BB INTERNATIONAL CONSULTING LLC

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Navigating the labyrinth of business meal and auto expense deductions.

Revamp Your Tax Game: Unveiling the Secrets to IRS-Approved Deductions! Mark your calendars, taxpayers! If you're navigating the labyrinth of business meal and auto expense deductions, brace yourself for an IRS scrutiny session like never before. The tax watchdogs are on high alert, ready to pounce on incomplete documentation and attempts to conjure records out of thin air, even months or years later. Let’s dive into the thrilling world of tax audits, inspired by a recent nail-biting showdown in the U.S. Tax Court. The High-Stakes Drama Unfolds In this gripping tale, a dynamic duo dared to claim a whopping $13,596 in car and truck expenses. However, their supporting mileage logs were nothing short of a suspense novel, lacking contemporaneity and relying on estimates rather than solid odometer readings. The court delivered a blockbuster verdict, slamming the door on the entire deduction. Why? Because, in the court's eyes, records concocted after the fact lack the cinematic cre...

NET INVESTMENT INCOME TAX (NIIT) OR "OBAMA" TAX

For high-income taxpayers, dealing with a regular income tax rate of 35% or 37% can be challenging. On top of that, there's an extra 3.8% net investment income tax (NIIT) to consider. The good news is that there are ways to minimize its impact. Who's Affected? The NIIT applies if your modified adjusted gross income (MAGI) exceeds specific thresholds: $250,000 for married taxpayers filing jointly and surviving spouses, $125,000 for married taxpayers filing separately, $200,000 for unmarried taxpayers and heads of household. The taxed amount is the lesser of your net investment income or the excess of your MAGI over the applicable threshold ($250,000, $200,000, or $125,000). What's Included in Net Investment Income? Net investment income encompasses interest, dividends, annuities, royalties, and rental income—unless they're part of an active trade or business. Passive activity income from a trade or business and income from trading in financial instruments or commoditie...

ALL ABOUT SMALL CORPORATION AND ITS ADVANTAGES

Owning a small business without incorporation can lead to hefty self-employment (SE) tax bills, and that's never pleasant. In 2023, the SE tax hits you hard at 15.3% on the initial $160,200 of net SE income. This includes 12.4% for Social Security tax and 2.9% for Medicare tax. The Social Security tax ceiling has risen to $160,200 from $147,000 in 2022, and this upward trend is expected to continue due to inflation. Beyond this ceiling, the Medicare tax persists at 2.9% before climbing to 3.8% for higher net SE incomes, thanks to the additional 0.9% Medicare tax on all income. Enter the S corporation advantage. In 2023, S corporation employees, including shareholder-employees, face a FICA tax wage withholding rate of 7.65% on the first $160,200 of wages—6.2% for Social Security tax and 1.45% for Medicare tax. Once past $160,200, the rate drops to 1.45% because the Social Security tax no longer applies. However, the 1.45% Medicare tax persists and increases to 2.35% for higher com...

DEDUCTIBLE BUSINESS EXPENSES

Understanding the Internal Revenue Code can be a daunting task, but it reveals that many business deductions are not explicitly listed. While the tax law doesn't explicitly mention deductions such as office supplies, the overarching principle is found in the initial sentence of Section 162. This section allows for the deduction of "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." To elaborate on the basic definitions, an expense is considered ordinary if it aligns with common practices in a specific trade or business. For instance, insurance premiums to safeguard a retail store are deemed an ordinary business expense in the retail industry. On the other hand, a necessary expense is one that is deemed helpful or appropriate, even if not essential for the operation of the business. For instance, a car dealership purchasing an automated external defibrillator may not be necessary for daily operations bu...

USING LLC FOR YOUR BUSINESS AND ITS ADVANTAGES

If you presently manage your small enterprise as a sole proprietorship, the contemplation of establishing a Limited Liability Company (LLC) to safeguard your assets may have crossed your mind. Alternatively, if you are embarking on a new business venture and seek insights into structuring it appropriately, here is a fundamental overview of operating as an LLC and the rationale behind its suitability for your business. An LLC possesses a hybrid nature, as it can be configured to emulate a corporation in terms of owner liability, while concurrently exhibiting attributes akin to a partnership for federal tax considerations. This dual nature offers owners the advantages of both paradigms. Asset Protection: Similar to shareholders in a corporation, individuals owning an LLC, referred to as "members" rather than shareholders or partners, generally enjoy limited liability concerning the business's debts, limited to the extent of their invested capital. Consequently, owners can...