C Corporation

A C Corporation is a legal entity that is separated from its owners (shareholders). It can own property, enter into contracts, sue and be sued, and is responsible for its own debts and liabilities. C Corporations have double taxation. This means that the corporation pays taxes on its profits at the corporate level, and then shareholders pay taxes again on dividends they receive from those profits at their individual tax rates. They are subject to the corporate income tax rate, which is set by federal law. The current federal corporate tax rate was a flat 21%. State corporate tax rates vary by state. There are no restrictions on the number or type of shareholders in a C Corporation, unlike S Corporations. C Corps can also have multiple classes of stock, which can include different voting and dividend rights.

Bookkeeping

Gross Receipts or Sales

  • Any cash or checks of business sales that were NOT reported to you on a 1099-NEC or 1099-MISC.

  • • Tax-exempt interest (in-state bonds)

    • Federal tax-exempt interest (out-of-state bonds)

    • State tax-exempt interest (US bonds, T-bills, etc.)

  • From Domestic Corporation

    Debt Financed Stock

    Certain Preferred Stock

    From Foreign Corporations

    Nontaxable Dividends

    Fully Taxable Dividends

  • Corporations, including S Corporations, are generally exempt from receiving Form 1099-NEC. This means that payments made to an S Corporation for services typically do not require the payer to issue a Form 1099-NEC. However, exceptions can apply.

  • At least $600 for:

    • Rents

    • Prizes and awards

    • Legal Settlements

    • Medical and health care payments

    • Crop insurance proceeds

    • Fish you sold from your fishing business

    • Notional principal contract

    • Attorney services

    • Fishing boat proceeds

    • Royalties

  • For business purposes, all transactions must be reported. This includes:

    • Cash App

    • PayPal

    • Venmo

    • Stripe

    • Amazon

    • eBay

    • Etsy

    • Shopify

    • QuickBooks

    • Square

    • POS Systems

    This includes payments for any:

    • Goods you sell

    • Services you provide

    • Property you rent

    The payments can be made through any:

    • Payment app

    • Online community marketplace

    • Craft or maker marketplace

    • Auction site

    • Car sharing or ride-hailing platform

    • Ticket exchange or resale site

    • Crowdfunding platform

    • Freelance marketplace

  • When reporting rental income, you should include the following types of income:

    • Rental Payments: The most obvious type of income to report is the rent payments you receive from tenants. This includes any advance rent payments you receive (rent paid before the period it covers).

    • Security Deposits: Normally, security deposits are not included in your income when you receive them if you plan to return them to your tenants at the end of the lease. However, if you keep part or all of the security deposit during the year because your tenant does not live up to the terms of the lease (e.g., for damage repair or unpaid rent), that amount becomes taxable income in the year it's kept.

    • Expenses Paid by Tenant: If your tenant pays any of your expenses, those payments are rental income. For example, if your tenant pays the water or sewer bill for your rental property and deducts it from the normal rent payment, the amount the tenant paid is considered rental income.

    • Property or Services in Lieu of Rent: If you receive property or services as rent, instead of money, you must include the fair market value of the property or services in your rental income.

    • Lease Cancellation Payments: If a tenant pays you to cancel a lease, this is also considered rental income.

  • • Crop Sales: Income from the sale of crops grown on the farm, such as grains, fruits, vegetables, or other agricultural products.

    • Livestock Sales: Revenue generated from the sale of livestock, including cattle, pigs, sheep, poultry, and other animals raised on the farm.

    • Government Agricultural Payments: Income from government agricultural programs, such as subsidies, disaster payments, or conservation payments. These payments are often designed to support farm income, encourage conservation practices, or provide assistance in response to crop or livestock losses.

    • Rental Income: If the farm rents out land, equipment, or facilities, the income received from these rentals must be reported. This can include cash rent, crop shares, or other rental arrangements.

