Business Tax

1. Sole Proprietor (Single Member LLC)

• No State filing required

• Income tax filing in Schedule C of Form 1040  (business income pass-through to individual income tax)

2. S-Corporation

• State filing required

• Income tax filing in Form 1120-S  (business income pass-through to individual income tax)

3. Corporation

• State filing required

• Income tax filing in Form 1120  (the company pays its own taxes, independent from the shareholders)

4. General Partnership

• No Stating filing required

• Income tax filing only for informational purposes through Form 1065  

• Business income pass-through to individual income tax in Schedule K-1 issued to each Partner

5. Limited Partnership (LLP)

• Stating filing required

• Income tax filing only for informational purposes through Form 1065  

• Business income pass-through to individual income tax in Schedule K-1 issued to each Partner

6. Limited Liability Company (LLC)

• Stating filing required

• Income tax filing only for informational purposes through Form 1065  

• Business income pass-through to individual income tax in Schedule K-1 issued to each Partner

The expenses that you cannot deduct from your business income are:

• salaries to sole proprietors (for Sole Proprietorships)

• unreasonable compensations

• federal tax paid

• fines, tickets, and kickbacks paid

• charitable contributions (for Sole Proprietorships)

• personal expenses paid with business income

• Estimated expenses (bad debts, warranties, contingent liabilities)

• prepaid rent

• entertainment expenses (after Tax Jobs and Cuts Act)

• costs associated with stock offerings

• dividends paid to shareholders

Cash Basis of Accounting recognizes revenue and expenses wheh they are actually received or paid. This means when the money actually gets in or out of your bank account.

On the other hand, Accrual basis recognizes revenues and expenses when the transaction occurs, regardless if the money have been received or dispensed. 

Let's see the following example: 

Company A is a wholesale company.  Customer X buys 10 pallets of shoes for $20.00 on day 1 that it will paid on day 10.

Under the Cash method, the $20.00 are recorded in your books on day 10, when the money actually is received in your bank account. On day 10, your revenue is $20.00. Before that day, your revenue os $0

Under the Accrual method, the $20.00 are recorded in your books on day 1 as a receivable from Customer X, eventhoug the money is not in your bank account yet. On day 1, your revenue is $20.00.

You may be able to deduct from your corporate tax return charitable contributions made to qualified organizations up to 10% of your taxable income, but...

The following contributions cannot be deducted:

• to individuals

• to political organizations or candidates

• the value of your time or services in charity

• cost of games of chance (raffle, bingo, etc.)

All cash contributions with a value of $250 or more, and all non-cash contributions with a value of $500 or more must have supporting documentation, like bank records, a receipt, a letter or written communication from the donee organization. For non-cash contribution with a value of $5,000 or more, Form 8283 must be filed with the IRS

Finally, the good news is that if your charitable contributions exceed the 10% limitation, they can be carried over for five years

To identified if an organization is considered a qualified organization for charitable contributions deduction, you may click here 

The simpler way to put this is:

Depreciation expense is the depreciation for the current year you are taking in your books and it goes to you Income Expense as an operating expense reducing your profit.

On the other hand, Accumulated Depreciation is the sum of current and previous years depreciation expense and it goes to your Balance Sheet reducing the net book value of your asset.

We recommend to record assets individually in your books and track their depreciation expense and accumulated depreciation in the same way.

Form 1099-NEC (Non-Employee Compensation) is an Information Return that you should file with the IRS if all of the following apply:

• you made a payment of more than $600.00

• for services to your company

• to an individual who is not your employee or,

• to another business that is not incorporated or that provided medical or legal services