Resources
Discover common tax and finance terms and essential dates and links to know. Don’t let yourself feel overwhelmed with the world of tax and finance. Read on to acquaint yourself and gain confidence in tax and finance literacy.
Critical Links to Know!
- IRS News Releases for the Current Month – available in English, Spanish, and Chinese [Click Here]
- State of California Franchise Tax Board News Releases -newsroom and you can sign-up to receive updates [Click Here]
- Journal of Accountancy – get your accounting geek on here with detailed articles and news for you and your accountant [Click Here]
Important Dates to Remember:
- January 31st – Form 1099
- March 15th – Corporate (S-Corp) and Partnership Tax Returns (Extension September 15th)
- April 15th – Personal Tax Return (Extension October 15th)
- April 15th – Corporate (C-Corp) Tax Return Extension October 15th)
- April 15th – Fiduciary Tax Return – (Extension September 30th)
- April 15th – Form 709 Gift Tax Return (Extension October 15th)
- July 31st – Form 5500 Report of Employee Benefit Plan (Extension October 15th)
SPECIAL NOTE: Form 706 Estate Tax Return – Nine (9) months after the date of death, note: you can request a six (6) months extension.
Terms and Definitions:
Balance Sheet = List of Assets, Liabilities, and Owner Equity. As the term “Balance” goes, everything in the Balance Sheet should equal out.
P & L = Profit and Loss Statement for a business that lists all the different income sources and various expenses. This is an essential tool for a growing business as it can be used to create a Budget or control the operating expenses and cash flow.
Net Income = Your bottom line, which means what is left after all expenses.
Gross Margin = This percentage is calculated by Gross Sales minus COGS (Cost of Goods Sold) divided by Gross Sales. Every business has a standard/average percentage based on historical statistics or trends, so this is an excellent tool to determine if your business is below or above the average percentage for your particular line of business.
Net Profit Margin = This percentage is based on your Net Income divided by Gross Sales. A successful and growing business should see this percentage increase every year.
Depreciation = According to the IRS, every tangible asset has a specific productive life cycle. For example, an office chair is assigned a 5-year depreciable life. This does not mean that the chair will be useless after five years. It means that a business can deduct, as a “Depreciation Expense,” the cost of the chair divided by five years of life as an expense for the next five years.
LLC = Limited Liability Company is a fancy version of a Partnership. An LLC is a “Passthrough” entity type, meaning any income or loss will be reported on the Partners/Members’ personal income tax return. An LLC can choose to be treated as a corporation rather than a Partnership, and depending on what type of a corporation it chooses to be, it may have its’ own tax liability rather than passing it to the Partners/Members.
LLP = Limited Liability Partnership is the same as an LLC. However, any individual in the service industry who is required to hold a “Professional License,” such as doctors, lawyers, accountants, etc., must register their business as an LLP rather than an LLC. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.
GP = General Partnership is an arrangement between two or more partners conducting business jointly with unlimited liabilities, meaning that their personal assets are liable for any General Partnership’s obligations or debts.
LP = Limited Partnership is also an arrangement between two or more partners to conduct a joint business; however, one or more partners can be liable ONLY to the extent of the amount of money the Partner has invested in the Limited Partnership.
C-Corp = A C-Corp is a type of entity that is its’ own animal. It means that it pays its taxes on the profits.
S-Corp = An S-Corp is very similar to an LLC, with the difference that the owners are called Shareholders. Like an LLC, all Profits and Losses are passed through to the shareholders and, therefore, reported on his or her personal tax return. The significant difference between the LLC and S-Corp is that in an S-Corp. The shareholder is required to have a “Reasonable Salary.” The “Reasonable Salary” issue is important when deciding between an LLC and S-Corp.
Operating Expenses: These expenses are auto, printing, postage, payroll, taxes, and any costs associated with running your business.
Cash Flow Management: Are you cash-poor or cash-rich every day? Cash Flow management is a technique that allows you to manage your Accounts Receivable (customer receipts) and Accounts Payable (your vendor payments) in addition to meeting your daily Operating Expenses. Basically, how much cash do you have on hand every day?
Financial Statements: These consist of the Balance Sheet and the Profit and Loss Statement (also known as Income Statement). A necessity for every business in case of loan applications, Tax Compliance, Budgeting, or Sale of Business.
Itemized Deductions: This is mainly related to your personal tax return. These include medical expenses, state and local taxes, mortgage interest, charities, and unreimbursed employee business expenses. For more detailed information, please see https://www.irs.gov/forms-pubs/about-schedule-a-form-1040.
Adjusted Gross Income: ALL your income less specific deductions (e.g., IRA contribution, Self-Employed Health Insurance, one-half of the Self-Employment Tax, Health Saving Account contributions, etc.).
Standard Deduction: The government gives you an option of either itemizing your deductions or taking a so-called Standard Deduction, which is an amount set by the government every year (adjusted by inflation) based on your marital status. Standard Deduction applies to personal taxes only.
Tax Deduction: This is the same as Operating Expenses but more expanded. For example, a Tax Deduction may include Depreciation and Amortization Expense for a business.
Progressive Tax: Taking a more significant percentage from high-income earners than low-income earners.
Taxable Income: This is your Total Income Less ALL deductions and expenses. This is the amount used to calculate your business or personal income tax.
Withholding: This is a payroll-related item, and it has to do with how much in income taxes an individual would like to withhold from his or her salary.
Death or Inheritance Tax: You cannot escape this one even if you are dead. This item is debated continuously on both sides of the aisle in Congress. This is a tax that an individual has to pay on the money or property they have inherited. This tax can be both on the Federal and State level.
Modified Adjusted Gross Income: This is your Adjusted Gross Income, and adding any tax-exempt income or certain deductions (IRA Contribution, Foreign Income, Tuition Expenses, Self-Employed Health Insurance, etc.)
Tax Compliance: Filing and Paying your taxes.
Depreciation and Amortization Expense: Certain Assets (cars, computers, buildings, etc.) have a specific useful life. So, Depreciation Expense is when a business allocates a certain percentage of the asset’s cost to its’ useful life and deducts that amount as Current Expense from the business income. Amortization Expenses are the same concept but are applied to Intangible Assets (Goodwill, Software, Trademarks, Patents, etc.)
Above the Line Deductions: These are expenses that an individual can deduct (IRA Contributions, one-half of Self-Employed Health Insurance, Health Savings Account Contributions, etc.) from their Gross Income to arrive at the Adjusted Gross Income.