If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed and you would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.
Here are six things the IRS wants you to know about self-employment:
1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
2. If you are self-employed you generally have to pay Self-employment Tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
3. If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding.
4. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
5. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
6. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
For more information see IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at http://www.irs.gov
Monday, January 24, 2011
Friday, January 21, 2011
Five Important Facts about the Making Work Pay Credit
Many working taxpayers are eligible for the Making Work Pay Tax Credit in 2010. The credit is based on earned income and is claimed on your 2010 tax return when you file your taxes in 2011.
Here are five things the IRS wants you to know about this tax credit to ensure you receive the entire amount for which you are eligible.
The Making Work Pay Credit provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
Most workers received the benefit of the Making Work Pay Credit through larger paychecks, reflecting reduced federal income tax withholding during 2010.
Taxpayers who file Form 1040 or 1040A will use Schedule M to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.
Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.
You cannot take the credit if your modified adjusted gross income is $95,000 for individuals or $190,000 if married filing jointly or more, you can be claimed as a dependent on someone else return, you do not have a valid social security number or you are a nonresident alien.
Visit http://www.irs.gov/recovery for more information about the Making Work Pay Credit.
Here are five things the IRS wants you to know about this tax credit to ensure you receive the entire amount for which you are eligible.
The Making Work Pay Credit provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
Most workers received the benefit of the Making Work Pay Credit through larger paychecks, reflecting reduced federal income tax withholding during 2010.
Taxpayers who file Form 1040 or 1040A will use Schedule M to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.
Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.
You cannot take the credit if your modified adjusted gross income is $95,000 for individuals or $190,000 if married filing jointly or more, you can be claimed as a dependent on someone else return, you do not have a valid social security number or you are a nonresident alien.
Visit http://www.irs.gov/recovery for more information about the Making Work Pay Credit.
Thursday, January 20, 2011
Tip Income Tax Tips
If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your federal income taxes. Here are four things the IRS wants you to know about tip income:
Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.
Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.
Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.
For more information see IRS Publication 531, Reporting Tip Income and Publication 1244 which are available at http://www.irs.gov
Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.
Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.
Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.
For more information see IRS Publication 531, Reporting Tip Income and Publication 1244 which are available at http://www.irs.gov
Wednesday, January 19, 2011
The Team Mediation Model: Cost-Savings with Added Expertise
The Team Mediation Model Saves Fees
More chairs around the mediation conference table are occupied these days. A developing trend is for each party’s attorney to bring a financial expert to the mediation. When financial stakes are high (and they are in most cases, money being the hot issue for most clients), a financial expert’s advice is brought to the table to help structure a better deal for each party.
As a result, mediations are becoming more costly. Adding up the hourly rates of 2 attorneys, 2 financial experts and the mediator, clients can be billed well in excess of $1,100 per hour for the mediation! Even if this amount is equally divided by the clients ($550 per hour or more), sticker shock sets in when clients are presented with the bill for mediation after the conclusion of the mediation session.
We have developed a much more efficient mediation model. In lieu of 2 financial experts and a mediator, we provide team mediation, conducted by Sue Varon (Georgia mediator/retired attorney with more than 20 years mediation experience) and Marty Varon (CPA, CVA, CEBS with more than 30 years financial expertise).
The Benefits Are Clear:
Clients are provided the opportunity to structure a mutually beneficial settlement with the assistance of the financial neutral while moving the negotiation process along with the assistance of the experienced mediator.
The cost-savings to clients is a reduced hourly rate. Our unique service is available to mediation clients at the rate of $425 per hour for our combined expertise. Instead of being charged $850 per hour for 2 financial neutrals and the mediator, clients are paying half that amount.
We welcome the opportunity to work with you.
Sue and Marty Varon
Alternative Resolution Methods, Inc.
770-801-7292
mvaron@armvaluations.com
svaron@armvaluations.com
More chairs around the mediation conference table are occupied these days. A developing trend is for each party’s attorney to bring a financial expert to the mediation. When financial stakes are high (and they are in most cases, money being the hot issue for most clients), a financial expert’s advice is brought to the table to help structure a better deal for each party.
As a result, mediations are becoming more costly. Adding up the hourly rates of 2 attorneys, 2 financial experts and the mediator, clients can be billed well in excess of $1,100 per hour for the mediation! Even if this amount is equally divided by the clients ($550 per hour or more), sticker shock sets in when clients are presented with the bill for mediation after the conclusion of the mediation session.
We have developed a much more efficient mediation model. In lieu of 2 financial experts and a mediator, we provide team mediation, conducted by Sue Varon (Georgia mediator/retired attorney with more than 20 years mediation experience) and Marty Varon (CPA, CVA, CEBS with more than 30 years financial expertise).
The Benefits Are Clear:
Clients are provided the opportunity to structure a mutually beneficial settlement with the assistance of the financial neutral while moving the negotiation process along with the assistance of the experienced mediator.
The cost-savings to clients is a reduced hourly rate. Our unique service is available to mediation clients at the rate of $425 per hour for our combined expertise. Instead of being charged $850 per hour for 2 financial neutrals and the mediator, clients are paying half that amount.
We welcome the opportunity to work with you.
Sue and Marty Varon
Alternative Resolution Methods, Inc.
