This is the Story of Tim The Tool Man Taylor After 20 years working for the ABC Construction Co Tim decides to open his own home remodeling business So Tim Does All the Normal Things ID: 800801
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Slide1
Saving Taxes for Your Business
Slide2This is the Story of
Tim ‘The Tool Man’ Taylor
After 20 years working for the ABC Construction Co, Tim decides to open his own home remodeling business
Slide3So Tim Does All the ‘Normal’ Things:
Gets his professional license
Joins a trade group
Opens a bank account
Contacts everyone he knows (advertises)
Hires a helper named Al (but forgets about payroll taxes)
Remodels some homesCollects from his customersPays his billsDoesn’t hurt anybody or anything (Whew!)
Slide4So Far, So Good!
Tim’s business made about $80,000 in profit (he thinks), but he has a sneaky suspicion that he’s forgetting something.
? ? ? ? ? ?
Slide5And then Tim remembers what he had previously forgotten:
INCOME TAXES!
Oh no!
Slide6So Tim goes to see his CPA, and takes with him:
Bank statements
Receipts for job supplies, tools and vehicle fuel
A list of payments made to his ‘independent contractor/helper’
Invoices to his customers
His rehearsed speech why he didn’t keep better records
His wife and a box of Kleenex
Slide7Tim’s Tax Situation
Married (Jill)
3 Precocious Kids (Brad, Randy and Mark)
Homeowner
Slide8Tim’s CPA, a sharp fellow named Paul, explains how self-employed people calculate and pay their taxes
Slide9Paul explains the different forms of businesses to Tim:
Sole Proprietorships
Corporations – Regular or ‘C’
Corporations – Subchapter SPartnerships
Limited Liability Companies – LLCs
Others
Slide10Where Does Tim Fit In?
Because Tim didn’t form a formal business through the Secretary of State in the state he lives in, he is a Sole Proprietor.
Slide11Paul calculates Tim’s Income Taxes
Profit from the business $ 80,000
Less: Home mortgage interest $(13,000)
Less: Property taxes $( 5,000)
Less: Church and charity giving $( 5,000)
Less: Personal exemptions
$(17,000)Equals taxable income $ 40,000Income Tax = $ 5,300Less: Child credits $ (3,000)Final income tax bill $ 2,300
Slide12Only $2,300! Whew! Tim breathes a sigh of relief!
Slide13Paul: ‘Not so fast Tim, we are only ½ the way through calculating your taxes.
Tim: ‘Huh? ½ the way??’
Paul: ‘Yes Tim, we have to calculate your Social Security (Self-Employment) taxes now’
Tim: ‘You mean I still have to pay Social Security taxes like when I worked for ABC Construction Co?’
Paul: ‘Yes, and it’s going to hurt twice as much!’
Slide14Paul explains that Sole-Proprietors like Tim still pay Social Security
Profit from the business $80,000
Less: Home mortgage interest $ 0
Less: Property taxes $ 0
Less: Church and charity giving $ 0
Less: Personal exemptions
$ 0Taxable income for Social Security $80,000Social Security Tax @ 15% $12,000
Slide15Tim’s Total Tax Bill