Preparing to File Your Taxes an an LLC Worker Co-op

resources um my name is maren I invite you to share your names and where you're located who you're representing here we're here to talk about how to prepare to file taxes pardon me my cat has a lot of interesting taxes here this presentation is a collective work of three organizations one is Dai our partner organization the mission of the Democracy at work Institute is to expand the worker Cooperative model to meet the needs of workers locked out of good jobs and ownership opportunities especially bipo recent immigrant and low-wage workforces we are uh movement-based think and do tank supporting worker cooperatives to grow to a scale that creates meaningful change in the economy and I want to thank M and yir for collaborating in this session and helping with the design um and to other collabs who have not able to be present today another partner is the usfw you see we are the only National Grassroots membership Organization for worker cooperatives in the United States our mission is to build a thriving Cooperative movement of stable empowering jobs through worker ownership we advance worker owned managed and governed workplaces through Cooperative education advocacy and devel velopment and I represent a a group called the co-op clinic and take advantage of this moment to say if you ever Coop if you're a coop and you have any questions you can get the Council of 60 counselors and peer advisers who have technical assistance services to provide to worker cooperatives we are a member of the US WC we have a network of peer advisers all with strong social professional ties and we're going to be present at the conference in September in Chicago and I'll tell you more about later in the webinar we have support that we can offer members to attend this event and our third partner is danela price and I'm G to pass her the mic and I want to thank each of my partners who on Michael Ellie and Rael who are present to support this program and who support all the programs that we offer across United States thank you dannie is always it's always entertaining to talk about taxes with her because she makes it feel less stressful she is originally from Chile she's a Cooperative development consultant since 2017 and a certified coach and trainer she is also um a worker owner of a Cooperative called Kad Cooperative Consulting that provides consulting services to cooperatives in their effort to create Democratic economic democracy the former worker owner of the hom Green Home she's the vice president of the of cop America's board and president of copam North America also peer adviser of the co-op Clinic program it's a pleasure to have her present and I hope that you're able to learn a lot from her here just so you know we're gonna have about an hour and a half talking about taxes and then half at the end of the session we're going to uh for a brief summary of a new law L called the corporate transparency law just so that you know about it so this you don't have to stick around to the end but this is the first time that you're hearing about this new law that will affect co-ops in the United States I suggest that you stay um for that brief presentation after this tax presentation thank you all um to all the co-ops that are present here and I hope you enjoy this presentation thank you Daniel thank you for the introduction maren yes yeah it's it's not real important that I'm really entertaining but got to try to do something to keep your attention on this interesting topic I'm talking about taxes from a perspective trying to understand the process of taxes and that's what motivates me when I talk about these topics I have to think about that we're learning a little bit more about what this system is about so the agenda today is that we're going to talk a bit about the the business documents and where all the where this process comes from we're going to talk about um talk about uh the or direct this to co-ops that have an L LLC structure um so this is a presentation focused on those kinds of co-ops and we're going to talk about the process of of declaring uh one's business tax and and we're gonna also talk about the Declaration of individual taxes individual tax returns and how that process occurs and then um we're going to have a little bit of Q&A and then the brief presentation with going to confirm my speaking language I need to little so pardon me there's a little box is showing up here in Zoom it's asking me what language I'm presenting in okay they asked me to confirm what Lang language I was speaking okay great pardon me so first of all we're going to do this next slide please disclaimer so that you know that I am not an accountant nor a tax professional this is a presentation for informational purposes only and not for the purpose of providing legal or accounting assistance it it is just for you to help you understand the process and to analyze it from that perspective From perspective of understanding and not memorizing all the details so any legal or accounting Financial counil that you wish to access we recommend that you find that for your specific situation next perfect thank you okay we're going to begin talking a bit about this process of tax return for Cooper businesses formed as llc's and we're going to talk about the business documents that they have the structure and the process and important dates and the steps and decisions that we need to be attended to we want to understand the particular structure of LLC co-ops we are Co-op that is registered as an LLC or a limited liability company that is managed by its members and not through a manager or a boss this is important this legal structure that the co-op has and the important documents that they have that structure these types of co-ops are the articles of organization which is the first document you get when you register an LLC in the state you put information basic information about the organization there that what its name is what it does where it's located that's the first document and there the important thing to note is that is you want to confirm there that you are a company that is managed by its own members and then there are different requirements in different states uh this is in California for example it's not required that you have an operations agreement but if you if state does require it then it will be asked for it will have your U if you want to have a business bank account for example example you'll need to provide this agreement this is like a contract among the members of LC this is what our goals are where we're loc at how we govern ourselves the different forms that our government structure um has approved together this is the operations agreement this is where you define who takes who makes decisions and who the different roles are within D you'll need that in order to open a business B the third document is sometimes understood as part of the operations agreement and this is the policies manual it might be called a membership manual or a members manual they're different names those are the three documents where that we want where we will see the governance structure of business it's also when we're talking about uh taxes we want to talk about the knowing the finances of your Cooperative we'll have two documents that are two reports let's say that are important to have um so that tax advisers know what your situation is one is your statement of