Category Archives: Tax Issues

Personal Property Tax: The forgotten tax for many small businesses?

by Joe Heinrich, Volunteer Business Mentor, Seattle SCORE

Most small business owners are perfectly aware of the Federal, Washington and city taxes they are obliged to pay. However, the one that tends to fall through the cracks is the local Personal Property Tax on businesses by the county in which the business is located. This article explains what personal property is, how to self-report a business’s personal property, how the tax is assessed and how much a business may have to pay in Personal Property Tax.

What is “personal property” of a business?

Taxable Personal Property typically includes items used by a company to conduct business. Examples of personal property which may be assessed include furniture, fixtures, electronic equipment, telephones and machinery. Leasehold improvements and leased equipment are also included as personal property. However, personal property does not include property which is attached to a building or to the land which a business owns as that is considered “real property”.

Exempt personal property includes inventory (i.e., items owned to be resold or used as raw materials to products to be manufactured and sold) and vehicles used on the roadways.  Continue reading

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What are the qualified business deductions under the Tax Cuts and Jobs Act?

tax deductionsThe Tax Cuts and Jobs Act (TCJA) created a new 20% deduction for pass-through entities. Though the IRS has not fully interpreted the new rules—which won’t go into effect until the 2019 tax season—many of the implications are clear. This article’s companion piece examined what qualifies as a Pass-Through Entity (PTE).

This blog hopefully sheds some light on how PTEs will be impacted by the new law.

Why a Deduction for Pass-Through Entities?

Since their inception, pass-through entities have been a popular choice for entrepreneurs, especially after the 1986 Tax Reform Act (TRA). Better known as President Reagan’s second tax cut, the TRA was passed by Congress to simplify the tax code and adjust the federal tax brackets.  Continue reading

Ask SCORE: What is the Washington State B&O Tax?

from the Department of Revenue…

The B&O tax (short for “Business & Occupation Tax”) is a gross receipts tax. It is measured on the value of products, gross proceeds of sale, or gross income of the business.

Washington, unlike many other states, does not have an income tax. Washington’s B&O tax is calculated on GROSS income from activities. This means there are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business.

The Business and Occupation (B&O) tax is a gross receipts tax levied on a business for the privilege of doing business in Washington. Almost all businesses located or doing business in the state of Washington are subject to the state B&O tax. It is an out-of-pocket cost for engaging in business activities.

The classification and rate of the B&O tax are based on the type of business activity conducted in this state. A business may perform more than one type of activity. Businesses performing multiple activities may be subject to tax under one or more B&O tax classifications.

Learn more about the Washington State B&O Tax. 

Learn about your city’s B&O Tax rates. 

Ask SCORE: As a business owner, how should I pay myself?

This is an excerpt from an article by Hal Shelton for score.org. Read more here.

Pay Strategies

Depending on the maturity of your company and your plans for the business, you may adopt different compensation strategies.

  • Start-up mode: It is typical for a start-up to be cash-flow negative in its early months, if not years. This results from one-time start-up expenses like buying equipment, building out a facility, stocking inventory, marketing to attract customers, building products or websites, legal and accounting costs, and rent and utility deposits. Also at start-up, there are no or few customers. As such, during these times, your compensation will be light as there are no funds to pay more. Hopefully, you had prepared a business plan, including a cash-flow forecast, so you knew the range of your compensation during this period, and if there was not enough to “live on,” you have made other arrangements.
  • Lifestyle vs. ramp and sell: If you intend to own and operate your company for many years, which is what 95 percent of entrepreneurs plan, then you will want to develop, over time, a predictable compensation plan both to meet your personal needs and be predictable for yourself and the company.

Continue reading

What Tax Records Should You Keep… And For How Long?

tax-records

Except in a few cases, the law does not require any specific kind of records. However, you may want to include all of these items, no matter what process of recordkeeping is chosen:

  • Business checkbook
  • Daily summary of cash receipts
  • Monthly summary of cash receipts
  • Check disbursements journal
  • Depreciation worksheet
  • Employee compensation record
  • Any financial statements

Also, be diligent in keeping these records as well, whether it be the original source documents OR electronic copies:

  • Gross receipts
  • Inventory
  • Expenses
  • Travel, transportation, entertainment & gift expenses
  • Employment taxes
  • Assets
  • Cancelled checks

Continue reading