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The 20-20 Vision

20-20 Vision – March 2016

Spring is right around the corner! I see boats, golf clubs, and outdoor activities in my near future. However, it’s still tax season!  We love tax season at 20-20, because we get to work with you!  If you need help filing taxes, or have any other questions, give us a call at 205.434.1272.  We look forward to hearing from you!

It’s Not Too Late to Make a 2015 IRA Contribution

If you haven’t contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2015, or if you’ve put in less than the maximum allowed, you still have time to do so.  You can contribute to either a traditional or Roth IRA until the April 18th due date, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2015.  Otherwise, the trustee may report the contribution as being for 2016 when they get your funds.
Generally, you can contribute up to $5,500 of your earnings for tax year 2015 (up to $6,500 if you are age 50 or older in 2015).  Give us a call if you have any questions on how contributing to your IRA can benefit you.

4 Things All Multi-Level Marketers Should Know

Multi-level marketing seems to be on the rise according to my Facebook feed.  Whether it’s Young Living, Rodan & Fields, Beachbody or something else, we all have either sold or used these products or know someone who has.

One of the core values of 20-20 is to support the success of individuals, entrepreneurs, and small businesses in our communities.  With that in mind we certainly support our clients, friends and neighbors who are taking advantage of these opportunities.  There is a lot of misinformation about the tax issues related to these business ventures.  As a new business person, it is your duty to be educated on these issues.  Here are 4 things you should know.

  1. Let’s talk Hobby Losses. All multi Level marketers should know about the IRS’ Hobby Loss rules;  especially if you are just planning to “dabble”.  Some people go into these businesses with no real intent on making a profit.  They just want to purchase products they already use and write it off on their taxes.  “Not so fast,” says Uncle Sam.  The IRS has made it clear that not all endeavors that generate cash are businesses.  Sometimes they are just a hobby.  If the IRS thinks your particular business is just a hobby then the tax treatment is quite different. Expenses from a hobby can only be deducted to extent of it’s income. So how do you show the IRS that you have a business and not a hobby?  Here are the 9 things the IRS will look at.
    • How you carry on your activities – That is, act like a business.  This means maintaining a separate business bank account, and keeping books, etc.
    • Your expertise – A business person who intends to make a profit will work to have extensive knowledge of their activity.  This includes studying accepted business methods and seeking the advice of experts.
    • Your time investment – A business person who intends on making a profit will invest time into the business. Just ordering the starter kit does not make the business!
    • Your income history from the activity – Prove you are a business by being profitable.   Even one profitable year in recent history can go a long way.
    • The amount of occasional profits – So your income history shows that every other year you make a profit.  But do you generally lose $25,000 and every once in a while make $100?  If so, that might not cut it.
    • Your success in prior activities – It may be easier to convince the IRS you intend to turn a profit in your new business if you have done it before in another business.
    • Your financial status – Do you have other substantial sources of income?  If you do, it does not necessarily mean you have a hobby.  But if you can prove you rely on the income from your business, it certainly is helpful.
    • Does the activity provide personal pleasure? – If the activity involves large elements of personal enjoyment, you may have a hobby.  I, for one, live in constant fear that the IRS will determine I have a hobby since I enjoy doing taxes so much!!!  LOL… I kill me…
    • An expectation that assets used in the business may appreciate in value – This one  is less applicable for most multi-level marketing programs but it means the IRS may consider the possibility of assets increasing in value in the future instead of looking at current profits.
  2. You don’t get to write off all those shakes you drink each morning – That’s right folks, you heard me correctly.  Just because you sell Rodan & Fields does not mean you get to take a tax deduction for your favorite wrinkle cream.  If you purchase “inventory” that you use yourself, that can’t be deducted.  Obviously if you sell it or give it away as a sample, you’re good to go.
  3. You may be able to take the Home Office Deduction.  You can deduct certain expenses attributable to your home office or other areas of your home where you carry on business.  But here is the thing… it has to be used exclusively for the business in the normal course of carrying out your business duties.  So look around… are your kid’s toys scattered all around you?  Is your husband snoring across the room in his recliner?  If so, you probably are not sitting in an office used exclusively for business.
  4. Be prepared to pay the taxes on that new pink Cadillac I see in your driveway! – Ain’t nothin’ in this world for free, ya’ll.  And that includes non-monetary compensation.  I know they told you it was a gift for signing up 100 new people in your downline this year, but the IRS calls that taxable compensation.  And you need to plan on paying those taxes come April 15th.

Bottom line, be prepared, educate yourself, and give us a call if you have questions.

Tax Due Dates for March 2016

Thursday, March 10th

Employees who work for tips – If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.

Tuesday, March 15th

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February.

Corporations – File a 2015 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe.

S Corporations – File a 2015 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe.

S Corporation Election – File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2016. If Form 2553 is filed late, S treatment will begin with calendar year 2017.

If you have any questions about your multi-level marketing business, please give us a call at  205-434-1272.