Tax Tips – BONN LLC

Best Practices for Self-Auditing Tax Compliance When Moving from the USA to Puerto Rico

Leave a Comment / Doing Business, Relocation, Tax Incentives, Tax Tips, Taxes / By Amervim Bonano

Relocating from a U.S. state to Puerto Rico to take advantage of tax incentives, such as those under Act 60, requires careful planning to ensure compliance with IRS requirements for bona fide residency. To qualify as a bona fide resident of Puerto Rico, you must satisfy three tests: the Presence Test, Tax Home Test, and Closer Connection Test. Conducting a self-audit before an IRS or state residency audit can help you confirm compliance and avoid costly penalties. Below is a checklist of best practices to guide your self-audit process, tailored to these tests. Why Self-Audit? A self-audit helps you: Checklist for Self-Auditing Compliance 1. Presence Test: Verify Physical Presence in Puerto Rico The Presence Test requires you to spend sufficient time in Puerto Rico to establish residency. You can meet this test in several ways, such as spending at least 183 days in Puerto Rico during the tax year or averaging 183 days over three years with a minimum of 60 days per year. Best Practices: 2. Tax Home Test: Establish Puerto Rico as Your Principal Place of Business The Tax Home Test requires that your regular or principal place of business be in Puerto Rico during the tax year, with no tax home outside Puerto Rico. Your tax home is generally where you conduct your income-producing activities. Best Practices: 3. Closer Connection Test: Demonstrate Stronger Ties to Puerto Rico The Closer Connection Test requires that you have a stronger connection to Puerto Rico than to the U.S. or any foreign country during the tax year. This is a facts-and-circumstances test based on your personal, financial, and social ties. Best Practices: 4. General Compliance and Documentation Beyond the three tests, additional steps ensure overall compliance and audit readiness. Best Practices: 5. Common Pitfalls to Avoid Final Recommendations By following this checklist, you can confidently establish and maintain bona fide residency in Puerto Rico, maximize tax benefits, and be well-prepared for any IRS or state audit. 📞 Contact Us For assistance with your compliance or to schedule a consultation, feel free to reach out to us: We’re here to help you navigate this procedure of moving down here and ensure you remain compliant while maximizing your benefits! Disclaimer:The information provided is for informational purposes only and should not be considered legal or tax advice.

3 Tax Exemptions You Should Know in Puerto Rico: Life Insurance, Gifts, and Injury Compensation

Leave a Comment / Tax Tips, Taxes / By Amervim Bonano

Did you know that not all income you receive in Puerto Rico is taxable? The Puerto Rico Internal Revenue Code offers exemptions that can save you money, but they come with specific rules. Today, we’ll dive into three common ones: life insurance payouts, gifts and inheritances, and compensation for injuries or illnesses. Here’s what they are, their limits, and when they apply (or don’t). Let’s get started! 1. Life Insurance: Is Your Payout Tax-Free? If you’re a beneficiary of a life insurance policy after a loved one passes away, good news: that money is usually exempt from income tax. Whether it’s $10,000 or $100,000, you don’t report it as taxable income. But there’s a catch. Tip: Keep the insurer’s payment proof for 6 years, even if you don’t submit it with your return. 2. Gifts and Inheritances: Tax-Free Goodies (Almost Always) Getting a cash gift, an inheritance, or property feels great—and it’s even better because it’s usually not taxed as income. The Code sees this as a wealth transfer, not earned income. Note: While income tax doesn’t apply, inheritances might face the Estate and Gift Tax, paid by the estate, not you. 3. Compensation for Injuries or Illnesses: Tax Relief in Tough Times If you receive money for a physical injury or illness—from an insurer, lawsuit, or otherwise—that payment is exempt. This includes some disability benefits tied to physical conditions. Tip: Keep medical certificates or legal agreements on file for 6 years. These exemptions can be a big help, but details matter. Missteps—like not separating interest from a life insurance payout—could lead to adjustments and penalties. If you’re unsure, check the Individual Income Tax Booklet from the Puerto Rico Treasury or consult a specialist. 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.

