Is it a Business or Hobby? Answer Has Implications for Deductions

What New Business Owners Need to Know About Taxes

Small Business Accounting – The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit. 

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. 

In order to make this determination, taxpayers should consider the following factors:

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

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — 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. For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

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QUICKBOOKS TIPS – Recording of Barter Exchanges

If you have customers who are also vendors you may decide to trade some or all of your services / products in exchange for payment. 

To record such a barter transaction, invoice the customer for the goods provided or services performed as you normally would. To record the “payment” use the “Receive Payment” function to apply the barter amount against the invoice the same as you would when receiving cash or a check as follows: 

Go to Customers: Receive Payment. Payment Amount will be the barter amount (the amount of the invoice you received from your vendor). Pmt. Method will be Barter. Check the radio button for “Group with other undeposited funds”. Save this transaction. 

Go to Banking: Make Deposits. The payment you just received will come up in the Payments to Deposit screen. If there are also other payments to deposit, make sure you select only the payment(s) being recorded for the barter exchange. When you hit OK the Make Deposits screen will come up with the barter deposit(s) showing. Before recording the deposit make a negative deposit entry on the next blank line below the barter deposit for the amount of the barter as follows: 

Deposit To be your normal operating checking account. Date is the date you would have normally paid your vendors invoice. Memo should be changed from Deposit to Barter. 

If you have entered the vendors invoice as a bill for payment, Received From is the vendor name and From Account is Accounts Payable. 

If you have not entered the vendors invoice as a bill for payment, leave Received From blank. In the From Account column select the expense account you would charge the vendors invoice to, the same as if you were entering it for payment. In the Memo column note the vendors invoice number. 

In the Amount column enter the vendors invoice amount with a negative sign first. This negative amount should exactly offset the deposit amount above, resulting in a “Zero” deposit transaction. Save the “deposit” and the transaction is complete. For no obligation free consultation contact us today!

ABA Tax Accounting

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QuickBooks Accounting Services

Lowers Costs, Improves Efficiency, and Reduces Risk.

ImageDomestic Outsourcing Lowers Costs, Improves Efficiency, and Reduces Risk.

ABA Tax Accounting provides customized, high-quality and cost effective outsourcing solutions for Accountants / CPA firms as well as other small, medium, large businesses, non-profit organizations, and federal, state, local governments who do not want to have a large in-house accounting team. Our aim is to reduce the burden of “behind the scene” functions of businesses so that they can focus on their core revenue generating roles. For more info or to explore possibilities please contact us today.

ABA Tax Accounting

Amare Berhie, Managing Member

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Strategic Outsourcing: Lowers Costs, Improves Efficiency, and Reduces Risk.

In a rapidly changing world, forward-thinking CFOs and managers are looking for innovative strategies and creative collaborations to keep their businesses thriving. More and more, they are turning to third party experts like ABA Tax Accounting for strategic outsourcing of their behind-the-scenes business processing as a way to streamline operations and reduce costs and risk. For more info or to explore possibilities please contact us today.

ABA Tax Accounting

Amare Berhie, Managing Member

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

U.S. Treasury, United Kingdom Sign Bilateral Agreement to Improve Tax Compliance, Combat Offshore Tax Evasion and Implement FATCA

EXPATRIATE TAX – The U.S. Department of the Treasury announced today that it has signed a bilateral agreement with the United Kingdom to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. The bilateral agreement signed this week is based on the model published in July of this year and developed in consultation with France, Germany, Italy, Spain, and the United Kingdom and marks an important step in establishing a common approach to combating tax evasion based on the automatic exchange of information. For free consultation contact us today.

ABA Tax Accounting

Amare Berhie, International Tax Advisor

amare@abataxaccounting.com

612-282-3200 Toll free 866-936-0430

http://www.abataxaccounting.com

Tax Strategies for Business Owners – Home Office Deduction

The Home Office Deduction – Under the IRS rules, a taxpayer is allowed to deduct expenses related to business use of a home, but only if the space is used “exclusively” on a “regular basis”. To qualify for a home office deduction you must meet one of the following requirements:

  1. Exclusive and regular use as your principal place of business
  2. A place for meeting with clients or customers in the ordinary course of business
  3. A place for the taxpayer to perform administrative or management activities associated with the business, provided there is no other fixed location from which the taxpayer conducts a substantial amount of such administrative or management activities

A separate structure not attached to your dwelling unit that is used regularly and exclusively for your trade or profession also qualifies as a home office under the IRS definition. 

