There are certain limitations and requirements that you have to meet in order to eligible for the deduction. The deduction limit can be as high as $500,000 in one year, so it’s worth investigating.

For example, you may want to purchase equipment for your T-shirt printing business that has a value of $300,000 and useful life of 10 years. Using Section 179, you can deduct the full amount of $300,000 for the year you purchased the equipment. Without Section 179, you could only deduct $30,000 every year for 10 years. That is a huge tax deduction – so plan to make large purchases this year.

One more thing: In addition to these planning tips, the Trump administration is focused on cutting income tax rates across the board, which can potentially help small businesses. With the extra money you may potentially save, you can invest more into growing and expanding your business.

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

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