Compliance

Tax protection

Act 22 Compliance Checklist: Stay on Track and Protect Your Tax Benefits

Puerto Rico’s Act 22 (now part of Act 60) provides significant tax benefits to Resident Individual Investors. However, these benefits come with strict compliance requirements. Failing to meet these obligations can result in revocation of benefits and financial penalties. Below is a checklist to help ensure you stay in compliance and continue enjoying the benefits of your decree. ✅ Act 22 / Act 60 Compliance Checklist 🗓️ Yearly Compliance Tasks Task Due Date Notes Completed Submit Annual Report to OITE & PR Treasury 30 days after tax filing deadline Required for compliance. Missing this can cause revocation. ☐ Make $5,000 Charitable Contribution to a Puerto Rico Nonprofit Before filing annual report Must be Puerto Rico-based and not controlled by you. Keep receipt as proof. ☐ Maintain Bona Fide Puerto Rico Residency Ongoing (183+ days/year) Track travel days to ensure 183+ days in Puerto Rico yearly. ☐ Report All Required Financial Information Accurately Ongoing Misreporting can result in revocation & penalties. ☐ 📝 One-Time / As-Needed Compliance Tasks Task Due Date Notes Completed File IRS Form 8898 (if previously a U.S. resident) First year only, by U.S. tax deadline Confirms move to Puerto Rico. Missing this may trigger U.S. tax issues. ☐ Notify OITE if Residency Changes Within 30 days of moving If you leave PR, you lose tax benefits. Must send written notice. ☐ Ensure Grant Acceptance is Notarized & Filed 90 days after receiving the decree Failure to do this will make the grant retroactively null & void. ☐ Review Grant Terms & Act 22 Compliance Rules Annually Stay updated on any legal changes affecting your benefits. ☐ ⛔ Red Flags That May Lead to Revocation 📌 Best Practices ✔ Set calendar reminders for key deadlines. 📅✔ Keep records of donations, filings & travel days for audits. 🗂️✔ Consult and reach out to us yearly for updates. 🏛️✔ Double-check that all filings are accurate before submission. ✅ ⚠️ Important Caveat Each Act 22 decree is a separate contract with the government, meaning that specific terms and obligations may vary. Please review your individual decree to ensure full compliance. If you would like us to review your case or prepare a customized compliance plan for you, don’t hesitate to reach out to our office 📞 Contact Us For assistance with Act 22 compliance or to schedule a consultation, feel free to reach out to us: We’re here to help you navigate Act 22 and ensure you remain compliant while maximizing your benefits!

