Category Archives: Business Tax Preparation

Six New Schedules To File With Form 1040

Forms 1040: Six New Schedules

There are six new schedules some taxpayers will file with the new 2018 IRS Form 1040. This new Form 1040 replaces the prior year Forms 1040, 1040A and 1040EZ. The 2018 IRS Form 1040 uses a cornerstone approach. This means that taxpayers only file the schedules they need with their federal tax return. The expectation is that numerous individuals will not need to file schedules, and only file the Form 1040. Continue reading

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How An Accounting Pro Can Help Your Small Business Boom

An Accounting Pro Can Make All the Difference in Your Business Success

It’s true, a professional accountant can provide powerful tax strategies with limited tax obigation, which results in saving money for your small business. One of the most positive qualities that many small business owners share is a burning desire – an insatiable willingness – to “do it all.” It’s what separates entrepreneurs from employees in the first place. An employee is more than willing to set out on the path that someone else has carved for them. An entrepreneur has a need to carve a path for themselves. Continue reading

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Growing Pains, Growing Business in Massachusetts

Are you the owner of a growing business, chances are you have business growing pains. You know that you need to wear many hats. Imagine your business has grown to the point that you can expand your services beyond the boundaries of your home state, Massachusetts in our case. You may need to file tax returns in the states you are doing business in. Here are a few things to look out for. Continue reading

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How to Interview an Accountant

When you interview an accountant it can seem like a daunting task. However, can be as simple as asking the right questions. At Worthtax, we have reviewed thousands of tax returns over our history. You want an organized, accurate accountant with good communication skills. Someone who will explain the tax breaks to you accurately and in a language you can understand as a real estate investor. Ideally, you want someone with an excellent education and training, who is easy to work with, and most of all, someone who knows the tax breaks and will save you money. Continue reading

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Broncos Win Super Bowl 50 – California Wins With Jock Tax

bronchos winBroncos win of Super Bowl 50 was a surprise to some. Not to me, they had a tight defense. I just hope their defense was just as good when planning to pay the Jock Tax.

Superbowl 50 was in California this year. California is one of those states that charges a “jock tax.” I know your are moaning, are you kidding me? A Jock Tax? It’s true! Payton Manning will have a hefty amount to share with the state after the Broncos win. But take comfort, the referees will be subject too.

Just like you may earn overtime or a bonus at your job, these Bronco and Panther athletes make a hefty bonuses for the playoffs and Superbowl. The athletes who play for the Broncos, Panthers or our beloved Patriots are subject to taxes on a State and local basis. This makes their taxes are very complicated. They have to have a really good CPA on their team. Hum, they should call Worthtax!

Since these athletes play in many cities throughout the US, each city may have a local tax imposed. And, each city is located in a state that may require a jock tax on a portion of their multi-million dollar contracts. This jock tax, another form of income tax, is not only collected where they are based, but also where they live.

Oh, and when we say the Broncos win got them a big, beautiful ring? They they may be taxed on the that as well. I guess in the end, we can really say, California won.

Each State Has Their Own Tax Rules

States tax all earnings of the residents residing in that state. However what about non-residents? That is not always the case. In Massachusetts, nonresidents are taxed on the income that results from sources within the Commonwealth.

Some states will tax nonresident income. Chances are if a city (and state they are located in) hosts a large NFL, NBA, NHL or other major league sports events, then it is likely that they have the jock tax. It is just one more opportunity for generating revenue, I guess you can say.

Not All Fun and Taxes When Broncos Win or Lose

You may ask yourself, “Why don’t more athletes live in Massachusetts?” Guess what?  Massachusetts has a jock tax. Think about it, we are home to the New England Patriots, the Boston Red Sox, Boston Celtics and New England Revolution. That is a lot of tax revenue to be made for the Commonwealth. States that do not have a jock tax are Florida, Washington, Texas and Tennessee. That is why those states, especially Florida, are able to successfully recruit those big names and keep them as residents. And I bet you thought the awesome weather was the only reason that athletes live in Florida? Well, partially, but professional athletes, who live in Florida do not have to pay taxes against the income they earn playing there.

