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Archives for November 2022

How Interstate Business Taxes Are Different

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With the rise of remote work and online access to professionals across the country and the world, there has been a significant rise in interstate business operations and practices. But how does that affect your taxes and what do you need to know to stay on track? We can help. What is an Interstate Business? Since the beginning of the pandemic, nearly 30% of US employees have been working outside the state or country they reside in. Many are doing this to cut expenses (including commuting and rental accommodations) and to reduce taxes. Living in one state and working in another causes some interesting tax challenges for employers. These interstate business setups often mean confusion, particularly around income taxes – which state and local taxes must be paid? What are the tax rates in these areas?   Interstate Business Taxes: Examples Each state’s tax code varies, and some are easier to decipher than others. For example, there are 7 states that have various types of the “convenience of employer” rule: Massachusetts, New York, Arkansas, Connecticut, Delaware, Nebraska, and Pennsylvania. This rule allows a state to continue to tax employees working out-of-state (anyone who lives in one state and works for a business with an address tied to a different state). For example, if someone is employed by a New York company but lives in Illinois, they are still considered a New York-based employee – it doesn’t matter where your home is that you’re working from, it only matters where the business you work for is located. Because each state is different, you have to be sure your business is compliant with the tax laws in the state that your business is headquartered in, as well as the state each of your employees is living in and working from. It’s not uncommon, especially for fully remote teams and companies, to have a mix of interstate and international employees on their teams. California, for example, puts the responsibility on the employer to withhold …

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The Versatility of 1099-NEC Deductions

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There are several ways to take advantage of 1099-NEC deductions, and they’re not all related to independent contractor work. Let’s discuss the various deductions that can be recorded on Form 1099-NEC. The Main Deduction: Non-Employee Compensation 1099-NEC was recently reinstated in the tax code and process to differentiate non-employee compensation more clearly. If our business paid an independent contractor or freelancer more than $600 during the tax year, you have to give the correct W-9 information to those non-employees so they can use them for their 1099-NEC deductions and reporting. If you are an independent contractor or business that was paid for the work and you are using the 1099-NEC to report your earnings to the IRS, you may also be eligible for the qualified business income deduction. This deduction allows you to take a 20% deduction on pass-through income. Breaking Down Non-Employee Examples Often, when we mention freelancers or independent contractors, a few specific businesses or individuals come to mind: freelance photographers, writers, marketers, and the like, or contractors that include those in the construction or consulting fields. While all of these roles can describe the people you paid for labor who weren’t direct employees of your business, that’s just the tip of the iceberg for 1099-NEC deductions and business relationships. Types of Businesses, Products, and Services Eligible as Non-Employee Compensation Non-employee compensation is used for tax purposes to classify any wages or payments made to those who did work for you or your business – either for a specified temporary basis or for a defined project. Non-employees are typically independent contractors, freelancers, sole proprietors, and self-employed individuals. These can be creative or marketing consultants or freelancers. Some examples of this include things like: Paying a copywriter or editor for their work on monthly blog articles posted to your website …

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Tips for Reducing Your Business Tax Liability

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Managing business tax liability is a great way to save yourself some money (or even procure a refund) at the end of the calendar year. There are several lucrative (and legal) ways to do that. Here are some great tips for reducing your 2022 business tax liability. How the Super-Rich Reduce Their Business Tax Liability - & How You Can, Too Often, small and medium-sized business owners think they will have to bear the brunt of their business success or failures come tax time, but it’s worth looking into what the super-rich are doing to save some money. One of the most common ways to reduce that tax bill is to have a giving heart. If you want to reduce your business tax liability, there are so many charitable ways to do so. You can sponsor community events, pledge money for certain causes that are dear to you or pair well with your business’s mission, vision, and values, and donate supplies to local homeless shelters, food banks, and charity drives. You can also participate in charity days, where a percentage of your sales for one day, one product, or one month all goes to a cause of your choice. There are several small businesses that partner with other area businesses or charities and create a product or service in which all the proceeds from those sales go right back into the community or charity. Another way to reduce business tax liability is to invest in stocks – the taxes are lower on these investments than they are on wages, the losses can actually help you lower your tax bill, and any gains can circumvent capital gains tax if you just wait a bit to pull the profits out of the market. Bundle Your Expenses There are several ways to use a bundle approach that can help you use your expenses to reduce your business tax liability. The first, and biggest, tip we can offer is to wait until the end of the year to make major business-related purchases. This includes purchases that make sense for your business – buying a brand-new piece of …

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Tax Tips: Payee vs. Payor

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Payee, payor, payer – what’s the difference? Let’s break down these designations so you can distinguish who pays what on your taxes and transactions. Payee The “ee” suffix can be confusing for many, and that’s why we wanted to walk through the definition of payee with you today. The “ee” usually denotes that the role in question is the receiver of the action. For example, if your business or industry wants to honor you at a conference with an award or other accolades, you would be the honoree. Therefore, the payee is the party that will receive payment in exchange of products or services. You can have a single payee in a transaction or there can be multiple. For example, when you receive a tax refund, for your personal or business taxes, you are the payee. The IRS is providing the payment, and you are receiving it. Designating your role as payee also often means identifying whether the transactions are subject to income or other taxes – the payee in a retail transaction (the business) will have to pay tax on that revenue, for example. Investment management transactions (with retirement or other investment-focused accounts) will often include payee accounts where the business will receive payments for the benefit of a client’s separate account. Payor/Payer Conversely, if the payee is the one who receives the payment, then the payor (or payer) is the one providing or sending out that payment. When it comes to payor vs. payer, the only true distinction is that “payor” is the preferred spelling for legal documents and instances. For tax purposes, the payor is the payment provider. Some examples of payors would be an employer paying their workers, a person writing a check, and any other entity that is settling a financial obligation. Where It Gets Tricky For many businesses, individuals, and independent contractors, transactions and tax relationships can get complicated quickly. Miscommunication abounds in many areas of business, and that’s why …

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