A number of accounting rules evolved from tax rules and vice versa. Therefore, as a small business owner, if you have no formal training in bookkeeping or accounting, you can turn to IRS publications for help in illustrating the rules.
I use the IRS website almost every week to research topics relating to taxes as well as a number of general business activities, so I thought I would share with you some of the IRS publications that I find most useful and that I believe every small business owner should read.
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1) 15 – Employer’s Tax Guide (Circular E) 2) 15-A – Employer’s Supplemental Tax Guide 3) 15-B – Employer’s Tax Guide to Fringe Benefits 4) Business Entity Resources a) 334 – Tax Guide for Small Business (Sole Proprietors) b) 541 – Partnerships c) 542 – Corporations 5) 463 – Travel, Entertainment, Gift and Car Expenses 6) 535 – Business Expenses 7) 538 – Accounting Periods and Methods 8) 583 – Starting a Business and Keeping Records 9) 587 – Business Use of Your Home 10) 946 – How to Depreciate Property |
Employment Taxes
Publication 15 (also known as Circular E) explains your tax responsibilities as an employer. That means it’s all about the requirements for withholding, depositing, reporting and paying employment taxes. It also explains the forms that are required to be given to employees, those that an employee must give to you, and those that every business must send to the IRS and Social Security Administration. You will also find information about payroll periods, who is considered an employee and employment of family members.
Publication 15-A supplements Publication 15 and contains specialized and detailed employment tax information. Most importantly, it includes information on the different categories of employees and discusses the difference between an employee and an independent contractor. It also touches on the consequences of misclassifying an employee as an independent contractor. In addition, you’ll also find important information about sick pay and pensions and annuities.
Side Note: Publication 1779, Independent Contractor or Employee, is a brochure published by the IRS and meant to be distributed to workers that describes some of the factors considered by the courts when making a determination regarding whether a worker is an employee or an independent contractor. It is worth reading.
Publication 15-B also supplements Publication 15 and contains information on the employment tax treatment of employee fringe benefits. A fringe benefit is typically non-cash compensation for the performance of services (e.g. use of a company car, membership to a gym or golf club, and gift cards). Fringe benefits are the same as taxable wages unless specifically excluded by a section of the Internal Revenue Code. This publication provides an overview of fringe benefits, discusses the specific IRS exclusions and outlines the valuation rules.
Business Entity Resources
Publication 334 provides information about the federal tax laws that apply to sole proprietors. It contains general information on business income, expenses, and tax credits that can help you file your income tax return. It also explains self-employment tax and disposing of business property.
Publication 541 provides federal income tax information for partners and partnerships. It supplements the information provided in the instructions for Form 1065, US Return of Partnership Income. You will find topics such as filing a partnership return, partnership distributions and transactions between the partners and the partnership.
Publication 542 provides information on the general tax laws that apply to ordinary domestic corporations (those that are formed in the US). You’ll find information on capital contributions, property exchanged for stock and recordkeeping, as well as income and deductions.
Deductions / Expenses
Publication 463 discusses business-related travel, entertainment, gift and transportation expenses and is intended for use by sole proprietors and employees. It defines what expenses are deductible and describes how to report them on your tax return, what records you will need to substantiate your expenses and how to treat any expense reimbursements you may receive.
Publication 535 discusses common business expenses for all types of entities and explains what is and is not deductible as well as the general rules for deducting them. It will cover specific expenses such as employees’ pay, rent and taxes as well as those expenses that cannot be deducted and must be capitalized.
Publication 587 provides information on figuring and claiming the deduction for business use of your home. This deduction is available to sole proprietors, partners, and members of an LLC or anyone else whose business income and deductions flow through to their personal tax return. It outlines how to determine if you qualify for the deduction and where to claim it on your return.
Publication 946 explains how to recover the cost of business property through deductions for depreciation. It describes what property can and cannot be depreciated, explains when depreciation begins and ends and what methods can be used to depreciate property. However, it is a tax guide so it does not provide guidelines on how to account for fixed assets and depreciation in your accounting records. See Publication 535 for help with that.
General Business Activities
Publication 538 explains some of the rules for accounting periods and accounting methods. It explains the concepts of a calendar year vs. a fiscal year as well as the cash method of accounting vs. the accrual method. It applies to all types of business entities – sole proprietors, partnerships, corporations and limited liability companies. The publication also explains how to change your accounting year if necessary.
Publication 583 provides basic federal tax information for people who are starting a business. It includes information on a business’ federal tax responsibilities, how to obtain a taxpayer identification number, recordkeeping, types of business taxes and the filing of information returns (e.g. 1099-MISC, W-2). It provides a very good overview on a number of important business topics.