For those who decide to enroll their meter as a customer in one of the affinity plans offered by Business Connection USA LLC, the electricity savings they enjoy represented by the difference in their bill from the public utility company or other electricity supplier vs the new lower electric bill, is a reduction of their cost of electricity and not income.
In the event that any such customer decides to create a home-based business by taking advantage of the referral fees offered through the affinity plan, income earned in operating this home-based business, to the extent it exceeds the expenses incurred, will represent business income to that customer. If that customer is already a business, then this income will be supplemental income to it, taxable as other income on its federal income tax return and taxable on the state income tax return for the state in which the taxpayer operates the business. If that customer does not already have a business, the customer will now have a personal sole-proprietorship schedule to complete and report on his/her federal, state and local income tax returns, unless the customer is a partnership or elects to incorporate his/her home-based business or elects to operate such home-based business as a limited liability company (LLC).
For determination of business entity [form of ownership], tax structures, tax rates and related information, please refer to the Roy & Associates, PC information blog where information pertinent to the options available when choosing an operating entity for a new business can be found under the caption NEW BUSINESS and the tax rates associated with the different types of resulting business entities can be found under the caption TAX RATES.
For consideration in maintaining records, regardless of the type of entity selected, a new business owner should measure and capture all income received. It is helpful if a separate bank account is used and only income related to this enterprise is deposited to this account. If the business receives income in excess of $600 per year from any one payer, that payer should submit a Form 1099 to the business and to the Internal Revenue Service (IRS) at the end of the year. The sum of such Forms 1099 should represent the income of the business unless it receives income from sources not issuing Forms 1099.
It is helpful if all expenses pertinent to the operation of the business are paid from this account as well, and that only tax-deductible business expenses or checks to the owner are paid from the account.
Tax deductible expenses are those ordinary and necessary for the generation of the income of the business. A new business owner should measure and document these expenses from the commencement of operations. Expenses for paper, desk supplies, photocopies, presentation materials, computer equipment, computer software, telephone service, internet access, auto expense [keep record of actual expenses, business mileage and total mileage], rent or business use of a portion of a home or apartment, advertising, fees paid to maintain a bank account for the business, fees paid to the income payer for disbursement of income or accounting or forms or website service or supplies, meals and entertainment of prospective business customers [if properly documented with who, what, when, where, why, how and how much] are all examples of allowable deductions, but they must always be documented with receipts or paid invoices and cancelled checks. Automobile expenses must be documented with contemporaneously maintained logs of deductible vehicle use, detailing destination, miles and business reason for the trip. Meals and entertainment require similar documentation.
Sole-proprietors and single-member LLCs not electing status as a corporation and partners or multiple-member LLCs not electing status as a corporation will be subject not only to federal, state and local income tax on the earnings of their business, but also self-employment tax. The appropriate income tax rate being paid will be the marginal income tax rate according to the level of overall income of the individual or partner. Self-employment tax for the social security and Medicare tax obligation of a self-employed individual is computed at 92.35% of 15.3% of the net income after ordinary and necessary business expenses.
Anyone starting a home-based business should consider consulting with a Certified Public Accountant or Registered Tax Preparer at the outset of the business enterprise to be prepared for maintaining the correct documentation and for making quarterly estimated tax deposits. An excellent site for obtaining information for new businesses is the IRS WEBSITE . This link to that site provides access to a number of excellent IRS publications for related topics.