So when a player happens to mention they would rather play in one city rather than another, it may not be due to loyalty or rivalry. Although, we would like to think that. They very well could be thinking about their tax return. Keep that in the back of your mind the next time you play fantasy football.

Regardless of the Broncos Win – We don’t discriminate if you are subject to a Jock Tax

Professional NFL player or not, we are here to help you sort through your taxes. Call Alex at 781.849.7200 . Worthtax has a sign-on bonus of our own. In addition to our guaranteed pricing, we are giving $50 American Express gift cards to any new clients who have their taxes completed and filed by WorthTax. Worthtax provides ultra-convenient service and triple check accuracy. We have locations in Quincy, Weymouth and Dedham. Although, if you are a Broncos’ fan and you booed our beloved Patriots, well … don’t do it again!

Superbowl 50 Fun Fact

What is Superbowl 50 without the commercials? Did you know that advertising for Superbowl 50 will generate $377 Million in advertising revenue. Imagine paying taxes on that!

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photo credit: Denver Broncos 2008 Schedule Wallpaper via photopin (license)
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Business Versus Hobby

Business versus hobby? Why does that matter? Because there is a tax impact, that’s why.

Are you tired of the rat race?  Are you ready to make the American dream a reality?  Congratulations, you live in Massachusetts, one of the easiest places in the world to start a business . . . except when that business is not really a business but a hobby.

Business versus Hobby

The First Five Years of a Business

Many businesses tend to lose money the first couple of years of operation. It usually takes five years to make a profit. Because they are a business they get to write off all of their losses. Here is where a business versus hobby will pan out. If you have a hobby, you can only use the losses to offset any incidental hobby income. The tax benefits of having a business has led many a taxpayer to run afoul of the IRS. While there is no single hard and fast rule that one can use to determine if you have a hobby or a business, the IRS has a list of criteria that one can use to make that determination.

  1. The manner in which the taxpayer carries on the activity. Do they complete accurate books? Were records used to improve performance?
  2. The expertise of the taxpayer or his advisers. Did the taxpayer study the activities business practices? Did they consult with experts?
  3. The time and effort expended by the taxpayer in carrying on the activity. Do they devote much of their personal time and effort?
  4. The expectation that the assets used in the activity may appreciate in value. Is the plan to generate profits through asset appreciation?
  5. The success of the taxpayer in carrying on similar or dissimilar activities. Have they converting them from unprofitable to profitable?
  6. The taxpayers history of income or losses with respect to the activity. Has the taxpayer become profitable in a reasonable amount of time?
  7. The amount of occasional profits. Even a single year of profits can be a strong indication that an activity is not a hobby.
  8. The financial status of the taxpayer. Does the taxpayer have other income sources that are being offset by the losses of the activity?
  9. Does the activity lack elements of personal pleasure or recreation? If the activity has large personal elements it is indicative of a hobby.

A Likely Hobby

Let’s say that you are an electrician and you put together remote controlled robots on the side.  You periodically make sales of your creations online and at a robotics club. You do not really keep financial records.  You don’t have a written business plan.  I would probably say that this is a hobby, even if it makes an occasional profit as it does not meet any of the business criteria presented by the IRS.

A Likely Business

Now let’s say you decide you want to turn this same activity into a business. You consult with your tax advisor and a lawyer. You put together a business plan; you set up an LLC, a website, a separate bank account. You feature a lineup of products that you intend to make a profit on.  You keep excellent books and you pour a ton of sweat equity into the venture. Despite your best efforts, your robots are a complete disaster and you lose your shirt. You then make the decision to close up your business. In this instance, despite having lost money, I would probably classify this as a business as it meets virtually every IRS business criteria. In the end, you end up with the two consolation prizes. The first is that you get a nice tax break when you write off all your business losses; the second is that this is a great country for closing out a business as well.

