FINANCIAL EXECUTIVES INTERNATIONAL SMALL BUSINESS TAXATION MAY 18, 2017 Presented by: Mark Zeiden – Managing Director, CPA, JD Kirby Johnson - Senior manager, CPA, MBA

How to Never Pay Taxes!

TOPICS ENTITY SELECTION GENERAL DEDUCTIONS AUTO EXPENSE HOME OFFICE EXPENSE RETIREMENT PLANS Q & A

ENTITY SELECTION

ENTITY OPTIONS Sole Proprietor/Schedule C Income & expenses reported on Form 1040, Schedule C Net income taxed as ordinary income (i.e. like wages) Net income is subject to Self Employment Tax (i.e. FICA & Medicare) Limited Liability Company (“LLC”) – Taxed as Partnership Established through Colorado Secretary of State Treated as disregarded entity – no separate tax filing required Taxed and reported as Sole Proprietor

Entity Options (cont.) LLC – Taxed as S Corporation Income & Expenses Reported on IRS Form 1120S Net Income taxed as ordinary income Net Income is NOT subject to Self Employment Tax but… Reasonable Salary expectation Corporation – Taxed as C Corporation (can Elect to be Taxed as S Corp) Income & Expenses reported on IRS Form 1120 “Compressed” tax rates Earnings distributions treated as dividends – double taxation

GENERAL DEDUCTIONS

GENERAL DEDUCTIONS Auto Expense Rent or Home Office Employee Salaries Utilities Advertising/Marketing Travel Meals & Entertainment – deduction limited to 50% Professional Fees Business Licenses, Permit Fees & Membership Dues (not country club) Supplies & Equipment Accountant & Attorney Fees

GENERAL DEDUCTIONS (cont.) Educational Expenses Repairs & Maintenance Interest Software Parking Business Publications Postage Gifts – deduction limited to $25/recipient

AUTO EXPENSE

MILEAGE VS. ACTUAL EXPENSE 53.5 Cents/Mile for 2017 Business Mileage Only Does not include commuting Need a log Old Fashioned “Calendar” Apps: MileIQ (Android, iOS); TripLog (Android, iOS); Mileage Expense Log (iOS) Actual Expenses Depreciation Interest Lease Payments Repairs & Maintenance Registration Fees Insurance Subject to business use percentage

HOME OFFICE EXPENSE

SAFE HARBOR VS. ACTUAL EXPENSE Both Office Space must be a “designated area” – not the kitchen table Used on a regular & exclusive basis Must be for benefit of the company vs. convenience for you Safe Harbor: $5/Sq. Ft. (max. $1,500) Actual Expenses based on proportion of office space to total square feet Depreciation (subject to recapture upon sale) Interest Rent Repairs & Maintenance Property Tax Insurance Utilities

RETIREMENT PLANS

TWO MOST COMMON OPTIONS Simplified Employee Pension (“SEP”) Schedule C/LLC Disregarded Entity 20% of Net Income S Corp 25% of Compensation Can be established up to filing date of return including extension (i.e. still available for 2016 if return has been extended) Single Person 401(k) Plans Employee Deferral - $18,000 (+$6,000 Catch up if over 50) Employer Match/Profit Share – 20% or 25% Allows for Roth Contributions – Employee Deferral Only AGI Must be established by year end (i.e. too late for 2016) Owner & Spouse only Both Maximum Annual Contribution - $54,000 Compensation Limit - $270,000 Must include all employees

QUESTIONS?