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    Income Tax Law for Start-Up Businesses: An Overview of Business Entities and Income Tax Law
    Income Tax Law for Start-Up Businesses: An Overview of Business Entities and Income Tax Law
    Income Tax Law for Start-Up Businesses: An Overview of Business Entities and Income Tax Law
    Ebook152 pages1 hour

    Income Tax Law for Start-Up Businesses: An Overview of Business Entities and Income Tax Law

    By Michael Gill

    3.5/5

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    About this ebook

    This book is a must-read for entrepreneurs and new business owners. Income tax law can be complicated and overwhelming, and business owners may not be aware of the essential steps they need to take to comply with tax law. The author offers a straightforward overview of income tax terms and principles that business owners should be aware of in order to minimize income taxes, such as the different types of business entities, rules for deducting business expenses, home office deductions, passive activity income, and payroll taxes.

    Starting a business requires so much more than a great idea; there are a number of critical legal and tax-related decisions that will need to be made. As a business owner or executive, the choices you make could impact the bottom line. In this book, you will find practical tax tips as well as useful examples to help illustrate significant tax principles. Author Michael Gill is a certified public accountant and attorney with decades of experience in helping start-up businesses comply with federal and state tax laws and minimize income taxes.

    LanguageEnglish
    PublisherMichael Gill
    Release dateDec 5, 2012
    ISBN9781937698836
    Income Tax Law for Start-Up Businesses: An Overview of Business Entities and Income Tax Law

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    Book preview

    Income Tax Law for Start-Up Businesses - Michael Gill

    Special Smashwords Edition

    Income Tax Law for Start-up Businesses

    An Overview of Business Entities and Income Tax Law

    by

    Michael M. Gill

    J.D., CPA

    Income Tax Law for Start-Up Businesses: An Overview of Business Entities and Income Tax Law

    Special Smashwords Edition

    This eBook is licensed for your personal enjoyment only. This eBook may not be re-sold or given away to other people. If you’re reading this eBook and did not purchase it, or it was not purchased for your use only, then you should return it and purchase your own copy. Thank you for respecting the hard work of the author.

    Copyright © 2012 by Michael M. Gill. All rights reserved, including the right to reproduce this book, or portions thereof, in any form. No part of this text may be reproduced, transmitted, downloaded, decompiled, reverse engineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical without the express written permission of the author. The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrighted materials.

    The publisher does not have any control over and does not assume any responsibility for author or third-party websites or their content.

    Cover designed by Telemachus Press, LLC

    Cover art

    Copyright © Thinkstock/Hemera/101804879

    Published by Telemachus Press, LLC at Smashwords

    http://www.smashwords.com

    http://www.telemachuspress.com

    ISBN # 978-1-937698-83-6 (eBook)

    Version 2012.11.13

    Income Tax Law for Start-up Businesses

    An Overview of Business Entities and Income Tax Law

    Introduction

    If you are reading this, chances are that you have a great idea that you would like to turn into a business. However, as you are aware, starting a business requires much more than just an idea.

    There are a number of issues that need to be considered. How much initial funding will you require? Where will the business be located? How many employees will you need in the beginning stages? How will you promote the business? These questions should be given considerable thought before opening for business.

    There are also a number of legal and tax-related decisions that need to be made, such as determining which type of entity is best for the business. New business owners will also need to learn a few basic income tax rules in order to minimize income taxes.

    This book is intended to be an easy-to-understand overview of federal income tax rules for new businesses. Although I cannot cover every income tax rule applicable to start-ups, I will try to explain a few important principles that every new business owner should be aware of.

    While I will try to be as accurate as possible, this book is not designed to provide legal advice. If you have any questions regarding income tax law pertaining to your specific situation, I strongly recommend consulting with a qualified tax professional.

    TABLE OF CONTENTS

    Income Tax Law for Start-up Businesses:

