Monthly Archives :

October 2019

This Is How You Can Deduct your International Business Expenses

As business owners, traveling outside our city to meet with existing and potential clients is an important part of our company’s success, as it allows us to expand the reach of our brand and build strong relationships with our partners. However, this can represent a significant portion of our budget, as we need to cover several travel expenses, such as transportation, meals, and accommodations. Luckily for us, there are many business-related expenses we can deduct from these trips, and these apply for both domestic and international expenses. This is how you can deduct your international business expenses and the limitations you might need to know.

Eligibility Rules for Business Travel Expenses

The very first thing we need to know regarding deducting our business travel expenses is that the IRS divides these into two different categories, having ordinary and necessary business expenses incurred for travel away from home. According to the IRS, ordinary expenses correspond to those that are common and accepted in your trade or business, and necessary expenses are those considered helpful and appropriate for your work. When it comes to international travel, the expenses incurred away from home during trips that are longer than an ordinary day’s work and that require us to rest or sleep are eligible.

Business Travel Expenses We Can Usually Deduct

If this is the first year we will be deducting business travel expenses, we should become familiar with the types of expenses that tend to be eligible for deductions. The most common types of expenses include transportation expenses, whether we go by plane, train, or automobile; shipping and baggage of any props or materials we need for work purposes; and accommodations if our trip is overnight and we need to stay in a hotel while away from home. We can also deduct half the costs of our meals as long as they are not lavish or extravagant, as well as our communications, dry cleaning, and laundry expenses when away from home on work purposes.

Expenses We Can Deduct from International Business Trips

Deducting international business expenses can get a bit trickier, as the IRS sets expenses into two different categories you must meet in order to be eligible for these deductions. These categories of expenses are from trips that were entirely for business or considered entirely for business. Expenses for international travel entirely for business can be deducted if you spent virtually all waking hours of your trip on business activities. On the other hand, an international trip is considered entirely for business can still qualify for expenses deductions if you didn’t have substantial control in arranging the trip if you spent no more than a week outside of the US, and if you spent at least 76% of your time on business-related activities.

What Limits the Deductions for International Business Expenses

Once you have figured out which of your expenses qualify for international business expenses and which ones do not, you still need to consider the limits of these deductions. If you don’t meet one or more of these conditions, and if your business trip was not entirely work-related, you don’t have to worry. You can still deduct a portion of these expenses, as long as you determine the percentage of business days from your trip. This way, the IRS will have a more accurate and acceptable idea of just how many days you spent on work-related activities, being able to grant the deductions for the expenses on those days only.

If You Are a Real Estate Investor, Keep These Tax Tips in Mind

Dealing with taxes as an independent business owner can get tricky when we don’t have all the information and guidance we need. This can get even more confusing when we have just started to invest in real estate property. However, there are several tax tips we should keep in mind in order to make the most out of our investments, especially when it comes to property taxes and other taxes involved. That’s why we decided to share some useful tax tips that any real estate investor can follow to make tax season easier for them.

Take Advantage of Business Deductions

Something that every real estate investor needs to remember is that they qualify as a business, so they are entitled to submit business expense deductions just like any other company can. This means that, by the end of the year, you can write off several of your expenses, as long as they are related to running your investments and your properties. Some of these expenses include mileage from driving to and from properties, home office expenses like rent and electricity, mortgage interests and premiums, professional services, and depreciation of your property.

Don’t Sell your Property Before the First Year

One mistake we might be likely to make when we begin to invest in real estate is selling a property before the first year of ownership. When we have owned a property for less than 365 days and then we sell it, we will be subject to a short-term capital gains tax. Instead, we should hold properties for more than a year, so that, when we sell them, the profit ends up being subject to a long-term capital gains tax.

Learn About the Power of 1031 Exchanges

Another quite useful strategy any real estate investor must learn about is 1031 exchanges, also known as like-kind exchanges. This allows us to defer the taxes generated by selling a property when we use it to buy another property. As a result, we are able to buy/sell properties in order to increase our portfolio without having to worry about paying taxes on each sale. However, 1031 exchanges might be tricky at times, so it is important that we do extensive research or consult with a professional tax advisor before we choose to take advantage of them.

