1. “Recordkeeping and Small Business Tax Tips”Sponsored by USDA Rural Business DevelopmentDyer County ExtensionTennessee State University Presented by Ruthie G. Reynolds, PhD, CPA, JD August 11, 2008

2. INTRODUCTION Impact of taxation on business Business owners’ tax responsibility Importance of Recordkeeping

3. MUST KNOW TAX LAW TO SAVE Example – Internal Revenue Code provides for taxation of all income derived Inclusions All income from whatever source, unless IRC excludes it Bartering Gains on sale of assets owned Assets or money found Deductions Business expenses “ordinary and necessary”

4. FEDERAL TAX TIPS Tax credits vs. tax deductions credit is a dollar for dollar saving deduction savings is the tax bracket percentage Example There are deductions for education expense, as well as credits for education expense Retirement plans shelter tax

5. FEDERAL TAX TIPS Small business owners who have W2 income can adjust withholding to cover deposits for Schedule C income If loss occurs from operations or income is low, choose straight line depreciation rather than an accelerated method such as 200% declining balance

6. FEDERAL TAX TIPS Interest expense on the following deductible as business expenses if used for business Auto loan Credit card Lines of credit Loans Choose Subchapter S corporation rather than C corporation if losses are expected initially If S corporation application is not filed timely, the IRS may still grant the status if requested

7. FEDERAL TAX TIPS No penalty on late returns having refunds Offer in compromise to settle IRS debt are difficult IRS payment plans are available Abatement of penalties is possible – always ask if there is “reasonable cause” Be aware of scams

8. FEDERAL TAX TIPS If return not filed, IRS will file for you based on income data reported by others Substitute for Return Your information appearing on IRS records must be provided to you under the Freedom of Information Act True for all 15 governmental agencies and 73 departments

9. FEDERAL TAX TIPS You do not have to agree with an IRS decision Reconstruction of income and expenses is legal Should be professionally prepared If you have an IRS dispute, you need representation

10. Recordkeeping Keep records for at least 3 years Law require you to provided documentation if requested Types of records to keep IRS and State audits Consider keeping records electronically

11. TENNESSEE TAX TIP (not applicable to sole proprietors and partnerships) There is a State of Tennessee business income tax It is called an excise tax The rate is 6.5% of Tennessee taxable income, There is a State of Tennessee business franchise tax The rate is .25% of the greater of net worth or real and tangible property in Tennessee. The minimum tax is $100.

12. SUMMARY & QUESTIONS Commit to learning basic tax law Questions???