Small Business Basics: Hiring Employees

small business basics
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Running a small business brings with it unique challenges:successfully managing your time, cultivating (and keeping) client relationships, and managing the growth of your business. If your business is growing to the point where it’s difficult to meet client demands, it might be time to hire an employee or two.

Here are five key things you will need to know about hiring employees.

Obtain an Employee Identification Number (EIN)

Your EIN will not only identify your business to the IRS, but will also allow you to pay taxes on behalf of the business and to deal with other business-related matters.

An EIN also reduces your risk of identity theft. You’ll need to complete form SS-4. Follow all instructions carefully and submit it to the address specified on the form. Processing will be delayed if any of the provided information is missing or inaccurate.

Register with your state labor board

Before you hire your first employee, you will need to register with your state’s labor board. Doing so will ensure your business is complying with state and federal labor laws.

Verify employee eligibility

While screening employment candidates can be time-consuming for a new business owner, it’s an important step to ensure that your business is complying with employment eligibility regulations:

  • Your employees are generally required to be legal residents of the U.S. or U.S. citizen, have a social security number, and be of legal age to work in your industry.
  • If you own a nightclub that will serve alcohol for example, your employees must be at least 21.
  • You will need to complete an I-9 form for every employee within three days of their hire date. The I-9 also specifies which documents are required to verify a person’s eligibility to work in the United States.

Establish tax withholding records

Each of your employees will be required to complete a W-4 form on or before their employment date. Many businesses choose to include this form in their new hire paperwork, also known as onboarding documents in some industries.

For more specific information, you can refer to the IRS Employer’s Tax Guide or consult a tax professional.

State employee tax requirements vary by state. The Small Business Administration has an excellent resource for state-by-state tax requirements.

Additionally, at the end of each year you are required to furnish a W2 form to each employee that received hourly wages, salaries or other compensation from your business.

Register with your state’s New Hire reporting program and obtain worker’s compensation coverage

You are required to report any new hires (or re-hires) to your state’s New Hire program within 20 days of the hire or re-hire date.

Lastly, business who have employees need to purchase and maintain a Worker’s Compensation policy. You may purchase a policy though a commercial carrier or you can self-insure through your state’s Worker’s Compensation insurance program.

Managing a growing small business means not only additional client and customer demand for your product or services, but it also means you may have to hire employees to meet the increased demand. By following the steps above, you can ensure your business complies with IRS and state tax board regulations.

 

What You Need to Know About Electric Vehicle Tax Credits

electric vehicle creditThe information contained in this post is not intended to replace the advice of a qualified tax professional.

Chances are, you’ve seen electric vehicles while commuting to work or running errands. While electric vehicles (EVs) started off as niche purchases in large metropolitan areas, they are now seen in communities of all sizes.

Electric vehicles have gone mainstream, and they bring with them environmental and financial benefits, including a tax break for eligible vehicles.

Which Vehicles Qualify?

Popular vehicles such as the Fiat 500e, Ford C-Max, Ford Focus Electric, Nissan Leaf, Chevy Volt, and Tesla models S and X all qualify for the electric vehicle tax credit.

The IRS maintains a comprehensive list of eligible vehicles.

How it works

In a nutshell, most electric vehicles are eligible for up to a $7500.00 tax credit. As with any regulation, there are some caveats:

  • You must be the initial buyer. If you purchase a used EV, the tax credit won’t apply.
  • If you decide to lease the vehicle, the leasing company reaps the benefit of the tax credit since they are the owner of record for the vehicle. Auto finance companies have taken this into consideration when drawing up lease agreements and determining lease payment programs.
  • The tax credit applies to vehicles purchased for personal use only and not for re-sale.
  • Battery packs must be rated for at least 4 kWh and must be charged from an external source, such as a home charging station or public charging station. The tax credit increases in proportion to battery size.
  • No refunds: If you purchase an EV and owe $5000 in taxes for example,  your EV tax credit will be equivalent to your tax bill, even if the EV qualified for the maximum tax credit of $7500.00.
  • The program will phase out for each automaker that sells 200,000 EVs.

State-based incentives and credit are available

You can locate state-specific programs through the Alternative Fuels Data Center website. Programs vary from state to state and are based on income and date of purchase.

The IRS codes pertaining to the federal EV tax credit are complex, but by understanding the essential tenets of the EV tax credit, you’ll be in a better position to determine if owning an EV would be worthwhile.

Take a few moments during your car-shopping trip to determine if the EV you have in mind is eligible for the federal EV tax credit. You could end up with significant tax savings as well as peace of mind for the environment.