income the other is the balance sheet don't recommend that these are issued uh more frequently than once a quarter but it should be more than should be at least once a year I won't get into a lot of detail about these reports but in order to understand this these statements this is where you'll see your profit and loss statements that have come into to an out of the business and that will say at the end whether everything was covered with the finances that you look in and this if there is some amount of profit there is there's a yeah pardon me I'm a little sick my I'm feeling my voice a little is a little tired but so I'm not um gonna get into details here I'm not going to review the chat either let me know if there are any details there that you like me to address so the balance sheet and the profit and loss statement says that at the end of the fiscal year how the coop is saying how how much it owes what the assets that it has the passive assets the the debts that it holds and what it uh what capital it holds all of these documents are uh the financial documents that will help our accountant the documents that are needed on an annual basis in order to prepare taxes so in order to um it's important to know that the uh that capital accounts are not separate accounts but that within the same account of the the business account in an accounting means it can use whatever program you use it might be ways or or which is free or QuickBooks or uh the one that we recommend a lot but uh it's sometimes expensive so wave is another option it's free and the other another is called Fresh books it doesn't have as good of features but there these are reports that the reports that it can issue are a little more basic but there are reports that you can offer your accountant so through QuickBook or waves or other platforms this is where we can create these different capital accounts for different um worker owners to indicate their share in the company and you can see the work that put in we can see this initial contribution to the co-op we can say might be $50 say or it might be uh 5,000 whatever it is for the for the co-op according to the business plan of the co-op this is the first thing that it's put into the capital account and then we have the profits and losses the allegations that are designated there according to the distribution agreement so when one closes out the books each year if there is a profit the it gets moved into that capital account and uh that follows the stipulations of the financial documents which will your accountant will say will find where it's stipulated there see if this is uh allocated on annual basis or it's indicated on a per worker basis or it is okay so these are the capital accounts this is important to understand we also have the tax structures that we need to understand we all pay taxes as let's see that LC doesn't pay taxes on sales or income what it pays is a b that it P pays uh anory basis that happens at the uh close of the active year it doesn't happen there it h it is paid ahead of time it depends if you just be maybe three months of since being registered be a little different but if it's registered in November of 2023 for example that company will have to pay all in 2023 this amount and not all states charge this franchise fee um and others do not for example California requires $800 any and those 800 that need to be paid or each one needs to pay according to what's required and so if my if my there are certain situations where the doesn't need to pay for the right here so this is all this depends on whether it's a partnership model and whether it's a pass through model this is the model by which these taxes are paid this means that the co-op doesn't pay taxes itself but that these are transferred to each member and that is what the bookkeeper will do at the end of the year designate the plan according to what is designated in the operations agreement um this is how they will decide how to Reg this at in the books at the end of the year and so it's important for us to understand uh how the yearend account closure happens because that will impact how the LLC designates [Music] its um that's how you declare to the IRS how much was generated in profits or losses sales and that will show how much each member has to pay for this these earnings and so this charge this fee is charged uh on a state by state basis it depends on where you're located so that is part of the structure we pay Tais as LLC as a company and um as a pastor as well so we present where we're going to report what were the gains losses deductions credits that the business had all of that is going to be filed so that's why you need the report that you're going to get the information and you get the form 1065 for the IRS and the deadline to present is March 15th it's important to understand that this is the date to file the Declaration to pay it is April 15 same as what we pay the uh every year everybody can ask for an extension of six months same as an individual or a corporation no maybe not a corporation I'm not so sure but an LS you can s for six months and it can uh you can pay it by October 15th allocation of profits or losses in the capital accounts of each member or company equals the reserve fund and this is important when we when we we're going to see it in a little drawing so that it's better explained but when we allocate profits or losses in these capital accounts where we also put the initial contribution that we put in the business in those capital accounts all of that is going to be a reserve fund so when we make the decisions about distribut Distributing this money that we're getting that's why we have to think of how much we want to leave behind as a little cushion for the business to sustain the stability of the business because you have to have a cash flow you have to have money circulating within the business in the case of a client not paying or anything happening we can cover and and fill our responsibilities so that's why you save this little cushion next great so to understand it understand it in a uh in a more fun way the influx the flow of revenue from clients to members so the money comes in I pay for my service I'm as a client and that goes into the operating account of the business which is is the account and these are the revenues that we have within the co-op from there you're going to go to pay a portion of it is going to be guaranteed payments to the workers to the worker owners uh but here you're going to pay per hours or as stipulated it's a percentage at per hour however we've guaranteed these payments to be and then the the other part is going to go to cover all the expenses that the business has whether they're direct or indirect that's what they it's going to cover and that's where it's important to understand when we do this analysis to to how we price our service or product we have to understand that this is the part that has to be covered to have a enough of a percentage to cover these expenses uh you usually keep a percentage for the co-op of 30 or 40% to cover these expenses and and to also have space to have some some Revenue so uh to retain uh 40% it 30 40% that's a good amount to to for revenue for the business that's been calculated for the product or service that you're we're providing so we cover all these areas we cover the the workers we cover the expenses whether they're fixed or varied or variable and then the allocation of