YOUR BUSINESS MAY BE OPERATING IN MORE THAN ONE STATE….AND THAT MIGHT BE A BIG AND COSTLY SURPRISE TO YOU!!

        Why you might ask?

    Well let me tell you….since you asked.

    Each state has its own regime for corporate income tax, sales tax, use tax, and other revenue raisers. Typically, you are subject to a state’s taxes if you have a nexus to the state.  Nexus means having a substantial physical presence within a state, such as maintaining offices, warehouses, or a sales force. The presence may be permanent or temporary.

    However, as states look to expand their ability to tax, the concept of nexus is growing as well, and may cause you to become subject to a state’s taxes without any conscious decision on your part to transact business there. so, for example, merely traveling on business by airplane creates nexus in a number of states. And with the advent of online sales, a number of states have created “click-through nexus“, where online (remote) sellers with a certain level of sales are deemed to have sufficient nexus to collect sales tax in the state where the sales occur (the location of the buyer even though the seller is in another state).

    The 2016 Bloomberg BNA survey of State Tax Departments found some startling information that you should know about when it comes to nexus. (Note: You can download a complimentary copy of the survey, but you have to provide your email, name, company, and zip code).

    Key Findings From the Survey:

        • Using FedEx or UPS to deliver goods in another state can create sales tax nexus for remote sellers (this is so in 1 out of 4 states).
        • Because of the complicated tax rules, some businesses may be subject to double taxation (i.e., tax on the same income, sales, etc. in more than one state). While there may be some deductions or credits for taxes paid in one location against taxes in other, the write-offs may not fully account for the taxes.
        • Guidance on how pass-through entities (S Corporations, Partnerships) should apportion income to the states in which there is nexus is largely unclear; only 6 states have clear guidance rules.

    Bottom line

    Talk with your tax advisor to determine your business’s exposure to taxes in states that you may not think have a physical presence in. If you learn you will be treated as having a nexus elsewhere, then discuss ways to minimize your tax bill in any of these other states.

    ___________________________________________________________________________________________________

    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Categories: Business, Income Tax, Sales Tax

    Are You Planning to Buy High End Residential Real Estate?

    Even though this post is not directly about taxes I wanted to timely share information that could, under certain circumstances, affect a segment of the population as a result of a recent action by a bureau of the U.S. Treasury. Don’t worry, I’ll keep this article short.

    The Financial Crimes Enforcement Network (FinCEN) has announced Geographic Targeting Orders (GTO) that will temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas. FinCEN remains concerned that all-cash purchases (i.e., those without any bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. So to better understand this vulnerability, FinCEN issued similar GTOs earlier this year covering transactions in Manhattan and Miami-Dade County, Florida. The GTOs announced yesterday will expand upon the valuable information received from the initial GTOs. You can see the complete release here——> https://www.fincen.gov/news_room/nr/pdf/20160727.pd f.

    So, I promised that I would keep this post short. But, I hope that this information is helpful to those potentially affected.

    Stay tuned!

    ___________________________________________________________________________________________________

    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Categories: Business, Uncategorized

    Will Government Regulating Compensation for Big Business Affect Your Small Business?

    A proposed rule under the Dodd-Frank Act would require Wall Street firms with $250 billion or more in assets to defer bonuses to top executives for four years (instead of the current three years). The rule is meant to curb risk-taking. Political rhetoric by some presidential candidates has also taken aim at Wall Street compensation. Why should small business owners on Main Street care what happens to executive compensation for those on Wall Street?

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    Does Small Business Need More Government Regulations?

    Here’s the Reason I Care: It comes down to government regulation. If the government can tell certain companies how much they can pay, and when, the government can also tell small business owners what they can reap from their companies. There are already various rules impacting what businesses can pay, and most of these rules already impact small businesses.

    Here’s a summary:

    Tax limits on compensation. Only reasonable compensation is tax deductible. The issue only comes up for owners and other top management, primarily in connection with C corporations. There’s no dollar amount for it; it depends on facts and circumstances (what would a hypothetical independent investor in the business pay for compensation to owners and top management?). Compensation to S corporation owner-employees must also be reasonable so that it’s not low-balled to avoid employment taxes.

    No tax deduction can be claimed by a firm that pays reasonable compensation if it exceeds a set amount in certain situations: up to $1 million ($500,000 for the top 5 executives in medical insurance companies and companies directly assisted by the government under the Emergency Stabilization Act) and up to $500,000 for compensation to service providers covered by a Covered Health Insurance Provider (CHIP).