IRS RED FLAGS

Navigating the IRS Audit Maze: 15 Red Flags to Watch Out For

Filing your taxes is a meticulous process, one where precision not only ensures compliance but also minimizes the risk of an audit. The Internal Revenue Service (IRS) employs various methods to select returns for examination, often focusing on inconsistencies or unusual patterns that could suggest discrepancies or errors. Here’s a detailed look at 15 common red flags that might increase your chances of an IRS audit: 1. Excessive or Unusual Deductions If your deductions seem disproportionately large compared to your income, the IRS might take a closer look. This includes deductions for business expenses, medical expenses, or charitable contributions that don’t align with your reported income or lack sufficient documentation. 2. Large Business Expenses for Schedule C New businesses or those showing minimal profit might raise eyebrows if they claim substantial expenses. The IRS often scrutinizes Schedule C (Profit or Loss from Business) for potential overstatements. 3. High Home Office Deductions The home office deduction is complex due to its specific requirements for space usage and business purpose. Overclaiming this deduction without proper substantiation can lead to scrutiny. 4. Round Numbers Submitting tax figures in round numbers can imply estimation rather than precise calculation. This is particularly true for income, expenses, or deductions where exact amounts are expected. 5. Mismatch Between Reported Income and Lifestyle In today’s digital age, the IRS might compare your lifestyle (visible through social media or financial transactions) with your tax filings. A significant mismatch could invite questions. 6. Failure to Report All Income Every income from 1099s, W-2s, or any third-party reported income must be declared. Omissions here are a clear red flag. 7. Cash Transactions Reporting a high volume of cash income without corresponding bank records or receipts can be suspicious, especially in businesses where cash transactions are common. 8. Lack of Documentation for Charitable Contributions Charitable deductions require substantiation, particularly for large amounts. Lack of receipts or acknowledgment can lead to an audit. 9. Unusual Investments on Schedules B or D If your investment strategies result in losses or gains that don’t follow market trends, or if they’re unusually large, the IRS might investigate. 10. Schedule E Discrepancies Losses from rental properties or other passive activities need to be backed by evidence of active management or operation. Significant losses here without income might prompt review. 11. Claiming Losses from Passive Activities Losses from activities where you’re not materially participating can be flagged if they seem to be used to offset income from other sources. 12. Foreign Accounts or Income With global financial transparency increasing, failing to report foreign income or accounts (FBAR) can result in an IRS audit. 13. Self-Employment Tax Issues Mismatches in the income reported for self-employment taxes versus your income tax can indicate discrepancies in reporting. 14. Substantial Travel or Entertainment Expenses Business-related travel and entertainment expenses should be well-documented. Large or frequent claims without justification can be problematic. 15. Frequent Filing of Amendments While amending returns to correct errors is advisable, doing so frequently might suggest initial carelessness or an attempt to adjust income post-filing. Ensuring Compliance While these red flags do not guarantee an audit, they do increase the likelihood of your return being examined. Here are some tips to stay on the safer side: Navigating tax season can be daunting, but understanding these red flags can help you prepare a return that’s thorough and less likely to pique the interest of the IRS for the wrong reasons. Remember, an audit isn’t always about wrongdoing; sometimes, it’s just about ensuring compliance with tax laws. However, with careful preparation, you can minimize your chances of being audited.

Puerto Rico Sunset

Latest Benefits of Act 60 for Investors in Puerto Rico: What You Need to Know

Are you considering leveraging the lucrative tax incentives offered under Puerto Rico’s Act 60? If so, you’re on the path to potentially significant tax savings, but navigating this terrain requires careful planning and thorough understanding. Here’s a comprehensive guide based on the latest drafts from our office: 1. Real Property Investment:    – Primary Residence: Act 60 mandates investors to purchase real property in Puerto Rico as a primary residence within two years of grant approval. This investment can be made individually, with a spouse, or via an entity solely controlled by you or you and your spouse. 2. Understanding Tax Exemptions:    – Start Date: Your tax exemptions on interest, dividends, and certain capital gains kick in from January 1st of the year you submit your application. Remember, these exemptions do not apply retroactively to previous years. 3. Strategic Capital Gains Taxation:    – 5% Fixed Rate: If you’ve held assets like stocks or cryptocurrencies before moving, sell them after 10 years of Puerto Rican residency but before 2036, and you’ll benefit from a mere 5% tax on gains.    – 100% Exemption: Gains on assets acquired post-residency are completely tax-free if realized before January 1, 2036, offering a substantial incentive for new investments. 4. Compliance is Key:    – Non-Compliance: Not adhering to the stipulations of Act 60 can not only lead to penalties but also the revocation of your grant. This could mean retroactive tax liabilities from the date of breach or conviction for serious offenses. 5. Ethical Obligations:    – Anticorruption Compliance: Adherence to Puerto Rico’s Anticorruption Code is non-negotiable. Ethical misconduct or legal convictions can dismantle your tax benefits retroactively. 6. Annual Commitments:    – Reporting: Ensure you file your annual report by November 15 each year. Missing this could jeopardize your grant.    – Charitable Contributions: Starting from the second year, an annual donation of $10,000 to certified Puerto Rican nonprofits is required, with at least half supporting child poverty eradication. Implications for Investors: – Global Ethical Conduct: Your actions worldwide could impact your Act 60 benefits. Maintain global standards of legality and morality. – Social Investment: Your financial commitments under Act 60 directly contribute to community welfare, particularly in combating child poverty. – Tax Planning: Craft a timeline for investment, residency, and asset realization to make the most of these tax advantages. Act 60 presents a unique opportunity for investors looking to optimize their tax situation while contributing positively to Puerto Rico’s economy. However, the key to benefiting from Act 60 lies in meticulous compliance, strategic financial planning, and an understanding that these benefits come with social responsibilities. For those ready to embark on this journey, ensure you’re well-informed and prepared to meet all requirements to enjoy the full spectrum of advantages that Act 60 offers. Should you need further guidance or have specific questions, professional advice tailored to your circumstances is indispensable. For further assistance or information, please contact us at [email protected] or 787-473-8985. Disclaimer:The information provided is for informational purposes only and should not be considered legal or tax advice. Consult with a qualified attorney or tax advisor to discuss your specific situation.