The exclusive-use test is satisfied if a specific portion of the taxpayer’s home is used solely for business purposes or inventory storage. The regular-basis test is satisfied if the space is used on a continuing basis for business purposes. Incidental business use does not qualify. 

In determining the principal place of business, the IRS considers two factors: Does the taxpayer spend more business-related time in the home office than anywhere else? Are the most significant revenue-generating activities performed in the home office? Both of these factors must be considered when determining the principal place of business. If you have any questions, don’t hesitate to contact us for no obligation free consultation!

ABA Tax Accounting

Amare Berhie, Tax Advisor

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

2012 Offshore Voluntary Disclosure Program

ImageInternational Tax – The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012 on the heels of strong interest in the 2011 and 2009 programs. The IRS may end the 2012 program at any time in the future. The IRS is offering people with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.

 

Whether you need to structure an international transaction, reorganize your business, transfer family property or defer tax on the sale of assets, ABA Tax Accounting provides a wide array of services that cover every aspect of your business and personal finances.

For a Free Consultation call or email:

ABA Tax Accounting

Amare Berhie, Senior Tax Advisor

amare@abataxaccounting.com

612-282-3200 Toll free 866-936-0430

http://www.abataxaccounting.com

How outsourcing tax functions can keep you compliant and focused on your core business | Smart Business

How outsourcing tax functions can keep you compliant and focused on your core business | Smart Business.

U.S. Based Strategic Outsourcing Solutions for CPA and Law firms
ABA Tax Accounting provides low cost 100% U.S. based outsourcing solutions for Tax & Accounting Professionals, CPA & law firms and other businesses from bookkeeping to tax return preparation services. For more info or to explore possibilities domestic outsourcing please contact us today.
ABA Tax Accounting
Amare Berhie, Managing Member
amare@abataxaccounting.com
612-282-3200
866-936-0430 Toll free

http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com
http://www.abataxaccounting.com

It’s not too late to file your 2011 tax return

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Income tax Services – Believe it or not, your kids don’t always have to separate you from your money. Sometimes they can actually help you keep some. If you haven’t filed your 2011 tax return yet, you have five good reasons to file today.  

Adoption Credit

You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. For tax year 2011, the adoption credit, at up to $13,360 per child, is the largest refundable tax credit available to individual taxpayers.

Child Tax Credit

You may be able to take this credit for each of your children under age 17. The Child Tax Credit may be worth as much as $1,000 per qualifying child depending on your income. If you can’t claim the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. 

Child and Dependent Care Credit

You may be able to claim the Child and Dependent Care Credit if you pay someone to care for your children, age 13 or younger, so you can work or look for work.

Earned Income Tax Credit

The EITC is a tax benefit for people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax owed and may also give a refund. To qualify, you must meet certain requirements and file a tax return — even if you don’t owe any tax or aren’t required to file, you must file to claim the credit.

Education Credit

Education tax credits can help offset the costs of higher education by letting people claim qualifying education-related expenses. The American Opportunity Tax Credit and the Lifetime Learning Credit can be subtracted in full from federal income tax, not just deducted from taxable income. A portion of the American Opportunity Tax Credit is refundable if no other outstanding debt exists.

For information about these credits and much, contact us today to for Free Consultation! 

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

International Tax Strategy

ImageInternational Tax Strategy -The Internal Revenue Service has issued new procedures to help nonresident U.S. taxpayers, including dual Canadian citizens, comply with U.S. tax laws even if they have previously undeclared foreign bank accounts. For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, International Tax Advisor  

amare@abataxaccounting.com

Direct 612-282-3200

Toll free 866-936-0430

www.abataxaccounting.com

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