    DOL minimum compensation rules. The Department of Labor, states, and some municipalities have minimum wage rules that require employers to pay workers at least a minimum hourly rate. By executive order, there’s a special federal minimum wage rule that applies to federal contractors, including small businesses that do work for the government. What’s more, a pending rule that is expected to take effect shortly would hike the compensation limit for employees subject to overtime pay rules.

    Bottom Line

    Small businesses are hypersensitive to the marketplace. If competitors raise their compensation, most others try to follow suit in order to attract and retain good employees. In other words, the marketplace sets the level of compensation.

    Does this mean I oppose minimum wage rates? Not necessarily; they’ve been in place since 1938 (the hourly rate was fixed at that time at 25¢ per hour, which if adjusted for inflation would be $4.22 in 2016). I’m just a little leery of the government setting a rate that will work for all. If the rate is too high, small businesses will be forced to cut the number of workers, reduce hours, or find non-labor solutions (e.g., robotics).

    So, let’s all be cautious of government action regarding compensation.

    What do you think?

    ___________________________________________________________________________________________________

    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Categories: Business

    Do You Have A Business or Do You Have A Hobby? Does It Make a Difference?

    Millions of Americans have hobbies such as sewing, woodworking, fishing, gardening, stamp and coin collecting, but when that hobby starts to turn a profit, it might just be considered a business by the IRS.

    Business or a Hobby and Taxes!
    I Don’t Know if I Have a Business or a Hobby. How Will Each Affect my Taxes?

    Definition of a Hobby vs. a Business

    The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity that is carried out with the reasonable expectation of earning a profit.

    The tax considerations are different for each activity so it’s important for taxpayers to determine whether an activity is engaged in for profit as a business or is just a hobby for personal enjoyment.

    Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to deductions such as expenses and losses, the two activities differ in their tax implications.

    Is Your Hobby Actually a Business?

    If you’re not sure whether you’re running a business or simply enjoying a hobby, here are nine factors you should consider:

    1. Whether you carry on the activity in a businesslike manner.
    2. Whether the time and effort you put into the activity indicate you intend to make it profitable.
    3. Whether you depend on income from the activity for your livelihood.
    4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
    5. Whether you change your methods of operation in an attempt to improve profitability.
    6. Whether you, or your advisers, have the knowledge needed to carry on the activity as a successful business.
    7. Whether you were successful in making a profit in similar activities in the past.
    8. Whether the activity makes a profit in some years, and how much profit it makes.
    9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

    An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

    The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

    Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

    Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

    What Are Allowable Hobby Deductions?

    If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

    Note: The Internal Revenue Code limits deductions that can be claimed when an activity is not engaged in for profit.

    Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only
    to the extent stated in each of three categories:

    • Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
    • Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
    • Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

    If your hobby is regularly generating income, it could make tax sense for you to consider it a business because you might be able to lower your taxes and take certain deductions.

    Still wondering whether your hobby is actually a business? Give us a call and we’ll help you figure it out.

    We can be reached at (845) 344-1040 (year-round).

    Or, visit our web site at: SolidTaxSolutions.com.

    __________________________________________________________________________________________________

    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Categories: Business

    How Long Should I Keep My Tax Records?

    Was that a question that you’ve ever asked?

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    I know that I get that question asked of me quite frequently. Whether from a new client, or attending a social gathering, or even at a baseball game (I was actually asked this at a Mets baseball game at Citifield by a fellow fan during casual conversation).

    Now that we are in full swing of this year’s tax season, you are probably wondering what old records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. It would be helpful to understand why the records must be kept in the first place.

    Generally, we keep tax records for two basic reasons: (1) in case the IRS or a state agency decides to question the information reported on our tax returns, and (2) to keep track of the tax basis of our capital assets so that the tax liability can be minimized when we dispose of them.

    With certain exceptions, the statute for assessing additional taxes is three years from the return due date or the date the return was filed, whichever is later (IRC section 6501(a) in case you feel ‘geeky’). However, the statute of limitations for many states is one year longer than the federal law (Note: in NYS the rule is: Three years after the date the tax return was filed). In addition to lengthened state statutes clouding the recordkeeping issue, the federal three-year assessment period is extended to six years if a taxpayer omits from gross income an amount that is more than 25 percent of the income reported on a tax return (NYS is six years after the tax return was filed). And, of course, the statutes don’t begin running until a return has been filed. There is no limit where a taxpayer files a false or fraudulent return to evade taxes (same for NYS).

    If an exception does not apply to you, for federal purposes, most of your tax records that are more than three years old can probably be discarded; add a year or so to that if you live in a state with a longer statute.