Tax Tips For Airbnb Hosts: Part 2

 

welcome-to-our-home-1205888_1280

The content of this post is not intended to replace the advice of a licensed tax professional. Consult a qualified tax professional for questions specific to your individual circumstances.

Let’s suppose you enjoyed renting your home through a peer-to-peer company such as Airbnb and would like to rent beyond the 14-day tax-free period. Here are some important tips to keep in mind as you expand your rental business.

Congratulations, you’re a business owner!

It is important to treat your rental activities as a business regardless of where they fall within the 14-day period.

Keep meticulous records. If you confine your rental activity to 14 or fewer days for the year, keep records of your rental income and any receipts. Rental companies are required by law to report any and all income to the IRS, so the IRS may in turn contact you, even if you rented your property for less than 14 days.

If this is the case, you will need to provide documentation of your rental activities verifying they fell within the 14-day rule. A reservation print-out or other form displaying the rental date(s) may be all you need.

As with any IRS correspondence, follow all instructions on the notice, and call the IRS if you should have any questions or can’t locate the documentation they will need.

For longer rental periods, keep track of your non-rental and rental days throughout the year. Detail the specific dates so you can more accurately track your rental income and expenses for those timeframes. You will also need to track your personal expenses for the time frames during which you’re not renting out your home.

Track all business expenses

The IRS allows you to deduct “ordinary and necessary” business-related expenses from your rental income. For example, if you buy patio furniture or other items for guests to use, you can deduct that expense against your rental income.

The same applies to major expenses such as mortgage interest. This is where detailed and accurate record-keeping is key in order provide accurate income and expense figures on your tax forms.

Pay self-employment taxes

As a small business owner, you will need to pay self-employment tax in addition to income tax. Self-employment taxes cover the Social Security and Medicare contributions based on your income.

If you want to side-step any “sticker shock” on tax day, set aside a percentage of your rental earnings to cover self-employment taxes. The total self-employment tax rate is currently 15.3 percent.

Get to know your  state and city occupancy tax rules

While Airbnb, FlipKey and VRBO have evoked controversy in some large cities, these rental activities are welcomed in other communities. Check with your city’s occupancy tax requirements and terminology, as it varies from state to state.

While Airbnb may collect and submit these taxes in certain states, it’s best to confirm the rules, rates and regulations that apply to your state or community. In some cases terms such as “hotel tax” “transient lodging tax” may be used interchangeably with “occupancy tax.”

Airbnb and similar peer-to-peer rental companies allow travelers to forgo expensive hotels and to stay with a local resident instead.

Hosts reap the benefits of the additional income and showing off their community to out-of-town travelers. By fully understanding the basics of property rental, you will have the opportunity to decide in advance if hosting Airbnb guests is a worthwhile activity.

 

 

Tax Tips For AirBnB Hosts: Part 1

 

airbnb

 

The peer-to-peer or “sharing” economy has made it easier for individuals to pick up some extra cash. One of the most popular peer-to-peer platforms is Airbnb. Guests get to stay in a private home anywhere in the world, and hosts reap the benefits of the extra income.

If you’re considering renting out your home to Airbnb guests, there are some tax implications to be  aware of before diving into your host role. Keep these tips in mind so you don’t run afoul of the IRS.

The 14-day rule

Simply stated, the 14 day rule stipulates if you rent out your home for 14 or fewer days throughout the year, you don’t have to report the income to the IRS or pay income tax on those earnings.

At the same time, you must also utilize the property for your personal use at least 10% of the total days that you rent out the property.

Same goes for if you’re renting out a room. Keep it under 14 days, and you won’t have to report the income.

The downside to the 14-day rule? You also can’t take any tax deductions for any expenses incurred during the rental period. If you rent out your home for 7 days on Airbnb and decide to make some minor improvements to the property, you can’t deduct those expenses on your tax returns.

File that W9

If the rental company doesn’t offer you a w9 form when you initially agree to become a host, you can download one here. Fill it out before hosting your first guests and return it to the company office.

The rental company could withhold up to 28 percent of your earnings without it, so it makes good business sense to file your W9; your overall withholding will end up being more reasonable than the 28 percent you’ll pay without filing a W9.

Deduct those guest-service fees

Rental companies such as Airbnb, FlipKey and VRBO charge guests a percentage of the rent as a guest services fee or host service fee.

When you receive your 1099 at the end of the year that states your rental earnings, you will also see the total amount of guest-service fees. Be sure to deduct this amount from your rental income on your tax returns.

Part 2 on Friday will cover more tax tips for Airbnb hosts.