pay

Debunking the Myth: Can You Really Save on Taxes by Paying Yourself?

In the world of business ownership, tax strategies can be complex and sometimes misleading, especially when it comes to the advice shared by social media influencers. One popular claim is that you can save money on taxes by paying yourself as a business owner. But is this really true? Let’s dive into the details to clear up any confusion and ensure you understand the facts. The Misleading Advice You may have come across advice suggesting that paying yourself as a business owner allows you to claim a business tax deduction. While this sounds appealing, it’s not entirely accurate. The idea has been promoted by some social media influencers, but it doesn’t tell the whole story. Understanding W2 Income and Sole Proprietorships The IRS defines W2 income as wages or salaries paid by another entity for services rendered by an employee. If you’re a sole proprietor, your income doesn’t fall under this category. Instead, the money you make is reported on your individual tax return (Form 1040) and taxed just like regular income. In other words, as a sole proprietor, paying yourself doesn’t create a tax deduction because the income is already considered part of your personal earnings. How It Works for S-Corporations The situation changes when you own an S-corporation. In this case, any money your company pays you is considered W2 income because, in the eyes of the IRS, everyone in the S-corporation is an employee, including you. When you pay yourself through the S-corporation, it’s considered a business tax deduction for the company itself. You can claim this deduction on Form 1120-S, the tax form for your S-corporation. However, it’s important to note that this doesn’t reduce your personal tax liability. The Tax Filing Process Explained To illustrate, let’s consider an example: Suppose your S-corporation earns $100,000 in a year. You decide to pay yourself $50,000 for your services. The S-corporation can deduct this $50,000 as a business expense on Form 1120-S. However, when you file your individual tax return (Form 1040), you’ll still need to report the full $100,000 as income. This means that despite the business deduction, your overall tax liability remains the same on your personal return, minus any personal tax credits or deductions you might be eligible for. The Real Takeaway While the idea of getting a tax deduction for paying yourself sounds enticing, it’s not as straightforward as it seems. The deduction applies to the S-corporation, not to your personal income. That said, using an S-corporation can still offer benefits, such as saving money on Social Security and Medicare taxes. Understanding the nuances of tax strategies is essential for making informed decisions as a business owner. Before implementing any tax-saving strategies, it’s always wise to consult with a tax professional to ensure you’re on the right track. For further assistance or information, please contact us at [email protected] or 787-473-8985. Disclaimer:The information provided is for informational purposes only and should not be considered legal or tax advice. Consult with a qualified attorney or tax advisor to discuss your specific situation.

CEO Salary

How Much Should You Pay Yourself as a Business Owner of an Entity?

