Barbara Weltman.com

J.K. Lasser’s Small Business Taxes 2008

Small businesses are big news. They are profitable, flexible, and productive. But come tax time, most small business owners are at a loss. Let small business and tax expert Barbara Weltman help you maximize your deductions and minimize your payments.

As a small business owner you work, try to grow your business, and hope to make a profit. What you keep from that profit depends in part on the income tax you pay. The income tax applies only to your net income rather than to your gross income or gross receipts. You are not taxed on all the income you bring in by way of sales, fees, commissions, or other payments. Instead, you are essentially taxed on what you keep after paying off the expenses of providing the services or making the sales that are the crux of your business. Deductions for these expenses operate to fix the amount of income that will be subject to tax. So deductions help to determine the tax you pay and the profits you keep.

To keep more of your hard-earned money, make sure you take every available write-off you’re entitled to. The top 10 business deductions are:

1. Wages, retirement plans, medical coverage and other benefits for employees.
2. Travel and entertainment expenses.
3. Car expenses.
4. Repairs and maintenance.
5. Rents for office space and equipment.
6. Taxes and interest.
7. Write-offs for equipment purchases, inventory and supplies.
8. Advertising.
9. Fees for professional advice.
10. Losses for thefts, casualties and bad debts.

Comparison of Forms of Business Organizations

TYPE OF BUSINESS	HOW IT IS FORMED	WHERE DEDUCTIONS ARE CLAIMED
Sole Proprietorship	No special requirments	On Owners Schedule C or C-EZ (Schedule F for Farming)
Partnership	No special requirements	Some items taken into account in figuring (but generally have trade or business inclome directly on partnership agreement) Form 1065 (allocable amount claimed on partner’s schedule E); separately stated items passsed through to partners and claimed in various places on partner’s tax return
Limited Special Partnership	Some items taken into account in figuring partnership under state law	Trade or business income directly on form 1065 (allocable amount claimed on partner’s schedule E); separatley separately stated items passsed through to members and claimed in various places on member’s tax return
Limited Liability Company	Organized as such under state law	Some items taken into account in figuring trade or business income directly on form 1065 (allocable amount claimed on member’s Schedule E); separately stated items passed through to members and claimed in various places on member’s tax return
Limited Liability Partnership	Organized as such under state law	Some items taken into account in figuring trade or business income directly on form 1065 (allocable amount claimed on member’s Schedule E); separately stated items passed through to members and claimed in various places on member’s tax return
S Corporation	Formed as corporation under state law; tax status elected by filing with IRS	Some items taken into account in figuring trade or business income directly on form 1120S (allocable amount claimed on shareholder’s Schedule E); separately stated items passed through to shareholders and claimed in various places on shareholder’s tax return
C Corporation	Formed under state law	Claimed by corporation in figuring its trade or business income on Form 1120 or 1120-A Employee No ownership interest Income reported as wages; deductions as itemized deductions on Schedule A (certain expenses first figured on form 2106) Independent Contractor No ownership interest in a business Claimed on individual’s Schedule C
Employee	No ownership interest	Income reported as wages; deductions as itemized deductions on Schedule A (certain expenses first figured on form 2106)
Independent Contractor	No ownership interest in a business	Claimed on individual’s Schedule C

Copyright ©2003-2008 Barbara Weltman