Principles of Business BUS101

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Principles of Business(BUS101)

• Donald R. Simon, Esq.
• Adjunct Professor - Digital Photography
• Spring, 2009

2
Principles of Business - Class 10

• Go over Accounting Quiz
• Lecture Taxes, Taxes, and More Taxes.
• Assignment no assignment.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• As a wage-slave, you may have very well take for
  granted how simple your tax life is
• Your employer deducts the appropriate from
  each check.
• Your employer submits the to the required
  govt entities.
• When its time to file your tax return, your
  employer provides you with a W-2.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• By contrast, as a biz owner, youll have many new
  tax responsibilities
• As an employer, a biz pays taxes.
• As a property owner, a biz pays taxes.
• As a retailer, a biz collects sales tax and
  remits the to the govt.
• A biz or its owners pay federal and state income
  tax.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Employer Taxes in addition to deducting federal
  and state taxes from employees wages, a biz
  needs to pay other employee-related taxes
• Social Security and Medicare tax tax burden is
  divided 50/50 between employee and employer.
• Unemployment tax employer pays into fund for
  displaced employees.
• Workers Compensation insurance not really a
  tax, but is required by employers.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Property Taxes 2 basic types
• Personal Property taxes on inventory (products
  held for sale) and portable assets (office
  furniture, computers, vehicles, etc.).
• Real Property taxes on owned real estate,
  buildings, and other improvements.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Property Taxes
• Are based on assessed values of assets.
• Make sure that the assessed values of your
  personal property and real estate assets are
  correct and not higher than they should be.
• File an appeal!

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Sales Tax
• Most states, counties, and municipalities levy
  retail sales taxes on certain products and
  services sold in their jurisdictions.
• Biz that make retail sales must register with a
  govt agency and obtain a retail sales tax
  number, this becoming a designated sales tax
  collector.
• As a collector, the biz does not pay sales tax on
  products it buys from other biz for resale to its
  customers.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Sales Tax
• The final consumer of the product or service (or
  whoever is at the very end of the economic chain)
  pays the sales tax, which is tacked to the price
  tag.
• The biz that is selling the product or service
  collects these taxes and remits them to the
  appropriate tax agency.
• If you overlook this step or under tax, your biz
  will still be responsible for paying the to
  the govt!

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Sales Tax
• Sales taxes are anything but uniform.
• Rates vary from jurisdiction to jurisdiction. If
  you operate in more than one jurisdiction, youll
  need to track both rates.
• Chicago has one of the highest sales taxes rates
  in the country!
• Some products and services may be exempt from
  sales taxes.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax
• The amount you or your biz will pay in income
  taxes depends on several factors
• The legal form of your biz
• How much it made that year
• How well you tracked income and expenses
  (preferably in an income statement)
• How sharp your accountant is and
• How much you personally know about the tax system.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax
• Every biz must first determine its taxable
  income, which is the amount of net income
  (profit) subject to income tax.
• A biz reports its gross income, which includes
  sales revenue, investment income, and any other
  cash inflow or realization in wealth.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax
• To determine your annual taxable income, you
  deduct certain allowed expenses from gross
  income.
• Income tax law rests roughly on the premise that
  all income is taxable unless expressly exempted,
  and nothing can be deducted unless expressly
  allowed!
• GAAP is recognized by the IRS as the best way to
  track income.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• As a biz person, you are interested in keeping
  the amount of money you must pay in income tax to
  an absolute minimum.
• If you are a good biz owner, deductions will
  become part of your life.
• All you really need to know is one rule Always
  keep receipts from every single purchase of any
  and all items or goods that are used for your
  business.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• Remember that almost anything can be deductible,
  but the IRS places the burden upon you to prove
  that you are entitled to the deduction.
• When deciding what to claim as a deduction, the
  question is not what was bought.
• The question that needs to be answered when
  deciding whether to deduct the cost of an item is
  why you bought the item.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• There are 4 general criteria you must satisfy
  before deducting the purchase price of an item as
  a biz expense
• An ordinary biz expense an item is ordinary if
  it is normal, usual or customary and the kind of
  expense commonly incurred in a particular biz.
• A necessary biz expense necessary simply means
  helpful. If the item is reasonably helpful to
  your biz, then it is considered necessary.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• There are 4 general criteria you must satisfy
  before deducting the purchase price of an item as
  a biz expense
• Directly connected with your biz hot tubs will
  not be deductible unless you run a massage
  parlor!
• Reasonable in amount basically, dont try to
  claim that a single ream of paper was 100.00 or
  anything silly like that. Deduct what the items
  costs, no more, no less.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• Typical small biz deductions
• Accounting and legal fees
• Advertising
• Equipment and office supplies
• Rent, utilities, and biz licenses
• Continuing education classes

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• Typical small biz deductions
• Employees wages and benefits plans
• Biz travel and travel-related expenses
• Internet access and on-line charges
• Postage and delivery costs and
• Client entertainment only 50!

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Income Tax Deductions
• Typical small biz deductions (not allowed)
• Bribes, fines, penalties, and kickbacks
• Lobbying costs
• Start-up costs
• Travel and convention attendance expenses
• Unreasonable compensation and
• Transactions with related parties.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Keeping Good Financial Records
• Keeping diligent financial records is not only
  essential for gauging the financial health of
  your biz, like we discussed last time.
• It also can have enormous tax consequences, too!

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Keeping Good Financial Records
• Consider the following
• Reduced taxes the better the financial records,
  the better able you will be to come up with
  lawful, tax-reducing deductions.
• Easier and less-costly income tax return
  preparation the more time your tax preparer has
  to spend assembling and organizing your
  documentation, the more youll have to pay him or
  her.

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Principles of Business - Class 10

• Taxes, Taxes, and More Taxes!
• Keeping Good Financial Records
• Consider the following
• Documentation for audits small biz owners get
  audited at a much higher rate (about 3 per year)
  than employees who draw a paycheck. Better
  records mean a greater chance of substantiating
  your tax return.
• Planning for subsequent years the better records
  from previous years, the better decisions youll
  make when planning for next year.

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Principles of Business - Class 11

• Lecture Contracts 101.
• Lecture Business Ethics.
• Assignment Ethics assignment.