 

Starting Your Own Business? What You Need To Know About Your Taxes

 

starting your own business

Ditching the 9-5 world is something that most of us dream about. If you’ve been fortunate enough to leave the 9-5 world behind to start your own business, your tax outlook will change considerably. Here is what to expect in starting your own business:

Obtain an EIN (Employer Identification Number) While an EIN isn’t required if you’re a sole proprietor, it is a good idea. You’ll reduce your risk of identity theft if you use your EIN instead of your Social Security number when filing your taxes.

Choose a business structure: While it’s important to consult with an attorney prior to launching a business, there are four possible business structures to consider:

  • Sole proprietorship
  • LLC (Limited Liability Corporation
  • Partnership
  • C or S corporation

Each business model carries with it specific implications for your taxes, so it is vital that you enlist a qualified attorney or tax pro before starting out. They can advise you on the best business model to suit your needs and goals.

You can restructure your business as your needs and goals change over time.

Common deductions

As a business owner, you may have access to tax deductions that weren’t available to your in your 9-5 days. They can include:

  • Business-related meals, travel, and entertainment
  • Business-related auto expenses
  • Rent of office space or for home office use
  • Office equipment
  • Health insurance costs for your employees
  • Start-up expenses

You’ll need to keep accurate records of all income and expenses in order to claim any of these deductions. Keep all receipts related to your business deductions.

There is a variety of productivity software packages and apps that can help you keep this chore manageable over time.

Quarterly tax payments

Unlike the traditional work structure where you paid your taxes at the end of the year, as a business owner you are required to pay quarterly taxes if:

  • Your business is a sole proprietorship, partnership, or S-Corp shareholder
  • You expect to earn $1,000 or more from business activities

You are required to pay at least 90 percent of your tax balance in order to avoid significant fees and penalties. If you’re not sure how to calculate your quarterly taxes, be sure to consult with a qualified tax professional.

Starting your own business can be rewarding: no set schedules, no office politics, and the ability to perform work you truly care about.

Along with the rewards of small business ownership come a unique set of challenges: determining the ideal business structure, managing expenses and deductions, and a significant change in how and when you pay taxes.

Make the start-up phase of your business as easy as possible by consulting with a knowledgeable tax professional who can provide valuable input as you structure your business and establish yourself as a business owner.

 

Teen Taxes: What You Need To Know About Your Teen’s Summer Job

summer job

 

Taking on a summer job is a rite of passage. Most of us at one point or another in our teens worked fast food, babysat, mowed lawns or delivered newspapers to earn pocket money.

You might find your son or daughter creating their own business or taking on more traditional summer jobs. Either way, having a working teen in the family can affect your taxes.

Working in the family business

Gone are the days of kids working as free labor on the family farm. If you own a sole proprietorship or partnership, having your teen spend the summer working for you gives him or her a taste of business ownership, and gives you some tax breaks.

If your teen is younger than 18, you won’t have to withhold FICA taxes from their pay. You are also exempt from paying federal unemployment tax until your teen turns 21.

Claiming a working teen as a dependent

You can still claim your employed teen as dependent if they meet the following criteria:

  • They must live with you for more than half the year and
  • They don’t provide more than half of their own financial support year-round

If your teen files their own tax return while you are still claiming them as a dependent, they can’t claim their own personal tax exemption on their tax returns.

Self-employment

If your teen passes up traditional summer jobs in favor of self-employment, running their own business can bring them the flexibility and satisfaction typically not found with most summer jobs.

This rule also applies if they earn more than $600.00 working for someone else as an independent contractor, regardless of whether or not the employer issues a 1099 form at the end of the year.

Although a self-employed teen may not earn enough to be subject to federal income taxes, they may still be liable for self-employment taxes at the rate of 15.3% of their net profit.

Taking on a summer job is a good way for teens to save toward a car or for college. Teens aren’t just limited to babysitting or cutting lawns any longer. With the expansion of technology comes a host of job opportunities for teens, in addition to a more flexible work model.

Regardless of which path your teens takes to summer employment, being aware of the possible tax implications for both you and your child will eliminate some stressful tax-related surprises at the end of the year.

As with any tax matter, enlist a qualified tax professional who can answer questions regarding your specific tax scenario, and who can help your teen with their tax-related questions.

Top Tax Breaks For Young Adults

Young adults, tax breaks

 

If you’re currently a college student or have just started out in the workforce, you may think you’re not eligible for any tax breaks, especially if you’re single with no kids.

There are several tax breaks available for young adults and they can help reduce your overall tax liability at the end of the year. Sure, they’re not as generous as the tax deductions available to your friends with kids, but they can still reduce your overall tax liability.

