The basic mechanics of this are (a) you deduct the wages and (b) your child pays zero or very little in income taxes. The three points below elaborate on this:

1. The child (a single taxpayer) pays zero taxes on earnings up to the $6,350 standard deduction amount. Say you pay tax-deductible wages of $6,350. This reduces your taxes or gives you tax refunds. And the child pays no taxes. The government is the only player who is out any money.
2. The child can use a traditional IRA to avoid taxes on $5,500, for a total of $11,850 on which he or she can avoid taxes. You can expense this amount and reduce your taxes. (And as a bonus, your child can withdraw the money from the IRA to help pay for college penalty free.)
3. The child can use the 10 percent tax bracket, standard deduction, and traditional IRA so as to pay itty-bitty taxes on earnings up to $21,175 while you reap the tax benefits of paying your child this much larger amount.

To get this right, you need to pay the child on a W-2, have the child keep a time sheet, and create proof of a reasonable wage.

How young can your children begin working? The IRS has approved employing children as young as seven years old.  You just need to show that the amount you are paying your child is reasonable for the services actually rendered.

Here’s another benefit: If the child working for a parent is under age 18, both the child and the parent or parents are exempt from payroll taxes. In these cases, the parent operates a Schedule C business, or both parents are the sole owners of a partnership.

Corporations are not parents. They do not qualify for this exemption from payroll taxes. Even so, corporate hires of the owner’s children usually produce good tax benefits.

In summary, all business owners can achieve tax benefits by hiring their children, regardless of the type of business entity. But parents who are Schedule C owners or in spousal partnerships achieve more benefit because neither they nor their under-age-18 children are subject to payroll taxes.

If the hiring-your-child tax strategy sounds good to you, we can help you get this plan in place. Contact us today to discuss this, and other potential tax savings strategies that can help keep more of your hard earned money in your own pocket and out of uncle Sam’s.

The post How To Get Paid For Paying Your Child appeared first on Sutton & Simmons PLLC.

Example. Carol is a freelance consultant. In exchange for her $1,500 invoice to a client, she receives 1.5 bitcoins. The bitcoin exchange rate at that time is $1,000 per bitcoin. Her payment processor charges 0.8 percent, up to a maximum of $8 per bitcoin transaction.

Two years later, Carol buys a $1,000 computer using 0.5 bitcoins. The exchange rate at the time is $2,000 per bitcoin.

Initial receipt. Carol receives property worth $1,500 in exchange for her services. The $1,500 value of the bitcoins is ordinary income to Carol (and subject to self-employment tax, since she received it in her trade or business).

Carol’s adjusted basis in the bitcoins received is the fair market value of $1,500 plus the $8 transaction fee, or $1,508. Because bitcoins are a capital asset (property), the transaction fee is added to its capital basis.

Computer purchase. Carol exchanged 0.5 bitcoins for the computer. Carol’s gain or loss on the transaction is the fair market value of the property received less her adjusted basis in the bitcoins.

Carol received a computer valued at $1,000 and gave up bitcoins with an adjusted basis of $503 (one-third of $1,508). Carol has a taxable gain of $497 and an adjusted basis of $1,005 in her remaining bitcoins.

The $497 gain is a tax-favored, long-term capital gain to Carol because she held the bitcoin property for more than a year.

Pros and Cons

Pro: Capital losses deductible. If you recognize a loss on a bitcoin transaction, then it is deductible from your other income, subject to the limitations applicable to capital losses. And if you are a noncorporate taxpayer, then you can carry forward any losses that you can’t use in the current year.

Pro: Taxable capital gains. Your bitcoins can appreciate in value, causing you to both gain extra income and pay taxes on that income. If you recognize a gain on a bitcoin transaction, then you have a short- or long-term capital gain on which you have to pay taxes. You may also have to pay the 3.8 percent net investment income tax on this gain. In cash transactions, you don’t have the possibility for profit or the complications of paying taxes.

Pro: Lower transaction fees. Stripe, a large third-party payment processor, processes bitcoin transactions for 0.8 percent of the gross amount, up to a maximum of $8 per transaction, compared with 2.9 percent plus $0.30 for credit card transactions (with no maximum).

If you receive a $2,000 payment for services rendered, your potential transaction costs are

• $8.00 for a bitcoin transaction, and
• $53.80 for a credit card payment.

Con: Basis tracking. Cash is cash and requires no special tracking. With bitcoin, you need to track the adjusted basis in your bitcoins and account for basis changes due to fractional sales.

Con: Liquidity. Once you get bitcoins, you may find it difficult to find others to transact with to use your bitcoins for goods and/or services.

