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How to Take Money Out of a Partnership A partnership structure is similar to a sole proprietorship in that?both are not legal entities, meaning it is not a corporation or LLC, and they are considered "pass-through" entities, meaning business profits and losses are reported on the owners' personal tax returns, and both involve personal liability for the business debts, but the key difference is that a partnership has multiple owners while a sole proprietorship has only one owner. Partners are never paid via payroll.?There is no W-2 and no 1099 issued to partners.?You can have employees in your Partnership that you have on payroll, but not Partnership owners. The Partnership does not pay Federal income taxes, but it does require state sales tax and income tax, this varies by state.?Even though the Partnership does not pay Federal income taxes, it is still required to file a Partnership tax return, Form1065 annually.? The Partnership tax return generates K-1 packages that are distributed to partner owners which enable the Partners to report their share of business net income on their own 1040 individual tax returns. Three ways to take money out of a Partnership 1. Distributions (Via cash withdrawal, ACH, check, bank transfer, etc. Each partner should receive equally.) 2. Guaranteed Payments (Such as partners’ medical insurance. Guaranteed payments are recurring payments to select partner(s) for services performed. Guaranteed Payments are paid out in the same way as distributions.) 3. Partner Reimbursements (Such as home office reimbursement, reporting on (1) UPE - unreimbursed partner expense – K1, and partners report their unreimbursed partnership expenses on Schedule E, Form 1040, or (2) get reimbursement from your partnership via an accountable plan.) Note: Accountable plan is better than UPE—Why? Please see the example below: ? Sam is a 20 percent partner in a Partnership. He’s in the 24% federal tax bracket (for this example, let's keep it simple and ignore the self-employment tax). ? Let’s say Sam uses Form 8829 on his personal return and calculates his home-office deduction as $5,000. If Sam deducts $5,000 as UPE, he only gets actual $1200 tax money saved (24% of $5,000). But if Sam receives an accountable plan for the reimbursement from the partnership, it puts $5240 into his pocket: ? $5,000 as a tax-free cash reimbursement from the business bank account to his personal bank account, and $240 from reduced pass-through income (24% of $1000, which is 20 percent of the $5,000 partnership expense). Reference: https://lnkd.in/g9wb-sVj

?????????????? ?????????????? ?????????????? ?????? ???????????? &??????????????? ?????????????? ?????????????????? ???? ?????????????? ???????? :? Before we look at how owners in different company structures pay themselves, let’s look at the various payment options for owners:?? ??. ???????????? ??. ??????????’?? ???????? ??. ???????????????????????? ??. ???????????????????? ?????????????? ?????????????? ??. ???????????????? ??. ???????????? A fixed, regular payment to business owners treated as employee, often used in corporations. The IRS requires owners to pay themselves a “reasonable salary” based on comparable jobs. Salaries are subject to payroll taxes (Social Security, Medicare, and unemployment taxes), which are withheld from the paycheck, and the employer matches these amounts ??. ??????????’?? ???????? A method where sole proprietors or similar business owners take money directly from the business’s available cash or profits as needed. Draws are not wages, so they aren’t taxed when taken out but are instead taxed as personal income when filing annual tax returns. Draws don’t reduce business taxable income. ??. ???????????????????????? A payment to business owners or shareholders based on their share of profits, common in partnerships, S corporations, or LLCs taxed as such. Unlike owner’s draws, which don’t need to be reported to the IRS on any specific form, distributions must be reported on a tax form called Schedule K-1. For example: ? If the business earns $100,000 in profit and you own 50%, your distributive share is $50,000. ? Even if you only withdraw $20,000, you’ll pay taxes on the full $50,000. In summary, owners are taxed on their share of business profits (not the withdrawn amount), with quarterly tax payments often required. ??. ???????????????????? ?????????????? ?????????????? Regular payments made to partners in partnerships or members of LLCs taxed as partnerships, compensating them for services or capital investment. These Payments are not included in payroll. They are considered business expenses and reduce net income. Partners must report these payments on their Schedule K-1 and pay self-employment tax on the amount. Quarterly estimated tax payments are required. ??. ???????????????? Dividends are profits distributed to shareholders in C corporations, typically paid quarterly or annually in cash, shares, or assets. They are not business expenses and don’t reduce the company’s taxable income. The company reports dividends on Form 1099-DIV, and shareholders must include them on their personal tax returns. Shareholders may need to pay estimated taxes if their tax liability exceeds $1,000. Now lets look into how a different type of business Pay their owner: (sources : from intuit payroll Proadvisor course)