    • Custom Work and Agricultural Services: Income from providing services such as custom harvesting, planting, or other agricultural services to other farms or clients.

    • Insurance Proceeds: Proceeds from crop insurance or livestock insurance claims due to losses from natural disasters, disease, or other covered events.

    • Agricultural Program Payments: Payments from participating in federal or state agricultural programs, such as conservation reserve programs or other incentive-based programs.

    • Other Farm-Related Income: This can include income from selling farm products like hay, wool, eggs, dairy products, or farm-produced goods like honey, jams, or nursery plants.

  • • Gross Rents

    • Gross Royalties

    • State Tax Refunds

    • Net Active Income (closely held corporation only)

  • This would include allowances, rebates, refunds to your customers, or returned sales.

Business Expenses

  • • Accounting Fees

    • Advertising

    • Answering Services

    • Bad Debts

    • Bank Charges

    • Commissions

    • Delivery and Freight

    • Depletion (Natural Resources)

    • Dues and Subscriptions

    • Employee Benefit Programs

    • Gifts

    • Insurance

    • Interests

    • Janitorial

    • Laundry and Cleaning

    • Legal and Professional

    • Licenses and Permits

    • Meals (50% deductible)

    • Office Expenses

    • Organizational Expenditures ($5,000 limit)

    • Outside Services

    • Pensions and Profit-sharing Plans

    • Postage

    • Printing

    • Rents (Equipments)

    • Rent and/or Lease (Property)

    • Repairs and Maintenance

    • Security

    • Subscriptions

    • Supplies

    • Taxing authority for licenses and permits

    • Telephone

    • Tools

    • Travel

    • Uniforms

    • Utilities

    • Amounts contributed to capital construction fund

    Disclaimer: Entertainment expenses are no longer deductible in 2023 moving forward.

  • • Electric Charging Fees

    • Garage and Parking Space

    • Gas and Fuel

    • Insurance

    • Lease Payments

    • License and Registration

    • Loan Interests

    • Mileage

    • Parking and Tolls

    • Property Tax

    • Repairs and Maintenance

    • Tires

    • Washing and Detailing

  • If you financed or have a car loan for the vehicle, the IRS considers that you own it for vehicle expense purposes. The original cost or cost basis of the vehicle can be “depreciated”.

    2023 Depreciation Rules:

    1. Vehicles below 6,000 lbs: Deduct up to $12,200 on first year or up to $20,200 with bonus depreciation. $19,500 in the second year; $11,700 in the third year; and $6,960 in subsequent years.

    2. Vehicles over 6,000 lbs: Deduct up to $28,900 on first year. $19,500 in the second year; $11,700 in the third year; and $6,960 in subsequent years.

  • Contributions can include:

    • Cash Contributions: Monetary donations made to qualified charitable organizations are deductible. This includes donations made by check, credit card, or electronic transfer.

    • Tangible Personal Property: Donations of physical items like clothing, furniture, equipment, or inventory can be deducted. The deduction amount generally depends on the fair market value of the property at the time of the donation, but special rules may apply depending on the type of property and how the charity uses it.

    • Real Estate: C Corporations can donate real estate, such as land or buildings, to qualified charities. The deduction is usually the fair market value of the property. Special rules apply if the property has appreciated in value.

    • Stocks and Securities: Donating stocks, bonds, or other securities to a charity can provide a deduction for the fair market value of these financial instruments at the time of the donation. If the securities have appreciated in value, this can be a tax-efficient way of giving.

    • Intellectual Property: Contributions of intellectual property rights, such as patents or copyrights, may also be deductible. However, the valuation and deduction rules for these types of donations can be complex.

    • Services or Time: While a C Corporation cannot deduct the value of services or time donated to a charity (e.g., volunteer hours), it can deduct out-of-pocket expenses incurred while performing services for a charitable organization, such as travel expenses.

