When is employer provided housing taxable to the employee? When can it be deducted fully by the employer?

My answer to When is employer provided housing taxable to the employee?  When can it be deducted fully by the emplo…

Answer by Wray Rives:

Generally the cost to provide employee housing is always a deduction for the business.  When it is taxable to the employee depends on several questions:
  1. Is the housing provided for the convenience or benefit of the business
  2. Is the housing on the business premises
  3. Is using the housing a condition of employment

If you can answer yes to all three, then the housing should not be taxable to the employee.

You may want to read the IRS guide regarding Fringe Benefits at Publication 15-B (2012), Employer's Tax Guide to Fringe Benefits

When is employer provided housing taxable to the employee?  When can it be deducted fully by the employer?

How much do self published eBook authors have to pay in taxes?

My answer to How much do self published eBook authors have to pay in taxes?

Answer by Wray Rives:

Since you say self published, I am going to assume you are receiving a percentage of the sales of your books and this is not a situation where you have sold the rights to your books and are receiving royalties.  Even if you do receive "royalties" on your published works, it is probably still self employment income to you as I can't think of circumstances where royalties for your original works would not be self employment income.  If you wrote one book and never intend to publish another or wrote the book for an employer then a royalty is a royalty, otherwise be careful that some may try to tell you that because royalties paid to a writer is called "royalties" it is reported on Schedule E and not on Schedule C, as this is just not the case.

Your income is considered self employment income.  You pay the same progressive income tax rate as any other taxpayer does, the only difference is on top of income tax, you also pay self employment tax equal to 15.3% of your net profits from writing and selling books.  This self employment tax is where you are getting the concept that you pay higher taxes than say someone with a W2 job.  The W2 employee is having Social Security and Medicare tax withtheld from a paycheck at the rate of 7.65% on the first $118,500 of gross pay.

The key term for you is net profits not gross pay, because you get to deduct reasonable and necessary business expenses incurred in your writing/publishing business

So for a writer/publisher, you should consider things like laptop that you use exclusively or at least primarily for writing and publishing.  Do you have a space in your home that you use exclusively for writing and publishing work, if so you might benefit from a home office deduction.  Other things like expenses to promote or research a book could all be a possible tax deduction.

The net profit after deducting expenses from your gross receipts is what your self employment tax is calculated on and is also the number that gets added to any other income to determine your income subject to income tax, using the same tax tables everyone else uses.

How much do self published eBook authors have to pay in taxes?

Why do I have to pay higher taxes for being self employed than I did when I was working for a corporation, even though I am earning the s…

My answer to Why do I have to pay higher taxes for being self employed than I did when I was working for a corporat…

Answer by Wray Rives:

The biggest difference tax wise between self employment and working as an employee is self-employment tax, income tax rates are the same for the same taxable income.

  When you are an employee you pay 7.65% FICA and Medicare tax and your employer pays a matching amount for a total 15.3% combined FICA/Medicare tax.

As a self-employed individual you are both employee and employer so you pay both parts of the FICA/Medicare tax for a total combined self employment tax rate of 15.3%.  The one break you get is that as an employee you pay tax based on your gross pay, but as a self employed individual you pay based on your net profit, so business expenses will reduce both your taxable income and your self employment tax, whereas it is pretty difficult for most employees to get a tax deduction for un-reimbursed expenses due to limits on itemized deductions.

Why do I have to pay higher taxes for being self employed than I did when I was working for a corporation, even though I am earning the s…

Do I have to file an 83b as a startup advisor?

Answer by Wray Rives:

There is no requirement that you ever file an 83(b) election, doing so is completely optional.  When you receive restricted assets, such as stock options with a vesting schedule, you are not required to report the receipt of that asset as income, until you have the full rights to sell that asset or otherwise convert it into cash.  The restricted stock is not income in your hands until whatever restrictions, commonly a vesting schedule, expire.  Upon expiration of the restrictions the stock becomes taxable income to you at whatever the fair market value is in the future when the restrictions expire.

What an 83(b) election does is accelerate the recognition of income to today rather than in the future when the restrictions expire and fix the current taxable income at the today's fair market value rather than the future fair market value.  When you sell the stock in the future, you pay capital gains tax on the appreciation in value from today until you sell the stock.

Obviously stock in a startup typically will have a low current fair market value and if the startup is successful the future fair market value could be significant.  Therefore making an 83(b) election means you pay capital gain tax rate rather than ordinary income tax rates on that increase in value.  The risk is not every startup succeeds and you are paying some current ordinary income tax today and if the stock value does not go up, you have a capital loss in the future rather than never having to recognize the income at all.

So while there is no requirement to file an 83(b), if you don't you will miss out on the opportunity to pay lower tax rates on any future appreciation in value of the stock.

Do I have to file an 83b as a startup advisor?

