October 30, 2013
If you own a Limited Liability Company (LLC) that you are not actively managing, but you claim tax deductions, this blog post will be of interest to you. Close to 30 years ago, the IRS passive activity loss (PAL) rules (I.R.C. Section 469) were enacted to limit the degree to which money-losing LLCs could be used as tax shelters by their owners claiming losses—such as depreciation, interest, and other deductions. These rules created the passive income or loss category and they apply to all business activities, including real estate rental activity.
There are two types of passive income or losses including income earned from:
Essentially, the PAL rules are intended to prevent individuals from deducting passive losses (such as from rental activities) from their non-passive income. However, if you own or co-own an LLC on a part-time basis or have someone else manage it on your behalf, as long as you are active in the business you can claim any related losses against your non-passive income, if you meet the IRS definition of "material participation." The IRS defines “material participation” as being “involved in the operations of the activity on a basis which is regular, continuous, and substantial.” There are several tests that the IRS uses to define material participation in a business, based on your activity and the amount of time you spend working. Read about it in detail here.
Another point to keep in mind—the PAL rules state that passive losses from a business activity can only be used to offset passive income from other passive activities. Passive losses in excess of your passive income for the year are capped, but they can be carried forward and deducted in future years when and if you have passive income or if you sell or dispose of the activity that generated the suspended losses. For additional information about PAL tax regulations, please visit IRS.gov.
Small business owners in many communities offer downtown trick or treat events. Take advantage of this opportunity to build your business reputation. Involvement in local events goes a long way with both existing and prospective customers—indicating a vested interest in your community. Find creative ways to make your business stand out this trick-or-treat season. We hope the following suggestions will spark fun promotional ideas:
Any business that deals with financial data is a target for today’s aggressive cybercriminals…and accounting firms are not exempt. Because of the sensitive information we possess, accounting professionals have moved to the top of the hacker’s hit list. Just consider that a single tax return includes the taxpayer’s name and Social Security Number, as well as address, phone number and bank account numbers. It’s a treasure trove of sensitive data that cybercriminals crave.
October marks Women’s Small Business Month, and we are happy and proud to recognize women in business both locally and around the world. Successful business women of the past and present continue to forge new paths for female entrepreneurs. We celebrate all those who are breaking the glass ceiling and serving as role models and mentors to women everywhere.