Kemberley Washington CPA Washington CPA Services LLC washcpallc

Kemberley Washington, CPA Washington CPA Services, LLC washcpallc. com/services

Washington CPA Services, LLC Washcpallc. com @kemcents

1 # Penalties + Payment Options @Kemcent s

Penalty Abatement • First time penalties • Reasonable Cause • Form 843 Request

Offer in Compromise • Small net worth • Little to no cash surplus • Pay percentage of amount due

2 # Understanding LLCs + Defaults @Kemcent s

LLCs + Defaults • Purpose of an LLC • How is it taxed? • Entity default classification • Subsequent election

How to choose? @Kemcent s

Tax Planning!!!! • Review your income and expenses • Compare tax entities • Review tax liabilities • Making a change

3 # Selecting Business Entities @Kemcent s

• Often the first choice of new businesses • It is owned by only one business owner and quite easy to form. • The business owner may be required to obtain certain licenses and permits as required

Advantages Disadvantages • Cost little to no money • Ability to receive all profits • Report income on personal tax return • Unlimited Liability • Losses are absorbed by owner only • Self-Employment Taxes

• Owned by two or more persons or businesses • Easy to form • Although a partnership can be created with a verbal agreement, having a partnership agreement has its benefits

Disadvantages Advantages • Cost little to no money • Shared expertise • Partnership pays no taxes • Unlimited Liability • Partners can enter into agreements on behalf of business • Exit strategy may be absent • May be responsible for self employment taxes

• Similar to a partnership • Income and deductions passes through to shareholders • Limited to 100 shareholders

Disadvantages Advantages • Profits not subject to self employment tax • S Corp pays no taxes • Limited liability • Shareholder owner must receive a salary • Extensive paperwork and accounting records • Fringe benefits subject to be taxation

• Recognized as a separate entity • Conducts business and pays taxes on its share of income and distribute profits to shareholders (known as double taxation) • Owned by shareholders

Advantages Disadvantages • Limited liability • Source of Capital • Perpetual life • Double taxation • Extensive paperwork and accounting records • Tax requirements • Independent management

Entity Taxes Forms Sole Proprietorship Subject to Self Employment Taxes and Income Taxes Schedule C Partnership No taxes; Taxed at Owner’s Rate Form 1065 21% Flat Tax Form 1120 S Corporation Form 1120 S

4 # Tax Rates for Investors @Kemcent s

Ordinary Rates Capital Gains Single 10% 0 - $9700 37% $510, 301 - more Single 0% 0 - $39, 375 15% $39, 375 - $434, 550 20% $434, 550 - more Married 10% 0 - $19400 37% $612, 351 - more Married 0% 0 - $78, 751 15% $78, 751 - $488, 850 20% $488, 851 - more Married Separate 10% 0 - $9700 37% $306, 176 - more Married Separate 0% 0 - $39, 375 15% $39, 375 - $244, 425 20% $244, 425 - more Head of Household 10% 0 - $13, 850 37% $510, 301 - more Head of Household 0% 0 - $52, 750 15% $52, 750 - $461, 700 20% $461, 701 - more

5 Real Estate # Transactions @Kemcent s

Real Estate Losses • Up to $25, 000 of losses • Phases out at $150, 000 • Real Estate Professionals (50% of personal services; 750 hrs in real estate)

1031 Exchanges • Like kind property • Investment/business purposes • 45 day identification • 180 day purchase • **Must inform qualified 1031 entity

6 Overlooked # Deductions @Kemcent s

• Bad debt expense • Baggage and travel fees • Home office deduction • State taxes paid • Credit card interest paid • Educational courses • Mileage: Business + Charity

A business bad debt is a debt that comes from operating your business. You expect the amount will not be repaid. A bad debt could be business or nonbusiness.

Office used within your home that is exclusive for your business and used continuously.

• Determine what items are being reviewed • Consider third party records • Recreate mileage logs • Add additional deductions

• Review statute dates • Consider amending returns • Request for penalty abatements • Determine reasonable cause

• Retirement Accounts • SEP IRA • Available for small business owners and self employed individuals • Employer must contribute • 25% of compensation or $56, 000 (2019) • S Corporation Lookback