small business taxes for the U.S.

[esantoro]

I met with an accountant today. Does it sound about right to pay $150 quarterly for his help?

Thanks,

Ed

[esantoro]

Ed,

Not sure if I shared this one with you before. There is a CPA named Bernard Kamaroff who has written a few books on small businesses. I was steered by my advisor to "Small Time Operator - How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble". I would recommend it. I see he also has some new ones, one is "422 Tax Deductions for Businesses and the Self-Employed". Now that sounds interesting too. He writes in a pretty easy to follow style.

These books are great, Bruce. Thanks.

The Nolo Press books are good, too, but these books walk you thorough more details in a manner where you feel much more informed. The Nolo Press books, on the other hand, seem to make it all a bit too simple.

Ed

[esantoro]

Another question just occurred to me.

I have a day job, from which I get a W-2. I've never itemized personal deductions but have always taken the standard deductions. Will my itemized business deductions for 2008 be added to my standard personal deduction, or do I not get that standard deduction once I choose to itemize deductions?

Ed

[esantoro]

I'm a little worried about the accountant I talked to. It seems that what I need is an account who knows the ins and outs of schedule C. The guy I talked to told me that I don't want to mess with Schedule C, which flies in the face of all I've been reading the past two weeks.

He also didn't seem very responsive about a method allowing me to deduct all my startup costs prior to 2008. In fact, it seems that I may already know more about this than he does.

1. Count all my rivets, glue, dyes, leather, thread, machine oil, etc. as inventory. Any inventory on hand prior to my first business year is simply added to starting inventory for 2008. I can estimate how much of what is used on each bag and deduct that from my inventory. This will give me my costs of goods sold.

It doesn't seem like I'm able to deduct rivets, glue, dyes, leather, thread, machine oil, etc. all at ounce, because it may take me three years to use it all up.

Anyone know how to list the individual items for inventory in Quicken?

Thanks,

Ed

[esantoro]

Thanks, again, for all the help in this thread. I just found a thread over at Etsy where everyone is stressing over this stuff. I'll go bug them for a while. I will post the resulting PDF of collected informative posts and links later.

Ed

[David Genadek]

I'm a little worried about the accountant I talked to. It seems that what I need is an account who knows the ins and outs of schedule C. The guy I talked to told me that I don't want to mess with Schedule C, which flies in the face of all I've been reading the past two weeks.

He also didn't seem very responsive about a method allowing me to deduct all my startup costs prior to 2008. In fact, it seems that I may already know more about this than he does.

1. Count all my rivets, glue, dyes, leather, thread, machine oil, etc. as inventory. Any inventory on hand prior to my first business year is simply added to starting inventory for 2008. I can estimate how much of what is used on each bag and deduct that from my inventory. This will give me my costs of goods sold.

It doesn't seem like I'm able to deduct rivets, glue, dyes, leather, thread, machine oil, etc. all at ounce, because it may take me three years to use it all up.

Anyone know how to list the individual items for inventory in Quicken?

Thanks,

Ed

Ed,

You can do it however you want but if you start out with your supplies as inventory then they will need to stay as inventory. If you decide to change you will have to let the IRS know you did. I would not waste time counting rivets dye and glue. I have in the past now I see it as a waste it didn't help anything.

The thing you have to keep in mind is everyones situation is different and if someone isn't looking at your whole situation thier advice doesn't mean diddle. It would be wrong of anyone to judge your accountant as not knowing with out knowing the whole situation. It may be your situation doesn't warrant a schedule C. You have to look at which type of business you are setting up as too. You can always go talk to a few other accountants ad get more opinions. The one who is trying to keep it simple is the one I would listen to. It sounds like he wants to keep you on a strickly cash basis and there is nothing wrong with that. You can change it as the business grows.

Quicken is for a home based business and is for cash accounting I don't beleave it has any inventory capabilities. I use quicken home and busness for my personal stuff ,Quickbooks Mfg eddition for my saddle and tree company and Quickbooks for another business.

$150.00 a quarter is very reasonable.

David Genadek

[esantoro]

I don't want to count them either. Could I also count leather as supplies, or should I count it as inventory, which is what I know you do? If I count leather as inventory, it would be easier, and my profit/loss statements would be more in line with what the gov wants to see in the early years of my accounting.

Ed

[David Genadek]

I don't want to count them either. Could I also count leather as supplies, or should I count it as inventory, which is what I know you do? If I count leather as inventory, it would be easier, and my profit/loss statements would be more in line with what the gov wants to see in the early years of my accounting.

Ed

Ed,

That is a personal choice. If you want to go on a strickly cash basis, sure might be the way to go and it sounds like that is what the accountant is advising. To me it would depend on how much you were tying up in leather. If you only have a few thoushand dollars worth of hides in at a time then I would just go on a cash basis and make your life simple.

David Genadek

[David Genadek]

Ed,

You may find the work of Eliyahu M. Goldratt useful. He has something called the theory of constraints which is of great use to a small company because it teaches you to focus on through put. His take on inventory is a bit different and I have found it very helpful. Some times it makes more sense to buy less at a more expensive cost but use it quicker although it won't show that you have as large an asset base you will actually be generating more profit. His book The Goal is a good read that delivers some powerful concepts in way a non accountant can understand.

David Genadek

[esantoro]

Have any of you heard of a tax break for domestic manufacturers? There is some mention of such in Kamoroff's "Small Time Business Operator."

