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Whether an LLC member must pay self-employment tax isn't a simple question. Here's why. A general partner is a self-employed person who pays self-employment tax on his/her distributive share of partnership income. In contrast, a limited partner is exempt from self-employment tax on his/her distributive share of partnership income. The problem is whether to a member of an LLC should be treated as a general partner (subject to self-employment tax) or a limited partner (exempt from this tax). More than a decade ago, the IRS has issued some proposed regulations on this subject; Congress blocked these regulations until July 1998. However, the IRS has taken no formal action since that date. Most tax pros believe that LLC members who actively work for their companies should pay self-employment tax like general partners, while LLC members who are only "silent partners" may be exempt or have only limited exposure for self-employment tax. Bottom line: No one knows for sure and anyone in this situation should discuss the question with a tax advisor.

Expenses related to capital construction (including fees, permits, etc.) are ordinarly added to the cost of the project and then are usually subject to straight line depreciation (e.g., over 39 years for commercial realty). However, there is a way to obtain more rapid depreciation (accelerated depreciation over five years, seven years or other short recovery periods) for certain parts of the construction--if you obtain a cost segregation study, which is an analysis of the components of the addition that can be separately depreciated, you can gain greater write-offs up front. The analysis should probably be performed by an engineer, architect, or realty appraiser (as opposed to a CPA). The IRS has created a cost segregation audit technique guide which details requirements for an acceptable study (go to www.irs.gov/businesses/article/0,,id=134180,00.html). For information on depreciation rules, see IRS Publication 946, How to Depreciate Property, at www.irs.gov.

The decision to buy or lease a car used for business is not an easy one. There may be a financial advantage to leasing--less cash is needed up front to obtain the car, so leasing helps you drive a more expensive car than you could buy. But if you drive extensively (say more than 15,000 miles a year), leasing may not make sense because of the mileage limits on the lease (and the high cost of going over the limit). Taxwise, it's tricky to say whether leasing or buying is better. Lease payments are fully deductible; a car that is owned usually is subject to dollar limits on how much you can depreciate, which can limit annual deductions. However, a nonpersonal-use vehicle, which is one not usable for personal driving, such as a van outfitted with shelves and a sign on the side, can be fully expensed (i.e., you can deduct the cost of a nonpersonal-use vehicle bought and placed in service in 2008 up to $250,000). Bottom line: The only way to know which is better is to factor in the financial considerations and then run the numbers to see the tax implications for your situation. For information on deducting vehicle expenses, see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses, at www.irs.gov.

A company can pay for the educational expenses of an employee and deduct the costs as a business expense. Whether the cost is taxable to the employee (i.e., treated as additional wages) depends on certain things. If the company has adopted an educational assistance plan, up to $5,250 of costs are excludable from the employee's income (regardless of whether the costs are related to the job or not, with some exceptions). If the company does not have such a plan, then job-related costs are not taxable to the employee if the employee would have been able to deduct the costs had he/she paid them (i.e., the courses maintain or improve job skills and the employee already meets the requirements of an employer or applicable law imposed as a condition of employment). To see whether educational expenses paid by the company are subject to employment taxes, see IRS Publication 15-B, Employer's Guide to Fringe Benefits, at www.irs.gov.

There is much confusion about sales tax for e-commerce businesses. The Internet Tax Freedom Act Amendments Act of 2007 (yes, this is the real name of the law) creates a moratorium on sales tax through November 3, 2014--but only on Internet access fees (i.e., AOL charges, etc.). There is no federal ban on sales tax on e-commerce sales. States have the right to impose their own sales tax rules. Generally, a seller is only responsible for following the sales tax rules in the state in which he/she is based, which usually means collecting tax on sales to residents within that same state. A number of states, in a quest for more revenue, have been expanding the reach of their sales tax, so things can be complicated. It's best to work with a tax pro to determine your sales tax obligations and avoid penalties (remember it's not you, but your customer, who pays the sales tax; you're only the tax collector responsible for remitting the taxes to the state).

Would love to ask a tax question but am outside US so it does not apply. I wanted to let Barbara know I enjoy reading her contributions in Pink magazine! Even in Australia her words are relevant. Thank you.

Thanks Barbara for responding to my question.