Revenue at the end of the year and so if there's a little bit left over that's going to go to the revenue allocation so we get when we get there we say okay we have a certain amount of profit and it gets uh allocated or distributed into each capital accounts for the members I'm going to be paying taxes for both things both were my hours of work what I got as guaranteed payments and I'm also going to pay taxes my for my portion of that earning of that Revenue why because the LSC closes it is for the one fiscal year from January 1st to December 31 and then the fiscal year closes and it starts at zero for the next year so every all the money that's within the business has to have a name the LLC doesn't keep money so it has to it all the money that's within the business has to have a name so what we lost what what we what was allocated from the earnings to each capital account that's my money now so now I have to pay my taxes for the year in which that money was made whenever I gener the year that I generated this income that's when I'm going to be paying taxes for it the importance is when I allocate that money further on that's that's free of taxes because and that's important to understand I'm gonna do an exercise on the next slide a little bit to understand uh better it's basic but it's just for us to understand better so for the annual business income to the uh member K1 form how does it work so the example is uh for a co-op annual income statement basically let's say that the income generally uh gross receipts was 125,000 that's what we got in income from this 10,000 sorry the expenses were divided and 100,000 for guaranteed payments that was what was paid and guaranteed payments throughout the year and office expenses what we were mentioning there are fixed expenses that was 10,000 so 110,000 covered all the expenses and so it was so then we had a net profit of 15,000 so that's what was left over that fiscal year we got 125 we paid and in hours 100,000 and we paid in the office expenses 10,000 so we were left with 15,000 so let's say this is a co-op that has 10 members to make this easy so we're going to go over now how this is going to look in the K1 form and this is see I don't know if you can see more or less the numbers here yeah maybe uh but the can you see it yeah are you able to see the form are people able to see the form a little bit a little bit so it says the name of the person it's it's fictitious so we'll just leave it like that but it says in the top part in this K1 it says all right so we I uh there's 10 10 of us and I got from these 15,000 it's divided so I got 10% so I got 1,500 and number one from our document let's see if we can letter is very small I'm not sure those of you that are seeing it on the phone I don't know if we can do much but maybe in the compu computer can make it a little bit bigger maybe on the phone it's a little bit too small but we'll be we'll be sharing the slides later on so you'll be able to see it later on for on this side I'm going to show let me I'm not sure if you can see my mouse uh but in part number one you're going to see what is mine from the earnings so it's 1,500 because there's 10 of us uh 10 members so I've received 10% of the 15,000 that were uh the profits so I got 1,500 why because our operating agreement says that it's distributed in an equal manner the The Profit so from that in my guaranteed payment I we also pay ourselves let's say in a in an equal way so to make this easy so let's say that the 100,000 that were paid to everybody each person got 10,000 10,000 in guaranteed payment [Music] so so here it's going to say 10,000 so I had 10,000 in hours and I had 1,500 in earnings at the end of the year so what I have to pay in taxes is on 11,500 so what I earned in guaranteed payments in hours but also what I got on my part from the from the earnings so 11,500 and 14a it's going to say the exact amount uh on which I have to pay taxes this year for this K1 so this is one of the forms that we receive it's not the only one but it's one of the ones we receive for being worker owners owners of an LLC Co-op this is the document that we will be receiving the the form so for example if I'm an employee at a business I'm G to get a W2 if I'm if I'm a contractor I'm going to get a 1099 so there's different forms that you're G to we're going to be receiving when I'm going to be preparing my taxes so this is for this business is k1 so we will have room for questions at the end so how what's the process like so now we understand and we're an LLC that's being managed by its owners or members the way to pay taxes is going to be through the pass through it's where taxes or taxes on the on the Revenue taxes on the revenue is paid by members members are the ones that pay the percentage that we earn or that we generate in earnings and at the end of each year we're going to get a K1 where we are going to understand what we're going to be paying for our worked hours and then for the income that was generated for the for the profit if there was a loss then that's something else if the agreement says that losses are distributed the same as profits the same for everyone then all right I'm going to get that if that if there was a loss instead of 1,500 in favor it might be 1500s less so and that would affect the taxes so that's another part so the process itself and this is important to understand how we're going to be getting to that moment so December 31st during the year we've been doing our work we're we have a bookkeeper or or ourselves we've been doing our our books and maybe we were do using a platform but we've had a uh the we have the registry in in Miel or I recommend you use a platform but if if we have if we haven't moved on to a bigger platform if you're still using Excel that's okay uh but we've had all the income and everything has very very documented and especially the receipts which is the the backup or the proof of that accounting so on December 31st we're going to be closing the accounting books 31st they close so in January we're going to start reviewing all the activity that happened between January 1st and December 31 in this case 2023 to understand what what came in how much money came in how much money went out if we have any debts if we were able to pay any debts if we if there if there was any reconciliations if we're going to maintain if there's going to be a program you have to once a month when you get the bank account you have to make sure that the income and and expenses from the account are the same as my registry in the reconciling whether it's an Excel sheet or anything it has to be the same and if something is not matching on my end or the banks then that has to be uh sent in that moment you shouldn't wait till the end of the year to fix that so we have to whether our business is really small we're generating very little it might be three months and that's fine because we're generating very little uh per month so so we also have to save and expenses and everything so we maybe do it every three months but that's the top the the rest ideally is to do it every month to keep at least a cash flow uh registry to know exactly at least on Excel what came in and what went out of the business and as one is getting loans and things like that that is more complicated so it's important to have a platform by then whether even if it's was one of the free ones uh I think there through it's has had really good