“LLC Owners: Should You Switch to an S-Corp or C-Corp? Here’s What You Need to Know” As a business owner, choosing the right structure for your LLC can feel overwhelming. Should you stay as an LLC, or is it time to make the leap to an S-Corp or C-Corp? The right choice can significantly impact your taxes, liability, and overall financial strategy. At JP Tax Service and Accounting, we’re here to help you cut through the confusion. The Basics: What’s the Difference? ? LLC (Limited Liability Company): A flexible business structure offering liability protection and pass-through taxation. It’s great for startups or small businesses that want simplicity. ? S-Corp (Subchapter S Corporation): Offers pass-through taxation but adds the potential for payroll tax savings by designating yourself as an employee-owner. ? C-Corp (C Corporation): A separate legal entity that pays corporate taxes. It’s ideal for larger businesses seeking to attract investors or retain profits within the business. Key Factors to Consider 1?? Taxes: ? As an LLC, all profits are subject to self-employment taxes. ? With an S-Corp, you can pay yourself a reasonable salary and take the remaining profits as distributions, reducing payroll taxes. ? C-Corps pay corporate taxes and may face double taxation if profits are distributed as dividends, but they allow for reinvestment at lower corporate rates. 2?? Ownership and Growth: ? LLCs and S-Corps are great for small, closely held businesses. ? C-Corps are ideal for businesses planning to scale, go public, or attract outside investors. 3?? Flexibility: ? LLCs are simple to manage with fewer formalities. ? S-Corps require stricter guidelines, such as limiting shareholders to 100 and requiring U.S. residency. ? C-Corps allow unlimited shareholders and are not restricted by residency rules, making them better for global expansion. When Should You Switch? ? Consider an S-Corp if: ? You’re generating consistent profits and want to reduce self-employment taxes. ? You don’t plan to add more than 100 shareholders or take your business public. ? Consider a C-Corp if: ? You’re planning to raise significant capital or scale aggressively. ? You’re reinvesting most of your profits into the business rather than distributing them. How JP Tax Service Can Help Navigating these decisions can feel complicated, but you don’t have to do it alone. At JP Tax Service and Accounting, we analyze your financial situation, business goals, and tax implications to recommend the best structure for your business. We handle the paperwork, tax filings, and compliance so you can focus on growth. Ready to make the switch or need clarity? Let us guide you through every step. Contact JP Tax Service and Accounting today to make an informed decision that sets your business up for success! #TaxStrategy #LLCvsSCorp #BusinessSuccess #JPtaxserviceandAccounting #TaxPlanning