    • Sponsorships and Advertising: Payments to charitable organizations that are partly for advertising or sponsorship can be partially deductible. The charitable portion of the payment is deductible, while the advertising or business portion may be considered a business expense.

    • Charitable Gift Annuities or Trusts: Contributions made through charitable gift annuities or charitable remainder trusts can be deductible. These are more complex giving arrangements that provide a benefit to the charity while also giving income or other benefits to the donor.

  • • Contractors: Form 1099-NEC

    • Employee’s Wages: (Form W-2)

    • Officer Compensation (Form W-2)

    • Payroll Service Fees

    • Company Payroll Taxes

  • • Excise Taxes

    • Foreign Income Taxes:

    • Franchise Taxes

    • License and Regulatory Fees

    • Personal Property Taxes

    • Real Estate Taxes

    • Sales Tax

    • State and Local Taxes

Home Office Expenses

  • The ratio will determine the deductible portion of your home office. So we’ll need these 2 items:

    • Square Feet of Area Used for Business

    • Total Square Feet of Home

    For example, if your home office is 200 square feet and your total home is 2,000 square feet, you can deduct 10% (200 ÷ 2,000) of home expenses.

  • In order to deduct your rent, one of the following must apply:

    • You use part of your home exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home.

    • You use part of your home on a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

  • If you are a homeowner and use a portion of your home exclusively and regularly for your business, you can deduct a portion of your mortgage interest as a business expense. Form 1098 may be used to calculate the deduction.

  • If the household expenses and repairs benefit the office space, they are deductible. Expenses such as painting your home or fixing the roof of your home are deductible.

  • Real estate taxes can also be deducted as part of the home office deduction, provided you use part of your home exclusively and regularly for business purposes. You can deduct a portion of your real estate taxes based on the percentage of your home's total square footage used for business.

  • Renter’s insurance is deductible as part of the home office deduction, provided you use part of your home exclusively and regularly for business purposes. If you meet the criteria for the home office deduction, you can deduct a portion of your renter’s insurance as a business expense.

  • Homeowner's insurance is deductible as part of the home office deduction, provided you use part of your home exclusively and regularly for business purposes. If you meet the criteria for the home office deduction, you can deduct a portion of your homeowner's insurance premiums as a business expense.

  • If you had a casualty or theft, like from a hurricane, tornado, fire, theft or vandalism that affected your home office, you can claim a business deduction for that loss. Casualty losses can be direct or indirect.

    Direct casualty losses are casualty losses that only affect your home office.

    Indirect casualty losses will be multiplied by your business use percentage. For example, a storm damages your roof. Since the roof is part of the whole house and used for both business and personal purposes, this is an indirect expense.

  • • Electricity Bill

    • Gas, Sewage, and Water Bill

    • Internet and Phone Bill

Inventory and Cost of Goods Sold

In most cases, if your business made money from the production, purchase, or sale of merchandise, you have to take inventories into account at the beginning and end of the tax year.

  • The value of inventory at the beginning of the tax year.

    Inventory should include the following:

    • Merchandise or stock in trade

    • Raw materials

    • Work in process

    • Finished products

    • Supplies that physically become a part of the item intended for sale

    • Also, the following merchandise should be included in inventory:

    • Purchased merchandise if title has passed to you even if the merchandise is in transit to you or you do not have physical possession of it for another reason

    • Goods under contract for sale that you have not yet segregated and applied to the contract

    • Goods out on consignment

    • Goods held for sale in display rooms, merchandise mart rooms, or booths located away from your place of business

  • Items bought for resale or that become part of the goods you produce for sale.

    • Raw Materials and Supplies: Costs for materials and supplies that are used in the production of goods for sale.

    • Products for Resale: Expenses for purchasing goods that are intended to be resold to customers, typically in the same condition in which they were bought.

    • Freight-in Costs: Shipping and handling costs associated with getting the items to your place of business.