As a business owner, you invest a lot of time and effort into making your business successful. But how do you determine how much to pay yourself for all the work you do? This is an important question, especially if you own an entity, where you have the flexibility to decide your own compensation. In this article, we’ll explore the key considerations in determining how much you should pay yourself, balancing your salary with tax-saving strategies. Understanding Entity Payments When you own an entity, your business profits can be divided into two types of payments: Why Finding the Right Balance Matters The IRS closely monitors how entity owners pay themselves because it wants to ensure that everyone is paying their fair share of FICA taxes. If you try to minimize your salary and maximize distributions to avoid these taxes, you could face penalties. On the other hand, if you allocate too much of your income to reasonable compensation, you’ll end up paying more in taxes than necessary, missing out on potential tax savings. The key is to find a middle ground that satisfies IRS requirements while also optimizing your tax position. How to Determine Your Reasonable Compensation Determining reasonable compensation isn’t a one-size-fits-all situation. Here are some factors to consider: Many people suggest a 50/50 split between reasonable compensation and distribution, but this rule of thumb doesn’t apply universally. Every entity is different, and what works for one business might not work for another. Get Expert Advice Determining the right balance between salary and distributions requires careful consideration of your specific situation. Consulting with an expert familiar with entity tax strategies can help ensure that you’re paying yourself fairly while maximizing your tax savings. For further assistance or information, please contact us at [email protected] or 787-473-8985. Disclaimer:The information provided is for informational purposes only and should not be considered legal or tax advice. Consult with a qualified attorney or tax advisor to discuss your specific situation.

Notice Regarding the Corporate Transparency Act

Navigating Corporate Transparency Acts: Compliance in Puerto Rico and the United States

The landscape of corporate transparency has undergone a significant transformation with the enactment of the Corporate Transparency Act (CTA) in the United States on January 1, 2024. This federal law mandates certain companies to furnish detailed information to the United States Department of the Treasury, emphasizing individuals who wield ultimate control over the entity, either directly or indirectly. The Corporate Transparency Act in the United States:The CTA serves a distinct purpose in combating financial crimes, including money laundering and terrorism financing. By necessitating the reporting of real beneficiaries, the law aims to dismantle the use of companies as shields to conceal illicit activities. Applicable to various business structures, from corporations to limited liability companies (LLCs), limited partnerships, and business trusts, the CTA does have exceptions, such as publicly traded companies and those with fewer than 20 employees and annual gross revenues below $5 million. Reporting Requirements under the CTA:Entities under the jurisdiction of the CTA must disclose comprehensive information about their real beneficiaries, including full names, dates of birth, current addresses, and tax identification numbers if applicable. Moreover, companies must provide details about the applicants for the company—the individuals behind the entity’s creation. Consequences of Non-Compliance:It is crucial for companies to adhere to the CTA’s information requirements, as non-compliance may result in severe penalties. Entities failing to meet these obligations could face civil fines of up to $500,000 and imprisonment sentences extending up to two years. Puerto Rico’s Corporate Transparency Act:Simultaneously, Puerto Rico has taken a parallel stride towards corporate transparency. The local legislation mandates businesses to register under the Corporate Transparency Act, with varying deadlines for existing and new entities. The Puerto Rican government’s commitment to transparency aligns with the broader efforts in the United States. Conclusion:The implementation of the Corporate Transparency Act marks a substantial advancement in the global fight against financial crime. By compelling companies to disclose their true owners, both the United States and Puerto Rico aim to thwart criminals seeking to exploit corporate structures for illicit purposes. Given the evolving nature of tax laws, it is imperative to consult with a qualified tax advisor in Puerto Rico for up-to-date guidance on how these regulations may impact individual tax situations. For further assistance or information, please contact us at [email protected] or 787-473-8985. Disclaimer:The information provided is for informational purposes only and should not be considered legal or tax advice. Consult with a qualified attorney or tax advisor to discuss your specific situation. Read More: https://bonnllc.com/new-registration-requirement-for-all-existing-and-new-entities

Navigating Compensation Regulations for Entities in Puerto Rico: A Brief Guide

In the vibrant business landscape of Puerto Rico, entities, encompassing corporations and partnerships, operate within a framework of specific tax regulations that shape various aspects of their financial structure. One crucial facet that business owners and stakeholders need to navigate is the concept of “reasonable compensation” for members and shareholders. Understanding Reasonable Compensation While there isn’t a rigid requirement mandating a specific salary for members and shareholders, the compensation structure should adhere to the principle of reasonableness. In essence, the compensation paid should be commensurate with the services provided to the business. This ensures a fair and transparent approach to financial dealings within the entity. Key Considerations: Best Practices: To navigate these regulations effectively, businesses are advised to: In a landscape where tax regulations are subject to change, staying informed and proactive is key. By adhering to the principles of reasonable compensation, businesses can not only navigate the complexities of taxation but also foster transparency and sound financial practices. It’s important to note that tax laws are subject to changes and revisions, and the information regarding this law may have evolved since its period of effectiveness. Therefore, it is essential to consult with an updated tax advisor in Puerto Rico for accurate guidance on how this law may affect your tax situation. I hope this article was helpful. Is there anything else I can help you with? Feel free to reach out at [email protected] or 787-473-8985. Disclaimer: The information provided on this website is for informational purposes only and is not legal or tax advice. You should consult with a qualified attorney or tax advisor to discuss your specific situation. References: https://hacienda.pr.gov/publicaciones/determinacion-administrativa-num-15-22

