How the new year going for all you so far ?January hasn't been very busy for many but spring is just round the corner.Meaning it is time to freshen up your financial management for your business. Whether it is a restaurant, law practice, retail store, construction company, manufacturer or non profit. Whatever your business call me. Contact at http://tjkfinancialaccounting.comWith more than 20
Equine Accounting: Qualified Joint Venture for Husband and Wife Operations
At many horse farms, the revenue from the farm represents the primary source of income for both the husband and the wife. In order to receive credit for their income for purposes of calculating future Social Security benefits, many couples have resorted to changing their form of taxable entity from sole proprietorship to a partnership or S corporation. This results in an initial expense for legal costs as well as additional fees for preparation of more complication partnership or S corporation returns each year. However, there is another less expensive and less complicated option: the qualified joint venture.
Beginning in 2007, an unincorporated business that is jointly owned by a married couple may elect to be treated as a qualified joint venture. The couple must file a joint tax return. Each spouse must "materially" participate in the business and the business may not be owned in the name of a "state law entity" - an LLC or LLP.
Each spouse must report their share of the all of the business income and deductions and each will receive credit for purposes of Social Security benefits calculation. The division of income and deductions between the couple should be based on each spouse's interest in the business. Generally, this can be calculated based on time and/or funds invested in the business. So each spouse would include in their jointly filed Form 1040 a separate Schedule C or Schedule F, with their share of income and expense as well as a separate Schedule SE to report self-employment tax. In most cases, this division of income does not increase the amount of tax due.
If, however; Spouse 1 substantially controls the management of the business and Spouse 2 is under the "direction and control" of Spouse 1, an employment type of relationship exists and would not meet the criteria of a qualified joint venture. Spouse 2 should be considered an employee and is subject to income tax and FICA (Social Security and Medicare) withholding. As the employer, Spouse 1 is responsible for FICA taxes but not Federal Unemployment Tax.
Why is this important to know? If you and your spouse are planning to spend a considerable percentage of your working life on the farm, you need to be sure that each spouse is accumulating wages that are included in calculating future Social Security benefits. We don't like to think about the possibility of losing our spouse but especially in the case of a family with children, it's important to plan in advance to minimize the economic impact of the death of a spouse.
Beginning in 2007, an unincorporated business that is jointly owned by a married couple may elect to be treated as a qualified joint venture. The couple must file a joint tax return. Each spouse must "materially" participate in the business and the business may not be owned in the name of a "state law entity" - an LLC or LLP.
Each spouse must report their share of the all of the business income and deductions and each will receive credit for purposes of Social Security benefits calculation. The division of income and deductions between the couple should be based on each spouse's interest in the business. Generally, this can be calculated based on time and/or funds invested in the business. So each spouse would include in their jointly filed Form 1040 a separate Schedule C or Schedule F, with their share of income and expense as well as a separate Schedule SE to report self-employment tax. In most cases, this division of income does not increase the amount of tax due.
If, however; Spouse 1 substantially controls the management of the business and Spouse 2 is under the "direction and control" of Spouse 1, an employment type of relationship exists and would not meet the criteria of a qualified joint venture. Spouse 2 should be considered an employee and is subject to income tax and FICA (Social Security and Medicare) withholding. As the employer, Spouse 1 is responsible for FICA taxes but not Federal Unemployment Tax.
Why is this important to know? If you and your spouse are planning to spend a considerable percentage of your working life on the farm, you need to be sure that each spouse is accumulating wages that are included in calculating future Social Security benefits. We don't like to think about the possibility of losing our spouse but especially in the case of a family with children, it's important to plan in advance to minimize the economic impact of the death of a spouse.
Equine Accounting: Assistance from the IRS to pay for Child Care
Whether you work for yourself or someone else, worrying about care of your children while you are at work can cause both financial and emotional stress. Well relax; the IRS is here to help. The Child and Dependent Care Credit is available to many taxpayers for care incurred during vacations and throughout the year. For parents who are working (or looking for work) and arrange for day care for their children under thirteen years of age, this credit may provide some reimbursement toward the cost of this care.
What you need to know:
•You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to calculate the credit.
•The range of the actual credit is between 20 and 35 percent of your qualifying expenses, depending upon your income. Unlike many other deductions and credits, there is no upper limit on the amount of your adjusted gross income.
•You (and your spouse if filing jointly) must have earned income during the year.
•Both in-home sitters and daycare facilities outside the home qualify you for some tax benefit if you are eligible for the credit.