You now have the big picture of how transacting business with bitcoins works.  These same issues also apply if you plan on purchasing bitcoin (or other virtual currency) for investment purposes. If you want to discuss virtual currency in greater detail, please don’t hesitate to contact us.

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In an IRS audit, the mileage log often creates the first impression of your tax records. Whether you use the IRS mileage rate method or the actual expense method, you need a written record that proves your business percentage of use.

Various records can be used, but the IRS three-month sampling record is the preferred choice for those who know about it. With this method, you keep a mileage log for three months and then apply that three-month business percentage to either

• the miles you drove for the year (mileage method, click here to see the current year rates), or
• the expenses you incurred for the year (actual expense method).

The three months must be consecutive and must represent your driving pattern.

With respect to keeping your mileage log, think (and thank) technology, particularly the GPS. You can find very affordable apps that work with your smartphone, such as Mileage Expense Log, Mile IQ, and Trip Log. These apps track where you go and where you stop, and that takes away a big part of the record-keeping hassle.

If you drive more than one vehicle for business, you may want to avoid the smartphone apps and use a separate mileage tracker in each vehicle. Separate mileage trackers are devices that plug into the vehicle and don’t use your smartphone.

Technology can track your mileage and your stops, but you need a little more. Make sure you also add the business reason for the stops. This takes a few minutes, but it’s critical. Don’t skip this step.

As always, we’re happy to help out.  Please feel free to contact us to discover how we can help make running your business easier.

The post The Mileage Log – How and Why appeared first on Sutton & Simmons PLLC.

The proposal seeks to reduce the number of individual tax brackets from seven to three.  The new tax rates would be 10%, 25%, and 35%.  However, we do not yet know how much income will be captured in each bracket so it’s impossible to know what potential savings there might be.  The proposal would also double the standard deduction (from $6,350 to $12,700 for single individuals, from $12,700 to $25,400 for married individuals).

President Trump has also proposed the removal of most deductions (except for those for mortgage interest and charitable contributions) as well as repeal a number of taxes, including the Medicare surtax.

Business tax rates would drop from a high of 35% for C Corporations to 15%.  This would also apply to pass through entities such as S Corporations and LLCs that currently pay based on the individual owners’ tax rates.

We’ll continue to watch as more information becomes available and will keep you informed as we learn more.

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We have included upload links on the home, resources, and contact pages.  Just look for the “Send Us Files” link, or simply click HERE.

You will be directed to an input screen where you must add your email, first name, and last name. Adding a company name is optional. When finished, click on the “Continue” button.

Select the CPA or staff member you would like to send your files to from the drop down list.

Drag and drop your files into the boxed area, or select “Browse files” to choose from your File Explorer. You can upload multiple files at the same time. Once your files have been selected, click the “Upload” button.

That’s it!  Your files will be uploaded and delivered securely to our office.

We’ve also added the option to deliver you tax return electronically.  If you prefer to receive a pdf copy, and use your own computer, smart phone, or tablet to sign electronically, just let us know when you send in your tax documents!

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The new rules require salaried employees be paid a minimum of $47,476 per year ($913 per week) to be exempt from overtime pay.  With this injunction, the minimum will stay at the current level of $23,660 per year ($455 per week).  A more detailed summary of the new rules can be found here.

The Texas judge concluded the 21 states and more than 50 business groups that sued to block the new rules stood a significant chance of prevailing and determined they would suffer serious financial harm if the rule was allowed to take effect.  The injunction prevents enforcement of the new rules until the government can win a countermanding order from an appeals court.

We will continue to follow this case and provide updates as it progress through the courts.  If you have any questions or concerns regarding the federal court case or the new rules, please don’t hesitate to contact us.

The post Federal Judge Issues Injunction Blocking New Overtime Rules appeared first on Sutton & Simmons PLLC.

These forms have always been due to the individual payees by the end of January. But, there was no penalty for filing them late as long as they were sent into the IRS and State by the end of February.

Under these new deadlines, the penalties can be as high as $500 per form that is not timely filed.

Just as a reminder, the 1099s are required to be filed if your business pays an individual, an LLC, or a Partnership $600 or more for non-wage labor, rent, machine hire, repair work, or other types of services. If the payment was for services performed by a corporation, you do not need to send a 1099 to that corporation.

If we prepare these forms for you, we will need your information as soon as possible following the end of the year. Please have your information to us no later than January 20th so we can meet this deadline.

The information we need is the name, address, and Federal ID Number of the Business, or Social Security Number if paid to an individual, the amount paid, and what the payment was for (i.e. rent, repairs, labor, etc.).

If you have questions concerning this, or if we can be of help, please contact us.

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