A comprehensive breakdown of tax information essential for entrepreneurs: 1. Understand Your Business Tax Obligations: Depending on your business structure (e.g., sole proprietorship, LLC, S-Corp, C-Corp), your tax obligations will vary. Each type has different tax forms, rates, and filing requirements. 2. Quarterly Estimated Tax Payments: Most entrepreneurs must make quarterly estimated tax payments to cover income tax and self-employment tax. 3. Self-Employment Tax: Self-employed individuals can deduct half of this tax from their net income, reducing overall tax liability. 4. Tax Deductions for Entrepreneurs: Common tax-deductible expenses include: - Home Office Deduction - Vehicle Expenses - Travel, Meals, and Entertainment - Office Supplies and Equipment - Employee and Contractor Costs - Insurance Premiums 5. Depreciation and Deduction: For large purchases like equipment or vehicles, you may be able to deduct the full cost in the year of purchase or depreciate the cost over multiple years. 6. Tax Credits for Small Businesses: Tax credits directly reduce your tax bill and can lead to significant savings. Common credits include: - Research and Development (R&D) Credit - Work Opportunity Credit - Energy Efficiency Credits 7. Retirement Contributions and Tax Advantages: Self-employed individuals can benefit from tax-advantaged retirement plans 8. Health Insurance Deduction: Self-employed individuals may deduct health insurance premiums for themselves, spouses, and dependents, which reduces taxable income. 9. Keeping Accurate Records: Keep organized records of income, expenses, and receipts. Accounting software, such as QuickBooks, can simplify this process by automating income tracking, expense categorization, and report generation. 10. Understand Payroll Taxes if You Have Employees 11. File Taxes on Time or Request an Extension: Filing late can result in costly penalties and interest. 12. Work with a Tax Professional: A tax professional can help you navigate complex tax laws, maximize deductions, and keep you compliant with all filing requirements. Regular consultations ensure that your tax strategy aligns with changes in your business and in tax laws. Following these guidelines can make tax time smoother and help you take advantage of all possible tax savings.

CRE brokers: Don't DIY your taxes and S Corp management? ? It might seem like you're saving several thousand dollars a year by doing it yourself. But what about the hidden costs you’re not seeing? The financial mistakes. The missed opportunities. The time you’ll never get back. ? Here’s what’s lurking below the surface of DIY S Corp management: ? Not realizing you need a payroll service company to process wages. Not paying yourself reasonable compensation (IRS-required wages for S Corp owners). Filing late or incorrect payroll tax forms, leading to penalties and interest. Not withholding enough taxes, resulting in underpayment penalties. Making quarterly tax payments manually, losing the opportunity to optimize cash flow or earn interest on cash. Deducting business expenses incorrectly or not deducting every legitimate business expense. Not contributing to a 401(k), SEP IRA, or other retirement plans, missing out on tax-deferred growth. Not paying for health insurance premiums properly, missing tax deductions or risking compliance issues. Not separating business and personal expenses, leading to messy records and potential audit flags. Not preparing financial statements for your business, such as income statements and balance sheets. Ineffectively managing cash flow, leading to liquidity problems. Holding too much cash in low-yield accounts instead of optimizing for higher returns or reinvestment. Missing opportunities to strategically time purchases and expenses to maximize tax benefits. Spending too much time trying to figure out what to do, instead of delegating tasks to professionals. Not spending enough time building your business or focusing on income-generating activities. Missing out on networking, prospecting, or market research because of being bogged down with financial administrative tasks. Risking IRS audits by not staying compliant with S Corp regulations. Overlooking changes in tax laws or regulations that could impact your business. Not maintaining adequate business records Not having a long-term financial strategy tailored to your business goals. Failing to leverage tax strategies unique to CRE brokers (e.g., QREA status, Section 179 deductions). Not optimizing the S Corp structure to its full potential, such as through tax-efficient distributions or expense allocations. Dealing with the stress and uncertainty of handling financial and tax matters on your own. Lacking confidence in whether you're doing things correctly, which can lead to second-guessing and anxiety. ? Ask yourself: If you didn’t have to worry about any of this, how much more could you achieve? ? One more deal this year? Two more? ? When you delegate S Corp management to a professional, you’re not just saving time and avoiding headaches—you’re setting yourself up to maximize your income and reduce your taxes. ? The best brokers don’t do it all themselves. ? They focus on what they do best and let the experts handle the rest.