Opt for Tax-Free Refinances

Refinancing a property tends to be a common scenario any real estate investor will likely face. Even when we might think that refinancing a property means another transaction being subject to taxes, this is actually not the case. Therefore, we are able to pull equity out of a property we own through a cash-out refinance plan without being subject to any taxes for that transaction. Since we are not really making money from this, the IRS won’t consider it as taxable income. This way, real estate investors can take money to invest in new properties without being subject to taxes, and having the opportunity to report loan interests as a business expense, qualifying for a deduction.

4 Useful Tax Tips for Independent Contractors to Keep in Mind

Working as an independent contractor can come with many benefits, such as being able to choose the projects we work on, the clients we network with, and the rates we set for our work. However, all of this comes with many responsibilities, including paying more attention to our income tax return. Whether we decide to do this part of the job ourselves or hire a tax professional to guide us through each part of the process, we must make sure we stay on top of our tax obligations. That’s why we have gathered these four useful tax tips for independent contractors to keep in mind.

Always Remember to Report All Your Income

To begin with our list of tax tips for independent contractors, we must remember that we always should report all of our income, including that from each job and project we got during the year, regardless of the amount of what we got paid. Whenever we work on a job that included a payment of more than $600, we will get a 1099-MISC Form. This should happen with most of our projects. However, if we did a job with a payment of $599.99 or less, we won’t see this form. No matter how tempted we are, we should include this part of our income when we file our tax returns.

Pay Your Estimated Taxes and Include SE Taxes, Too

When we work as independent contractors, we need to remember that we are responsible for paying our income tax on the earnings we made as estimated taxes. Unlike our income tax return, our estimated taxes are due four times a month. The due dates we need to pay attention to are April 15, June 15, September 15, and January 15. Whenever we pay our estimated taxes, we need to add our SE (self-employed) taxes, too. Otherwise, we will be subject to different interests and penalties when we cover our final tax return.

Keep All Your Receipts Stored and Registered

Every taxpayer should be aware of the importance that keeping all your receipts stored and registered represents when filing their income tax return. This is particularly true for independent contractors since much of what qualifies as a business expense can be deductible. In order to get a lower tax bill, storing our receipts is essential. This way, we will be able to list and justify the expenses we made for a particular job, allowing us to request a deduction to the IRS.

Determine Which Schedule You Should File

The last thing we need to check when working as independent contractors is determining which schedule we will use to file our taxes. Many contractors decide to file Schedule C, adding it to their annual Form 1040 tax return. However, filing under Schedule C-EZ might be more convenient for some contractors, especially when:

  • they had business expenses for less than $5,000
  • used the cash method of accounting
  • didn’t have an inventory during the tax year
  • didn’t hired an employee
  • didn’t claim home office business expenses, or
  • didn’t carry over any passive activity losses from a previous year.

LLC or S Corp: Which Should I Choose for My Business?

Whenever we decide to start our own business, one of the first questions we should ask ourselves which business structure we’ll choose, LLC or S Corp? Each will come with different benefits regarding structure, organization, and taxation, depending on which we choose. Every business will differ, and there is no fool-proof method to know which option better suits our situation. Therefore, we must always consult with a professional before making a decision.

One of the first aspects to consider is trying to fully understand what an LLC is, and what an S Corp is. This way, we’ll be able to make a more informed decision, one that will benefit our business. Learning the differences in structure and taxations will make the decision easier to take. Again, we should hire a professional tax advisor to help us make the best choice.

A Limited Liability Company, also known as LLC is a type of business structure that legally separates it from its business owners. This means that the members of your company would receive protection from personal liability. In other words, if members of an LLC were subject to legal action, only their business assets would be on the line, not personal ones.

