Tax and Financial News for October 2016
Dog Days of Summer Rentals:
Taxes and Your Airbnb, HomeAway or VRBO Rental
The advent of sites such as Airbnb, HomeAway and VRBO have created the opportunity for millions of people to run a great side business renting out their home. There are people who make tens and even hundreds of thousands of dollars a year.
Making rental money through these sites is like every other business endeavor, however – the government wants its cut. You can minimize how much the IRS takes as well as make sure you stay out of hot water if you follow a number of steps we discuss below.
The 14-Day Rule
Essentially the 14-day rule means you do not have to report rental income to the IRS (nor do you get to take any deductions) if you meet both of the following:
- You rented your home for 14 days or fewer throughout the year;
- You used the property yourself for 14 days or more during the year or at a minimum of 10 percent of the days it was rented.
The beauty of the 14-day rule is its simplicity for the occasional renter. But things get a little more complicated if you start to make real money.
The rental websites keep track of all your activity and send you a Form 1099-K showing the total gross income received during the year. The 1099-K reporting requirement kicks in if you have more than 200 transactions and earnings more than $20,000 over the course of the year. Keep in mind that even if you are below these thresholds, you still need to report your income to the IRS but you might not receive a 1099-K.
It is important to note that the amount reported on the 1099-K will be a gross rental income amount. It will not reflect any commissions, local tax payment, etc. that the site took out via its system. Remember to deduct these items because otherwise you will be overpaying taxes.
Schedule E or Schedule C
Typically, owners of rental properties file the income and related expenses for each property on Schedule E of their tax returns. But rental hosts who rent out rooms in their own abodes will typically file on Schedule C instead. The details of this distinction are beyond the scope of the article, but you should know that the IRS has a seven-factor test. If you are unsure about where you fall in this respect, you should consult a qualified tax advisor.
So what does this mean for you? Well, each schedule has its own advantages and disadvantages. With Schedule E for example, you avoid paying the 15.3 percent self-employment tax; however, losses are generally suspended as passive activity losses and carry over until you make money with the same property or sell it and then offset the gains.
Schedule C on the other hand allows you to take any losses in the current year, but you are liable for the self-employment taxes in years you have income. Remember that the driver between which schedule you file has nothing to do with your preference for tax treatment, but is driven by IRS rules.
There are basically two types of expenses you need to consider – direct and indirect. In all cases, keep detailed records to support your deductions.
Direct expenses are those that relate solely to the rental activity and therefore are 100 percent deductible. Indirect expenses are those where only a portion of the expense is directly related to the rental and as a result you will need to pro-rate these expenses appropriately.
Indirect expenses are much more common where you are renting out a room or a portion of your residence. In these cases, shared expenses such as internet, depreciation or even cleaning (if you hire someone to clean your whole house, for example) need to be allocated or pro-rated to the rooms you are renting out.
Keep these items in mind when you file your taxes – and happy renting.
General Business News for October 2016
Considerations When Hiring Overseas
While the number of foreign-born laborers in the United States has increased steadily, 16.5 percent in 2014 versus 14.8 percent in 2005, the opportunity to hire outside the United States has also increased. What are some important considerations for employers when they hire outside of the United States?
Hiring overseas has its own set of legal implications for American employers that involve federal law and those specific to European countries. One consideration for U.S. employers is to be mindful of following Federal Law. With laws including the Foreign Corrupt Practices Act of 1977, companies should look into developing policies for global employees that prohibit them from giving foreign government officials unauthorized financial compensation in exchange for new or continued business contracts.
Another consideration focuses on how employment agreements are viewed by foreign countries. Unlike the United States, where many employment relationships are often at-will, some European countries require employers to provide employees with a termination notice and/or a notice period depending on their length of employment.
Understanding Cultural Differences
Beyond legal implications when hiring overseas, understanding cultural differences is another important consideration, even when contemplating firing. When it comes to performance reviews, one example is the difference in how American and European supervisors carry out employee assessments.