  • Manufacturing labor costs include the wages and salaries paid to employees who are directly involved in producing the goods. This can include workers on the production line, machine operators, and other direct labor employees. It's important to note that these costs should only include the direct labor involved in making the products, not the labor costs for administrative or sales staff.

  • These costs are considered part of your business expenses and can be deducted in the year they are used or consumed.

    • Raw Materials: The basic materials from which your products are made. For a manufacturing or production business, this could be things like wood, metal, fabric, or ingredients.

    • Supplies: Items that are used in the production process but are not directly part of the final product. This might include things like adhesives, cleaning supplies, or small tools.

    • Consumables: Items that are used up quickly, such as paper, printer ink, or office supplies.

  • Additional expenses that are directly associated with the production or acquisition of the goods you sell, but which do not fit neatly into the categories of "Purchases," "Labor Costs," or "Materials and Supplies." These can include:

    • Factory Overhead: Costs related to manufacturing that are not directly tied to a specific product, such as utilities for the manufacturing facility, depreciation on equipment, and rent for the production space.

    • Indirect Labor: Wages for employees who contribute to the production process but are not directly involved in making the products, such as quality control inspectors, supervisors, and maintenance staff.

    • Packaging Costs: The costs of packaging materials for your products.

    • Freight-in: Shipping costs for bringing materials or inventory to your place of business.

    • Other Manufacturing Expenses: Various other costs directly related to the production process, such as costs for molds, dies, or tooling used in manufacturing.

  • The value of inventory (unsold and on hand) at the end of the tax year.

    The ending inventory typically includes:

    • Finished Goods: Completed products that are ready for sale but have not yet been sold.

    • Work-in-Progress (WIP): Goods that are in the process of being manufactured but are not yet completed.

    • Raw Materials: The basic materials and supplies that are on hand and will be used to produce goods.

Depreciation and Amortization

Depreciation and amortization are accounting methods used to allocate the cost of tangible and intangible assets over their useful lives, respectively.

  • A depreciable asset a property that a business owns and uses for its operations, which has a useful life of more than one year and loses value (depreciates) over time due to wear, tear, and obsolescence. These assets are used in the business and are not intended for resale in the course of business. The cost of depreciable assets cannot be fully deducted in the year of purchase; instead, the cost is spread out (depreciated) over the asset's useful life. Common examples of depreciable assets for businesses include:

    1. Buildings: If a business owns the building in which it operates, the cost of the building (not the land) can be depreciated.

    2. Vehicles: Cars, trucks, or vans used for business purposes.

    3. Machinery and Equipment: Items such as computers, office equipment, manufacturing machinery, or tools used in the business.

    4. Furniture and Fixtures: Desks, chairs, shelves, and other office furnishings.

    5. Leasehold Improvements: Improvements made to a leased property, such as adding partitions, painting, or installing new flooring.

  • Amortization is a financial term used to describe the process of gradually reducing the cost or value of an asset or the balance of a loan over a period of time. It involves making regular payments that cover both the interest and a portion of the principal amount of a loan. The concept of amortization is commonly used in the context of loans (like mortgages) and intangible assets. There are two main types:

    1. Amortization of a Loan: This refers to the process of paying off a debt over time through regular payments. A portion of each payment goes towards the interest, while the remainder is used to reduce the principal balance. Over time, the interest portion decreases and the principal portion increases, eventually paying off the loan in full. An example of this is a mortgage loan, where the borrower makes monthly payments that are calculated to pay off the loan over a specific period, such as 30 years.

    2. Amortization of an Intangible Asset: This involves gradually writing off the cost of an intangible asset (such as patents, copyrights, trademarks, or goodwill) over its useful life. Instead of expensing the entire cost of the asset in the year it is acquired, it is spread out over several years, reflecting the asset's consumption, use, or decline in value. For example, if a company acquires a patent that is expected to be useful for 10 years, the company will amortize the cost of the patent over those 10 years, affecting their financial statements accordingly.