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IRS & TAXES

PROTECT YOURSELF WITH KNOWLEDGE

SAVE $$ BY BEING PREPARED IN ADVANCE

Disclaimer
This is a simple basic course about taxes to familiarize you with tax
terminology, forms, and other pertinent information to begin your business
adventures without being so totally in the dark.

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EMPLOYER, EMPLOYEE, SELF-EMPLOYED TAXES

OTHER BUSINESS RELATED TAXES

TAXABLE EARNED INCOME

TAX DEDUCTIONS

Bits & Pieces of IRS Information

PROFESSIONAL CODE

CELL PHONE DEDUCTION

SELF EMPLOYED, EMPLOYEE & EMPLOYER TAXES

IT IS YOUR MONEY, HANG ON TO IT BY UNDERSTANDING TAXES


TAXES ARE AN INTEGRAL PART OF OPERATING A BUSINESS

For filing requirements such as when, where and how to file, and where
you need to send or deposit payments, check with your local IRS office or
your CPA or accountant for the necessary current forms

TAXES:
Taxes are a very important part of your business. There are many forms of taxes.
You will have to understand & be aware of these. You must persevere throughout
the year to plan your deductions in order to avoid paying as much federal income
tax on your own wages or salary as you possibly can. It has been said that to
avoid is legal to evade is illegal. So, PLAN to avoid paying taxes by proper
preparation.

As a business owner, or self-employed there are many taxes you will need to be
aware of. As an employer, you will need to withhold federal income tax from your
employee’s wages. You have to pay an amount equal to the amount withheld
from the employee’s pay.

FICA: Federal Insurance Contributions Act: FICA includes Social Security &
Medicare tax. Employer & Employee both equally share 15.30 %. 12.4 % of
employee’s earned income up to an annual limit of $76,200 (for year 2000) must
be paid into Social Security, and an additional 2.9% must be paid into Medicare.
This total equals 7.65% for each of the employer and employee.

There are no income limits on Medicare taxes, so even if your income is well
above the cap for Social Security tax, you will still owe Medicare tax on the total.
You as an employer will pay the employer’s portion or half, of the employee’s tax
on certain wages, employee pays the other half, deducted by the employer from
employee’s wages.

A self –employed person will pay the entire amount of 15.30%. So, a total of
$15.30 out of each $100.00 dollars goes to S.S. & Medicare taxes.
ESTIMATED QUARTERLY TAXES:
If you are self employed you will be required to pay quarterly taxes. If you have
ever owed taxes at the end of any given year you will be required to file a form
and pay an estimated amount of what you think you will owe the IRS at the end of
the tax year. Due Dates for 2004: 4/14/ 6/15/ 9/15 and 1/15/05. This tax is based
on your year to date (YTD) profit through the month PRIOR to the due date.
Example: 6/15 estimated tax, is through 05/31st. The only exceptions to having to
pay this quarterly tax is if you did not show a profit on the prior year's return or if
you are in a declared disaster area.

TANGIBLE TAX:
This is a tax assessed by your county appraisers office and is paid yearly on your
business property in counties where applicable.

STATE SALES TAX:


If you sell products in your facility, you may be subject to reporting and paying
state taxes on this merchandise. Check with your State taxing authorities. Sales
taxes assessed on your sales of merchandise will depend on many things and
may depend on your state requirements. You will be required to file statements
regularly to report the sales tax received on your sales.

In Palm Beach County Florida for instance, you would charge .06% on certain
merchandise sales. Certain items such as vitamins and minerals are exempt from
sales tax in Florida. There are areas in the state where sales tax is higher than
others. There is no state sales tax on services such as massage therapy or
vitamins and certain food products in Florida, TN has no sales tax on the service
of massage therapy but does on Vitamins and food products. However, in some
states there is a tax on services such as massage therapy. Ohio recently initiated
such a law. Massage Therapy services, when not prescribed as medically
necessary, are now a taxable service in Ohio. Check your state to see if there is a
tax on services. And if so, what services.

If you hear of such a bill being brought before legislation in your state, get the
troops together and fight like hell against it, this is what we successfully did in
Florida, you can do it too!

INTANGIBLE TAX:
When and where applicable, this tax is assessed on non-tangible property such as
1/3 your account’s receivable in Florida for this year and goes to 0 in the year
2001. Be sure to check with your accountant or CPA for up to date information
specific for the year, your state or area.

FUTA:
FEDERAL UNEMPLOYMENT TAX ASSESSMENT
This tax is paid and reported at the end of the year. This amount varies with
conditions and situations. The only thing constant is that it is taxed only on the
first $7,000 of gross wages.