reviews so that that can be another platform that could work we want to know all the categories of the incomes and expenses all the bank statements uh monthly and the uh the registry we also have to understand if we have distributed early any part of the of the profit that we have generated through the year we it is important that that is also recorded that there's a record of the capital contribution contributions the credit Capital everything has to be documented and and that's called closing the books that we closed the year we Clos the profit and loss we know what came in what went out we we've done the reconciling month month to month or every three months and the year has closed that is done and there isn't any any disagreement or Discord with the bank and on the other end we also have to have if we have asked for a loan or if it was paid back and if people were contributing uh in their initial contribution to the bank we also have to have the copies of that Etc then next uh I'm still enclosing the books before so once you have all the accounting done to date we're going to generate the reports that I mentioned it's going to be the the profit and loss and the balance sheet for the year and and in case of an audit the most important thing is that you get have all the receipts that are bigger the than $65 that's going to be asked if you lost a a receipt that was like $20 for parking or whatever that's not going to be an issue but an audit everything that's over $65 they're going to ask for that for the receipt best take take photos because receipts get old so it's better to to take a copy or a picture and put it up on on the drive in your drive or wherever you get your documentation online uh now next we were talking about the 1099 forms first of all it's closing the books that's that's number one because that's when you're also going to generate we're going to say if we pay Professional Services for someone this is when we have to report and we have to generate the 1099 forms and the first that has this process uh every year and that's January 31st so by January 31st we have to generate the 1099 forms for people who have rendered a service that's over $600 so if we hire someone that did something that was $800 that person needs to send us a W9 for a W9 form and our tax repairer is going to generate a$ 1099 form for them for the service that they provided and that's super important that has to happen before January 31st and after that there's a fee uh at first it's not that high the first month but if there's any delay of sending out these documents and someone presents their taxes before they get the 1099 that's that's complicated there's a problem there especially for individuals and so these contractors that we have when we close the year we have it clear that the accountant is going to review our documents going to say okay someone did the logo someone did the web page and charged for the design and someone is keeping uh an accountant or the bookkeeper that's keeping the books and so that those people are going to get a 1099 and that the accountant does this the bookkeeper does this and and turns in the document and this document is there's a very easy process as I understand it is easy now because I used to do it but now uh and it's a process that once you do an account you you can do it it's pretty Auto automated to generate and this is sent to the people to the contractors that we've hired so that's important to know about 1099s then we're going to have the uh profit allocation so so we sent that to 1099 January 31st and then the allocation of profits or losses this is where we close the books and this is when the accountant is going to say look there was a profit of so much or a loss of so much or maybe there wasn't either and and we we we were even but that's what what we're going to understand and that profit or loss is going to be allocated according to what's established in the operating agreement that's important to remember uh according to this the person is going that's going to be doing our taxes is going to generate our k1s with the allocations as it says in the operating agreement and that's going to go to a capital accounts that's going to be assigned allocated to our capital accounts so the allocation of this profit is important it's important what I was saying that the percentage of distribution and a retention of the profit will be decided in a full membership meeting so whether this uh uh profit or loss in January February we're going to by March the taxes has to have to be ready by March 15th the Declaration for the LLC is gone so that's when we are going to be making the decision of if we're GNA uh allocate or distribute the income or if we're gonna retain everything within the business in our capital account so that money is ours the money that's been allocated as as profit or if there losses losses but that money is ours it has our name on it the important thing is understanding when we're making these allocation decisions what I said before to have the backup for the business that little cushion of Cl of cash influx so that people can really make decisions knowing that there's money that can support uh when someone doesn't pay or there's a delay or or something came up that was more than we thought it was going to be so that's what I recommend to keep present at the moment of of allocation allocating The Profit so now we can wrap up this section on and move on to the section on preparation of the members the LC this is a preparation is a important part of the process and steps and decisions that need to be taken into account this has to do with the tax structure that's where we'll begin members of an LC file their taxes as self-employed um uh in form 1040 they pay federal and state income taxes normally state taxes are lower it depends on the state um some states yeah it's different to each state the federal is the same for everyone this is the responsible responsibility of each member partner to pay quarterly estimated taxes this is one of the responsibilities that we have uh accepted as uh worker owners of an LC we pay uh quarterly estimated taxes and I'm going to explain a little bit what that means means and how that process works next yes so in earnings it's important to understand this when we talk about our earnings this includes the guaranteed payouts it also includes benefits and bonuses and winnings earnings um profits we are not employees of the of the we these benefits come out of the profits of the business and so if I receive guaranteed payouts if I receive a pay payout this is coming out of the profit this is a distribution of the profits so when we're talking about anticipated uh profits when we talk about when we talk about anticipated anticipated profits this amount this payment bonus is uh an amount that is uh expected that year so we need to pay based on that based on our our expectation those amounts but if we were talking about distributions of retained profits that you don't have to pay those that is a profit distribution it is not early distribution of profit there it's different and so profit includes the portion distributed and retained in your Capital account so if we're talking about 2023 we're going to say we're going to hold 50% we're going to distribute 50% be 70 73 or 6040 uh that that you uh save 60 and you and that you distribute 40 but you're G to pay for the entire amount what's distributed and what