Business versus Hobby, Sort it Out

Alex Franch, BS EA  can help you work through all the criteria of a business versus hobby. Call him at 781.849.7200 to determine if you will get any tax benefit from your business investment. We invite you to leave your comments below or on our Facebook or Google + pages. If you found this information helpful , and you think someone else might benefit from it, feel free to share it on your social media pages.

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Is Your Hobby a For-Profit Endeavor?

2015_07_23 Hobby or business photographer 13113978_071b7938fbWhether an activity is a hobby or a business may not be apparent to the customers of the endeavor. However, distinguishing the difference is necessary for tax purposes. Why? Because the tax treatments are substantially different. The IRS provides appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or if it is engaged in as a hobby.

Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

This article provides information that is helpful to determine if an activity qualifies as an activity engaged in for profit. It also addresses what limitations apply if the activity was not engaged in for profit.

Is your hobby really an activity engaged in for profit?

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.

The following factors, although not all-inclusive, may help you determine whether your activity is an activity engaged in for profit or a hobby:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Do you expect to make a profit in the future from the appreciation of assets used in the activity?

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

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

Hobby Deductions

If it is determined that your activity is not for profit, allowable deductions cannot exceed the gross receipts for the activity.

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

  • Expenses that a taxpayer would otherwise be allowed to deduct, such as home mortgage interest and taxes, may be taken in full.
  • Deductions that do not result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent that 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 that gross income for the activity is more than the deductions taken in the first two categories.

Do you have questions about your endeavor, if it is a hobby or a business?

If you have questions related to your specific business or hobby circumstances, please give please give Alex a call at 781-848-7200. You are also welcome to leave a comment below or on our Facebook or Google+ page. Either way, Alex can help you sort through the tax treatments for what you do.

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photo credit: diego pablo via photopin (license)

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Incorporating a New Business

Quarterly-ScheduleAre you thinking of incorporating a new business?  Do you have a business that is on extension?  Do you have a real estate partnership?

Owning and operating a business can be a challenge in and of itself. The various filing requirements and tax implications can add a level of complexity that blindsides many business owners and creates its own sets of challenges.

That September 15th deadline, or some will say, 9/15 deadline for your tax return is right around the corner. Have you filed your annual report yet? Each state has a different rules, deadlines, and fees.

There is a misconception that incorporating in a particular state may save you from filing in the state in which you do business. This is simply not so. If you have a Delaware corporation operating in Massachusetts for example, you need to file a Delaware tax return AND Massachusetts Tax return. In addition to the tax returns, there are often corporate excise taxes and franchise taxes; these vary by state and can often be a labyrinth of red tape for many small businesses. Failing to file the appropriate forms can lead to a variety of late charges and the involuntary dissolution of your business.

One also needs to consider how the business income is taxed. Income can sometimes pass through the business to your personal taxes or taxes can be paid by the corporation. In either case, it would not exempt you from filing the corporate tax return. Then there is the question of how one takes the money out of the business. If not done properly, this can create additional tax liabilities to the shareholders. There are elections one can make.

This one really trips people up; has an owner or shareholder passed away? Well, you can’t take it with you. This begs the question, who gets the business income now and how is this share of the business treated differently?  This happens often with real estate partnerships and can multiply the number of parties involved quickly.

Finally, there are a number of additional filing requirements that can vary greatly. You might have a payroll in which case you have to file monthly, quarterly, and annually. There is sales tax which might be due every month or once per year in Massachusetts; however, rates and frequency vary from state to state and even county by county. The same is true of meals taxes. Filing requirements and rates can vary from town to town, not to mention state by state.

The 9/15 deadline is right around the corner, if you have questions about your tax returns feel free to leave a comment below. Also, you may go to our Facebook or Google+ pages, or you can call Alex at 781-849-7200.

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