•The cost of day camp may count as an expense towards the credit. However, expenses for overnight camps do not qualify.
•When you submit your tax return, you must complete IRS Form 2441 and provide the name and tax identification number for the individual providing the care.
•This is a tax CREDIT, which directly reduces the amount of tax due on your return. However, it is a nonrefundable tax credit - which means that it cannot reduce the amount of tax due to less than zero.
Please see IRS Publication 503 (http://www.irs.gov/pub/irs-pdf/p503.pdf) for more information.
What you need to know:
•You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to calculate the credit.
•The range of the actual credit is between 20 and 35 percent of your qualifying expenses, depending upon your income. Unlike many other deductions and credits, there is no upper limit on the amount of your adjusted gross income.
•You (and your spouse if filing jointly) must have earned income during the year.
•Both in-home sitters and daycare facilities outside the home qualify you for some tax benefit if you are eligible for the credit.
•The cost of day camp may count as an expense towards the credit. However, expenses for overnight camps do not qualify.
•When you submit your tax return, you must complete IRS Form 2441 and provide the name and tax identification number for the individual providing the care.
•This is a tax CREDIT, which directly reduces the amount of tax due on your return. However, it is a nonrefundable tax credit - which means that it cannot reduce the amount of tax due to less than zero.
Please see IRS Publication 503 (http://www.irs.gov/pub/irs-pdf/p503.pdf) for more information.
Reflections on Equine Affaire MA
In my opinion, this year Equine Affaire attracted an even bigger crowd than in recent past years - this in a time when the sentences in many news broadcasts start with phrases such as "Due to the recession", "As a result of the poor economy", etc. And people weren't just there - they were buying! How did they do it? What is it about Equine Affaire that attracted you to attend?
This month, rather than discussing an accounting or tax topic related to horse businesses, I want to get down to basics. Equine Affaire has found a way to attract vendors, presenters and consumers in droves. Rather than accept the premise that a poor economy is an insurmountable obstacle to a successful event, they just "made it work".
Do you view the current economy as an opportunity? Demand still exists in the horse industry but it might no longer be for the goods or services upon which your business is currently focused. Has your business kept pace with the changing economy? Is there something you can do to meet these new demands?
There will be a wide variety of options available to you, based on your individual situation. But you need to evaluate which ones are best for you. Do some research. Talk to your customers to find out what they need, not what you think they need. Do they have an unmet need that you can satisfy? Look at businesses that are successful now. What are they doing right?
Identify your target market? Who is your ideal customer and how can you market to reach them?
When you have a defined concept of what needs to be done in your business in order to change to adapt to current conditions, create a business plan. Be as detailed as possible with benchmarks that you hope to reach within a specific timeframe so you have a method to evaluate your progress. Keep detailed financial records so you have solid numbers, rather than using impressions and feelings as guideposts.
I know that when times are tough, it feels pretty overwhelming to consider making big changes that involve a lot more commitment and energy on your part. But the payoff will make it all worthwhile. You know owners of horse-related businesses who were "making it work" for them so it is possible. We can't all be Equine Affaires. But maybe you can be.
This month, rather than discussing an accounting or tax topic related to horse businesses, I want to get down to basics. Equine Affaire has found a way to attract vendors, presenters and consumers in droves. Rather than accept the premise that a poor economy is an insurmountable obstacle to a successful event, they just "made it work".
Do you view the current economy as an opportunity? Demand still exists in the horse industry but it might no longer be for the goods or services upon which your business is currently focused. Has your business kept pace with the changing economy? Is there something you can do to meet these new demands?
There will be a wide variety of options available to you, based on your individual situation. But you need to evaluate which ones are best for you. Do some research. Talk to your customers to find out what they need, not what you think they need. Do they have an unmet need that you can satisfy? Look at businesses that are successful now. What are they doing right?
Identify your target market? Who is your ideal customer and how can you market to reach them?
When you have a defined concept of what needs to be done in your business in order to change to adapt to current conditions, create a business plan. Be as detailed as possible with benchmarks that you hope to reach within a specific timeframe so you have a method to evaluate your progress. Keep detailed financial records so you have solid numbers, rather than using impressions and feelings as guideposts.
I know that when times are tough, it feels pretty overwhelming to consider making big changes that involve a lot more commitment and energy on your part. But the payoff will make it all worthwhile. You know owners of horse-related businesses who were "making it work" for them so it is possible. We can't all be Equine Affaires. But maybe you can be.
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