the what the company Co-op retains uh and so then when it's distributed then you don't have to pay on it because it's already been paid and so that's the good thing because when we distribute those the money comes to us without taxes and next I'm hearing someone else here yeah okay so we're talking about form this form we have this is the form we use to pay our estimated taxes we say oh this is we have to pay this four times is uh a year no and you say have to pay taxes four times a year no we these are estimates of the amount that when we get to April when we pay the total we're going to account for all of these estimate pay estimated payments and that will reduce the amount that is needed at the end of the year for the entire fiscal year and so these forms are it's it's most people do it online now and you indicate the information later in the form how it's paid and you can I can share the link of how you make an account and do all this but you need IRS account and you can pay online like that sending your personal check with this little voucher as well and so so sometimes what I recommend that co-ops do is that they generate uh in their accounts of savings account for taxes and that in every check that they receive that they uh set aside the amount that they should be paying in taxes the percentage that is uh that reflects their tax burden and and because that's particular to me and not my not my colleagues so if I have three dependents for example and my and be charged like 15% or whatever that's my reality that's what I'm going to have to pay in taxes the percentage that is due that I will have to pay in that um based on my profits my income and my situation and so you can ask that your accountant uh tell you how much you should set aside and the co-op can generate this for you uh and it won't be a single account but then accounting it'll be one one account but then they can create this savings account for your um taxes and so then every quarter two weeks before the amount is needed and two weeks before all you have to do is take that money make make a full withdrawal of that account and uh doesn't a check to to the member so they can pay and the members will then pay this with a personal check because the co-op can't pay this directly you're not you are not employees of the co-op you are owners of the co-op so the co-op can't pay this for it and so this can be held in a co-op account savings for each payment and these payments need to be made four times a year normally the payment is the 15th of uh April's the first one and June and September each one can be modified a little bit depending on if there's a a holiday or that's the that's the base date so paying these taxes what I send in is is it is a down payment on what I'm going to pay the next April so I'm paying I'm not paying extra taxes I'm paying the same thing that I pay later but I'm I'm uh advancing money uh to the IRS based on what I am uh a tax burden for that quarter so then April comes I've already paid those four times I've made those four payments it's more it's very important that you keep track of the date that you make that payment and the amount and the person who pay those taxes will tabulate all this and figure out how much you if you PID overpaid then you will get some money back and if you pay underpaid then you'll have to pay a little bit extra next please so for the preparation of taxes using an accounting program like QuickBooks or wave or an Excel sheet or an accounting book it's important to categorize all your transactions if this is a all the uh debits and credits if if I paid some account or if I had to pay a bill or something that I pay as a oneoff amount or monthly fee it's important to keep track of this and we need to separate my charges and the business transactions if you if there are particular charges that are mine and to the business it's important to designate these for like uh travel expenses expenses that if they're not reimbursing me for something it's important if I'm a consultant for example and I have a lot of expenses and I have I have a specific account for that and that's where they pay me and that's where I pay out my expenses and that's important to separate these to not use the same account to do to make business and personal transactions If part from this you have other work that generates income transfer all of that to a different account not a personal account and then reconcile this information uh just like a business compan make get this with the information the bank has and if this is an Excel sheet or some program next so the preparation for taxes is to collect and save all receipts and personal accounts $55 you got to have the receipt everything above that amount you have to hold on to it's important that the reimbursements you receive from the Cooperative can not be re reported as deductible expenses from your individual returns it's important that this not be done this is a common error this is where I have the the card it's important you get all the way into all the details and politics of your uh policies of your Co-op it's important that these are not repeated these these are not repeated because that can create it's up it's fraud and and so that's important to keep straight next individual tax returns it's important to know keep track at the dates first we have these quarterly am amounts that are paid we have to trct these amounts you have to uh collect all submit all of these forms that you receive for your return you if he works an employee or receive a form W2 you have to have these forms if if they haven't been sent to you you have to ask for them because if you don't have them you're not you're not making uh tax return that you need to you need to ask for this if it hasn't arrived you need to ask for it you can't make your tax return with without having that if you're an employee so for for form W2 if you're an independent contractor but Co-op for example you're going to have a form 1099 this is a form that that you need to receive that you need to include in your tax return 1099 int for example you might have if you are earning interest from a bank there can be others if you have a business where you invest money then you have other forms another form that you might have is if I do work from home next please here we have two basic requirements for your home a qualifi for deduction if I need to deduct this Char expense this amount is needs to be for the regular and exclusive use for business no it is it's not the kitchen it's or the dining room it needs to play be a place where I work that's it's where my printer is where my computer is it's where I am when I work this is where I have all my files everything so that place needs to be the main place of your business and that's where I conduct the business and those are the two things that need to be defined this and so within that there are two ways that this can be done you can talk to your accountant about how best to do this because this can be done and we can go on to the next slide you divide the cost of running the house between personal business use for example pardon me pardon so on one p you can do this you take a percentage of that place that I use of the entire house for example if my house say it's um I have I have [Music] one room of the the house and so I take that part uh it's my this room is one ninth of the entire house and so that I take one ninth of the entire expenses