Introduction
“In America there are two tax systems; one for the informed and one for the uninformed. Both systems are legal.”
—Judge Learned Hand
If mastering the tax code were a prerequisite to starting a business, no one would dare. Luckily, the basics of federal taxes are right here in this book. And once you grasp the fundamentals, you can pick up the rest as you go along, perhaps with the help of a tax adviser. As the well-worn phrase goes, “It’s not brain surgery.”
This book is for the typical small business in the United States—one that takes in less than
$5 million and has fewer than 20 employees. Even if you sometimes need the help of a professional, this book will help you make informed tax decisions and put more money in your pocket at the end of the year.
You will learn:
- the best way to deduct business expenses and write off purchases
- the tax benefits of each business ownership structure: sole proprietorship, partnership, limited liability company, or corporation?
- what kinds of records to keep and how long to keep them
- the best ways to hire help, taxwise
- top fringe benefits for small businesses
- ways to legally minimize taxes and lower your odds of an audit, and
- what to do if the IRS ever challenges your business tax reporting or sends you a tax bill you don’t agree with.
Owning and operating a small business, full or part time, has been called the little guy’s tax shelter. The self-employed get tax benefits for expenditures not allowed to “wage slaves.” In effect, you are sharing expenses (as well as profits) with Uncle Sam—and, in most cases, with your state as well.
This book explains, in plain English, how to take advantage of the many tax benefits available to small business owners. We will show you how:
- Personal expenses can become partially deductible: your home, car, computer, meals, and education.
- Retirement plans can shelter part of your venture’s income from taxes, accumulate earnings tax deferred, and provide income for your golden years at a lower tax rate.
- Family members—young and old—can be put on the payroll to reduce a family’s overall tax bill.
- Travel and vacations can qualify in whole or in part as deductible business expenses.
Sound interesting? With all of these possibilities, your business can earn less than if you were working for someone else, and you still can come out ahead. Of course, by going into business, you might be trading an eight-hour-a-day job for a 24-hour one. But for many of us, it is worth it.
This book has been updated to cover the tax changes enacted by Congress in 2020 in the wake of the coronavirus (COVID-19) pandemic. Some of the tax rates, contribution and deduction amounts, and other numbers in this book change annually. Others are subject to change by Congress at any time. We provide the most current numbers available at the time this book is published. Check the IRS website for any updated rates and numbers. We will keep you posted on significant changes to the tax numbers and laws through our website (see “Get Updates to This Book on Nolo.com,” below).
We know you put your energy, resources, and money into getting your business venture started or keeping it running. Let us help by giving you the practical information you need to make the best tax choices and decisions.
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