Savers Credit: If you’re stashing money away into an IRA or employer-sponsored 401K, you’re in luck. You’ll receive a tax credit of up to $1,000. You’ll get a year-end statement from your employer’s 401K administrator or your IRA administrator verifying the amount you stashed away in savings.

The Saver’s Credit  only applies if you’re earning $45,000 or less each year.

Lifetime Learning Credit: You may be eligible to deduct up to $2,000 in education-related expenses. This credit applies to any undergraduate, professional or graduate study at an accredited institution.

Taking courses for the sole purpose of strengthening your job skills? You can also deduct related expenses for these courses.

American Opportunity Tax Credit: If you’re in your first four years of post-secondary education, you’re also in luck. You can deduct up to $2500.00 of your education-related expenses each year while in school. Keep track of your receipts for textbooks, tuition, educational software and any other education-related expense.

Self-employment: Whether you’re driving for Uber or renting out rooms on AirBnB, side gigs are a great way to bring in some cash. Unfortunately, the IRS regards these activities as self-employment, so you’ll be subject to self-employment tax.

One way to reduce the sting of these extra taxes is to keep record of all of your business-related expenses. Keep all receipts for fuel, supplies, advertising materials and other business-related expenses.

If you earned more than $600.00, the employer (Uber, for example) will issue you a 1099 Misc. form at the end of the calendar year. In the event they don’t issue a 1099, you will still need to claim the income on your tax returns.

Job search expenses: If you are looking for work within your industry, you can deduct your travel, meal and lodging expenses if your job search took you 50 or more miles from your home.

The same goes for moving expenses. If you landed a new job at least 50 miles from your current address, you can deduct your moving/relocation expenses. This includes transporting your furniture, clothing, and other possessions. You can even deduct the cost of transporting your pets.

You can also deduct mileage expenses at the rate of .19 per mile.

If you’re in college or just starting out, you may think you’re not eligible for any tax breaks, but there are tax deductions that are available to you right now. Remember to keep track of any related documentation to support your deduction, such as mileage records and receipts for expenses.

As with any tax matter, if you’re not sure of the tax breaks available to you, check with a licensed tax preparation professional who can determine your eligibility and answer your questions. You’ll be glad you did when it comes time to file your tax return.

 

 

 

 

It’s Never Too Early To Get Ready For The 2017 Tax Season

tax season

 

April 18 is almost a distant memory for most of us. Tax returns or extensions are filed, documents stored, and refunds are on their way to our bank accounts if not received already.

If tax season 2016 was too hectic for your tastes, there are ways you can prepare for a smoother 2017 tax season by preparing early. Mid-year is the perfect time to assess your individual tax scenario.

Keep track of these milestones:

  • Birth or adoption of a child
  • Marriage or divorce
  • Transferring or relocating for work
  • Change in military status or activity
  • Death of spouse
  • Receiving lump sum distributions, inheritances or settlements
  • Starting or selling a business
  • Establishing a home office
  • Significant medical expenses not covered by insurance
  • Job search expenses, including mileage, lodging and relocation expenses
  • Collecting Social Security, Unemployment or Social Security Disability Insurance benefits

Each of these milestones will affect your tax status for 2017. Now is the time to consult with a tax pro who can advise you on the best tax strategy for these life events.

Understand the updated tax laws for 2017

Tax laws change frequently at the state and federal level. These changes can include:

  • State tax regulations
  • Itemized deduction allowances
  • Changes in tax credit programs, eligibility or regulations
  • Changes in trust and estate regulations
  • Retirement account contribution limits
  • Income limits for contributions to a Roth IRA

You can begin researching these changes through your state revenue department website, IRS.gov website, or community resources such as  workshops or lectures.

You’re not alone, however, if you find the language of these regulations confusing or difficult to understand. Always enlist a qualified tax pro if you need clarification on any tax matter, particularly changes in tax laws or regulations.

If you are a low wage earner, disabled, or a senior, you can access basic tax advice through the VITA program beginning in January of each year. Trained volunteers will assist you with any basic tax questions as well as provide tax filing assistance.

File early

Identity theft and tax  fraud are on the rise. Filing early in the tax season will prevent an identity theft ring from attempting to file a fraudulent tax return under your name and social security number.

Last but not least…

Organize your tax documents throughout the year. If you haven’t done so already, set up a filing system for your paystubs, receipts, freelance/side job income, medical/dental expenses, and home office expenses.

There are also many spreadsheet and basic bookkeeping programs and apps available to help you keep record of your income, expenses and deductions throughout the year.

Staying organized year round will eliminate the last-minute rush to gather paperwork and records on tax filing day, making things easier for you and for the tax pro who will be filing your return.