    An Overview of Business Entities and Income Tax Law

    Introduction

    PART I. CHOICE OF ENTITY

    CHAPTER 1. SOLE PROPRIETORSHIPS

    A. Formation

    B. Liability

    C. Taxation of Sole Proprietorships

    D. Individual Income Tax Rates

    E. Individual Estimated Tax Payments

    (1) Quarterly Installment Payments

    (2) When to Pay Installments

    F. Business Licenses and Permits

    G. Fictitious Business Names

    CHAPTER 2. CORPORATIONS

    A. Introduction

    B. Selecting the Incorporation State

    C. Naming the Corporation

    D. Articles of Incorporation

    (1) Authorized Number of Shares

    (2) Common Stock

    (3) Preferred Stock

    (4) Registered Agent

    (5) Incorporator

    E. Adoption of Corporation Bylaws

    F. Corporation Shares

    (1) Par Value

    (2) Market Value

    (3) Shares Issued for Past Services

    G. Limited Liability for Corporate Shareholders

    (1) Limited Liability Rule Protects Shareholders

    (2) Exception - Alter Ego Theory

    H. Corporate Structure

    (1) Shareholders

    (2) Board of Directors

    (3) Officers

    I. Your Role When You Sign

    J. Taxation of C Corporations

    (1) Introduction

    (2) Estimated Tax Payments

    (3) Double Taxation

    K. Taxation of S Corporations

    (1) One Level of Taxation

    (2) Profit Distributions by S Corporations

    (3) S Corporation Election

    (4) Eligibility for S Election

    (5) S Corporation Status is for Tax Purposes Only

    L. Corporate Tax Return Due Date

    M. Organizational Expenditures

    CHAPTER 3. PARTNERSHIPS

    A. Partnership Defined

    B. General Partnerships v. Limited Partnerships

    C. Forming a General Partnership

    (1) Partnership Name

    (2) Division of Partnership Interest

    (3) Fictitious Business Name Filing

    D. Forming a Limited Partnership

    E. Partnership Management by General Partners

    F. Unlimited Liability for General Partners

    G. Limited Liability for Limited Partners

    H. Partnership Taxation

    (1) Partnership as a Pass-through Entity

    (2) Due Dates of Partnership Income Tax Returns

    (3) Organization and Syndication Costs

    CHAPTER 4. FAMILY LIMITED PARTNERSHIPS

    A. Introduction

    B. Entities as General Partners

    C. Value Discount Benefits

    D. Asset Protection Benefits

    CHAPTER 5. LIMITED LIABILITY COMPANIES

    A. Introduction

    B. Organizing an LLC

    C. Taxation of Limited Liability Companies

    (1) Single Member LLCs (SMLLC)

    (2) Multiple Member LLCs

    D. Limited Liability Companies v. S Corporations

    PART II. INCOME TAX LAW

    CHAPTER 6. TAX ACCOUNTING

    A. Introduction

    B. Accounting Methods

    C. Cash Basis Accounting

    D. Accrual Basis Accounting

    (1) Income Recognition

    (2) Expense Recognition

    (3) When to Use Accrual Basis Accounting

    E. Net Income v. Taxable Income

    F. Tax Year

    (1) Individuals

    (2) Partnerships and LLCs

    (3) C Corporations

    (4) S Corporations

    G. How Long to Keep Your Records

    H. Cash Transaction Reporting Requirement

    (1) Introduction

    (2) Reporting Requirement

    (3) Penalties

    CHAPTER 7. INCOME

    A. Income Subject to Income Tax

    B. Income Exempt from Income Tax

    C. Income Tax Terminology

    (1) Gross Income

    (2) Adjusted Gross Income

    (3) Taxable Income

    D. Accounting Terminology

    (1) Gross Revenue

    (2) Net Income

    E. Capital Gains and Losses

    (1) Definition of Capital Asset

    (2) Holding Period

    (3) Calculating Long Term and Short Term Gains and Losses - Individuals

    (4) Calculating Long Term and Short Term Gains and Losses - Corporations

    CHAPTER 8. DEDUCTION PRINCIPLES AND TIMING

    A. Tax Benefits of Business Expenses

    B. Ordinary and Necessary Requirement

    C. Expenses Must Be Related to Your Business

    D. Timing of Business Expense Deductions

    (1) Deduction in the Year Incurred

    (2) Capitalized and Deducted over a Period of Years

    (3) Capitalized and Deducted upon Disposition

    (4) Tax Basis

    (5) Timing of Expenses

    (6) Non-Deductible Expenses

    CHAPTER 9. SELECT BUSINESS EXPENSES

    A. Start-up Expenditures

    (1) Start-up Expenditures for Creating a New Trade or Business

    (2) Start-up Expenditures for the Acquisition of an Active Trade or Business

    (3) Tax Treatment of Start-up Expenditures

    (4) What if No Actual Business Results?

    (5) Costs Incurred in an Attempt to Purchase

    B. Salaries and Wages

    (1) General Rule

    (2) Unreasonable Amount of Salary

    C. Employee Bonuses

    D. Compensation to Independent Contractors

    E. Advertising and Promotion Costs

    F. Costs of Inventory

    (1) Inventory

    (2) Cost of Goods Sold

    (3) Inventory Costing Methods - Specific Identification Method

    (4) Inventory Costing Methods - First-In, First-Out (FIFO) Method

    (5) Inventory Costing Methods—Last-In, First-Out (LIFO) Method

    (6) Which Method is Best?

    G. Insurance Premiums

    (1) Life Insurance Costs

    (2) Business Health Insurance Costs

    (3) Automobile Insurance Costs

    (4) Business Insurance Costs

    H. Transportation Expenses

    (1) Commuting Expenses

    (2) Automobile Business Expenses

    (3) Keeping Good Records

    (4) Standard Mileage Rate v. Actual Expenses

    (5) Standard Mileage Rate for 2011 and 2012

    (6) Standard Mileage Rate Not Allowed

    (7) Actual Vehicle Expense Method

    I. Business Travel Expenses

    (1) Business Related Travel Expenses

    (2) Tax Home

    (3) Temporary Assignment Away from Home

    (4) Combining Business and Pleasure Travel Within the U.S.

    (5) Foreign Travel for Both Business and Pleasure

    J. Domestic Convention Expenses

    K. Foreign Convention Expenses

    L. Cruise Ship Conventions

    M. Entertainment Expenses

    (1) General Rule

    (2) Exceptions to the 50% Limitation

    (3) Record Keeping

    N. Membership Dues

    O. Repair v. Improvement

    P. Net Operating Losses

    Q. Hobby Expenditures

    CHAPTER 10. DEPRECIATION AND AMORTIZATION

    A. What Type of Property is Depreciable?

    (1) Personal Property

    (2) Real Property

    (3) Non-Depreciable Property

    B. Depreciation Methods

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