Should You Be a 1099 Contractor or W-2 Employee Under Puerto Rico’s Act 60? A Comprehensive Guide

Leave a Comment / Compliance, Relocation, Tax Incentives, Tax Tips, Taxes / By Amervim Bonano

If you’re considering a move to Puerto Rico to take advantage of the tax incentives under Act 60, one of the most common questions you’ll face is: Should I structure my work as a 1099 independent contractor or stick with W-2 employment? This decision can significantly impact how you leverage Act 60’s benefits, as well as how you meet the compliance requirements to qualify as a bona fide resident. Below, we’ll explore the implications of each option, factoring in the key residency tests—Presence Test, Tax Home Test, and Closer Connection Test—and how they align with Act 60’s framework. Understanding Act 60 Benefits Act 60, officially the Puerto Rico Incentives Code, consolidates previous laws like Act 20 (export services) and Act 22 (individual investors) into a streamlined package designed to attract businesses and high-net-worth individuals to the island. For individuals under Chapter 2 (Individual Resident Investor), benefits include a 100% exemption from Puerto Rico income taxes on interest, dividends, and certain capital gains accrued after establishing residency, provided you secure a tax exemption decree. For businesses under Chapter 3 (Export Services), perks include a 4% corporate income tax rate, exemptions on dividends, property taxes, and municipal taxes for qualifying export services performed from Puerto Rico for clients outside the island. Additionally, under Section 933 of the U.S. Internal Revenue Code, U.S. citizens who become bona fide residents of Puerto Rico can exclude Puerto Rico-sourced income from U.S. federal income tax—assuming residency requirements are met. 1099 Contractor vs. W-2 Employee: Breaking It Down As a 1099 Contractor As a W-2 Employee Residency Tests and Compliance Requirements To unlock Act 60’s federal and local tax benefits, you must establish bona fide residency in Puerto Rico under IRS rules (Section 937). This involves passing three key tests: Practical Steps for Success Final Thoughts Choosing between 1099 contractor and W-2 employee status under Act 60 depends on your priorities—flexibility and tax optimization versus simplicity and stability. Contractors can unlock greater tax savings by building a Puerto Rico-based business, while employees benefit from ease but may face limitations on local tax exemptions. Whatever path you take, understanding the residency tests and aligning your work structure with Act 60’s requirements is key to making the most of this unique opportunity. Disclaimer: This blog post is for informational purposes only and does not constitute financial or legal advice. Consult a qualified professional before making tax or employment decisions.

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

Leave a Comment / Compliance, Tax Incentives, Tax Tips, Taxes / By Amervim Bonano

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!

¿Tienes Derecho al Crédito por Trabajo en Puerto Rico? Usa Nuestra Calculadora y Descúbrelo

Leave a Comment / Tax Incentives, Tax Tips, Taxes / By Amervim Bonano

El Crédito por Trabajo es un incentivo diseñado para ayudar a los trabajadores de ingresos bajos y moderados en Puerto Rico. Este beneficio podría representar un alivio económico importante para muchas familias, pero no todos saben si cualifican o cuánto podrían recibir. Para facilitarte el proceso, hemos creado una calculadora gratuita donde puedes ingresar tu información básica y obtener una estimación de cuánto podrías recibir. 📥 Accesa la calculadora aquí: Calculadora de Crédito por Trabajo 2025 Ingresa tu información a continuación para calcular tu estimado de Crédito por Trabajo: Ingreso Bruto Anual ($): Número de Dependientes: 0123 o más Estado Civil: SolteroCasado (radicando en conjunto) Calcular Crédito Crédito Estimado: $0 Escríbenos por WhatsApp 🔹 ¿Cómo funciona?Solo necesitas ingresar tres datos clave: ¿Quiénes pueden cualificar? Para recibir el Crédito por Trabajo, debes cumplir ciertos requisitos, como: ✅ Haber trabajado y generado ingresos✅ Ser residente de Puerto Rico durante todo el año contributivo✅ Tener un número de Seguro Social válido✅ No exceder los límites de ingresos establecidos según el número de dependientes Los detalles específicos sobre los límites y fórmulas de cálculo están basados en las guías del Departamento de Hacienda de Puerto Rico. Importante: Disclaimer 💡 Esta calculadora es una herramienta informativa y no sustituye asesoría fiscal profesional.Los resultados que obtengas son solo una estimación y no garantizan la cantidad final de crédito que podrías recibir. Para confirmar tu elegibilidad y monto exacto, te recomendamos consultar con un especialista en contribuciones o verificar con el Departamento de Hacienda de Puerto Rico. No pierdas la oportunidad de verificar si puedes recibir este incentivo. Utiliza la calculadora, ingresa tus datos y descubre si tienes derecho a este beneficio. ¡Comparte con familiares y amigos que también puedan beneficiarse!

