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San Jose small business tax deduction attorneyThe Tax Cuts and Jobs Act (TCJA) of 2017 has made many significant changes to tax laws that affect both individuals and small businesses. Understanding how these changes will affect the taxes a business owner must pay and the deductions they are allowed to take can help avoid tax penalties or audits. 

One area affected by the TCJA is the allowance for deductions for business expenses. This change went into effect for the 2018 tax year. 

Entertainment and Meal Expense Deductions

Business owners should understand that the TCJA removed the deduction for any expenses incurred by a business involving activities generally considered entertainment, amusement, or recreation. Previously, a company was typically allowed a deduction of up to 50 percent of entertainment expenses. To qualify for this deduction, the expense had to relate directly to the active performance of a business or trade. Common examples of ways a business would claim this deduction were for sporting event tickets or club memberships. Under the new rules, these expenses are now non-deductible.  

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business formation, San Jose business formation attorney, business and tax attorney,  sole proprietorship, business corporationIf you are considering opening a business with your spouse, there are several important areas to consider. One such area is what type of business should be formed. There are different reasons why one would select a corporation, an LLC, or a partnership for his or her business. Additionally, there may be legal constraints on this decision. 

With regard to a business operated with a spouse, people may wonder if a partnership is the correct type of business to form given that the two people operating the business are married. While the IRS has given guidance on this issue, it is always best to contact a tax and business formation attorney to understand what is required under law based on the facts of your case.

According to the IRS, if the business is a sole proprietorship, it must be owned only by one spouse. The other spouse can work at the business as an employee. If the business is owned and operated by both spouses, the business must be a partnership. All partnerships must file IRS Form 1065, U.S. Return of Partnership Income.

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San Jose S corporation tax attorney, tax filing guidelines, 

S corporations, federal income tax, California taxIf you are setting up a new business or restructuring an existing one, you might consider electing to be taxed as an S Corporation, which means you are electing to have your entity taxed under Subchapter S of the federal tax code. Such entities will also be considered as an S corporation for California tax purposes.

Provided that the business qualifies, it may be beneficial from a tax perspective for an entity to be considered an S corporation as the business will be able to avoid federal double taxation because there is no corporate federal income tax on the profits of the company. All profits and losses are passed on to the entity’s shareholders.

Structure of an S Corporation

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San Jose business tax attorney, wrapping up a California business, final tax return, tax return filing laws, Franchise Tax BoardWhen a business wraps up due to closure, merger, sale, or reorganization, California requires that certain measures be taken to alert the state that the business is no longer operating in the state.

These steps, as simple as they may be, can be overlooked. In fact, many business owners have faced serious repercussions by not following them. Failure to take these steps can result in future tax liability, including penalties and interest.

Step 1: Inform the Franchise Tax Board of the Entity’s Final Tax Year

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california business taxes, San Jose tax lawyerThe California State Board of Equalization (BOE) has changed sales and use tax Regulation 1702.5. This regulation governs when a responsible party must personally pay taxes owed by a business entity that is closed or abandoned. These changes could alter your tax obligation, and so it is important to understand the new regulation and seek counsel to determine if it modifies your circumstances. These changes could prohibit the BOE from seizing your personal assets. The amendments to the law will be effective on April 1, 2017.

Amendments to Business Tax Regulation 1702.5 

The current regulation is defined by the following: “Any responsible person who willfully fails to pay or to cause to be paid... any taxes due from a [business entity] shall be personally liable for any unpaid taxes and interest and penalties on those taxes not so paid upon termination, dissolution, or abandonment of the business...” (Emphasis added.)

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