Tag Archives: income tax

Tax Consequences for Self-Employed Individuals

Owning your own business can be very rewarding, both personally and financially. Being the sole decision-maker for this important undertaking can also be overwhelming.

Business owners have many choices to make, and these decisions involve tax consequences that are not always foreseen. We can help you minimize your overall tax burden by identifying and maximizing business deductions, providing guidance on substantiation of expenses, and exploring tax planning alternatives that are uniquely available to the self-employed.

Some frequently overlooked business expenses that you may be able to deduct include moving expenses, costs of travel away from home, entertainment expenses, and expenses related to a home office. Code Sec. 179 expense allowances on the purchase of new equipment can provide a significant deduction. In addition, there are multiple benefits when you employ your spouse, child, or other family member in the business.

There are some risks involved in adopting tax positions related to operating a business as an independent contractor. For example, the distinction between employee and independent contractor is an issue the IRS subjects to special scrutiny. As a self-employed individual, you must comply with these rules for yourself or for any workers that you hire.

If you are an employer, you must withhold income and employment taxes from an employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC, Miscellaneous Income. Failing to make the right classification, however, could result in additional taxes, interest and penalties.

The IRS offers an amnesty program called the Voluntary Classification Settlement Program (VCSP) to encourage employers to reclassify their workers as employees for employment tax purposes for future tax periods. Under the VCSP, employers are allowed to prospectively treat the workers as employees at a cost that is 10 percent of what is normally owed in a worker misclassification situation.

Complex rules and calculations are involved in many of the planning opportunities that are available to you. We will be happy to review your overall tax scenario in order to maximize your tax savings. Please contact our office at your earliest convenience to make an appointment.

Declared Natural Disasters and Emergencies Tax Help

When natural disasters occur, as has happened recently with Hurricanes Harvey and Irma, the last thing you want to stress over is filing taxes. The Comptroller’s office understands, and they have compiled information for evacuees and relief workers on how to request an extension for reporting and paying taxes.

Follow this link to see all your options if you are one of the thousands affected:

https://comptroller.texas.gov/taxes/resources/disaster-relief.php

 

New phone scam warning from the IRS


The Internal Revenue Service today warned people to beware of a new scam linked to the Electronic Federal Tax Payment System (EFTPS), where fraudsters call to demand an immediate tax payment through a prepaid debit card. This scam is being reported across the country, so taxpayers should be alert to the details.

In the latest twist, the scammer claims to be from the IRS and tells the victim about two certified letters purportedly sent to the taxpayer in the mail but returned as undeliverable. The scam artist then threatens arrest if a payment is not made through a prepaid debit card. The scammer also tells the victim that the card is linked to the EFTPS system when, in fact, it is entirely controlled by the scammer. The victim is also warned not to contact their tax preparer, an attorney or their local IRS office until after the tax payment is made.

“This is a new twist to an old scam,” said IRS Commissioner John Koskinen. “Just because tax season is over, scams and schemes do not take the summer off. People should stay vigilant against IRS impersonation scams. People should remember that the first contact they receive from IRS will not be through a random, threatening phone call.”

EFTPS is an automated system for paying federal taxes electronically using the Internet or by phone using the EFTPS Voice Response System. EFTPS is offered free by the U.S. Department of Treasury and does not require the purchase of a prepaid debit card. Since EFTPS is an automated system, taxpayers won’t receive a call from the IRS. In addition, taxpayers have several options for paying a real tax bill and are not required to use a specific one.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

  • Do not give out any information. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Please add “IRS Telephone Scam” in the notes.

For anyone who owes tax or thinks they do:

The IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds.

For more information, visit the “Tax Scams and Consumer Alerts” page on IRS.gov. Additional information about tax scams is available on IRS social media sites, including YouTube videos.

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Information from :  https://www.irs.gov/uac/newsroom/irs-warns-of-new-phone-scam-involving-bogus-certified-letters-reminds-people-to-remain-vigilant-against-scams-schemes-this-summer

Making mileage tracking easier

One of the biggest struggles we find as tax preparers is helping clients track their mileage each year. It’s hard to remember when you get in your vehicle to write down your mileage! However, writing off business or medical mileage is a great way to help you save on your tax bill.