    Examples – Susan filed her 2013 tax return before the due date of April 15, 2014. She will be able to dispose of most of the 2013 records safely after April 17, 2017 (April 15, 2017 falls on a Saturday). On the other hand, Bob files his 2013 tax return on June 2, 2014. He needs to keep his records at least until June 2, 2017. In both cases, the taxpayers may opt to keep their records a year or two longer if their states have a statute of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day.

    The Big Problem!

    The problem with the carte blanche discarding of records for a particular year because the statute of limitations has expired is that many taxpayers combine their normal tax records and the records needed to substantiate the basis of capital assets. These need to be separated and the basis records should not be discarded before the statute expires for the year in which the asset is disposed. Thus, it makes more sense to keep those records separated by asset. The following are examples of records that fall into that category:

    Stock Acquisition Data – If you own stock in a corporation, keep the purchase records for at least four years after the year the stock is sold. This data will be needed to prove the amount of profit (or loss) you had on the sale.

    Stock and Mutual Fund Statements (If you reinvest dividends) – Many taxpayers use the dividends they receive from stocks or mutual funds to buy more shares of the same stock or fund. The reinvested amounts add to the basis in the property and reduce gain when it is finally sold. Keep statements at least four years after the final sale.

    Tangible Property Purchase and Improvement Records – Keep records of home, investment, rental property, or business property acquisitions AND related capital improvements for at least four years after the underlying property is sold.

    For example, when the large $250,000 and $500,000 home exclusion was passed into law several years back, homeowners became lax in maintaining home improvement records, thinking the large exclusions would cover any potential appreciation in the home’s value. Now that exclusion may not always be enough to cover sale gains, particularly in markets where property values have steadily risen, so records of home improvements are vital. Records can be important, so please use caution when discarding them.

    What About The Tax Returns Themselves?

    While disposing of the back-up documents used to prepare the returns can usually be done after the statutory period has expired, you may want to consider keeping a copy of your tax returns (the 1040 and attached schedules/statements plus your state return) indefinitely. If you just don’t have room to keep a copy of the paper returns, digitizing them is an option.

    If you have questions about whether or not to retain certain records,
    contact Solid Tax Solutions first. We are available year-round. Our phone number is: (845) 344-1040.

    It’s better to make sure, before discarding something that might be needed down the road.

    __________________________________________________________________________________________________

    <Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Categories: Business, Income Tax

    Tax Rules for Piggyback Businesses!

    No, this term has nothing to do with farms or state fairs. It refers to small business owners who carry their businesses on their backs. They work from Starbucks or mobile homes.

    Piggyback ride

    I couldn’t find any statistics on piggyback businesses, but I know a number of them. From a tax perspective, what does this mean?

    Mobile Homes:

    Some piggybackers want to deduct the cost of operating from a mobile home. This has come under IRS scrutiny, and here are some of the results from the Tax Court:

    • An insurance agent who sold policies at recreational vehicle (RV) rallies could not deduct his own RV expenses. While use of the RV has a substantial business purpose, the Tax Court said that they could not take a home office deduction because they used the RV for personal purposes for more than 14 days in the year. Any personal use, including watching TV in the RV, makes the entire day a personal day.
    • A consultant who used his motor home for business was allowed to deduct interest on the loan to buy it as home mortgage interest. However, much of the claimed business expenses for travel in the home was disallowed for lack of substantiation.
    • An orthopedic surgeon who used his motor home to facilitate his response to “stat” pages from hospital in which he worked, and to avoid the need to rent an office and pay for accommodations while on call, could not write off all that he claimed. He had argued that the Navigator was used as a “mobile office” 85% in one year and 100% in the next despite his mileage logs suggesting a much smaller percentage of business use. The court adopted the IRS’s percentages of business use (19.42% and 22.23% respectively).

    Home Office:

    Working outside of a home does not prevent a business owner from taking a home office deduction. As long as there is no other fixed location for the business and the home is used for substantial administrative or managerial activities of the business, it can qualify as the principal place of business and allow for a home office deduction. The space must be used regularly and exclusively for this purpose, and not occasionally, or also for personal reasons.

    Use Apps:

    It’s up to the business owner to maintain records needed to support write-offs related to piggybacking activities, such as travel. Use apps on your smartphone or tablet to facilitate recordkeeping for tax purposes.

     

    If any of these, or similar, situations apply to you give Solid Tax Solutions a call: (845) 344-1040.

    ______________________________________________________________________________________________

    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Categories: Business