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

 

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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.