Nesteggg Accounting

What Can You Be Doing Now?

NOW, TOMORROW & YESTERDAY

Of course, it feels as if there is too much shopping and visiting and eating to be done this time of year to do anything extra.  But be kind to your future January-self and do these things now.  A little 4th Quarter maintenance now will go a long way toward a relaxing new year!

Worker Maintenance

If you employ workers and/or independent contractors do this now so in January all you have to do is process and mail, because deadline for W-2s and 1099s is January 31, 2020

  • Verify current mailing address for all your employees both current and former
  • Make sure you have a W-9 on file for all your independent contractors

Clean Books = Happy Owner

Get your business’ books up to date now for this year.  Nothing worse than racing the clock in the beginning of the year to clean up from the year passed! 

  • Reconcile all your bank and credit card accounts
  • Make sure all income and expenses are input correctly
  • Review reports to date to check for errors or omissions

Dream Big

What do you want your next business year to look like?  Are you hoping to invest in new equipment, a new product line, hire more employees?  If you know what you want to accomplish in 2020 then plan now.

  • Tax planning – do you need to show more income in 2019 or possibly less income, or use some carryover from a previous year?  Now is the time to decide so that when filings are due you are not scrambling.
  • What are your goals for your company? What needs to change in the new year to meet those goals?  New product, increased prices, raises for staff?
  • When planning the benefits for your employees and the goals for your company don’t forget yourself!  The years keep swinging by apace, are your retirement savings keeping up? Maybe the new year means time to start or increase an automatic deposit into a retirement account.

Don’t just plan in your head, write it down!  Something happens when you commit your ideas to paper.  You are much more likely to follow a plan you have written down and perhaps shared with key employees or someone close who can check in with your progress throughout the year.  The most important thing is do what you can now to prepare for the next year.

Hobby or Business – How Do I Know?

Hobby or Job

Many of us engage in pursuits outside of our “regular job” and sometimes that means making some money from those pursuits.

But when is it a hobby and when is it a business?  Well, that sort of depends on your objective.  Say, you are a big knitter.  You just can’t stop knitting and when it gets cold all of your friends ask you where you got those great hot pink mittens, you tell them and they want you to make them a pair but insist on paying you.

Now, if you can knit a pair of mittens for $8 and you sell them to your friend for $20, you have just made $12 and yes, you are supposed to report that income on your taxes.  But you can also deduct the cost of the yarn and needles to make them.

If you think to yourself, “That was nice, now I just have to make John and Emily their mittens and then I’m done. Phew!”  Just as above, if you earn income you must report it, but it is still firmly in the hobby column.  If, however, you think to yourself, “Wow, that was fun! I’m going to start an Etsy page and see if I can sell these to the public” then you have just started yourself a small business.

On The Right Track

There are some things that make it a business rather than a hobby outside the Etsy page though.  The IRS lists nine things that make it a business.  You should make sure you meet the criteria before you file the income and expenses from your knitting as a business on your taxes. 

First is, do you keep proper books for your knitting?  If you estimated that $8 cost and you spend your own money then you’re still in hobby zone.  If you know it takes exactly three and a half skeins of yarn to make those fabulous mittens in wild colors and you have a separate bank account for or keep careful track of those expenses then you are properly accounting for your expenses and you may have yourself a business.

Another important distinction is how you treat the time you spend pursuing the endeavor.  If you have scheduled yourself to knit evenings from 6-8 and Saturdays from 8-4 and you consistently show up and do the work then you are treating it like a business.  Also, do you market your product or service?  Do you have ads or place business cards in your local craft shop offering your services?  Then you are in business.

Work Work Work

The most important thing is consistency and how you are managing your work and your business.  It doesn’t matter so much that you make a profit, the IRS understands that starting a business is difficult and not always profitable within the first few years, but that you are trying to make a profit, that you are relying on that income to pay your expenses and that you are properly accounting for all your income and expenses and reporting those on your taxes.

And just as you learn more and more about your hobby and how to master it, so should you learn and grow in how you conduct business.  The more you understand about how to properly run a business the more time you can spend knitting!

Small business owners should find out if they can benefit from claiming this deduction

Small Business

The home office deduction can help small business owners save money on their taxes. Taxpayers can take this deduction when they file their taxes if they use a portion of their home exclusively, and on a regular basis, for any of the following:

  • As the taxpayer’s main place of business.
  • As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
  • If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
  • A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
  • Under certain circumstances, the structure where the taxpayer provides day care services.

Deductible expenses for business use of a home include:

  • Real estate taxes
  • Mortgage interest
  • Rent
  • Casualty losses
  • Utilities
  • Insurance
  • Depreciation
  • Repairs and Maintenance

Certain expenses are limited to the net income of the business. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation.  While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.

There are two options for figuring and claiming the home office deduction.

  • Regular method: This method requires dividing the above expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829.
  • Simplified method: The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate that is capped at $1,500 per year, based on $5 a square foot for up to 300 square feet.

There are special rules for certain business owners:

IRS.gov resources help small businesses have big success

National Veterans Small Business Week is the perfect time for veterans who are business owners to check out the IRS’s online resources. Here are a few of the webpages that can help small businesses understand their tax responsibilities.

Self-Employed Individuals Tax Center
This a great resource for sole proprietors and others who are in business for themselves. This site has many handy tips and references to tax rules a self-employed person may need to know. Self-employed taxpayers will find info on topics including how to make quarterly payments and self-employed tax obligations.
 
Small Business and Self-Employed Tax Center
This page features links to useful tools and common IRS forms with instructions. Taxpayers can find help on everything from how to get an employer identification number online to how to engage with the IRS during an audit. A link to the IRS Tax Calendar for Businesses and Self-Employed also provides at-a-glance key tax dates for businesses.
 
Sharing Economy Tax Center
It provides fast answers to tax questions and links to forms and resources related to the sharing economy. People who are involved in the sharing economy are those who use online platforms to engage in businesses, such as renting a spare bedroom, providing car rides and providing other goods and services. Share this tip on social media — #IRSTaxTip: IRS.gov resources help small businesses have big success. https://go.usa.gov/xpgFV

IRS Issues Guidance for Small Businesses about Valuable Credit

IRS Issues Guidance for Small Businesses about Valuable Credit

The IRS reminds employers about the Small Business Health Care Tax Credit, which can benefit certain small employers who provide health coverage to employees. Also, the IRS notes that it recently issued guidance that provides relief for certain small employers wishing to claim the Small Business Health Care Tax Credit for 2017 and later years but who are unable to do so because of unavailability of coverage in the Small Business Health Options Marketplace. Notice 2018-27 gives guidance about calculating the credit under these circumstances.

Generally, to qualify for the credit, small employers must provide employees a qualified health plan from a SHOP Marketplace. Also, small employers may only claim the credit for two consecutive tax years.

In general, the recently provided relief helps employers who first claim the credit for all or part of 2016 or a later tax year for coverage offered through a SHOP Marketplace, but who can’t offer SHOP Marketplace coverage to employees for all or part of the remainder of the credit period because there aren’t any SHOP Marketplace plans available where the employer is located.

Under the relief, the employer can claim the credit for health insurance coverage provided outside of a SHOP Marketplace for the remainder of the credit period if that coverage would have qualified under the rules that applied before January 1, 2014.

The notice does not affect previous transition relief for the credit that was separately provided for 2014, 2015 and 2016.

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