Earlier last year, we were given the opportunity to test the unlimited version of the smartphone app MileIQ for possible promotion as a way to help our clients track their mileage. Having tested other apps and finding the lacking, we accepted the offer somewhat skeptically.

Much to our (pleasant!) surprise, we were presented a solid app that helps us track our mileage without even thinking about it.

So how does it work?

MileIQ runs in the background of your smartphone at all times and it detects when you’re traveling and where you travel through GPS technology. It does the majority of work for you. All you have to do is classify drives afterwards as personal or business with the swipe of your finger. You can further classify drives as what you were doing exactly (for example, shopping, doctors visits, client visits, meetings, etc.) and what vehicle you were in, if you have multiple vehicles.

You can choose to have the app send you a notification when you have drives to categorize, or you can just remember periodically to go back into your app and doing several days worth of drives at once.

As you categorize drives, you’ll see a running total at the top of the screen as to how much money you’ve “made” driving, and how many miles you’ve gone over time. At the end of the year, you can run a log of the year to submit with your taxes.

It’s without a doubt the most simple and efficient way we have personally found for logging mileage.

Now keep in mind, all good things do come at a cost. There is a free version of this application available, but it limits the number of drives it will log for you in a month. So if you travel a lot, the free version will leave you hanging… especially when you realize you could have multiple drives in a day.

The unlimited version costs $59.99 per year, or $5.99 a month. But as our client, we can offer you a 20% discount off the yearly plan if you use promo code MSCH227A.

MileIQ is available for both iPhone and Android systems.

 Disclaimer: We received this product for free in exchange for an unbiased review and promotion to our clients. The opinions and all statements in this review are 100% our own, and we do not receive compensation for this review.

2016 Year-End Tax Planning for Individuals

 

Although tax planning is a 12-month activity, year-end is traditionally the time to review tax strategies from the past and to revise them for the future. Year-end has also become a time when there is an increasing need to take a careful look at what’s changed within the tax law itself since the beginning of the year. Opportunities and pitfalls within these recent changes – as they impact each taxpayer’s unique situation—should not be overlooked. This is particularly the case during year-end 2016. Here are some of the many consideration that taxpayers should review as year-end 2016 approaches.

Data, including 2015 return

Year-end planning should start with data collection and a review of prior year returns. This includes losses or other carry-overs, estimated tax installments, and items that were unusual. Conversations about next year should include review of any plans for significant purchases or dispositions, as well as any possible life changes. Alternative minimum tax liability also needs to be explored as well as potential liability for the net investment income tax and the Additional Medicare Tax.

Investments

Taxpayers holding investments toward the end of the year, whether in the form of securities, real estate, collectibles, or other assets, often have an opportunity to reduce their overall tax bill by some strategic buying and selling (or like-kind exchanging). Balancing the existing tax rates within those considerations is part of that challenge: the ordinary income tax rates, the capital gain rates, the net investment income tax rate, and the alternative minimum tax (AMT), all play a role.

Income caps on benefits

Monitoring adjusted gross income (AGI) at year-end can also pay dividends in qualifying for a number of tax benefits. Often tax savings can be realized by lowering income in one year at the expense of realizing a bit more in the other: in this case, either 2016 or 2017. Some of those tax benefits that get phased out depending upon the taxpayer’s AGI level include:

  • itemized deductions
  • personal exemptions
  • education savings bond interest exclusion
  • maximum child’s income on parent’s return (form 8814):
  • medical savings account adjustments
  • education credits
  • student loan interest deduction
  • adoption credits
  • maximum Roth IRA contributions
  • maximum IRA contributions for individuals

PATH Act “extenders” and more

Year to year, the tax law changes; and with it, opportunities and pitfalls that need particular attention at year-end. In many cases, these changes are accounted for based on a tax-year period. Once the current tax year is over, there often is no going back for a “do-over” for a missed opportunity or to correct a costly mistake. Year-end 2016 is no exception to this rule.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted immediately before the start of 2016, permanently extended many tax incentives that were previously temporary, removing for the first time in many years the year-end concern over whether these incentives will be extended either retroactively for the current year or prospectively into the coming year. Not all of these “extenders” provisions were extended beyond 2016, however; and some were modified in the process. Others were extended for up to five years, deferring to “tax reform” a more lasting solution. Here’s a list of the major changes made by the PATH Act, especially focused on how they impact year-end transactions:

  • permanent American Opportunity Tax Credit
  • permanent teachers’ $250 “classroom” expense deduction
  • permanent state and local sales tax deduction election, in lieu of state income taxes
  • permanent exclusion for direct charitable donation of IRA funds of up to $100,000
  • permanent 100-percent gain exclusion on qualified small business stock
  • permanent conservation contributions benefits
  • five-year solar energy property
  • non-business energy property credit through 2016
  • fuel cell motor vehicle credit through 2016
  • mortgage insurance premium deduction through 2016
  • tuition and fees deduction through 2016

Life events

Life events such as marriage, birth or adoption of a child, a new job or the loss of a job, and retirement, all impact year-end tax planning. A change in filing status will affect tax liability. The possibility of significant changes and/ or significant or unusual items of income or loss should be part of a year-end tax strategy. Additionally, taxpayers need to take a look into the future, into 2017, and predict, if possible, any events that could trigger significant income, losses or deductions.

Retirement strategies

Taxpayers may want to take a look at a number of different provisions in anticipation of retirement, at the point of retirement, or after retirement. Many of these provisions have opportunities and deadlines associated with the concept of taxable year. Among others, these include contributions to employer plans, strategic use of IRAs and “required minimum distributions,” and timing Roth IRA conversions and reconversions to maximize your retirement nest egg.

Affordable Care Act compliance

The Affordable Care Act (ACA) imposes new requirements on individuals and tightens or eliminates some tax incentives. Year-end planning for individuals with regards to the ACA may generally be more prospective than retrospective but there are some year-end moves that may be valuable, particularly with health-related expenditures.

Acceleration or delay

Year-end tax planning, especially if done “at the eleventh hour,” requires some understanding of the timing rules: when income becomes taxable and when it may be deferred; and, likewise, when a deduction or credit is realized and when it may be deferred into next year or beyond.

Income acceleration/deferral. Taxpayers using the cash method basis of accounting can defer or accelerate income using a variety of strategies. These may include:

  • sell appreciated assets
  • receive bonuses before January
  • sell outstanding installment contracts
  • redeem U.S. Savings Bonds
  • accelerate debt forgiveness income
  • avoid mandatory like-kind exchange treatment

Deduction acceleration/deferral. A cash basis taxpayer generally deducts an expense in the year it is paid, although prepayment of an expense generally will not accelerate a deduction. There are exceptions, including those made in connection with:

  • January mortgage payment in December
  • tuition prepayment
  • estimated state taxes

A New Administration

When the new Administration moves into Washington in January 2017, it is clear that changes will follow. How these changes will impact upon your long-term tax situation remains to be developed. That, and an eventual groundswell for tax reform, make the future more difficult to read than in prior years. Nevertheless, in looking toward the future, you should not lose sight of the short-term tax dollars to be saved immediately through 2016 year-end strategies.

Our tax laws operate largely within the confines of “the taxable year.” Once 2016 is over, tax savings that are specific to 2016 may be gone forever.

How Selling Your Home Can Impact Your Taxes

Usually, profits you earn are taxable. However, if you sell your home, you may not have to pay taxes on the money you gain. Here are ten tips to keep in mind if you sell your home this year.

1. Exclusion of Gain. You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.

2. Exceptions May Apply. There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication523 , Selling Your Home.

3. Exclusion Limit. The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.

4. May Not Need to Report Sale. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.

5. When You Must Report the Sale. You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions.

6. Exclusion Frequency Limit. Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.

7. Only a Main Home Qualifies. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.

8. First-time Homebuyer Credit. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.

9. Home Sold at a Loss. If you sell your main home at a loss, you can’t deduct the loss on your tax return.

10. Report Your Address Change. After you sell your home and move, update your address with the IRS.

Are you required to file a Form 1099 or other information return?

If you made or received a payment during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS.

Made a Payment

If, as part of your trade or business, you made any of the following types of payments, use the link to be directed to information on filing the appropriate information return.

