Don’t Let Tax Issues Trip Up Your Great Idea
Late last week, the New York Times published a story that caught our eye: they profiled several entrepreneurs who ran into some complicated tax issues after running successful Kickstarter or other crowdfunding campaigns.
Not only were some of these people surprised at having to pay taxes despite not having formally set up a business, a couple of them ran into particularly thorny problems, such as determining sales tax liability and having a large tax bill due to incomes that didn’t match up with expenses. Check out the article for the details.
The bigger issue here is that many people don’t know that the IRS has a fairly expansive definition of income. While most think of income as either being earned in a formal job where one receives a paycheck and a W-2 or made in a formal business, there are lots of other ways to earn income. As the NYT story notes, the exchange of money for a tangible good and/or service is almost always considered income to the person receiving money. And though the story doesn’t venture into such choppy seas, it’s important to note that money doesn’t have to change hands for income to have been earned.
If you have any concerns at all about the taxable status of business (or non-business) activities, or if you get a form that you’re not sure what to do with (such as the 1099-K discussed in the story above), give us a call and we’ll be happy to make sure all your bases are covered so that you can go back to doing what you do best.
Is your business using social media effectively?
Ah, social media. An industry that barely existed ten years ago is one of the most talked about parts of the internet, if not the entire business world. Everyone seems to be on it, but could your small business be using it more effectively? Court Cunningham over at Huffington Post has four great tips on how to make it happen, and just in case you didn’t think this is a big deal, his first paragraph should make you reconsider:
If you’re still wondering whether social media is important for your business, think of this: Facebook has facilitated more than 2 billion connections between small businesses and consumers. Instead of wondering “Do I need to be on social media?” start asking “How can I use social media to help me and my business?” For small business owners that are already pressed for time it can be hard to make social media a priority, but in today’s digital age, you need to meet customers where they are. You don’t want to ignore a study conducted by Market Force, which found that 78 percent of U.S. consumers’ purchasing decisions are impacted by posts made by businesses they follow on social media.
Head over to the article for his advice on how small businesses can maximize the potential of social media.
Can you turn your hobby into a business?
Many small businesses are started when someone turns a personal interest into a money-making endeavor. But what’s the difference between a hobby and a business? And why does it matter in the first place?
As with many tax questions, it’s complicated, but Kay Bell at the Bankrate tax blog has a great rundown of the rules to keep in mind.
The IRS defines a hobby as an activity you pursue without expecting to make a taxable profit. Basically, you do it because you like it, regardless of the cost.
But if you demonstrate that you are involved in an activity with the expectation of making money on it, the IRS will consider it a business. As such, you’ll be able to deduct expenses directly from your income. You even can deduct overall business losses in the years you don’t turn a profit.
You must, however, make the right moves to convince the IRS that your sideline is a legitimate business.
Read more: http://www.bankrate.com/finance/taxes/tax-breaks-turn-hobby-into-business.aspx
And as always, know that we’re here to help you navigate all these rules and much more!
IRS provides relief for small businesses from filing Form 3115
On February 13, the IRS released Rev. Proc. 2015-20, which provides a simplified method for qualifying small businesses to comply with the final tangible property regulations.
Here’s an article from the Journal of Accountancy discussing the changes, and here’s a link to the original Revenue Procedure from the IRS.
Finally, don’t forget we’re always available to help small businesses navigate the latest rules and regulations from the IRS.
Now’s the time to change your withholdings!
Whether you ended up owing money or getting a refund at tax time, did you know you can modify the amount of money withheld from your paycheck? Here’s how
Some people love receiving a tax refund every spring, while others prefer to have the money in their regular paychecks and make their refund as small as possible. And then there are those that cringe when they have to write a check to the IRS when filing their tax return.
Though changing your withholdings won’t change how much tax you pay, it can affect whether you owe money or get a refund when filing, as well as how big that refund or payment will be! Check out the article for more information and a brief guide on how to modify your withholdings.
And as always, if you have any questions, we’re ready and willing to help!