Archive

Category Archives for "tax"

Series LLC – A Primer

There’s been growing interest in the Series LLC.  The Series LLC provides the type of flexibility that real estate investors and angel investors might find particularly attractive.

Although there are some risks and uncertainties relating to the Series LLC, the Series LLC is a powerful tool to create a series of limited liability companies in a single vehicle.

“Series” LLC v. Traditional LLC

Just like a traditional LLC, e.g.:

  • Can be owned by multiple individuals or by separate business entities
  • No geographical restrictions on ownership; owners may be located anywhere in the world, so long as they comply with the entity’s tax classification.

Advantages of Series Structure

IF the series LLC is organized properly you can take advantage of a centralized management structure and have an extra layer of liability protection.

  •   Each series (cell) may have discrete assets or investment objectives that are separate from the assets or investment objectives of the Umbrella LLC and of each other series.
  • Separate duties with respect to specified property or obligations of the limited liability company
  • Operating Agreement may establish one
  • No need to pay lawyers to file for subsequent series with the government
    [1] Series LLC Basics: Owners and Managers, Smart Business Incorporation (2013),  http://smartbusinessincorporation.com/blog/series-llc-basics-owners-and-managers/ (last visited  ).

This layer is created when the larger entity is set up (“umbrella”) and comprised of a series of subsidiary membership interest (“cell”), each with distinct names and separate books.

The subsidiary members function as separate and distinct member-managed cells within the larger LLC entity.  Done correctly, a “series” structure provides an extra layer of liability protection:

  • Any debts, obligations, and other liabilities of a series of a limited liability company are “solely the debts, obligations, and liabilities of the series and not of the limited liability company generally [the “Parent”] or any other series [the cell]”

Where to Form the Series LLC

Delaware, Washington, D.C. and roughly fourteen other states have enacted state statutes that enable an LLC to be created via a discrete series of membership interests.

Here’s a visual for good measure.

 

Tax for Small Business Dummies PART 1

tcja

 

Beware the Ides of March.  Perhaps April deserves a bad reputation.  For small business owners and sole proprietors, ’tis Tax Season. At least March has the NCAA tournament.

In response to recent questions posted by clients and my friends at TigerLabs, I’ve summarized a few tips. Below, in order of relevance are the biggest changes to the tax code in decades and why it matters.

Four (4)  Tax Highlights for 2018, courtesy of Congress:

 

Depreciation  Magic.

I.  Section 179 Expense Deduction.

It’s a dry name for a deduction (taken from a line in the Internal Revenue Code) but it allows you to deduct the entire cost (subject to certain limitations) of an asset in the year you acquire and start using it for business.  Congress approved special depreciation and expensing rules for property acquired in 2018.

II.  Bonus Depreciation

Bonus depreciation has been changed for qualified assets acquired and placed in service after September 27, 2017. The old rules of 50% bonus depreciation still apply for qualified assets acquired before September 28, 2017. These assets had to be purchased new, not used.

The new rules allow for 100% bonus “expensing” of assets that are new or used. The percentage of bonus depreciation phases down in 2023 to 80%, 2024 to 60%, 2025 to 40%, and 2026 to 20%.

After 2026 there is no further bonus depreciation. This bonus “expensing” should not be confused with expensing under Code Section 179 which has entirely separate rules, see above. https://turbotax.intuit.com/tax-tips/small-business-taxes/managing-assets/L18WqppFX (basics of depreciation)

III. (QBI) Qualified Business Income/ IRC Section 199A Deduction

Qualified Business Income deduction (also called the QBI deduction, pass-through deduction, or section 199A deduction) was created by the 2017 Tax Cuts and Jobs Act (TCJA) and is in effect for tax years 2018 through 2025.

This new deduction means that most self-employed taxpayers and small business owners can exclude up to 20% of their qualified business income from federal income tax (but not self-employment tax), whether they itemize or not. 

With the QBI deduction, most self-employed taxpayers and small business owners can exclude up to 20% of their qualified business income from federal income tax (but not self-employment tax) whether they itemize or not.  https://ttlc.intuit.com/questions/4499030-what-is-the-qualified-business-income-qbi-deductionIRS

IV. Property Taxes

 

Starting in 2018, Congress has limited the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. Deductible property (real estate) taxes include taxes paid at closing when buying or selling a home, as well as taxes paid to your county or town’s tax assessor (either directly or through a mortgage escrow account) on the assessed value of your property.

V.  Check back tomorrow

Turbotax has a top-notch Self Employed Center; https://ttlc.intuit.com/browse/self-employed-center  (e.g. contractor, freelancer, 1099)  

 

Note: Our founder is a tax attorney that works with other experts to develop holistic wealth-planning solutions for small business owners, with a bias to tech firms with cross-border operations.   This means we strictly advise over a period of months and years.  We avoid one-off transactions.