Does My YouTube Channel’s Source of Income Qualify for Act 60 Export of Services?

Leave a Comment / Doing Business, FAQ, Tax Incentives, Tax Tips, Taxes / By Amervim Bonano

If you’re a YouTube creator wondering whether your ad revenue can qualify under Puerto Rico’s Act 60 for Export of Services, here’s what you need to know: Understanding Act 60 Act 60 in Puerto Rico was designed to attract businesses by offering significant tax incentives, particularly for those providing services to clients outside of Puerto Rico. The key here is that the income must be from “export services,” meaning services provided to non-residents or entities not located in Puerto Rico. YouTube Ad Revenue as an Export Service Your YouTube channel’s ad revenue could potentially qualify under Act 60 if: How to Qualify Here’s how you might go about qualifying: Why It Qualifies The rationale behind this qualification is: Final Thoughts While your YouTube channel’s ad revenue can indeed qualify for Act 60 benefits, navigating the application and ensuring ongoing compliance requires careful planning and possibly the assistance of a tax advisor familiar with Puerto Rican incentives like us at Bonn LLC. This can be a lucrative strategy if managed correctly, significantly reducing your tax burden and potentially enhancing your income from YouTube activities. For those considering this opportunity, it’s crucial to be thoroughly informed and prepared to comply with all stipulations to fully benefit from Act 60. Should you require additional guidance or have specific inquiries, seeking tailored professional advice is highly recommended. For further assistance or more information, please feel free to contact us at [email protected] or 787-473-8985. Disclaimer: The information provided herein is for informational purposes only and should not be construed as legal or tax advice.

Juan Soto in New York Mets Uniform, Signing his contract

Tax Implications for MLB Players: California, New York, and the Juan Soto Phenomenon

Leave a Comment / Tax Tips, Taxes / By Amervim Bonano

In the world of Major League Baseball (MLB), the geographical location of a player can significantly affect their earnings, not just in terms of salary but in how much of that salary they get to keep after taxes. This post will delve into the tax implications for baseball players, particularly focusing on how contracts in California and New York compare with those in other states, spotlighting the recent record-breaking deal of Juan Soto with the New York Mets. The Tax Landscape for MLB Players Professional athletes, including baseball players, are subject to what’s colloquially known as the “jock tax.” This tax mandates that athletes pay income tax in every state where they perform, based on the proportion of their income earned in that state. Here’s how it impacts players: Why Higher Salaries in California and New York? Despite the high tax rates: Juan Soto’s Case – A Tax and Contract Analysis Juan Soto’s recent contract with the New York Mets sets a new benchmark at $765 million over 15 years, the largest in MLB history: Contrasting Contracts Across States The interplay between where an MLB player signs, the structure of their contract, and state tax laws is complex. Players in California and New York might command higher salaries due to market size and team revenue, but they also face higher taxes. However, strategic contract structuring, like in Juan Soto’s case, can mitigate some of these costs. For teams and players, understanding and navigating these tax implications is crucial in the negotiation and signing of contracts, making the financial aspect of baseball as much a game of numbers as the sport itself.

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

Leave a Comment / Compliance, Tax Tips, Taxes / By Amervim Bonano

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.

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

Leave a Comment / Compliance, FAQ, Relocation, Tax Incentives, Tax Tips, Taxes / By Amervim Bonano

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.

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

Leave a Comment / Compliance, Deductions, Doing Business, Tax Tips, Taxes / By Amervim Bonano

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.