Small Business Taxes and Funding: Key Steps and Tips

MONEY MATTERS AND SMALL BUSINESS TAXES Presented by Amber Whisenhunt

SMALL BUSINESS ADMINISTRATION - 10 STEPS TO START A BUSINESS 1 2 3 4 5 6 7 8 9 10 Conduct market research Write your business plan Fund your business Pick your business location Choose a business structure Choose your business name Register your business Get federal and state tax IDs Apply for licenses and permits Open Bus. Bank Account

SBA STEPS COVERED IN PRIOR CLASSES Dreams on Paper: Mapping Your Journey - Business Plans/Finding Funding Write your business plan Fund your business Picking your business location Choose your business name The Super Market - Market Research Conduct market research Putting Pen to Paper- Forms and Permits Register your business Apply for licenses and permits

TODAYS OBJECTIVES: Funding your business (Because Money Matters!) Choosing a business structure Getting Federal and State Tax IDs Opening a business bank account Small Business Tax Topics Money Matters

FUNDING YOUR BUSINESS Investors Creditors Crowdsourcing

CHOOSING A BUSINESS STRUCTURE Limited Liability Company Sole Partnership Proprietor S C Corporation Corporation

FEDERAL AND STATE TAX IDS Federal Tax ID Oklahoma State Tax ID Employee Identification Number (EIN) Will use Federal EIN (FEIN) for Income Will need Oklahoma Account ID for many taxes such as: Franchise, Sales, Alcohol, Tobacco, etc.

EMPLOYER IDENTIFICATION NUMBER Helps to identify tax returns with the IRS/OTC You will need an EIN if you do any of the following: Pay wages Have a self-employed retirement plan Operate as a partnership or corporation If you are required to file any of the following tax returns: Employment Excise Fiduciary Alcohol, tobacco, and firearms Sometimes necessary to deal with other businesses (i.e., banks)

EIN APPLICATION Available online https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online https://www.irs.gov/businesses/small-businesses-self- employed/apply-for-an-employer-identification- number-ein-online https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

OKLAHOMA ACCOUNT ID Obtained with Business Registration https://oktap.tax.ok.gov/oktap/web/_/#1 https://oktap.tax.ok.gov/oktap/web/_/#1

OPENING A BUSINESS BANK ACCOUNT Will require EIN Benefits Business Credit Card Merchant Services Account Professional (Business Name) Limited Liability May come with a credit line

MONEY MATTERS Make sure you put yourself on the payroll Keep room in the budget for growth/innovation Carefully consider funding sources Create a financial plan Be conscientious of your business s credit rating Create a billing strategy Don t forget about your tax payments Create and monitor your accounting records Focus on expenditures and ROI (Return on Investment) Plan ahead!

MONEY MANAGEMENT TIPS Stay on top of deadlines Monitor spending Collect Accounts Receivable Always keep business and personal funds separate Time your purchases (tax benefits) Rolling Budget (Stick to it) Manage inventory Cut costs

MORE MONEY MANAGEMENT TIPS Increase revenue Learn the accounting software Create a cash flow strategy Periodically evaluate funding options Establish goals (keep them realistic) Keep detailed revenue and expense records Take an accounting class Keep a cash reserve

HOW TO REDUCE EXPENSES? 1 2 3 4 5 6 7 8 9 Reduce waste/excess Select cost- efficient and effective technology Consider Online Lead Generation Outsource Admin Tasks HR/Payroll Function Accounting/T ax IT Share office space Consider long- term commitments/ negotiate with vendors and suppliers Capitalize on purchase discounts Purchase wholesale supplies Continually Refine the process/costs

SPECIFIC EXPENSES TO POTENTIALLY REDUCE Cost-efficient printer Minimize meeting time Shipping service Utility conservation (electricity, gas, water) Consider buying gently used assets Budget for taxes Fuel-efficient automobile Business-friendly credit card Reduce Software Expense