How do I process SaaS payments with the help of a US LLC/corporation?

Answer by Wray Rives:

SaaS or subscription services are generally consider digital goods for tax purposes and are subject to US income tax and depending on the state you register in state level income and sales tax also.
First forming a US corporation will require filing a US corporate tax return and paying US federal income tax on the net profits of the business.  Being a non-resident owner does offer some planning opportunity by selecting a state that has no state level income tax and minimal or no sales tax.  I would suggest that Wyoming may be a good choice for you.  You also have the ability with a corporation to pay a reasonable fee back to the non-resident owner and affiliated entities for services provided to the US entity.  I would caution you that any such transactions with foreign related parties are required to be disclosed on the corporation's tax return and are subject to rules on Transfer pricing of tangible goods between controlled businesses .
An LLC has many of the same tax considerations as a corporation regarding sales tax with the major difference being in the US federal tax level.  A single member LLC is by default a disregarded entity for US federal tax purposes which is just a fancy way of saying that for taxation the US looks to the LLC as simply an extension of the non-resident owner.  That will mean the non-resident owner has to file a US non-resident tax return to report profits from any US sourced income, which as already mentioned typically includes digital goods, with certain exceptions which may apply in your situation because you are in India.
The US and India have a tax treaty that says your business profits are only taxed in India, unless you conduct your business through a permanent establishment in the US.
Sorry this is a long but highly relevant definition from the treaty about what is a permanent establishment:
1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
2. The term “permanent establishment” includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources;
(g) a warehouse, in relation to a person providing storage facilities for others;
(h) a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on;
(i) a store or premises used as a sales outlet;
(j) an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve month period;
(k) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve month period; (l) the furnishing of services, other than included services as defined in Article 12 (Royalties and Fees for Included Services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve month period; or (ii) the services are performed within that State for a related enterprise (within the meaning of paragraph 1 of Article 9 (Associated Enterprises)).
3. The term “permanent establishment” shall be deemed not to include any one or more of the following:
(a) the use of facilities solely for the purpose of storage, display, or occasional delivery of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or occasional delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise.
4. Where a person – other than an agent of an independent status to whom paragraph 5 applies – is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State if: (a) he has an habitually exercises in the first-mentioned State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) he has no such authority but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in that State on behalf of the enterprise have contributed to the sale of the goods or merchandise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise.
5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's-length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph.
So, if you can avoid the above criteria and not conduct business through a permanent establishment in the US, then you will most likely want to choose to be a single member LLC for federal tax purposes and avoid US federal income tax.  You would still be subject to state franchise taxes and sales taxes which as I mentioned you can often plan around by choosing the right state in which to incorporate.  Also your income would still be taxable in India, if it is not taxable in the US.
Finally US non-resident taxation is a fairly complex and very fact based area of US tax law, so it is probably worth your having a conversation with a US tax professional to consider all the specific "facts" about your business to be sure you structure the operation to minimize your tax liability.  Simply changing one fact can often change the answer as to where you will be required to file and pay taxes.

How do I process SaaS payments with the help of a US LLC/corporation?

Why do I have to pay higher taxes for being self employed than I did when I was working for a corporation, even though I am earning the s…

Answer by Wray Rives:

The biggest difference tax wise between self employment and working as an employee is self-employment tax, income tax rates are the same for the same taxable income.

  When you are an employee you pay 7.65% FICA and Medicare tax and your employer pays a matching amount for a total 15.3% combined FICA/Medicare tax.

As a self-employed individual you are both employee and employer so you pay both parts of the FICA/Medicare tax for a total combined self employment tax rate of 15.3%.  The one break you get is that as an employee you pay tax based on your gross pay, but as a self employed individual you pay based on your net profit, so business expenses will reduce both your taxable income and your self employment tax, whereas it is pretty difficult for most employees to get a tax deduction for un-reimbursed expenses due to limits on itemized deductions.

Why do I have to pay higher taxes for being self employed than I did when I was working for a corporation, even though I am earning the s…

How do I find a trustworthy CPA for my startup?

Answer by Wray Rives:

I would concur with John Cody's answer with one exception that limiting yourself to a local CPA can also unnecessarily limit your choices.  Most services offered by a CPA can be performed remotely these days.  The local CPA model is becoming outdated, because technology allows you to offer tax, accounting, bookkeeping and payroll services to startups with no limit on location.  About the only service you will probably need a local CPA for is an audit or other attest service.

The typical old school model for a CPA firm was to service clients that live or work within 15 miles of the CPA's office.  CPA's who have limited their client base geographically have to then offer a broader range of services to those potential clients.  As opposed to a firm offering services virtually which has no geographic limitation and can therefore go deeper by specializing in areas that may be more relevant to the services you and your business really need.  In my opinion the CPA that has deeper knowledge of your specific needs will provide more value than the generalist CPA.  Think of it like going to the family doctor if you need a checkup or to the cardiologist if you have heart disease but typically without paying a premium for going to the specialist because most virtual CPA firms also don't have the overhead of a brick and mortar location and you will often find the lack of overhead helps the cloud based CPA offer fixed rate fees rather than hourly billing.