of the house and that is and since this is a one nth is something that my business pays it's deducted by the that's one way to do it then it's a little more complicated you know you have to like measure your whole house and the space and you have to make all the size of the office and all the other rooms in the house and everything could be a little complicated you can also offer um simplified manner way of doing this a $5 fee per square foot for commercial use the home and if that this space that you're using when I make this calculation is uh more than $1,500 this simplified calculation doesn't can't be used I need to do a complete calculation but if it's under that then that will be preferable to you next please perfect so this is the question how much tax will I owe this is a question but like how much do I have to pay people always ask right want to know this uh little to just understand the bit to just understand the situation a few General guidelines each individual is a little different but we need to be most single club members should plan for about 25% tax on their combined annual guaranteed pay decisions members who have dependence should plan for about 20% in taxes if they have one child 18 if they have two children 15 if they have three or more dependent children that's more or less but always consult with your accountant because if you do your taxes with your with your spouse it might be a little bit different you need to figure out how much you need to deduct because 25% or uh 20 25% is a a good estimate for single qu members if we set that apart then we'll have a return at the end of the year if we have dependence um the the the IRS uh give you back back money if you pay and so if your spouse in the place where they work right they work somewhere and employer says how much do you want to set aside for taxes uh I say 15% because I don't have I have dependence and I don't need to um withhold much and they're they're withholding just a little bit just a low amount it's going to affect me right because then I need to set aside more I need to withhold more so that it's actually fully covered and we cover our full tax burden so when you talk with your accountant talk with your spouse and um decide so if you're not working with an accountant then and you're doing it yourself then you need to talk with each other and you decide how much we need to set aside monthly how much do we have to pay estimate our tax burden in order to and so if we set aside a lot of if or on the other on the other hand if if your spouse is withholding up quite a bit then you'll it'll also affect you you won't have to withhold as much at the end of and so so wrap up here and so we can get to your questions uh the more detailed the information uh is provided the easier it will be for your tax repaired accountant to do their job without errors mistakes of the IRS can be very expensive and so the most important thing is you have to recognize the responsibility that you have with your LLC and that you uh pay the taxes based on your sales your income and set aside all of this information and pay your estimated taxes check your bank accounts and ensure that this is all logged in an Excel sheet for example that what I recommend so that sometimes it takes time and it's a little bit of challenge but try to do it because something you'd have to do and if if you don't and you just do at the end of the year you have to do it all the same right and so this is all the receipts that you have all the forms that you receive save them and uh all of your expenses charges um take make copies of them because the the ink can fade these are all my recommendations I'm going to say send you more information more details that might be helpful for you about how these taxes are paid and I'm going to send that with the presentation so that you can learn more about how to pay your taxes thank you questions thank you there are nine questions through the chat and I'm going to read them out so that they can be interpreted should we stop presenting so that we can see people great thank you and thank you so much for the presentation the first question I'm going to read in [Music] English wave has what you have to look at in these platforms is for them to be compatible to transfer it to another platform it usually says I think wave says it but if you can download all the information to uh I forgot the if you can save the information not as Excel but as a lcv I think it's called where you keep the information it's like a format I don't lcv or clv my head can't come up with it but as I understand wave does have ITV but that's what you have to check and so wave has it so I can transfer my information in that format and that format can be uploaded to QuickBooks also so I can recover that information through QuickBooks too thank you next I sent the question through the chat Dany let me read it again I'm not understanding this what is the contribution of capital could the person that has this question it's from M and L CN excuse me sorry for interruption but H we can't hear the question in the English Channel so it's not going to be recorded I mean we can hear the translation when they are responding the questions but when you are putting the question in English we can't hear not even The Interpreter so maybe because you need to change the channel if you want to speak in English change to the English Channel so in order for us to hear the question as well I will sorry this is The Interpreter you shouldn't have to change channels to speak it out loud but maybe if you just want to read it out loud again in English thank you some people can hear some people can't I'll be repeating the questions that we've went gone over I'll repeat them in English so that they're interpreted into Spanish the first one is I am not sure you hang membership payment is recognized as an income to which you so you have to declare it as taxes membership payment so the capital contribution the initial capital contribution is that what you're referring to I'll send you the question so that payment is going to be registered in in the book so it's going to be registered as part of your invested capital in the business you don't pay taxes on that that is part of your capital in the business that goes in the balance sheet not in the profit and loss okay great so I'm hearing the I'm seeing a lot about the Articles okay as I understand it what's better keep going in Spanish or people in English article two Capital contributions there's an initial contribution that's 18,000 as I understand is to maintain and that that's reflected in the capital accounts that exist exist these 18,000 that are there as cash that's it the the profits or or the losses are going to be reflected there now I think that uh way that that's maintained fluctuating in the same way for everyone so that there's not an Capital interest different for people uh that could be that that allocation can be done uh equal whether it's profit or losses so that can be very normal depending on the type of industry and for other types of Industries not so much much so as in a specific case if you really if it really makes sense to uh to allocate in the in an equal way whether it's profit or loss there isn't a way to maintain that contribution in just one amount because each year there's going to be an exercise a financial exercise in the business so that's going to fluctuate so now the capital or the