  • Payments, in the course of your trade or business: (1099-MISC) (Note: It is important that you place the payment in the proper box on the form. Refer to the instructions for more information.)
    • Services performed by independent contractors or others (not employees of your business) (Box 7)
    • Prizes and awards and certain other payments (see Instructions for Form 1099-MISC, Box 3. Other Income, for more information)
    • Rent (Box 1)
    • Royalties (Box 2)
    • Backup withholding or federal income tax withheld (Box 4)
    • Crewmembers of your fishing boat (Box 5)
    • To physicians, physicians’ corporation or other supplier of health and medical services
      (Box 6)
    • For a purchase of fish from anyone engaged in the trade or business of catching fish (Box 7)
    • Substitute dividends or tax exempt interest payments and you are a broker (Box 8)
    • Crop insurance proceeds (Box 10)
    • Gross proceeds of $600 or more paid to an attorney (generally, Box 7, but see instructions as Box 14 may apply)
  • Interest on a business debt to someone (excluding interest on an obligation issued by an individual) (1099-INT)
  • Dividends or other distributions to a company shareholder (1099-DIV)
  • Distribution from a retirement or profit plan or from an IRA or insurance contract (1099-R)
  • Payments to merchants or other entities in settlement of reportable payment transactions, that is, any payment card or third party network transaction (1099-K)

Received a Payment and Other Reporting Situations

If, as part of your trade or business, you received any of the following types of payments, use the link to be directed to information on filing the appropriate information return.

  • Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals (1098)
  • Sale or exchange of real estate (1099-S)
  • You are a broker and you sold a covered security belonging to your customer (1099-B)
  • You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others (Form 8937)
  • You released someone from paying a debt secured by property or someone abandoned property that was subject to the debt (1099-A) or otherwise forgave their debt to you (1099-C)
  • You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (1099-MISC)

Not Required to File Information Returns

  • You are not engaged in a trade or business.
  • You are engaged in a trade or business and
    • the payment was made to another business that is incorporated, or
    • the sum of all payments made to the person or unincorporated business is less than $600 in one tax year (unless the recipient is an attorney or law form, see specific instructions for 1099-MISC for further details).

All information comes from : https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return

Tax refunds will be delayed for many taxpayers next year

On Sunday, Forbes posted an article explaining a part of the new Protecting Americans from Tax Hikes (PATH) Act of 2015 that will affect many taxpayers: their refunds will be delayed next year.

As part of the “Protecting Americans from Tax Hikes (PATH ) Act of 2015,” (P.L. 114-113) signed into law on December 18, 2015, the IRS must wait until February 15 to issue refunds to taxpayers who claimed the earned-income tax credit (EITC) or the child tax credit (CTC).

Read the whole article here.

What is this Form 1095?

Remember that pesky question, “Did you have health insurance last year?”  If you were enrolled in health coverage for 2015, you may receive a Form 1095-A, 1095-B, or 1095-C, which will answer that question for you.  In addition, if you were an employee of an employer that was an applicable large employer in 2015, you may receive a Form 1095-C.  If you don’t fall in either of these categories, you won’t receive a form.

So what is the difference between A, B and C?

  • Form 1095-A, Health Insurance Marketplace Statement.  The Health Insurance Marketplace sends this form to individuals who enrolled in coverage there, with information about the coverage, who was covered, and when.
    1095-A
  • Form 1095-B, Health Coverage.  Health insurance providers (for example, health insurance companies) send this form to individuals they cover, with information about who was covered and when.
    1095-B
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.  Certain employers send this form to certain employees, with information about what coverage the employer offered. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when.
    1095-C

Note: The deadline for the Marketplace to provide Form 1095-A is February 1, 2016.  The deadline for insurers, other coverage providers and certain employers to provide Forms 1095-B and 1095-C has been extended to March 31, 2016.  Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. While the information on these forms may assist in preparing a return, they are not required. Individual taxpayers will generally not be affected by this extension and should file their returns as they normally would.
For more information on the various nuances of these forms (like why you COULD get more than one), visit the IRS’s Questions and Answers about Health Care Information Forms for Individuals (Forms 1095-A, 1095-B, and 1095-C)