When it comes to taxes, the IRS doesn’t recognize LLCs for taxes purposes; LLCs are not taxing entities. Therefore, an LLC might be taxed as either a corporation, a partnership, or as part of the owner’s tax return. If we have a partnership or multi-member LLC, the IRS would not tax the business, but each member instead. If we want to file taxes as an S Corp, though, we must request the tax form 2243.

There is the common misconception that the term S Corp refers to “small corporations”. However, the name comes from the Subchapter S of the IRS code. In order for our business to choose this structure, it must meet several IRS requirements. First of all, it must be a domestic corporation, with no foreign owners. It must also have no more than 100 approved members, unlike an LLC, which can have as many members as they consider.

One of the benefits S Corps have is that they include lower taxes, from both income tax and self-employment tax. Also, shareholders of an S Corp report its flow-through of income and losses on their personal taxes. This way, S Corps are able to avoid being subject to double taxation on their corporate incomes. To see the full filing requirements to become an S Corporation, you can go to the IRS website.

Like we mentioned above, every company is different. Choosing between an LLC or S Corp structure will require a thorough analysis. That’s why every business owner or entrepreneur should consider getting the assistance of a professional tax advisor. This way, they will be able to balance the pros and cons of each structure, LLC or S Corp, and make a decision that will benefit them the most.

Even when it might sound like a long and daunting process, sitting down with your accountant or advisor is a must. Don’t be afraid to express what your goals and objectives are. Also, think about the total income you are expecting to make. All this will help you make an informed decision, and your company will see the results.

 

These Are the Tax Implications of Employing Family Members

As small businesses keep growing at a steady rate, entrepreneurs and business owners will eventually reach a point on which they have to start employing workers to help make a company successful. It is not uncommon to see that many opt to offer a job to their family members, as they already know the qualifications, skills, and attitudes certain relatives have. This can bring many benefits to a business, as it allows you to spend more time with your loved ones, it strengthens the family economy. Besides, this also comes with different tax implications that you might want to take advantage of.

Whenever we hire an employee, regardless of them being a relative, a friend, or a job applicant, we need to remember that we still need to cover certain employment taxes. These include federal income tax withholding, Social Security taxes, and Medicare taxes. There is one exception, though, which is the federal unemployment tax, also known as FUTA. This tax is used to help fund workforce agencies in every state. The Current FUTA rate is 6%, and it is applied to the first $7,000 we pay our employees in the year. We might be exempt from having to pay this tax on certain family members, which comes as a great advantage for many entrepreneurs and business owners.

Employing a spouse tends to be quite a common scenario for those who are just starting their own business. In this case, their salary is subject to all the taxes mentioned above except FUTA, in the case of a sole proprietorship. However, by being the owner of a sole proprietorship and choosing to employ our spouse, we can have access to an interesting tax-saving strategy. If our employee-spouse chose to purchase a health insurance policy under their name, extending the coverage to their employer-spouse, this can be written off as a fully deductible business expense.

Another situation that we can see happening quite often is when parents offer their kids an employment opportunity. This might happen under different circumstances, and it also comes with certain requirements in order to remain compliant to IRS regulations. If our child is under 18 years old, their wage isn’t subject to FICA and FUTA employment taxes, and if they are under 21, their salary is only subject to FICA. We need to make sure we treat our child as a real employee, compensating them fairly, complying with all legal laws and requirements, and giving them the benefits the rest of our employees receive.

Lastly, offering our parents employment at our business is another common situation among family businesses, small companies, and startups altogether. If we are employing our parents, their salaries are subject to income tax withholding, Social Security, and Medicare taxes only, as FUTA taxes do not apply to their wages. It is very important to remember that FICA taxes also apply to any payment we may make to our parents and that qualifies as a “domestic service”. This is particularly important if we are employing our parents, if we have child or stepchild living with us, if we can’t take care of the child or stepchild for more than four continuous weeks due to a mental or physical condition, and if our child or stepchild is under 18 and requires constant care for at least four continuous weeks because of a mental or physical condition.