“Essential Documentation for Claiming the Child Tax Credit: A Guide for Puerto Rico Residents”

When tax season arrives, it’s crucial for residents of Puerto Rico to be well-prepared and informed about the necessary documentation before filling out their Federal tax returns, particularly when claiming the child tax credit. In this article, we will guide you through the important documents and steps to ensure a smooth and error-free tax filing process.

Home-Office Tax Strategy Guide: A Step-by-Step Plan for Maximizing Your Tax Benefits

Working from a home office has become increasingly common, with remote work arrangements on the rise. Whether you’re a full-time remote worker, a freelancer, or a small business owner, your home office can provide significant tax benefits. In this comprehensive step-by-step guide, we’ll walk you through the process of maximizing your tax benefits while staying compliant with tax laws.

The Benefits and Considerations of Putting Your Children on the Payroll

Hiring your children and putting them on the payroll can be a strategic and financially savvy move, provided it’s done legally and for legitimate work. This practice offers several advantages for both parents and their children, ranging from tax benefits to valuable life lessons. In this article, we explore the benefits and key considerations of hiring your children in a family business. Benefits of Employing Your Children 1. Income Splitting: One of the primary advantages of putting your children on the payroll is income splitting. As a parent, you can effectively shift a portion of your income to your children, potentially moving it into a lower tax bracket. This can result in a reduced overall family tax burden, allowing you to keep more of your hard-earned money. 2. Tax Deductions: Wages paid to your children for legitimate work can be deducted as a business expense, reducing your taxable income. This deduction not only lowers your tax liability but also legitimizes the arrangement when you’re audited. 3. Financial Education: Employing your children provides an excellent opportunity to teach them valuable financial skills. They learn the importance of budgeting, saving, and understanding taxes from a young age. This practical experience can set the stage for financial responsibility later in life. 4. IRA Contributions: Earning income allows your children to be eligible to contribute to an Individual Retirement Account (IRA). Starting early can lead to substantial retirement savings over time, potentially setting them up for a more secure financial future. 5. College Savings: Earnings from working in the family business can be used to contribute to a college savings plan, such as a 529 plan. This approach can help parents save for their children’s education expenses more efficiently. 6. Work Experience: Working in a family business exposes your children to the real world of employment. They develop a strong work ethic, learn about responsibility, and gain experience that can be invaluable for their future careers. 7. Social Security Credits: Earnings also count toward your children’s Social Security credits. Accumulating these credits is essential for their future Social Security benefits. Key Considerations While hiring your children offers numerous benefits, there are some key considerations to keep in mind: Hiring your children and putting them on the payroll can be a mutually beneficial arrangement, offering tax advantages while also imparting valuable life and financial skills. However, it’s imperative to ensure that the process is done correctly and in compliance with all relevant tax and labor laws. Consult with a tax professional or financial advisor to navigate this path effectively and legally, securing a brighter financial future for both you and your children. It’s important to note that tax laws are subject to changes and revisions, and the information regarding this law may have evolved since its period of effectiveness. Therefore, it is essential to consult with an updated tax advisor in Puerto Rico for accurate guidance on how this law may affect your tax situation. I hope this article was helpful. Is there anything else I can help you with? Feel free to reach out at [email protected] or 787-473-8985. Disclaimer: The information provided on this website is for informational purposes only and is not legal or tax advice. You should consult with a qualified attorney or tax advisor to discuss your specific situation.