REDUCE SOFTWARE EXPENSE (FREE OR LOW COST) For graphic design and photo editing: Canva, Adobe Creative Cloud, Express, GIMP, Visme or Pixlr For video editing: Lightworks, KineMaster, Shotcut or HitFilm Express For word processing and document editing: Google Docs, LibreOffice, WPS Office, Microsoft Office online or Apache OpenOffice For bookkeeping and accounting: Wave, ZipBooks, or Zoho Books For customer relationship management (CRM): Freshsales, Zoho CRM, HubSpot CRM or Agile CRM For website building: Wix, Weebly, Mailchimp or GoDaddy For email marketing: Sendinblue, MailerLite, Mailchimp, Benchmark or Sender For point-of-sale (POS): Square, PayPal Zettle, eHopper, Loyverse, or NEXTAR (note that depending on the software, a small percentage of each transaction may be charged).

HOW TO MAXIMIZE CASH AT YEAR-END BY SAVING TAXES Accelerate expenses and delay income! Ask your accountant BEFORE year end if you qualify for anything special (i.e., retirement account payments) Buy assets: computers, software (switch to annual subscription if not on one), vehicles, etc. (Use that Section 179 expense deduction!) Buy inventory Cancel unnecessary subscriptions for the coming year Use your health care dollars Possibly year-end sales Make charitable contributions Consider end-of-year bonuses before Dec. 31st

WHAT TO DO WITH BUSINESS PROFITS? Invest in growth or innovation Pay off/down or refinance debt Rainy day fund Pay yourself All the above

SMALL BUSINESS TAX TOPICS Business or Side Hustle? Record Keeping Requirements Choose an Accounting Method Schedule C and Small Business Taxes Self-employment Tax and Estimated Tax When to Hire a Professional Choosing a Paid Preparer Tax Deductions to Consider

BUSINESS OR SIDE HUSTLE? Do they carry out the activity in a businesslike manner and keep complete and accurate books and records? Does the time and effort they put into the activity show they intend to make a profit? Does the activity make a profit in some years if so, how much profit does it make? Can they expect to make a future profit from the appreciation of the assets used in the activity? Are any losses due to circumstances beyond their control, or are the losses normal for the startup phase of their type of business? Do the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business? Do they depend on income from the activity for their livelihood? Do they change their methods of operation to improve profitability?

RECORDKEEPING REQUIREMENTS Maintain for at least 3 years past due date or 2 years from the date the tax is paid, whichever is later. Property recordkeeping you must maintain these records until you dispose of the property (longer if a like-kind exchange) Detailed Records (amount, time, item, party relationship) Employment Tax records for at least 4 years from due date or date paid, whichever is later. May use single-entry or double-entry bookkeeping. Open a separate bank account for the business.

CHOOSE AN ACCOUNTING METHOD Publication 538, Accounting Periods and Methods Choose Record-Keeping Method: Single-entry (income focus) Double-entry (includes balance sheet info) Cash or Accrual Method

SCHEDULE C AND SMALL BUSINESS TAXES Income more complicated if you have inventories Publication 535 Business Expenses Business Expenses ordinary and necessary expenses Car Expenses depreciation or mileage? Both Business and Personal use vehicles Split costs between business and personal use Do not count commute to and from work as business Annual Limits on Automobiles must be considered Depreciation consideration with long-term assets MACRS depreciate over life of the asset Section 179 Deduction expense all during the current year (limited to business income earned by the taxpayer), does not apply to non-business or investment property Publication 946 How to Depreciate Property Bonus Depreciation is Mandatory unless taxpayers opt-out

SELF-EMPLOYMENT TAX AND ESTIMATED TAX Social Security and Medicare Taxes Self employed 100% of these taxes if make over $400 Tax Withholding Estimator Max limit which changes each year Estimated Tax Publication 505 Self-employment tax, Dividend, Capital Gains, or Alternative Minimum Tax Taxpayers should estimate whether quarterly payments are necessary Required if more than $1000 tax will be due Can eliminate the need to send payments if you also have Employee pay and you request employer take extra out each paycheck (Use Form W-4)

WHEN TO HIRE A PROFESSIONAL Business Licensing/Contracts Attorney Bookkeeper/Tax Accountant Payroll Human Resources Graphic Design Outsource:

CHOOSING A PAID PREPARER Still legally responsible for the information on your tax returns. Be wary of preparers who promise larger returns, charge fees based on the size of your refund, won t provide you a copy, or you don t know if they will exist in the future. Make sure the preparer has a PTIN (Preparer Tax Identification Number) Enrolled agents CPAs Attorneys Three types of preparers:

TAX DEDUCTIONS TO CONSIDER Start-up Costs Business Use of Your Home Qualified Business Income (Section 199A) Deduction Travel, Meals, and Entertainment Other Deductions on Form 1040

START-UP COSTS Recoverable (over 180 months) if both requirements are met: It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business in the same field as the one the business entered into. It's a cost a business pays or incurs before the day their active trade or business begins. Nonqualifying Costs Deductible Interest Taxes Research and Experimental Costs

BUSINESS USE OF YOUR HOME Publication 587 To qualify, you must use part of your home: Exclusively and regularly as your principal place of business Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business; In the case of a separate structure which is not attached to your home, in connection with your trade or business; On a regular basis for certain storage use For rental use As a daycare facility

QUALIFIED BUSINESS INCOME (SECTION 199A) DEDUCTION Who qualifies? Partnerships Sole Proprietorships S Corporations Some Estates and Trusts If qualify: Deduct up to 20% of Qualified Business Income In addition to Standard or Itemized Deduction

TRAVEL, MEALS, AND ENTERTAINMENT Publication 463 No deduction for entertainment 50% deduction for reasonable meals if the taxpayer is present and is a meal with a client Only allowed when away from business home (not where you live, but where you primarily operate your business) Keep detailed records for the expenses and the business purpose Business meals and travel:

OTHER POSSIBLE DEDUCTIONS ON FORM 1040 100% of Health Insurance Cost if not covered by employer Retirement Plan Deduction for SEP

THANK YOU FOR THE OPPORTUNITY TO PRESENT TODAY! QUESTIONS?

CONTACT INFORMATION: AMBER WHISENHUNT AMBER.M.WHISENHUNT@ GMAIL.COM

REFERENCES PAGE 1 5 things to do with your small business profits. Accion Opportunity Fund. (2022, February 15). https://aofund.org/resource/5-things-to-do-with-your-small-business-profits/ 10 steps to start your business. U.S. Small Business Administration. (2023, May 3). https://www.sba.gov/business-guide/10-steps-start-your-business Abrams, R. (2021, December 10). Small business checklist: 15 ways to maximize your company s cash before Dec. 31. USA Today. https://www.usatoday.com/story/money/usaandmain/2021/12/10/small- business-15-things-you-should-do-before-year-end/8844316002/ Blakely-Gray, R. (2023, July 24). 9 money management tips to keep your small business in top shape. Patriot Software. https://www.patriotsoftware.com/blog/accounting/small-business-money-management- tips/ Drechsler, L. (2023, August 16). 10 quick tips for Small Business Money Management - QuickBridge. QuickBridge Funding. https://www.quickbridge.com/blog/tips-for-small-business-money-management/

REFERENCES PAGE 2 Expert Panel. (2023, May 15). Council post: 17 unconventional money-saving tips for small- business owners. Forbes. https://www.forbes.com/sites/forbesbusinesscouncil/2023/05/12/17- unconventional-money-saving-tips-for-small-business-owners/?sh=50396227296f Freedman, M. (2023, April 28). 10 tips for managing small business finances. Business News Daily. https://www.businessnewsdaily.com/5954-smb-finance-management-tips.html Home: Internal Revenue Service. Internal Revenue Service | An official website of the United States government. (n.d.). https://www.irs.gov/ Small business money saving tips + little-known ideas. Incfile. (2022, October 12). https://www.incfile.com/blog/post/these-smart-ideas-can-help-your-small-business-save- money

BONUS RESOURCES

IRS RESOURCES irs.gov irs.gov Small Business Virtual Workshop Series Small Business Virtual Workshop Series Relevant IRS Publications Relevant IRS Publications Small Business and Self-Employed Tax Center Small Business and Self-Employed Tax Center Gig Economy Tax Center Gig Economy Tax Center Small Business Virtual Workshop Series Relevant IRS Publications Small Business and Self-Employed Tax Center Gig Economy Tax Center Small Business and Self-Employed Tax Center

SMALL BUSINESS VIRTUAL WORKSHOP DESCRIBED https://www.irsvideos.gov/Business/SBTW Can help business owners learn how to navigate their federal tax responsibilities. This workshop is an easy and convenient way for both new and experienced small business owners to learn or review topics relevant to their business. Online at IRS.gov, it's free and available 24/7.