770-801-7292
mvaron@armvaluations.com
svaron@armvaluations.com
Tuesday, January 18, 2011
Two Tax Credits to Help Pay Higher Education Costs
There are two federal tax credits available to help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit.
To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit.
For each student, you can choose to claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.
However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.
Here are some key facts the IRS wants you to know about these valuable education credits:
1. The American Opportunity Credit
The credit can be up to $2,500 per eligible student.
It is available for the first four years of post-secondary education.
Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
The student must be pursuing an undergraduate degree or other recognized educational credential.
The student must be enrolled at least half time for at least one academic period.
Qualified expenses include tuition and fees, coursed related books supplies and equipment.
The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.
2. Lifetime Learning Credit
The credit can be up to $2,000 per eligible student.
It is available for all years of postsecondary education and for courses to acquire or improve job skills.
The maximum credited is limited to the amount of tax you must pay on your return.
The student does not need to be pursuing a degree or other recognized education credential.
Qualified expenses include tuition and fees, course related books, supplies and equipment.
The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.
You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
For more information about these credits see IRS Publication 970, Tax Benefits for Education available at http://www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit.
For each student, you can choose to claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.
However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.
Here are some key facts the IRS wants you to know about these valuable education credits:
1. The American Opportunity Credit
The credit can be up to $2,500 per eligible student.
It is available for the first four years of post-secondary education.
Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
The student must be pursuing an undergraduate degree or other recognized educational credential.
The student must be enrolled at least half time for at least one academic period.
Qualified expenses include tuition and fees, coursed related books supplies and equipment.
The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.
2. Lifetime Learning Credit
The credit can be up to $2,000 per eligible student.
It is available for all years of postsecondary education and for courses to acquire or improve job skills.
The maximum credited is limited to the amount of tax you must pay on your return.
The student does not need to be pursuing a degree or other recognized education credential.
Qualified expenses include tuition and fees, course related books, supplies and equipment.
The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.
You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
For more information about these credits see IRS Publication 970, Tax Benefits for Education available at http://www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
Thursday, January 13, 2011
Simpler Filing for Small Non-Profits
The Internal Revenue Service today announced that small tax-exempt organizations may be able to shift to the simpler Form 990-N (e-Postcard) for their 2010 annual information reporting.
The IRS today issued guidance (Revenue Procedure 2011-15) that will allow more tax-exempt organizations to file the e-Postcard rather than the Form 990-EZ or the standard Form 990.
For tax years beginning on or after Jan. 1, 2010, most tax-exempt organizations whose gross annual receipts are normally $50,000 or less can file the e-Postcard. The threshold was previously set at $25,000 or less. (However, supporting organizations of any size must file the standard Form 990 or, if eligible, Form 990-EZ).
A tax-exempt organization’s annual gross receipts or total assets are used to determine which of the three versions of Form 990 it is required to file. IRS.gov contains information about which form to file.
The Pension Protection Act of 2006 made important changes to rules regarding tax-exempt organizations’ annual filing requirements, which took effect as of the beginning of 2007.
First, it mandated that small tax-exempt organizations, other than churches and church-related organizations, file an annual notice with the IRS if they were too small to file Form 990 or Form 990-EZ. (The Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement.) Second, it required all supporting organizations, regardless of their size, to file the standard Form 990 or Form 990-EZ. Finally, the law specifies that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.
Any tax-exempt organization that has not yet complied with these new requirements should do so immediately. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.
The IRS today issued guidance (Revenue Procedure 2011-15) that will allow more tax-exempt organizations to file the e-Postcard rather than the Form 990-EZ or the standard Form 990.
For tax years beginning on or after Jan. 1, 2010, most tax-exempt organizations whose gross annual receipts are normally $50,000 or less can file the e-Postcard. The threshold was previously set at $25,000 or less. (However, supporting organizations of any size must file the standard Form 990 or, if eligible, Form 990-EZ).
A tax-exempt organization’s annual gross receipts or total assets are used to determine which of the three versions of Form 990 it is required to file. IRS.gov contains information about which form to file.
The Pension Protection Act of 2006 made important changes to rules regarding tax-exempt organizations’ annual filing requirements, which took effect as of the beginning of 2007.
First, it mandated that small tax-exempt organizations, other than churches and church-related organizations, file an annual notice with the IRS if they were too small to file Form 990 or Form 990-EZ. (The Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement.) Second, it required all supporting organizations, regardless of their size, to file the standard Form 990 or Form 990-EZ. Finally, the law specifies that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.
Any tax-exempt organization that has not yet complied with these new requirements should do so immediately. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.
8 Facts About Your IRS Filing Options
The first step to filing your federal income tax return is to determine which filing status to use. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child.
Here are eight facts about the five filing status options the IRS wants you to know so that you can choose the best option for your situation.
Your marital status on the last day of the year determines your marital status for the entire year.
If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
If your spouse died during the year and you did not remarry during 2010, usually you may still file a joint return with that spouse for the year of death.
A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2008 or 2009, you have a dependent child and you meet certain other conditions.
There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at http://www.irs.gov
Here are eight facts about the five filing status options the IRS wants you to know so that you can choose the best option for your situation.
Your marital status on the last day of the year determines your marital status for the entire year.
If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
If your spouse died during the year and you did not remarry during 2010, usually you may still file a joint return with that spouse for the year of death.
A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2008 or 2009, you have a dependent child and you meet certain other conditions.
There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at http://www.irs.gov
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