Ed

[gtwister09]

Ed,

You may find the work of Eliyahu M. Goldratt useful. He has something called the theory of constraints which is of great use to a small company because it teaches you to focus on through put. His take on inventory is a bit different and I have found it very helpful. Some times it makes more sense to buy less at a more expensive cost but use it quicker although it won't show that you have as large an asset base you will actually be generating more profit. His book The Goal is a good read that delivers some powerful concepts in way a non accountant can understand.

David Genadek

There was almost a cult following around his book in the late 1980's (1986-89).

I don't mean to be combative but here is a little different perspective on the book.... I thought that it was interesting but shallow in technique/methodology.

Some find this book OK and informative but most manufacturing and process personnel (engineers, managers, cost center directors and such) chuckled at his moving the bottleneck from one area to another area. They found his TOC (Theory of Constraints) to be severely lacking in total focus on issues such as manufacturing techniques, quality, etc. He was hyper focusing on one aspect of the business and just pushing his issue around the shop. Most reviews by these people were." that it was an interesting read in a fictional setting. That's a different approach. in presenting a technique" Most believed that the mistakes he made were "junior mistakes" That was 1989! Since that time he has tried to integrate other continuous improvement methodologies into TOC. In fact you notice on his web site that fact is borne out by the statement "......advantages of integration with Lean and Six Sigma (LSS) methodologies to achieve continuous system improvement."

Most of us were well versed and had experience/training in most TQC techniques (Total Quality Control) such as Deming, Juran, Crosby, Six Sigma, root cause analysis like Pareto, fish bone and the list goes on. Most had additional education, training and direct experience in manufacturing environments in areas such as inventory management, production control, work cells/organizational designs, CAD/CAM, Business Process Engineering (BPR).

From this group's perspective this was a feeble effort at a continuous improvement project.

Regards,

Ben

[CitizenKate]

Itemized vs. Standard deduction is either/or. You take one or the other. That is fairly clear in the instructions.

Kate

Another question just occurred to me.

I have a day job, from which I get a W-2. I've never itemized personal deductions but have always taken the standard deductions. Will my itemized business deductions for 2008 be added to my standard personal deduction, or do I not get that standard deduction once I choose to itemize deductions?

Ed

[Srigs]

Itemized vs. Standard deduction is either/or. You take one or the other. That is fairly clear in the instructions.

Kate

You should do Itemized deductions. I did even before I started my business. Now it is manditory IMHO.

If you have a concern do the taxes both ways and you will see.

[Go2Tex]

Your schedule C will be figured for the business whether you itemize or not. Any taxable income from your business will be added to your total taxable income. If you then have less deductions than the amount of the standard deduction, you'll take the standard.

One little known surprise comes down the road in the form of capital gains from the sale of your home when you take the home office deduction for your business. Yeah, nobody tells you that. Here you are taking that couple hundred bucks deduction for that 8 or 10 percent of space you use in your home. Then, you sell your home and make a nice big profit from the equity that has built up over the years and the tax man is standing there with his greedy mitts open at tax time.

Normally you wouldn't pay capital gains on your home unless its up in the millions, I believe, but the business gets hit! So, unless that home office deduction is really big, don't bother.

And, about that glue and rivets and dye issue come inventory time..... I use a scale and just weigh it and make the convertion to figure the value of what I have left of each.

[ShirleyT]

Great dialogue - informative and clearly tested.

So, what y'all have to say about structure - Individual, Partnership, LLC. S-corp, C-corp etc.??

[Art]

Hi Shirley,

It varies depending on individual situation. If you can, structure your business as a sole proprietorship and hold all assets (except the business itself) with someone unrelated to the business in any way as tenants by the entireties. Lease everything from your T by E relationship. You need a lawyer to set it up, it's called "Judgment Proof". This is really necessary if you are doing something that can have liability issues. You need to be "Judgment Proof" even if you are a corporation; a simple, or even complex corporation cannot shield you from liability. In some states (like my state) there is a $600 yearly filing fee for corporations, used to be just certain corps or PCs or LLCs, but they have finally extended it to every entity except individual or fiduciary (Charity) relationships. State doesn't have and never will have enough money, they want yours.

Art

Great dialogue - informative and clearly tested.

So, what y'all have to say about structure - Individual, Partnership, LLC. S-corp, C-corp etc.??

[esantoro]

I've gotten some contradictory information elsewhere:

All business activity is done up on the schedule C, itemized business deductions included. For the rest of my 1040 I can take either the personal deduction or itemize the personal deductions, whichever is higher.

Does this make any sense, relative to what has already been posted in this thread?

Ed

[esantoro]

I'll look it up in the books I have, but I thought I'd ask anyway.

Is there a particular form to file if you want to defer some of your deductions for future years when you anticipate higher income?

Another question:

Say that on your 2008 return, you defer $2000 of deductions for the 2009 year, could you then just add that $2000 into your 2009 deductions and from that lump sum decide how much you want to defer to a later year after 2009?

To ask this question another way, If you defer $2000 from 2008 to 2009, are you locked into taking that deduction in 2009, or, depending on 2009 finances, could you again defer part or all of that $2000 to a year in the future after 2009?

Thanks,

Ed

[esantoro]

Found it:

Net Operating Loss:

You can use a year's net operating losses to offset income in future years. You may carry these losses forward to as many as 20 future years. You also have the option of carrying back losses to the previous two years.

Instructions are found in IRS Publication #536

information from "422 Tax Deductions" by Bernard Kamoroff, C.P.A.

Ed