European, specifically French business owners and their supervisors, normally provide employees with feedback that is straight-forward, emphasizing areas needing improvement but not talking about job aspects that are done well. However, American supervisors give subtler feedback. Managers in the United States are more inclined to highlight an employee’s positive job performance and provide them with constructive feedback to encourage growth in areas where they have weak performance.
Another example to be cognizant of when hiring overseas is the different approach to time, specifically punctuality. Generally speaking, northern European countries, especially Germany, the United Kingdom and the Nordic counties, have cultural norms that subscribe to what experts call linear time. This cultural expectation, which is often present in economies with more industrialization, assumes more punctuality and promptness for appointments and work schedules. It’s naturally necessitated because factories must run in a more sequential manner.
In other areas of the world, such as Latin America, the Middle East and many parts of Asia, employers and employees are accustomed to flexible time. Schedules and appointments are generally understood to be more flexible and do not always occur when they were originally intended.
There are other legal and cultural considerations employers should be mindful of that can have a collective impact on international expansion. For example, when selecting international employees for time-sensitive projects, consider country-specific holidays and time-zone differences. Moreover, European and Australian employees are accustomed to receiving more time off for vacations, sickness and family planning reasons. You also need to consider ancillary legal factors such as approval requirements by labor unions for changes to work policies or conditions. While non-compete agreements are prevalent in the United States, many international companies look less favorably on these, and may not permit them at all.
As the world’s economy is becoming more interconnected, businesses that understand different cultures will face fewer hurdles when hiring new talent from outside the United States.
Whats New in Technology for October 2016
Technology: Data Breaches – What To Do
It is hard to know which is more alarming – that a security breach can affect more than 500 million people, or that it has taken nearly two years for the public to be informed of such an incursion. Yahoo’s major data breach is but the latest to hit the headlines. It might be somewhat reassuring to read that financial details like credit card and bank account data were not breached, and that encrypted passwords were not stolen, but let’s not forget that the leaks did include some users’ security questions and answers along with addresses, phone numbers and birthdates.
If you haven’t already taken steps to reinforce your personal security measures, now is the time.
- Change your Yahoo password. If you haven’t been a Yahoo user for a while, don’t assume you are home free. If you’ve ever had a Yahoo password, get online and find the old one, replace it and opt for the two-step option even if you are planning to close the account immediately.
- If you are still using the same passwords for multiple sites, get busy replacing them with different ones. If you have any that are similar to your Yahoo password, change them. Avoid anything that might be gleaned from your publicly available data (significant dates, locations, etc.) or might be guessed from your social media. Your passwords should be so random that you need a password manager to remember them. Find one and make use of it.
- Password management programs have come a long way since the first ones entered the scene. The early versions stored your passwords in an encrypted vault. Today’s options allow you a variety of real-time options, which include syncing passwords and the ability to change online passwords with one click. If a password manager seemed as if it might be as onerous as tracking your passwords in notepads, it’s time to check out the latest generation in password safeguards.
- Whenever you have the option of using two-step authentication, take it. This method generates a unique login every time you access your account. And, yes, you will be relying on your smart phone to do this, which is sometimes rather inconvenient. Remember, it will never be as inconvenient or devastating as scrambling to protect your assets if a cyber thief accesses your account.
- Security questions and answers don’t always provide the added security we might hope they would bring. Avoid anything that might prove simpler for crooks to uncover. Consider how easy it might be to find your mother’s maiden name or the town where you were born when public records can be accessed and checked at super-speed on the internet. Think, too, of all the personal data we happily share on social media.
- Because cyber-security essentially remains a reactive business (solutions are developed in response to actual threats rather than in anticipation of them) we don’t have the luxury of letting our guard down. The best defense against cyber-crooks is vigilance. Always be suspicious of unusual emails from financial institutions or requests for you to update your personal data. Similarly, be very suspicious of unsolicited phone calls from makers of your computer, its operating system or software manufacturers with news of patches or security updates.
Although the response to hackers is in the hands of corporate computer security experts and cyber law enforcement, as individual consumers we all can try to minimize our chances of being easy targets.