A Basic Guide
to
Tax Accounting for Self-Employed Entrepreneurs
Introduction
In the IRS's eyes, can you claim self-employed entrepreneur status?
Start with Schedule C or C-EZ?
Tax Ramifications of Obamacare
Allowable Deductions
ROBS (Rollovers for Business Startups)
The Audit
2014 Alert: Changes are Coming

Entrepreneurs and self-employed individuals, who might otherwise be savvy about financial matters often make mistakes when it comes to filing their taxes — and no wonder. There are literally thousands of pages of tax code, and they change constantly from year to year, confounding even the most astute accountants. Politics being what they are, deductions expire, extend, and re-appear with amazing frequency.

This course attempts to soften the blow of having to wade through the morass of regulations, by highlighting the key considerations required by the IRS when filing your own, or your company’s taxes. Links will guide you to the information you need to do your taxes.

Finally, it’s never too soon to think of your 2014 taxes. Right now, it looks like a large number of deductions expired at midnight, Jan. 1, 2014, so as you navigate your way through this year, start thinking about next April. The good news is: the Obama administration and Congress understand that entrepreneurs and small businesses owners create jobs, so you might get some breaks as we move towards the November general election.

The IRS has very strict definitions of self-employed entrepreneurs (often small business owners), so it’s incumbent upon you to understand how they define things: First, you are considered self-employed if you carry on a trade or business as a sole proprietor or an independent contractor. The links below connect to the most recent and IRS approved definitions.

  • Sole Proprietor
    You own an unincorporated business. If you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.

  • Trade or Business
    An activity carried on to make a profit. You do not need to actually make a profit so long as you have a profit motive.

If you are self-employed, it’s likely you need to fill out an IRS Schedule C to report how much money you made or lost in your business. This form, headlined "Profit or Loss from Business (Sole Proprietorship)," must be completed and included with your income tax return if you had self-employment income. In most cases, people who fill out Schedule C will also have to fill out Schedule SE, "Self-Employment Tax."

Here’s some sage advice for entrepreneurs and small business owners just starting to fill out their taxes: Gather plenty of receipts, a decent calculator and computer. With Schedule C, you need to review your entries line by line.

Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship). You may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business income and expenses on your Form 1040 federal income tax return. Using Schedule C-EZ can save time and reduce paperwork burden for eligible businesses. The links that follow explain how to use Schedule C or C-EZ.

The Affordable Care Act of 2010 (aka Obamacare), and the mandatory increased insurance coverage for employees as it proscribes (even though many of the mandatory aspects have been delayed) initially had many people worried. The Act also creates a tax credit for small business owners under Title 1, Subpart B, Part II section 1421 of the Act. Most small employers are unaware of how meaningful the tax credit can be to offset the increased cost of insurance.

The IRS issued an announcement on March 10, 2014, entitled "IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit; Helpful Resources, and Tax Tips Available on IRS.gov.” Here, entrepreneurs and small business owners can find surprisingly significant tax saving opportunities. Follow the links below to learn more about credits and savings you might qualify for.

The Affordable Care Act of 2010 (aka Obamacare), and the mandatory increased insurance coverage for employees as it proscribes (even though many of the mandatory aspects have been delayed) initially had many people worried. The Act also creates a tax credit for small business owners under Title 1, Subpart B, Part II section 1421 of the Act. Most small employers are unaware of how meaningful the tax credit can be to offset the increased cost of insurance.

The IRS issued an announcement on March 10, 2014, entitled "IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit; Helpful Resources, and Tax Tips Available on IRS.gov.” Here, entrepreneurs and small business owners can find surprisingly significant tax saving opportunities. Follow the links below to learn more about credits and savings you might qualify for.

Beware, Baby Boomer Entrepreneurs: The Feds are cracking down on ROBS. Launching new businesses is a spiking trend among retiring baby boomers --- in some cases boomers are even risking retirement savings on these new ventures. A small but growing number have adopted a legal, but complex strategy to use their retirement nest eggs early to buy or launch businesses—while avoiding taxes and penalties for early withdrawal. But the IRS is onto the strategy, known as ROBS (Rollovers for Business Startups), and they consider it a murky business practice.

ROBS are not new. They’ve been around for decades. So understand this: Two 2014 tax court decisions show that the federal government may be looking to go after millions of dollars in back taxes. What follows are links that will get you up to date on ROBS, and for the uninitiated, a look at what ROBS are.

You’ve filed your tax returns. Then, you are called for an audit. Be aware that the IRS training manual tells its auditors that they are examining you, not just your tax return. The auditor wants to see how you match up with the income reported on your return -- "economic reality" in IRS-speak. If your business is audited, the IRS is likely to investigate the following issues: see the following links.

While many of the usual temporary tax deductions and credits were made permanent in 2012, there's still a large number that weren’t, and that are currently slated to expire or change significantly at the end of the year. Anything can happen in an election year. Keep in touch with your tax lawyer or accountant. Meanwhile, there are websites that monitor what Congress is mulling, in terms of tax breaks or additional taxes. And a tax court decision (see link below) that everyone should be aware of.