Tax and Accounting Basics for Sole Proprietors and Single Member LLCs

Introduction

• Speaker: Katherine Wright
  • Enrolled agent licensed by the US Department of Treasury
  • Former IRS employee with 19+ years experience
  • Founder of Rightway Tax Solutions LLC
  • Small business mentor and board member

Workshop Overview

• Objective: Importance of tax and accounting for sole proprietors and single-member LLCs
• Case Study: Angela, an artist launching Angela’s Art Shop LLC

Key Topics Covered

1. Business Banking and Financial Organization

   • Importance of separate business bank account
   • Usage of accounting systems like QuickBooks
   • Consulting professionals for bookkeeping

2. Tracking Revenue, Expenses, and Profit

   • Distinction between revenue and net profit
   • Importance of tracking for tax reporting (Form Schedule C)

3. Inventory Management

   • Tracking beginning and ending inventory
   • Importance for calculating Cost of Goods Sold (COGS)

4. Understanding Cost of Goods Sold (COGS)

   • Costs directly tied to products/services
   • Impact on profit margins

5. Taxes for Small Business Owners

   1. Self-Employment Tax
      • Applicable if net profit is $400 or more
      • Charged at 15.3% covering social security and Medicare
      • Reported using Schedule SE
   2. Estimated Tax Payments
      • Covers self-employment and income tax
      • Quarterly payments to avoid penalties
      • Payment schedule: April 15, June 15, September 15, January 15
   3. Sales Tax
      • Requirement varies by state
      • Application for sales tax permit
      • Special considerations for online sales

6. Choosing a Reputable Tax Preparer

   • Importance of selecting a professional with small business experience
   • Types of tax professionals: Enrolled Agents, CPAs, Accountants, Tax Preparers
   • IRS Volunteer Income Tax Assistance (VITA) program for free tax preparation

Common Mistakes to Avoid

• Mixing personal and business finances
• Failing to track all income and expenses
• Missing estimated tax payments
• Ignoring sales tax obligations

Tips and Recommendations

• Keep business and personal finances separate
• Maintain receipts and documentation
• Use accounting software for accurate tracking

Additional Insights

• Options for banking accounts: credit unions vs. traditional banks
• Resources for finding trained tax professionals (IRS.gov)
• Handling missed tax filings
• Overpayment of estimated taxes and refunds
• Payment plans for tax dues

Final Advice

• Importance of separating business and personal finances
• Setting up IRS.gov account for accessing tax information
• Contact information for IRS support

Q&A Session Highlights

• Bank account options for business
• Finding and verifying tax professionals
• Dealing with unfiled taxes
• Accessing tax forms and making estimated payments
• Payment plans for large tax dues
• Advice for new business owners: maintain separation in finances