Being Self-Employed : How to Run a Business

Designed for navigating through the tax code, this guide helps the self-employed keep a greater percentage of their income. The importance of keeping up-to-date records, measuring net profits and losses, and handling the "SE tax"a flat tax which every self-employed person is subject tois discussed. Particular attention is paid to preparing for audits, changing tax status after marriage or divorce, and becoming financially confident through better knowledge of the tax code.

Holmes F. Crouch is a professional licensed tax practitioner. He is the author of Citizens Working Abroad, Family Tax Strategies, and Resolving Divorce Issues. He lives in Saratoga, California.

1. GENERAL REQUIREMENTS

1-1

(1)

Workplace Human Types

1-2

(1)

Employee Experience Essential

1-3

(1)

Ever Examine a W-2?

1-5

(1)

Consistent, Timely Tax Returns

1-8

(1)

Savings and Investments

1-9

(1)

Calculated Risks and Insurance

1-10

(1)

Awareness of Lawsuits

1-11

(1)

Treatment of Customers

1-12

(1)

Importance of Spousal Support

1-14

(1)

2. HOW TAX DEFINED

2-1

(1)

Section 1401 Overview

2-2

(1)

Section 1402 Overview

2-3

(1)

"Net Earnings" Defined

2-4

(1)

Business "Gross Income"

2-6

(1)

Less the "Deductions Allowed"

2-7

(1)

Meaning of "Trade or Business"

2-9

(1)

Husband and Wife Business

2-10

(1)

Partnership Business

2-11

(1)

Statutory Exemptions Limited

2-13

(1)

3. KEEPING PROPER RECORDS

3-1

(1)

Why Records Important

3-2

(1)

Your "Official Notice"

3-3

(1)

Typical Mistakes Made

3-5

(1)

Business Bank Account

3-7

(1)

Keep Bank Records Available

3-8

(1)

Understanding Capitalization

3-10

(1)

Capital Account Records

3-11

(1)

Slow Moving Inventory

3-12

(1)

Simplified Expense Records

3-14

(1)

Codifying Your Expenditures

3-16

(1)

4. BUSINESS USE OF HOME

4-1

(1)

Section 280A(c): Introduction

4-2

(1)

Regular and Exclusive Use

4-4

(1)

Principal Place of Business

4-5

(1)

Meeting Place With Customers

4-6

(1)

Use of Separate Structure

4-8

(1)

Storage of Inventory

4-9

(1)

Day Care Services

4-10

(1)

Business Use Percentage

4-12

(1)

Applicable Expenses Prioritized

4-14

(1)

Form 8829: Overview

4-15

(1)

Direct vs. Indirect Expenses

4-16

(1)

File With Schedule C

4-18

(1)

5. DIRECT COST ITEMS

5-1

(1)

"Direct Costs" Defined

5-2

(1)

Returns and Allowances

5-3

(1)

Sales Tax, If Included

5-5

(1)

Cost of Goods Sold

5-7

(1)

Purchases for Resale

5-8

(1)

Labor and Other Costs

5-9

(1)

Materials and Supplies

5-11

(1)

Valuing Closing Inventory

5-12

(1)

Year-End Accounting

5-13

(1)

6. EMPLOYEES vs. NONEMPLOYEES

6-1

(1)

Employer ID Number

6-2

(1)

Liability for Withholdings

6-4

(1)

Backup Withholding Limited

6-5

(1)

Employee Form W-4

6-7

(1)

Nonemployee Form W-9

6-8

(1)

Payroll Paperwork

6-9

(1)

Employer Quarterly Returns

6-11

(1)

What If Nonemployees?

6-13

(1)

Independent Contractors

6-14

(1)

Impact of Reclassification

6-17

(1)

Toughing It Out

6-18

(1)

7. DEPRECIATION, ETC

7-1

(1)

Introduction to Form 4562

7-2

(1)

The $25,000 Election

7-3

(1)

MACRS Depreciation Explained

7- 5

(1)

The Depreciation Worksheet

7-7

(1)

"Listed Property" Explained

7-9

(1)

Business Mileage Log

7-11

(1)

Luxury Auto Limits

7-13

(1)

The Summary on Form 4562

7-16

(1)

Depreciation of Home

7-18

(1)

Improvements vs. Repairs

7-20

(1)

Amortizing Intangibles

7-21

(1)

Disposition of Assets

7-22

(1)

8. AWARENESS MATTERS

8-1

(1)

Inquiry Authority

8-2

(1)

"Cash Basis" Implications

8-3

(1)

Cash over $10,000

8-5

(1)

The 25% Omission Rule

8-7

(1)

Reconstruction of Income

8-9

(1)

All Businesses Codified

8-10

(1)

Special "Research" Audits

8-12

(1)

9. NET PROFIT OR LOSS

9-1

(1)

"Material Participation" Defined

9-3

(1)

Adding "Other Income"

9-4

(1)

Expense Deductions Overview

9-6

(1)

Some Practical Guidelines

9-8

(1)

Personal Expenses: No-No

9-9

(1)

The Capitalization Craze

9-11

(1)

Travel and Entertainment

9-12

(1)

Other Expenses: Various

9-14

(1)

Tentative Profit (Loss)

9-15

(1)

What If Net Loss

9-16

(1)

Effect of Loss on Form 1040

9-18

(1)

What If Consecutive Losses

9-20

(1)

10. SE AND ES TAXES

10-1

(1)

A "Per Worker" Tax

10-2

(1)

Schedules C, F, & K-1

10-3

(1)

The "Short" Schedule SE

10-5

(1)

The 92.35% Parity Factor

10-8

(1)

The "Long" Schedule SE

10-9

(1)

Mating with Form 1040

10-10

(1)

Now, the ES Tax

10-11

(1)

ES Voucher Forms

10-13

(1)

Tips on ES Payments

10-14

(1)

11. THE AUDIT STRIKE

11-1

(1)

Authority to Examine

11-2

(1)

The Selection Process

11-4

(1)

Two Basic Audit Types

11-6

(1)

Notification Letters

11-7

(1)

The Initial Probing

11-10

(1)

Examination Procedure: General

11-11

(1)

Bank Deposits Analysis

11-12

(1)

Report of Audit Changes

11-14

(1)

When-to-Disagree Example

11-17

(1)

How to Disagree

11-18

(1)

The 20% Accuracy Penalty

11-19

(1)

Reasonable Cause Exception

11-20

(1)

Why All This?

11-22

(1)

12. RETIREMENT SAVINGS

12-1

The Basic IRA Law

12-2

(1)

The Fundamental IRA Role

12-4

(1)

The Roth IRA Option

12-5

(1)

Features of a SEP IRA

12-8

(1)

SEPs for Self-Employeds

12-10

(1)

Selecting Contributory Percentages

12-11

(1)

The 3-Year Eligibility Period

12-13

(1)

Features of a SIMPLE IRA

12-14

(1)

Contribute Until You Retire

12-15

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Being Self-Employed : How to Run a Business Out of Your Home, Claim Travel and Depreciation and Earn a Good Income Well into Your 70s or 80s

Summary

Author Biography

Table of Contents

Supplemental Materials