Depreciation for dummies…really smart small business, freelancer dummies

Depreciation, pimp my assets!

In sum, the Man (Amerika) has this concept called depreciation, which allows businesses to depreciate—or gradually deduct the cost of —assets such as equipment, fixtures, furniture, etc., that will last more than one year. Learn more here, via Turbotax. 

Depreciation’s always been a good deal for capital intensive businesses large and small. The old rules provided a 50% bonus depreciation for qualified assets acquired, but these assets had to be purchased new, not used.  Still, a pretty good deal, especially when talking real estate and vehicles.

Depreciation: A good deal for some.

For example, you’d get to lower your taxable income by thousands every year by using your building or car for business.  Wage earners/W2s got a few breadcrumbs,, but they were always limited; however, since the Tax Cuts and Jobs Act of 2017, businesses got a huge windfall, and have even MORE reason to “acquire” assets and wage earners get almost NO breaks for doing essentially the same thing. No arguing the morality, just spitting facts.  So, here’s what you need to know:

Bonus Depreciation, A better deal for fewer

Under the new rules, YOU, you really smart small business dummy, can take 100% bonus “expensing” of qualified assets that are new or used., acquired and placed in service after September 27, 2017. The percentage of bonus depreciation phases down in 2023 to 80%, 2024 to 60%, 2025 to 40%, and 2026 to 20%. After 2026 there is no further bonus depreciation. This bonus “expensing” should not be confused with expensing under Code Section 179 which has entirely separate rules,

A few more resources

https://www.irs.gov/pub/irs-pdf/p946.pdf

https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act

 

***Disclaimer** This response was prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Attorney advertising. If you have any more questions, reach out to the team at ScotchPalm.com—fearlessly connecting the dots for entrepreneurs.

 

Tax Reform Snippets for small business owners and self-employed

1099s, Unite!

Is the new tax law good for freelancers and independent contractors? Well, it depends. Over a few posts, I”ll highlight a few amazing wins for 1099s.

Here’s one example where it’s pretty amazing to get paid without a W-2.

20% Qualified Business Income Expense

Isaac is a freelance journalist who earned $26K from his articles being published.  Since he’s single, no kids, he’ll save about $625 bucks on his 2018 taxes because he may deduct up to 20% of qualified business income.  This applies to income from a partnership, s-corp or sole proprietorship for a tax year.

There are a few limitations, so check with a hotshot tax advisor who specializes in small businesses. And if you’re a DIYer, here’s a useful resource, courtesy of TurboTax.

Cheers,

 

Kwame

***Disclaimer** This response was prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Attorney advertising. If you have any more questions, reach out to the team at ScotchPalm.com—fearlessly connecting the dots for entrepreneurs.

 

For employees, this one tax change could lower their paycheck

If You’re a W2 Employee, This One Tax Change Could Mean Real Pain 

 

New tax bill wiped out Unreimbursed Expense Deduction

One benefit employees have lost under the new tax law is an employee’s ability to deduct unreimbursed expenses related to their job.  So it might not kill you, but will lower your take-home pay. The deduction for unreimbursed employee expenses was among the qualified 2-percent miscellaneous itemized deductions that were eliminated by the Tax Cuts and Jobs Act (TCJA) passed in Winter 2017.

 

This affects employee’s ability to do those little (or big) things

This is a huge a blow for employees who had relied on it to deduct unreimbursed expenses like work-related travel, meals, entertainment, gifts, lodging, tools, supplies, professional dues, licensing fees, work clothes and work-related education.

Employee Tips

  • Seek the Win-win #:  If you are an employee who has used this tax deduction, here are some tips to minimize your loss:
    • Determine the impact. Review your past tax records to help estimate how much you expect to pay in unreimbursed work expenses and what the tax deduction was worth to you.
    • Talk to your employer. Your boss might not even know that the loss of this deduction is a hardship, so explain how you will be affected.
    • Push the win-win. Ask your employer to consider reimbursing you for your work-related expenses directly. Your employer can probably deduct those expenses from their business return without increasing your taxable income. This will save them tax dollars when compared with the cost of raising your pay in order to indirectly compensate you for your unreimbursed expenses.

Employer Tips

Review your vision, mission, and values, and talk to your employees about their unreimbursed expenses in light of the tax law changes. If you aligns with your values to reimburse them for qualified business expenses, check with your bookkeeper/accountant.  Make sure your reporting adheres to IRS accountable plan rules so that your reimbursements are deductible as a business expense and do not add to your employees’ incomes.