Remember to Take Your IRA Required Minimum Distribution (RMD)!

The Check is in the mailFor some of us folks older than 70½ with an IRA, we must take our RMD before December 31st of this year. This is just a reminder to not forget. If you are turning 70½ this year, then you have until April 1st of 2016 to make the withdrawal. The IRS says

“You must take your first required minimum distribution for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.”

As with all things IRS, this can get complicated so I encourage you to look at the site:

https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions

This site will tell you more than you ever wanted to know about IRA RMDs. However, knowing how to do the RMD correctly is quite important as the penalty for not doing so in a timely manner is quite stiff!

You can calculate the amount of each RMD using the IRS provided work sheet after referring to the tables referenced on the site above.

Good luck — and don’t forget your RMD!

Getting Services from Outside the USA?  Don’t Forget the IRS!

Offshore Services Sourcing resizedThe IRS requires that when you outsource to foreign companies/persons for services, you must withhold a percentage of payments as income tax unless you have proof that the entity to which you are outsourcing performs all of their services outside the United States.

This proof is in the form of properly executed IRS forms W-8BEN-E (for companies) or W-8BEN (for persons) that you must keep on file in case you are audited. The IRS says “The place where the services are performed determines the source of the income”. Basically, no withholding is required for services performed outside the US and no 1099 form is required.

If you are receiving services from a person outside the US, simply ask him or her to complete a Form W-8BEN. By signing Form W-8BEN, the foreign contractor is certifying that he or she is not a US person. In this circumstance there is no need for the foreign contractor to get a US taxpayer identification number or to complete Parts II or III of Form W-8BEN. All that the foreign contractor needs to do is to complete the basic information in Part I and sign in Part IV, attesting that the information is true, correct, and complete. No Form 1099 then needs to be filed for payments to foreign persons.  Treas. Reg. §1.6041-4(a).

The Form W-8BEN is not filed with the IRS. It is kept on file with the US payor in case the US payor is audited. If audited, the Form W-8BEN supports why no Form 1099 was issued and why no tax was withheld.

Now that you know that the foreign contractor is not a US person, how do you know that he or she is not performing some or all of the services in the US? Perhaps he or she spends two or three months a year at his or her second home in the US and he or she works on your project while in the US.

You won’t know if the services are performed in the US, unless you ask. There is no special form for this. The easiest way is to get a signed statement from the foreign contractor that he or she will not perform any of the services for you in the US. It is typically best to attach this statement to the W-8BEN.

Say that you have some reason to doubt the veracity of the foreign contractor’s statements. Perhaps you know that he or she was born in the US (which would make him or her a US citizen, unless he or she renounced his/her US citizenship). Perhaps you know that the foreign contractor spends a good amount of time in the US and you believe some of the services may be performed in the US.

If you do not withhold tax on the payments to the foreign contractor but you are required to withhold, then you, as the payor (i.e., the “withholding agent”), can be held liable for the tax that you did not withhold. Treas. Reg. §1.1441-1(b)(7). Thus, if you are uncertain as to whether you need to withhold, it is generally better to withhold. If the foreign contractor does not owe US tax, then he or she can file a US tax return and claim a refund for the tax that was withheld.

If you are receiving services from a company outside the US, you should have on file a completed IRS Form W-8BEN-E. Only the following sections need to be filled out:

Part I, Lines 1-4, 6 & 7 (perhaps also Line 9b), and Part XXIX (an authorized individual signs and dates, and checks the certification box).

This form is kept on file by you to show that the authorized individual of the entity is certifying that (a) the entity is the beneficial owner of the income (b) the entity is not a US person, and (c) the income is not effectively connected income (“ECI”). Therefore, withholding and reporting to the IRS are not required. No Form 1099 then needs to be filed for payments to foreign companies.  Treas. Reg. §1.6041-4(a).

(For additional information, please refer to the International Tax blog at http://intltax.typepad.com/intltax_blog/form-w-8-ben/ and our LinkedIn profile at https://www.linkedin.com/in/angelospandrio.)

Do you work with contractors outside the US? Are you a contractor outside the US? What has been your experience with international tax issues? Let us know in the comments below.

How to successfully use a business line of credit

Money tug of warIt seems to me that no manufacturing business can really survive without a credit line of some kind.  It’s a simple fact that if you are producing a product, you must pay for the materials to make that product long before you will be paid for the final product unless you can manage collecting payment in full when you receive the purchase order from your customer.

Most of your customers will ask for and deserve payment terms of some kind.  These payment terms usually state something like “Net 30 Days”.  This means that the customer promises to pay for the goods invoiced in 30 days from the date of the invoice.

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Solopreneur: Are you making a profit or going down the drain?

Making ends meet
How far apart are the ends?

“We’re going down the drain!!”

That’s what the desperate voice quavered. I could only imagine the fears that clutched at this woman’s heart.

This couple has a small business that they work together. And they knew that something was wrong because it was becoming increasingly difficult to make ends meet. They were both working hard but the apparent bottom line just wasn’t what it should be.

I say ‘apparent bottom line’ because they did not really know what the bottom line was.

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7 warning signs that your independent contractor is really an employee

7 warning signs that your independent contractor is really an employee

Every small business owner has to determine if s/he is going to need assistance with their workload. There are some very complicated – and expensive – regulations for having employees, so some companies try to dodge the financial bullet by hiring independent contractors.

However, if you are going to go the Independent Contractor (IC) route, I strongly recommend that you be clear about the definitions and the difference. Because if you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker — and that’s just the tip of the iceberg.

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How to use yellow stickies as a project management tool for follow-up and follow-through

Yellow stickies for project management
I love my yellow sticky system…

Good follow-up and follow-through involves doing what you told someone else you would do and/or making sure that someone else is doing what they told you they would do.

Following up and following through is crucial for sustaining a profitable business. I happen to love my yellow sticky system for this purpose because the older I get the less able I am to keep my business milestone dates in my head.  In fact, no matter what your age, you should have a system that does not rely on your memory!

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Why I use yellow stickies in my calendar to run my business

Yellow stickies work for reminders
Yellow stickies make up a key part of my system…

You have probably figured out by now that I am pretty much “stuck” in my low-tech way of doing things.

It’s not that I don’t appreciate or have some rudimentary understanding of all of the wonderful tracking systems available to us in the myriad of programs that can be placed on electronic devices.  It’s just that all of my manual, antiquated systems seem to still work pretty well.  Others may claim they are not especially efficient, but I understand them.  When I follow the rules that I established for them, the systems continue to work well.

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ARRGGHHH!! How do I get noticed??!!?? Six tips for growing your new business.

Waiting for customerTwo common questions we get are “How do I get my business started?” and  “How can I grow my new business?”.

Most solopreneurs don’t have a lot of excess cash and are trying to find economical methods for business growth.  The following six tips may help you expand your businesses at the local level:

1. For starters, we recommend Chris Guillebeau’s book The $100 Startup.  This book has some great case histories and ideas.

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Apply “Business Love” for greater success as an entrepreneur

Business LoveNo, I am not talking here about love for your business.  Love for your business is a definite requirement but here I am talking about traits that you need to show in the conduct of your business.  This overall trait of “business love” has probably never been presented to you before so here goes.

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