people's voice according to this it doesn't work like that so people's voices is maintained because it's structured as a co-op and each person has a vote so the interest that varies in the capital accounts shouldn't affect the vote or the voice that each person has their vote because that is in the governance and that's established within the governance one person is one vote so I'm not sure if there's another reason for which you wouldn't want these capital accounts to fluctuate with other uh money but as the capital accounts work is with the in cont initial contribution and then each year with the profits or losses that each fiscal exercise generates so that's what I can say as far as that I'm not sure if I was able to to respond a little bit the question from the chat is what happens if I haven't been filing 1040 e throughout the year4 yes oh okay if you didn't file any of the 1040s throughout the year you're probably going to get a fee unless the bu it's the first year of the business sometimes the IRS doesn't look that way or looks the other way so like the first year Etc but if you didn't contribute any money throughout the year what's most likely is that there they going to be a fee there's going to be a fee the first one is not that high if you it hasn't happened before I think it's $90 I'm not sure but it depends I don't think that's changed but the first time maybe the IRS doesn't uh pay attention the second time it's not going to be the same they're gonna they're going to uh charge a fee or a penalty I would advise that if you don't have the money you in the moment to try to put together some of the months at and at least send one at the end with as much closest closer that the closest you can to the amount so that you don't have any sort of penalty fee if you weren't able to do it quarterly so what I've learned in my experience is that uh when the last uh payment the fourth payment is closest to the reality of what you earned throughout the year that in percent then there there isn't any penalty fee what the IRS what they want is to get the money in advance closest to reality as possible thank you the next question was do I pay taxes on total profit for the year allocated to me or do I only pay taxes on the percentage of that allocation that I receive in cash during the year when you um so you're going to pay when youdon when the profits are allocated to each one of the accounts I pay I pay the total of what I receive that's going to be a percentage of the total profit and that's going to depend on how it's written on the operation agreements but if it's equal then we're all going to be able to pay a percentage but if not if it's uh according to the hours I work throughout the year then the percentage is going to be according to that but what's allocated to me that's what I have to pay there isn't a whatever is allocated to me that's what I pay for on my Capital account then thank you there's three questions left uh but the chat's popping off the next one is could you explain what it means to reconcile accounts reconciling accounts means Bank wise so reconciling means that I take two documents and they have to say the same thing that's reconciling in the case of uh what we have to do monthly or uh quarterly it's the bank account for the business has to reflect what I have on my platform or if I'm using an accounting platform or on my Excel that I've been keeping so so whatever expenses have to be the same income has to be the same and according to that I have to have the receipts that approve these this income or expenses that I've had so if I've had an income I have to have a copy of the invoice that generated that income uh or the receipt that generated that income or if I have a payment for something I have to have the receipt for the payment for that account or uh a statement that generated this payment that I had to pay so reconciling is that that I have to have everything that's backed up and that both both lists or both documents have to say the same thing that's reconciling thank you I can see the person who asked the question nding uh the next question which I sent to you via the chat Denny is in what ways if any can various expenses that fall on individual members due to the LLC structure from additional tax preparation costs to even medical insurance or coverage be paid by the LLC as legitimate pre- income tax expenses interesting that's like a that's like a a tax uh a CPA question but I'm going to try to to say all [Music] right so so in an LLC there's expenses for example if we have the dental Invision with with the Federation it's an expense for the business but in reality it's a coverage for each member and for me there's a i' I've had this conversation with with the accountant with the person that does our our our our service and for her it's an account that's like a guaranteed payment so it's something that we have to to count as guaranteed payment so for me that as a bookkeeper I would say no this is something that the business is paying for as a benefit but of course there's this situation that because we're an LLC and we're investors and we're not employees it's an expense that the business has to to specify under whose name they're doing this expense because we're investors and we share this so It's Tricky I would talk to the CPA and it's thing there's things that can be done and for example the office perfect that's like a fixed expense we all have to pay uh the business expense and all the expenses that are according to that the the for an attorney for an accountant or all of those are within the business expenses and when it's about specific things for members that's when it gets tricky that's when it's a guaranteed payment it's like a bonus or a benefit and at the end of the day that's a payment that's being given to each member through the business so so I would say and and and you can can be deducted later we can be it can be deducted from our individual taxes that's the good thing that all the health expenses we can we can claim on our on our individual taxes so it could be like a guaranteed payment uh I if I understood the question that would be my answer but I would talk about it with an accountant because I have my my reserves on that this was the last question from the chat um Beyond a particular question that we're responding to via email which is under what circumstances would one need to file a 1040 es and then what's it do is we won't need to file yes does every Co-op need to file that estimated tax form every every um yes every selfemployed bussiness owner needs to file that that's our yeah this is our what we recognize tax as a owner of anlc thank you Dan and we're going to wrap up this section of Q&A hope that you feel more prepared to take on your taxes this year and if not I'm going to share how to access technal assistance from the Federation um Danny pra has given this presentation a number of times and each time she gives it I learn something that I forgotten from the year before and so um I hope that you have some time to address and recover so you can feel better to D we're going to move on now to uh talk about a new law so you can either go now or stick around to learn about this new law and also some events that we have to come within our Network so thank you again D um and now we're going to talk about this information about this new law yeah we'll share a recording afterwards if you are tired I'm also tired