Mid-year is a perfect time to prepare for the 2017 tax filing season. Make note of any significant life change, stay current on changes to tax laws and regulations and file early in 2017.

Reporting Tips To The IRS

tip income

 

Most of us at one point in time or another pick up a side job. With the pressures of bills or emergency expenses facing us, it makes sense to earn some extra income.

If your side job also includes receiving tips from customers, it’s important to understand the “hows” and “whys” of reporting tip income.

The IRS requires taxpayers to report ALL income, including tips. You are required to report your tips if:

  • You earn more than $20.00 in tips. Report the initial $20.00 plus anything over and above that amount.
  • Tips are not included as a required gratuity or service charge instituted by your employer.
  • If you have a slow month and don’t earn $20.00 in tips, you don’t need to report any tip income you do receive, as long as it is under the $20.00 threshold.

If your employer has attached an automatic gratuity or service to their price structure, you do not need to report that gratuity, even if your employer distributes the service charge or gratuity to you and other employees.

For example, if you’re have a side job as a limo driver and your employer adds a 5% gratuity to their rates, you do not need to report your share of the gratuity as tip income.

On the other hand, if at the end of the night, your customer tips you $50.00 for a job well done you will need to report the cash tip.

Tips can also be in the form of credit card charges, cash, gift cards, transit or event passes, and other gifts instead of cash. You do not need to report the value of non-monetary tips.

How to report your tips

You will need to get the IRS 4070 form from your manager, payroll department or HR department. Fill it out with all the required information  and return it on or before the 10th of each month.

Your employer will then take the standard deductions for taxes and social security just as they do for your regular pay.

Why to report your tips

As with any tax matter, the IRS will assess penalties for withholding or under-reporting information, especially your income.

While it may be tempting to not report your tips in order to get caught up on expenses or to save for a vacation, it is essential that you report tip income.

If you choose not to report your tip income, you could face penalties and fines for failure to report all of your income. Consequences can include a penalty equal to 50% of the applicable payroll taxes on the tips. This penalty will be in addition to any unpaid taxes you owe.

In addition, accurately reporting your tips will ensure that you receive the correct amount of Social Security and Medicare benefits once you become eligible.

Keep accurate records of your tips since you will also need to report them at the end of the year when you file your tax return.

Fill out the IRS 4070 form, and return it to your manager or payroll department on the 10th of each month. Doing so will ensure that you are accurately reporting your income to the IRS.

 

What You Need To Know Before Hiring A Tax Resolution Firm

 

tax resolutionNot all tax resolutions firms are alike. For every legitimate tax resolution firm, there is an unethical, fly-by-night tax firm. By exercising caution, asking questions and performing some research, you can avoid the scam firms and hire a legitimate firm to represent you before the IRS.

Standing with the Better Business Bureau: Look for a firm that is in good standing with the Better Business Bureau.

Track record/longevity: You will want to hire a firm that has an established presence in the business community and a solid track record.

Fee structure: Beware of firms that insist on payment up front. In most cases, you will be asked to pay a retainer once they agree to take on your case. Ask for the firm’s written fee schedule and payment policies.

Ask for an estimate or summary of expected charges. If you are billed periodically throughout the case, all billing charges should be clearly outlined; some firms will utilize case managers, paralegals and other personnel in addition to the tax professional handling your case.

Avoid firms that charge a flat rate for all cases, regardless of their complexity. Legitimate tax resolution firms will base their fees on the complexity of your individual case and will charge you accordingly.

Beware of upfront promises: Avoid firms that promise a specific outcome or resolution of your case. The outcome of your case can’t be determined by the tax firm. The IRS has the final say in the outcome of your case, not the tax resolution firm.

Steer clear of firms that will take on our case, regardless of whether or not you qualify for their assistance. A legitimate firm will assess your case to determine whether or not they can assist   you, and whether or not you are eligible for any of the tax relief programs (OIC, installment agreements, lien releases) offered by the IRS.

Perform due diligence: Utilize tools such as Yelp, LinkedIn, and Google to research the owners and staff of the firm. If a tax attorney will be handling your case, make sure that individual is in good standing with both the bar association and the IRS.

As mentioned earlier, the firm should also have excellent ratings through the Better Business Bureau.

Facing a serious tax matter requires competent professional representation. Hiring a tax resolution firm is a solid investment that will save you time and money in the long run.

A legitimate tax firm will have professional staff who are readily accessible, in good standing within the industry and within their professions, and who will provide an honest assessment of your circumstances and eligibility for any IRS-based tax debt relief programs.