Closing a business is more than just saying goodbye. To avoid future surprises from the IRS, it’s essential to close it properly. Whether you’re ending your business by choice or necessity, here’s a straightforward guide to help you with IRS requirements. Step 1: Settle Your Finances Before notifying the IRS, take care of any loose financial ends. Clear Any Debts: Pay off loans, vendor bills, or outstanding payments to employees.?Handle Payroll. If you have employees, make sure they’re paid up, and settle any taxes you’ve withheld. Getting your finances in order will make the rest of the closing process easier and help you avoid issues down the road. Step 2: File Your Final Tax Return One of the most important steps is to file a final tax return to let the IRS know your business is closing. The form you file depends on your business structure: ??Sole Proprietorship: File a final Schedule C with your 1040. ??Partnership: File a final Form 1065. ??Corporation or S Corporation: File a final Form 1120 or 1120-S. Make sure to check the box indicating it’s your final return. This step ensures you’re only taxed on what you earned while your business was open. Step 3: Close Your EIN (Employer Identification Number) If your business has an EIN, let the IRS know it’s no longer active by sending a letter with: Your business name and address/EIN number/Reason for closing/Mail the letter to the IRS office where you normally send your tax returns. Closing your EIN officially notifies the IRS, so you won’t have ongoing tax responsibilities. Step 4: Wrap Up Employee Taxes, If you had employees, there are a few extra steps:?Submit Final Employment Tax Forms/Complete your last quarterly or annual payroll forms (like Form 941 or Form 940)/Send Final W-2s/Provide employees with their last W-2 forms and file a W-3 summary with the Social Security Administration/Be sure to finish these steps so everything’s clear with your employees and the IRS. Step 5: Close Your Sales Tax Account, If your business collected sales tax, check with your state’s tax agency to make a final payment and officially close your sales tax account. This step prevents any accidental fees or penalties later on. Step 6: Cancel State or Local Licenses, If your business had any licenses or permits from the state or local authorities, contact those offices to officially cancel them. This way, you won’t be responsible for renewal fees in the future. Step 7: Inform Business Partners and Clients - Take time to notify partners, suppliers, and clients that your business is closing. This will help set clear expectations and maintain good relationships. Keep any important financial records for at least seven years, such as: ? Tax returns and financial statements/ Employment records/Proof of EIN closure and final payments Closing your business with the IRS can be manageable if you take it step by step. From filing your final tax return to closing your EIN, these actions help you wrap things up.

As 2024 winds down, here are some ideas to help you prepare your business for filing your upcoming tax return.

Small Business CGT (Capital Gains Tax) Concession:- The small business CGT concessions are part of the Australian tax system designed to make it easier for small businesses to sell or restructure their businesses by offering tax relief on capital gains. These concessions can help reduce the tax burden when selling business assets, such as shares, property, or goodwill. Key Eligibility Requirements for Small Business CGT Concessions:- *The business must meet the definition of a small business entity, which generally means an annual turnover of less than $2 million. *Active assets: the assets being sold must be active assets used in the business. *Pass the $6 million net asset test: The business owners (and their associates) must not have more than $6 million in net assets (including the business assets). This test ensures that the concessions are available to smaller businesses. There are four main small business CGT concessions in Australia Below:- 1) 15 Year Exemption:- *If a small business has owned an asset for at least 15 years, the capital gain on that asset can be fully exempt from tax if the business owner is over the age of 55 and retiring, or if they are permanently incapacitated. 2) 50% Active Asset Reduction:- *This allows small businesses to reduce their capital gain by 50% if the asset being sold is an active asset (i.e., used in the business). 3) Retirement Exemption:- *This exemption allows small business owners to reduce the capital gain by up to $500,000. This is available when the sale of business assets is used to fund the owner’s retirement.Then $500,000 exemption can be spread over multiple years if the capital gain is large enough. 4) Rollover:- *The rollover concession allows the deferral of CGT on the sale of business assets. Instead of paying tax immediately, the capital gain is deferred until the new asset is sold.This can be useful for business owners who wish to reinvest in a new business or asset without incurring an immediate tax liability. These concessions are aimed at making it easier for small businesses to exit, restructure, or reinvest in their operations while reducing the tax burden. They are complex, so businesses are encouraged to consult with a tax advisor or accountant to determine eligibility and how to apply them. ----------------------------------End--------------------------------------------