but we're going to continue here to talk about federal laws that affect co-ops in the United States and I'm going to share my screen again and see how should we keep uh recording yes I think so thank you for asking okay this with the last half hour that we have we're going to review something that even though it's not taxes has to do with this process of having all of your paperwork in order so you know the Federation with our partner organization da is invest is researching resources and Gathering res information about this act this law the corporate transparency act this is a new piece of federal legislation that came into effect the 1 of January 2024 and it most small businesses in the United States the corporate transparency Act established an Information Program about uh something called um beneficiaries uh property B and so this is something that is governed by finsen a uh group that is uh that governs uh Financial crimes in the United States why am I talking about all this because the pro program requires requires reports on individual reports on people who about people who exercise signicant control over a business and they have in the co-op it may not be clear who it needs to be informed and with workers this can be especially tricky to understand because there is not a single owner so it's important to understand this new legislation and submit these reports to the federal government you have until the uh January 1st 2025 to report and so new businesses if it's a co-op if it's a whatever after January 1 2024 that incorporated after the start of this year or in the six seven weeks before have uh 90 calendar days to report starting from the data incorporation but for co-ops that existed um before this past year have till January 1st 2025 to report and so if you reported the year before or before but new co-ops need to pay attention and especially if you are a member of a new co-op that is to say a co-op that incorporated this year in January or in February or others to have heard of this law that is your first time hearing about it you should attend this webinar that we are going to Monday focusing on this law for worker co-ops uh Cooperative Clinic offers as we mentioned in the chat a half hour free support navigating um situ of tech assistance that youran your Coop might require but uh with the specifics of this law I'm going to leave to in the more capable hands of my colleagues um in the clinic and doi to say how this will affect you that's a brief summary of this new law and how it will affect us we're going to share more information about what we know but Monday we're going to share more information about what needs to be done for and by new and existing cops and if you there are more opportunities for learning you have more energy for learning every Wednesday we have webinar um called the worker Cooperative startup webinar it's held English the next one is the 6th of March and every we have it in Spanish the next Spanish one will be the 29th of April then we also have the um movement Council uh meeting at the movement Council for immigrants and cooperatives tell in Spanish and that's for new members of this movement who this is the move called movement of immigrants and cooperatives that will be held on the 21st of March on zoom and for all members day of the date please we're going to have our spring member meeting on May 17th and all members and non-members are invited to the conference that we will be holding in September in Chicago this will be an opportunity to not only meet other co-ops but also lawyers and accountants and counselors who can help you and locate you within the state meeting other co-ops in your place and also locate yourself within the movement because M they're nor usually a lot of people there especially it's really nice to attend sessions with a little more time and space how to navigate finances and co-ops conflict governance topics statutes the resources that you need they're usually available there with that I'm going to stop sharing my screen and ask you all if you have questions about this new law questions for the Federation questions about this wear and if not I'm going to uh to offer us some feedback because it's important for us to learn how we're serving you in the movement and so so if there are questions you can unmute yourself or you can put them in the chat and I'll also share a little evaluation that you can fill out to give us your feedback pardon we done we're both a little sick and we're functioning with low batteries here but thank you Rael for sharing how to register for this new this webinar um maybe there will be finds for those who have not done these proc this law will affect how you or take care of all of your paperwork as a co-op here have a link for you to provide some feedback for us if you have any questions or comments um feel free to unmute yourself and share them yeah can we ask question can I ask a question to Anita I wanted to know thank you for all that information I wonder if you could explain again at the end of the year you mentioned that we don't need to the LLC doesn't shouldn't have money in account how do we save or set aside the does do we have savings how should we distribute those profits at the end of the year yeah well we shouldn't have money in the accounts that is not someone's that's the only money we have in our accounts but all the amount money that's in the account at theend of year has been assigned everything that came in and went out has something that backed it up the receips or the invoices the everything that we had to pay if I profits then that money is going to be designated in the capital account of each member after uh preparing taxes within whatever platform you're using or in the tax transaction that you do in those forms you'll put the amount that are profits and this will all be designated in the capital accounts and everyone everything has is been assigned there's no loose money the LLC doesn't have the ability to have an account to for its own funds all the funds has have been assigned and they're in held in someone's name it's a way of saying that we're back back at zero right uh the fun in an accounting sense it's at zero but it doesn't actually look like that in the account does that make sense yes that clarifies everything thank you yeah pardon me for any confusion are there any other questions we have about 16 minutes left and if not I'm going to remind you that we will share the recordings and the slides these are exclusive slides that are resources that Danny has given us and we share more information by email thank you Communications team and also we'll share information about these upcoming events uh to keep yourself informed about the latest developments for co-ops your businesses and thank you for filling out this feedback form it would be great to hear your thoughts and with that I'm going to close this um session give a round of applause to our interpreters because they've done a great job here for two hours many thanks to all of you for representing your Co-op for staying up to date about on all of the needs and demands that are put on us as work owners that takes for putting in all the energy that it takes to keep this movement moving forward thank you for having attended thank you tan to the um National Federation team and a the team as well thank you for interpreting uh we can stop recording and well and have a good evening I don't know uh