Still John is correct that referrals and Google search are probably the best way to find a CPA and if you are the type of person who just really needs to sit down across the desk from your CPA or are uncomfortable working via the internet, then the local generalist CPA may still be your best choice.

How do I find a trustworthy CPA for my startup?

How important is it to file a Section 83 (b) election for an LLC S-Corp?

Answer by Wray Rives:

I concur with Karl Stevens in fact most S Corporations today are LLC's at the legal entity level.  S Corp and LLC are two very different questions.
As to the original question about making an 83(b) election, it is very critical that you understand the consequences of making the election for restricted stock in an S Corp, but if you should or should not make the election will depend on the specific circumstances and both the tax impact on the person receiving the grants and the current S Corp shareholders.

If you receive a stock grant for an S Corp and make an 83(b) election then you are considered as being an owner of the S Corp.  That means you are required to be allocated a proportionate share of the income of the S Corp each year based on your ownership percentage and if the current shareholders receive a distribution of cash, you have to also receive a proportionate distribution.

You also have to take into consideration that making an 83(b) election means the grant recipients by being considered shareholders could terminate the S election if any one of them is a ineligible S Corp shareholder or if adding shareholders puts the number of shareholders over 100.

If you do not make the election, then you are not considered a shareholder and thus cannot receive distributions from the corporation and the corporation may be required to accrue any shareholder benefits that would otherwise be due to you during the vesting period.

Finally the company needs to be very sure that nothing in the vesting and grant agreements creates a second class of stock that would terminate the S election.

You will not know how "important" the 83(b) election is until after it is too late to do anything about it.  You have 30 days from the date you receive the grant to make the 83(b) election, but all the election does is accelerate you recognizing income for the receipt of restricted stock, that you would otherwise not have to report as taxable income.  You do this because if you recognize the value of the stock today as ordinary income, then years from now when you sell the stock  you get capital gain treatment on the appreciation in value between today and that future date. 
If there was a substantial increase in value in the future, then making the 83(b) election was very important and will greatly reduce your tax burden.  If instead the value of stock decreases or becomes worthless, then you made the wrong choice as you would have been better off to  have not filed the election.
You will often hear people say "you should always file an 83(b) when you receive restricted stock".  That statement is based on the fact that no reasonable person would take payment for work done in the form of stock that they can't sell today, unless they believed that the stock was going to be worth a lot more in the future when they can sell it.  Add to that the fact that the resulting tax liability when you do sell the stock can be 1/2 of what it would be if you did not make the 83(b) election and you get that filing the election is the safe choice.  However, the failure rate of startup companies would tell you that making an 83(b) election is probably the wrong decision just as often as it is the right decision.

How important is it to file a Section 83 (b) election for an LLC S-Corp?

If a company is incorporated in Delaware, but has a bank account in NY in which state should this company report taxes? Could it cause do…

Answer by Wray Rives:

You will have to file taxes in Delaware, because at a minimum DE franchise tax will be due.  Just having a bank account in NY would not be a problem, but if the owner(s) are physically located in NY and working from NY, then the company will have to register and pay tax in NY also.  Any other state where the business and/or its owners/employees/officers are physically located and operating will require registration of the DE entity and will require a tax return in that/those states.
Although there are frequently similarities, every state has their own rules about what constitutes nexus (physical connection subjecting you to taxation). You probably need to consider every state where the company has owners, assets, employees or even a large number of customers as a potential state where you need to be registered. Have a conversation with an attorney or tax professional if you are not sure.
You are going to pay franchise tax in each state where the company is required to be registered.  DE has relatively high franchise taxes that max out at $180K per year, but realistically are typically more in the $400 range for your average small company. As a general rule franchise tax will not be a significant amount for most states.
Income tax for the most part should not result in double taxation as each state will have some factor to apportion taxable income among all the states where the company has nexus.

If a company is incorporated in Delaware, but has a bank account in NY in which state should this company report taxes? Could it cause do…

If I did my taxes on the 28th when when Would I get them back?

Answer by Wray Rives:

Assuming we are talking US tax, if you filed your return early and are expecting a refund, you should expect to wait a while.  Ninety percent of fraudulent refund claims are filed from the time efiling opens until mid to late February.  The IRS will review every refund claim much closer during this time period which typically results in delays receiving your refund.  If you don't receive your refund within 8 weeks, go to Where's My Refund? – It's Quick, Easy and Secure and check on the status.

If I did my taxes on the 28th when when Would I get them back?