Understanding the Qualified Business Income Deduction: A Guide for Business Owners The Tax Cuts and Jobs Act introduced a new tax deduction for business owners in 2018 known as the Qualified Business Income Deduction (QBI). This deduction can be a significant tax saver for small business owners, but it can also be complex to understand. In this blog post, we'll break down what the QBI is and how you can take advantage of it. What is the Qualified Business Income Deduction? The QBI is a tax deduction that allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income. This deduction is available to sole proprietors, partnerships, S corporations, and some trusts and estates. How Does the QBI Work? The QBI deduction is calculated based on the net income of your business. This means you subtract your business expenses from your business income to determine your net income. You can then deduct up to 20% of this amount from your taxable income. However, the QBI deduction is subject to certain limitations. If your taxable income exceeds $163,300 for single filers or $326,600 for joint filers, the deduction may be limited or phased out entirely. Additionally, certain types of businesses, known as "specified service trades or businesses" (SSTBs), may be ineligible for the deduction if their income exceeds these thresholds. How Can Business Owners Use the QBI? There are several strategies business owners can use to maximize their QBI deduction: 1. **Track Your Business Expenses**: Since the QBI deduction is based on net income, tracking and deducting your business expenses can increase your deduction. 2. **Consider Business Structure**: The QBI deduction is available to certain types of business entities. If you're currently operating as a sole proprietor, you might consider forming an S corporation or partnership to take advantage of the QBI. 3. **Manage Your Taxable Income**: If your income is close to the threshold where the QBI begins to phase out, consider strategies to manage your taxable income. This could include deferring income or accelerating deductions. 4. **Consult a Tax Professional**: The QBI is a complex deduction with many nuances. A tax professional can help you navigate these complexities and ensure you're maximizing your deduction. The QBI deduction is a valuable tax-saving tool for business owners. By understanding how it works and implementing strategies to maximize your deduction, you can significantly reduce your tax liability and keep more of your hard-earned money. Remember, this is a general guide and may not apply to everyone's situation. Always consult with a tax professional for advice tailored to your specific circumstances.

What sole traders can and can’t claim this tax time As a sole trader, you can claim various business expenses on your tax return to reduce your taxable income and potentially increase your tax refund. However, it's essential to ensure that these expenses are directly related to your business activities and are appropriately documented. Here's a general overview of what sole traders can and can't claim: Expenses You Can Claim: Operating Expenses: costs directly related to running your business see the article. Vehicle Expenses: If you use your vehicle for business purposes, you can claim expenses such as fuel, maintenance, registration, and insurance. However, you need to keep accurate records and distinguish between personal and business use. if you do not have a vehicle and use public transport opal activity statement will show all the travel activity and keep uber and didi receipts Travel Expenses: Any travel expenses related to business activities, such as attending conferences, meetings with clients, or business-related training courses, can be claimed. Professional Services: Fees paid to accountants, lawyers, consultants, and other professional advisors for services related to your business are generally deductible. Depreciation: You can claim depreciation on assets used in your business, such as computers, machinery, and furniture, over their useful life. Home Office Expenses: If you operate your business from home, you may be able to claim a portion of home-related expenses, such as rent, utilities, and internet, based on the proportion of your home used for business purposes. Expenses You Can't Claim: Personal Expenses: Expenses not directly related to your business activities, such as groceries, clothing, and personal entertainment, are not deductible. Capital Expenses: The purchase costs of an asset such as property & vehicle only the depreciation can be claimed as an expense an immediate deduction. Non-Business Expenses: excluded non tax deductible expenses incurred is not related for the purpose of generating income in your business, such as hobbies. Penalties and Fines: Expenses related to fines, penalties, or illegal activities are not deductible. Private Health Insurance: While health insurance premiums are generally a personal expense, there are specific circumstances where sole traders may be able to claim a portion if it relates directly to their business activities. However, it's essential to seek professional advice in such cases. It's crucial to keep detailed records of all your business expenses throughout the financial year and consult with a tax professional to ensure you're claiming everything you're entitled to while staying compliant with tax laws and regulations. https://lnkd.in/gipAY3ST #ATO #soletrader #TaxReturn #taxseason2024#penalty