FORM 8109:
Federal Tax Deposit Coupon. Remit quarterly deposits of Federal Unemployment
Tax. (Employer’s Quarterly Deposits for FUTA).
FORM 940:
Report annual liability for Federal Unemployment Taxes by filing Employer's
Annual Federal Unemployment FUTA Tax Return

I-9 FORM:
This is the form used to establish legal US residency. This is required by
Immigration/the Justice Department for employee’s right to work in the US.
Sometimes two, or three forms of ID need to be provided to the employer.

SUTA: STATE UNEMPLOYMENT TAX


This tax is paid to the Department of Labor and Security by the employer to cover
unemployment compensation under certain circumstances should an employee
leave work. The percentage of tax required will depend upon prior claims
experiences. You will pay a percentage of the total employee wages.

SELF-EMPLOYMENT TAX: (See also, Estimated Quarterly Taxes)


This is the social security tax for those who are self-employed, (sole proprietor)
must pay. This tax is reported on a SCHEDULE SE and sent with your 1040 and
SCHEDULE C. SCHEDULE C is for reporting your business expenses and show
business related losses or gains.

These taxes are due four times a year, April 15th, June 15th, Sept. 15th, and January
15th and are filed using IRS FORM 1040-ES. If, after taking all your deductions,
exemptions, and credits, you don't think you will owe any more than $1,000 on
April 15 on top of what you've already paid in taxes for the year, then you're not
required to pay estimated taxes. If you did not show a profit in the previous year,
you do not owe estimated taxes. (Or if you are in a declared disaster area).

1120S FORM:
Form used to file your yearly taxes when you have incorporated using the Sub
Chapter S status.

7004 FORM:
Application for Automatic Extension to File Corp Tax Return

EMPLOYMENT TAXES: (W4 FORM)


An employee fills out this form when they apply for a position with an employer.
This form will have the employee's name, address, social security number & the
number of dependents they wish to claim or withholdings they wish to have
withheld from their paycheck.
W2 FORM: Wage and Tax Statement
You will be required to provide a completed W2 Form at the end of the year to the
employee as a statement of wages and withholdings. Employee will need to
submit copies to the proper entities listed on the form, and according to state and
federal requirements. A W-2 form reports how much money the employee made
on the job and how much taxes were withheld from the employee’s pay for the
year.

FORM 1099: MISC. REPORTS


The 1099-MISC reports income if you're an independent contractor, collected rent,
or received royalties. A 1099 is the IRS Form that you must provide to an
independent contractor or to any others for which you have paid over $600.00
such as rent, or royalties, in the year. You, as the person using the services of an
independent contractor will be required to file a report by January 31st of the
following year.

For 2003 years end, the forms are due by January 31st 2004. Filing this form
notifies the IRS of amounts paid and withholdings from each vendor, contractor or
other services provided. As an independent contractor, you need to be sure you
have received this from the one hiring your services. To not have this form does
not relieve you from your tax responsibilities as an independent contractor.

1096: Annual Summary and Transmittal of US Information Returns


A 1096 is the recap Form for the 1099's provided. This 1096 Form gives a total of
all of the 1099's that are given to vendors. This Form is due to the IRS by
February 28th of the year following the payments made. There are penalties for
late filing or wrong identifying number.

W-9: You will give a W-9 Form to those vendors who will most likely be earning
over $600.00 in the year. They must complete and return to you. Do NOT send
this form to the IRS. You will need this form when filling out the 1099's.

941 FORM: TAX DEPOSITS


Quarterly tax reports will need filing with the IRS on total employee wages paid.
Depending on the amount, you may be required to deposit tax payments in a
bank account and fill out the appropriate IRS DEPOSIT FORMS. This will be based
on total wages paid for your employees. It is imperative that this is done in a
timely manner.

Check with your CPA, accountant or local IRS office to be sure you are in
compliance of all taxes and tax related issues. You may also find out a lot by
going to www.google.com and type in the search window, IRS or Taxes etc..
MORE TAX INFORMATION

A deduction reduces your tax liability by a percent of every dollar deducted.


If you're in the 27 percent tax bracket, a $100 deduction means you'll pay
$27 less in taxes. A credit offers a dollar-for-dollar reduction of the tax you
owe. If you're in the 27 percent tax bracket, a $100 credit means you'll pay
$100 less.

You may benefit when you obtain equipment that can give you a tax credit.
An example may be an electric massage table that can be used for the
handicapped or disabled, because it may qualify under the ADA. Ask your
accountant. Also, ask the person who sells the equipment to provide you the
paperwork to turn into the IRS for such a credit. An example would be Jim
Craft from Comfort Craft for his Comfort Craft Tables.
TAXABLE EARNED INCOME

DEPOSITS FROM EARNED INCOME ARE TAXABLE:

FOLLOWING ARE A FEW EXAMPLES OF EARNED INCOME

 CREDIT CARD CHARGES (IF you accept credit cards for payment)

 CASH

 CHECKS

 INSURANCE COMPANY DEPOSITS, ETC.