SMALL BUSINESS VIRTUAL WORKSHOP LESSONS FOR EVERYONE Federal taxes and your new business Federal taxes and your new business Schedule C and other small business taxes Schedule C and other small business taxes Federal taxes and your new business Schedule C and other small business taxes Filing and paying taxes electronically Filing and paying taxes electronically Business use of your home Business use of your home Filing and paying taxes electronically Business use of your home

SMALL BUSINESS VIRTUAL WORKSHOP LESSONS FOR TAXPAYERS WHO HIRE EMPLOYEES Federal taxes when hiring employees or independent contractors Federal taxes when hiring employees or independent contractors Managing payroll to withhold the correct amount of taxes Managing payroll to withhold the correct amount of taxes Federal taxes when hiring employees or independent contractors Managing payroll to withhold the correct amount of taxes Federal taxes when hiring employees or independent contractors Managing payroll to withhold the correct amount of taxes Tax deposits and filing a return to report payroll taxes Tax deposits and filing a return to report payroll taxes Hiring people who live in the U.S. who aren't citizens Hiring people who live in the U.S. who aren't citizens Tax deposits and filing a return to report payroll taxes Hiring people who live in the U.S. who aren't citizens Tax deposits and filing a return to report payroll taxes Hiring people who live in the U.S. who aren't citizens

RELEVANT IRS PUBLICATIONS Publication 15, Employers Tax Guide Publication 15, Employers Tax Guide Publication 334, Tax Guide for Small Businesses (Schedule C users) Publication 334, Tax Guide for Small Businesses (Schedule C users) Publication 463, Travel, Gift, and Car Expenses Publication 463, Travel, Gift, and Car Expenses Publication 505, Tax Withholding and Estimated Tax Publication 505, Tax Withholding and Estimated Tax Publication 531, Reporting Tip Income Publication 531, Reporting Tip Income

RELEVANT IRS PUBLICATIONS CONTINUED Publication 535, Business Expenses Publication 535, Business Expenses Publication 583, Starting a Business and Keeping Records Publication 583, Starting a Business and Keeping Records Publication 587, Business Use of Your Home Publication 587, Business Use of Your Home Publication 946, How to Depreciate Property Publication 946, How to Depreciate Property Publication 1635, Understanding Your EIN Publication 1635, Understanding Your EIN

SMALL BUSINESS AND SELF-EMPLOYED TAX CENTER https://www.irs.gov/businesses/small-businesses-self-employed https://www.irs.gov/businesses/small-businesses-self-employed Resources for small businesses with assets under $10 million and for taxpayers who file these forms: Form 1040 or 1040-SR Schedules C, E and F Form 2106

GIG ECONOMY TAX CENTER https://www.irs.gov/businesses/gig-economy-tax-center https://www.irs.gov/businesses/gig-economy-tax-center Resources for gig workers, people who operate a digital platform marketplace, and the businesses that manage their taxes. The gig/sharing/access economy - is activity where people earn income providing on-demand work, services, or goods, often with an app or website.

SMALL BUSINESS ASSOCIATION sba.gov sba.gov Information for small businesses Community Navigator Program

TAX EXEMPT AND GOVERNMENT ENTITIES https://www.irs.gov/retirement-plans/tax-exempt-and-government-entities-resources-for-small-entities-and-self-employed https://www.irs.gov/retirement-plans/tax-exempt-and-government- entities-resources-for-small-entities-and-self-employed https://www.irs.gov/retirement-plans/tax-exempt-and-government-entities-resources-for-small-entities-and-self-employed Tax information for governments, non-profits, employee plans, tax- exempt bonds, etc.