TAX PLANNING
FOR BUSINESS OWNERS
FOR 2013
BY
CHRIS D. BREEDEN, CPA, CGMA
BREEDEN & ASSOCIATES
TAX AND BUSINESS SERVICES, LLC
277 Highway 74 North, Suite 205
Peachtree City, GA 30269
770-487-9166
cbreeden@breedentbscpa.com
ENTITY SELECTION
• SOLE PROPRIETORSHIP – FILE
SCHEDULE C WITH FORM 1040 (DUE
APRIL 15)
• SUBCHAPTER S CORPORATION – FILE
FORM 1120-S (DUE MARCH 15)
• PARTNERSHIP – FILE FORM 1065 (DUE
APRIL 15)
• LLC (LIMITED LIABILITY COMPANY)
COMMON EXPENSES
• Advertising Costs – Signs, newspaper advertising, flyers,
online advertising, post cards, promotional materials and
anything else tht was used to market your business may
be deductible
• Professional Fees – Your Professional Dues, License
Renewal, E&O Insurance, and any other professional
fees you incur may also be deductible
• Education Materials – Any continuing education classes
or seminars, books, magazines, etc.
• Office Equipment – Office equipment can include desk
fees if you have them at your office, computer/software,
phone fees (including cell phone), cameras, office
supplies, and anything else related to necessities of
running your office.
MEALS & ENTERTAINMENT
• Meals, sports tickets and other entertainment
• Must have documentation for the expense,
including statement of the business purpose,
names of the person being entertained, date and
location
• Generally only 50% of business meal and
entertainment expenses can be deducted
• Must discuss business either before, during or
after entertainment
CAR/DRIVING EXPENSES
• Car/Driving Expenses – This is an obvious one most
agents remember but many often get confused about
how much mileage they can deduct or how to separate
“personal” and “business use”
– Actual Expenses – You may deduct the actual expenses of
operating your car for business. This includes gas, insurance,
repairs, maintenance, license and depreciation
– Standard Mileage Rate – You can simply multiply your business
miles driven during the year by the IRS standard rate for the year
which is 56.5 cents per mile for 2013
– Other Expenses – Some auto expenses you are allowed for
either method are parking fees, tolls, interest expense
– Track Mileage – Total miles (business and personal)
BUSINESS USE OF HOME
• To deduct expenses for business use of the
home, part of your home must be used regularly
and exclusively as one of the following:
– The principal place of business for your trade or
business
– The place whre you meet and deal with your patients,
clients or customers in the normal course of your
trade or business, or
– In connection with your trade or business, if you use a
separate structure that is not attached to your home
BUSINESS USE OF HOME
(CONTINUED)
• Where the exclusive use requirement applies, you
cannot deduct business expenses for any part of your
home that you use for both personal and business
purposes. For example, if you are a real estate agent
and you use the den of your home to make
appointments and also for personal purposes, you may
not deduct any business use of your home expenses.
Further, under the principal place of business test, you
must determine that your home is the principal place of
your trade or business after considering where your most
important activities are performed and most of your time
is spent, in order to deduct expenses for the business
use of your home.
BUSINESS USE OF HOME
(CONTINUED)
• Deductible expenses for business use of your home
include the business portion of real estate taxes,
deductible mortgage interest, rent, casualty losses,
utilities, insurance, depreciation, maintenance and
repairs.
• Business portion is calculated using the square footage
of the office compared to the square footage of the entire
house.
• Simplified method of calculating home office deduction
for 2013. Calculated by taking the allowable square
footage (not to exceed 300 square feet) times $5/square
foot. Maximum deduction is $1,500. IRS may revisit this
in the future.
RETIREMENT ACCOUNTS
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SIMPLE IRA
SEP
KEOGH
SOLO 401K
ITEMS TO NOT OVERLOOK
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As a self-employed taxpayer, you are permitted to take a special “abovethe-line” deduction for the health insurance premiums you pay for yourself
and your family.
If you have items used partly for business and partly for personal, you may
deduct the business use portion.
You can elect to expense a certain amount of equipment costs in the year of
purchase (Sec. 179 deduction). Any amount you expense reduces your tax
basis for depreciation.
Hire your children. If you need help in your business, consider hiring your
children. The wages you pay will be deductible by you and taxable to your
children in their presumably lower tax brackets. Wages paid to your
children under age 18 are not subject to payroll taxes unless you operate a
corporation.
Hire your spouse. If your spouse accompanies you on a business trip for
valid business purposes, you can deduct his or her expenses along with
your own. You may be able to set up benefit plans as well for your spouse.
Don’t miss the self-employment tax deduction you are allowed which is 50%
of the self-employment tax you pay.
ESTIMATED TAX PAYMENTS
• DUE DATES ARE
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April 15
June 15
September 15
January 15
• UNDERPAYMENT PENALTY
– If you do not pay the proper amount of quarterly payments or
make the payments late
– Your payments should equal the smaller of 90% of the tax to be
shown on your current year tax return or, 100% of the tax shown
on your prior year tax return
– Each estimated payment should be 25% of the total amount
– Late or inadequate payments mean you will be assessed penalty
and interest charges in addition to your income tax liability
RECORD KEEPING
• Good record keeping is essential, not only for
tax reporting purposes, but also for your success
as a real estate agent.
• Record keeping systems
– Filing system for receipts and documents
• Paper
• Electronic
• Bookkeeping System
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QuickBooks
Spreadsheet
Notebook (paper)
Record weekly, bimonthly, monthly, quarterly
AUDIT RISKS
• Declaring no or very little income with
large expenses
• Not keeping adequate records especially
for mileage and entertainment expenses
• Not working enough hours in the business
so IRS declares it a hobby
• Not filing proper tax forms such as 1099’s,
payroll tax forms if required, appropriate
schedules to individual income tax return
NEW FOR 2013
• Higher income tax rates
• Health Care Changes Causing Different Taxes
(increased Medicare tax, penalties for no health
insurance)
• Phaseout of itemized deductions for high income
taxpayers
• Phaseout of personal exemptions for high
income taxpayers
• Higher capital gains tax rate for high income
taxpayers
SUMMARY
Always take a sensible approach when it
comes to tax planning. Your business
activities and purchases should have
economic merit without the tax
considerations. However, taxes are a fact
of life. The truth of the matter is that a little
planning can often save a lot of money.