 BARTERING VALUES ARE ALSO CLASSIFIED AS EARNED INCOME

 DIVIDENDS

 INTEREST PAYMENTS RECEIVED


TAX DEDUCTIONS
The great thing about owning and operating your own business is that you
can control the income, outgo, and what you do with the income you do
receive to a great degree. You have heard it said, "KNOWLEDGE IS
POWER".

To have the knowledge up front of what is tax deductible is to know how to


make your purchases and moves as you go through each year. When you
know what you can deduct you can also plan your investments such as
major equipment purchases. I always believed in putting the money into
expanding and enhancing my facility rather than giving it to the IRS
whenever possible.

Always be sure to hire an accountant or CPA but never just trust them
without knowing something about taxes yourself.

I had to go through the aggravation of working with 5 accountants before


I ended up with one that was knowledgeable and who worked in my favor,
all while remaining extremely honest and for reasonable fees.

However, I still saved a lot of money by understanding taxes, having a


good working knowledge, and staying on top of rules & changes in tax
laws.

Below are some, but surely not all, of the deductions you may be able to
deduct.

 ACCOUNTING

 ADVERTISING & PROMOTION, May include Web Advertising /Web pages

 ANSWERING SERVICE

 AUTO; fuel, loan, insurance, rental, repair, tolls, other

 BANK CHARGES, bank charge NSF, monthly, other

 BROCHURES also under advertising,

 CAR AND TRUCK EXPENSES

 CHARITY

 COMMISSIONS

 COPYING CHARGES OR MACHINES (may be under equipment)


 CREDIT CARD EQUIPMENT LEASING

 CREDIT CARD FEES

 DUES

 DECORATIONS

 DEPRECIATION

 EDUCATION

 EQUIPMENT

 ELECTRIC

 EMPLOYEE LOAN

 ENTERTAINMENT

 FURNITURE

 FREIGHT

 GIFTS: (gifts can be deducted for up to $25.00 each, this excludes


promotional items such as pens, buttons, calendars etc.)

 HOME OFFICE EXPENSES

 INSURANCE: business liability, health, employee health, group. As of


2003 Health Insurance is 100% tax deductible

 IRA CONTRIBUTIONS

 JANITORIAL SERVICES /CARPET CLEANERS

 LEGAL AND PROFESSIONAL FEES, (L & P) attorneys, accountants, etc.

 LABOR COSTS: (When using a leasing agency you would write one
check to cover the gross pay for all of your employees, such as FICA,
Medicare, SUTA, FUTA, Workers’ Compensation, group health, etc. and
it is all deducted under one category of LABOR COSTS. Also included
here will be the administration fee charged by the leasing agency.
 LATE FEES

 LAUNDRY

 LEASE, i.e., office space, phone system, security, credit card machines,
etc.

 LEASE EQUIPMENT: Usually for large expense items such as a


hydrotherapy tub, massage tables, sauna units, etc.

 LICENSES, Establishment, Professional, City, County, State, Others?

 LOANS

 MEALS

 MEDICAL: doctor, insurance co-pays, deductibles, non-insurance


medically related payments, office visits, supplies, and prescriptions,
etc.

 MILEAGE

 MOTEL /HOTEL CHARGES

 MISCELLANEOUS

 MUSIC, INCLUDING CD'S, STEREO PLAYERS, LEASED MUSIC SYSTEM

 OFFICE SUPPLIES

 OFFICE EXPENSES

 OFFICE EQUIPMENT: (large expenses that would be considered


depreciable expenses).

 OFFICE REPAIRS, OFFICE CLEANING AND MAINTENANCE.

 PAYROLL: (If you do not use an employee leasing agency,) FICA, FUTA,
MEDICARE, SDI, SUI, GROSS PAY, GROUP INSURANCE, FLEX SPENDING
ACCOUNTS, 401K ‘s and a multitude of other possible deductions.

 PENSION AND PROFIT SHARING

 POSTAGE
 PRINTING AND COPYING

 PROMOTIONS (Much of this may be covered under


advertising/marketing

 REFRESHMENTS

 RECREATION

 REIMBURSEMENTS

 RENT

 RENT ON EQUIPMENT: Equipment that is rented and not leased.

 RETURNS

 SECURITY SYSTEM: (may also be listed under office expenses)

 STORAGE

 SUPPLIES: linens, oils, lotions, files, folders, CD’S, tapes, etc. etc.

 SUBSCRIPTIONS

 TAX: Tangible, tax, Intangible tax, Tax Penalties, Tax Preparations,


Occupational tax. Etc.

 TELEPHONE: PAGERS, CELL PHONES, WEB SITE FEES, ON LINE


SERVICES FEES, Etc.

 TAX PREPARATION

 TAXES RELATED TO BUSINESS, IE; SUTA, FUTA, FICA, ETC.

 TRANSFER FUNDS

 TRAVEL EXPENSES: Motel, Tolls, A % of Meals & Entertainment

 UTILITIES: Water, gas, electric, (electric can be under it’s own category
of electric.)

 WATER (BOTTLED WATER)

 WAGES: For Employees


 WEB SITE EXPENSES: This may be deducted under Advertising
Expense.

 WORKERS’ COMPENSATION COVERAGE


BITS & PIECES OF IRS INFORMATION
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MASSAGE PROFESSIONAL CODE

The IRS Requests a code on your tax return to identify your profession

CODE TO USE FOR REPORTING MASSAGE THERAPY TO IRS


ON SCHEDULE C (FORM 1040) LINE B is: 621900

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ABOUT SCHEDULE “C” DEDUCTIONS

SPECIFICALLY CELL PHONES

Code Sec. 162 (a) allows for ordinary & necessary business expenses incurred
during the taxable year in carrying on a trade or business. Generally, a
taxpayer must establish that the deductions are ordinary & necessary
business expenses and must maintain records sufficient to substantiate the
amounts of the deductions claimed.

Certain business expenses specified in Code Sec. 274 (d) require more
stringent substantiation. This section disallows deductions for traveling
expenses, gifts, meals and entertainment as well as for "listed property"
unless the taxpayer substantiates by adequate records or by sufficient
evidence corroborating the taxpayers own statements the:

 Amount of the expense


 Time and place of the expense
 The business purpose of the expense; and
 Business relationship to the taxpayer of the persons involved in the
expenses.

Cellular Phones are included in the definition of "listed property" for


purposes of Code Sec. 274. (d) (4) & are subject to strict substantiation
requirements.
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ALWAYS PROTECT YOURSELF

BE SURE TO KEEP GOOD WRITTEN RECORDS on Cell Phones, Travel, Meals,


Entertainment, Gifts, and Listed Property.
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REMEMBER
The more you can legally deduct, the more you can keep for you and your
family, or for save towards your future retirement. The IRS says you need to
report the least amount of allowable tax.

If you are not pleased with your accountant or CPA don’t hesitate to make a
change before you get in too deep or you let your tax related information get
beyond your basic control.

If you will learn as much as you can about taxes yourself you will find it easier
to work with your accountant, providing him or her with what is needed and
in a much more orderly fashion.

TAX QUESTIONS

MARK CORRECT ANSWER

True/False Question
1. Three deductions beginning with “E” are:
Education Everything Entertainment
True
False

True/False Question
2. Three deductions beginning with “A” are:
Auto Advertising Accounting
True
False

True/False Question
3. Three deductions beginning with “L” are:
Legal Fees Licenses Labor Costs
True
False

True/False Question
4. Three deductions beginning with “T” are:
Taxes Telephone Travel
True
False

True/False Question
5. You can spend your money wisely to help to prevent paying taxes to the IRS by
investing in a Computer, Massage Table (s) and / or Education?
True
False

True/False Question
6. Self- Employment Tax is the tax your employer pays into the IRS on your behalf.
True
False

True/False Question
7. Sales tax is a state tax assessed on sale of certain merchandise and / or
services in some states, while not in others?
True
False

True/False Question
8. F U T A is the employer’s portion or half of the employee’s taxes on certain
wages?
True
False

True/False Question
9. If you are an independent contractor, the form you should receive from the one
hiring your services, if the amount paid in the year is over $600.00, is called a
MISC. 1099 Form?
True
False

True/False Question
10. A Schedule “C” is used for reporting your business expenses and show
business related losses or gains.
True
False

Multiple Choice Question


11. Social Security, paid by a self- employed person is reported on which one
of the following forms?

Answer 1 Schedule SE
Answer 2 Schedule C
Answer 3 1120 Form
Answer 4 W4 Form

True/False Question
12. An Employee fills out a W4 Form when they apply for a position with you?
True
False

True/False Question
13. Mileage cannot be deducted from your home to your first business related
stop?
True
False

True/False Question
14. Sub Chapter S Corporations must file an 1120s Form
True
False

True/False Question
15. Normally taxes are due on April 15th, however you may delay PAYING your
taxes until October at the latest without penalty?
True
False

True/False Question
16. You do not have to report cash received for your massage services?
True
False

True/False Question
17. Checks received from insurance companies are classified as income?
True
False

True/False Question
18. The IRS rules are sometimes not the same as those for state & local rules.
True
False

True/False Question
19. Gifts can be deducted up to a limit of $75.00 each?
True
False

True/False Question
20. Under certain circumstances, when you are self employed you must pay
quarterly estimated taxes?
True
False