Ask An Accountant-Should I Pay Estimated Taxes?

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at cjwtaxpro@gmail.com with the subject line “Ask an Accountant”.  See previous questions and answers HERE

Question:
I have an at home business that has started making me a small amount of income.  Should I be paying estimated taxes on what I am making?

Answer:
You need to pay in at least 90% of your prior year tax through withholding and estimated payments by January 15th.  If your income is expected to be the same as last year and more than $150k, then you need to pay in at least 100% of last year’s tax.  If your income is higher than last year and greater than $150k you must pay in 110% of last year’s tax by January 15th.  Now is an excellent time to discuss year end taxes with your accountant.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Reporting Sponsorship To Blogging Conferences

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at cjwtaxpro@gmail.com with the subject line “Ask an Accountant”.  See previous questions and answers HERE.

Question:
I am a blogger and frequently attend conferences.  I accept sponsorship from companies for these conferences.  How would these sponsorships be taxed?

Answer:

[Read more…]

Ask An Accountant-Can I Deduct My Cell Phone Bill?

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at cjwtaxpro@gmail.com with the subject line “Ask an Accountant”.  See previous questions and answers HERE.

Question:
I have just started selling Thirty One purses and I am curious to know if
I can deduct any of my spending on my taxes. I make commission on sales and
I do not anticipate making more than $3k this year, but next year I hope to
make more since I will have a full year under my belt. Can I deduct my
mileage to client homes, business supply expenses, and maybe even my phone as
it is used for my business now?

[Read more…]

Ask An Accountant-Blogger Tax Question

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at cjwtaxpro@gmail.com with the subject line “Ask an Accountant”.

Question:

I am in the process of registering the blog as a business and wanted to know if I am going to be able to claim all of the stuff I have already purchased for it from the time I started or if I cannot start claiming until it is registered.

Answer:

If you are operating the blog as a business and your intent  in purchasing the items was to have a blog as a business than yes. You can claim items purchased as long as they are solely for the business.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Claiming Donations Bought With Coupons

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at cjwtaxpro@gmail.com with the subject line “Ask an accountant”.

Question:
I donate from my stockplile quite frequently.  When claiming these deductions, do I deduct what I paid out of pocket or what the items would normally cost without coupons/sales?

Answer:
There are 2 schools of thinking for this question.  One side says you do not get to deduct something you have not paid for (assuming the item is free after coupons).  The other side is that you still get to deduct fair market value.  Generally speaking, I agree you deduct fair market value.  For example, on average, diapers are priced around $10.  If you buy a pack of diapers but there is a sale, you have coupons, and you have store rewards (such as register rewards, etc) so your final price is less than $10, you can still deduct $10 since the value of the diapers did not change, despite how much you paid out of pocket. 

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Claiming A Prize

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at cjwtaxpro@gmail.com with the subject line “Ask an accountant”.

Question:
In 2010 I won an all expense paid trip as a prize for winning a contest. The company immediately asked for my social security number for the purposes of taxes. I expected I would be responsible for taxes on the value of the trip (I think it was $1,800.00.) In February of this year I contacted the company to see if they were sending me a 1099-Misc so I could file my taxes. They said they were going to send the form by the end of February, but I never received the forms. I needed my tax return funds, so I went ahead and filed my taxes without their information. If they claimed my trip on their taxes for 2010, is it likely that the IRS will see that I didn’t claim the trip and come after me tacking on interest?

[Read more…]

Ask An Accountant-Audits

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

Question:
I have been audited for medical expenses for 2008 (my husband became very ill) and have close to 300 individual expenses. If I copy every bill, check, explanation of benefits from the insurance company, flexible spending account reimbursement, credit card bill, prescription receipt, etc., I will be paying for and sending a 12 x 12 box. Will the IRS take scanned documents on CD or do you have another idea? Also, can I write off the time, postage, printer ink and paper to do this?

Answer

[Read more…]

Ask An Accountant-Small Business Software

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

Question:
What type of accounting software is the best when setting up my small business?

Answer:
The most widespread software for accounting is Quickbooks.  I personally recommend the online version.  There are several different options for the online version, so what version you need will vary depending on the business and it’s structure.  It will allow you to track income, expenses, fixed assets, liabilities, loans, write checks, and payroll is available in some versions.

Right now Amazon has a sale going on with QuickBooks Online Simple Startwhere you can score this program for only $40-a 69% savings.  This program is fine but please keep in mind with this version there is no support and accountants will not be able to access it on their own.  If you would like the current version with more options and support, you will need to visit Intuit online here where they are offering a free trial. 

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Tax Penalties

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

Question:
If you’re late filing your taxes and the government owes you a refund, are you penalized?

Answer:
You will not be charged if the IRS owes you a refund.  They can assess a failure to file, or assess tax based on the information they receive (which is all income from reportable sources & limited deduction info) so the result will be a tax due.

Question:
Are there any tax penalties for selling your 1st personal home if you bought a 2nd personal home before the first one sold? (I’m afraid it’s going to be years before we finally get the first house sold)

Answer:
There is typically no tax on the sale of a primary residence as you are given a $250K exclusion (Single) or $500K exclusion (Married filing Jointly).  If the gain (sales price less original cost plus improvements) exceeds the exclusion, then you will pay capital gains tax on the gain.   You can own & deduct a primary & a secondary for tax purposes so this should not be an issue if the first does not sell immediately.  The only issue I see here is if the original primary was a rental property after you bought the 2nd home.  Then there is no exclusion & it is all capital gain.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Paying Taxes On Review Items

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

Question:
Do I have to pay taxes on an item sent by a company to review?

Answer:
As far as products for review, the IRS requires you report the fair market value of the item.    That being said, I would take one of the 2 aggressive positions:
1.  A “de minimis” fringe benefit of the business (not feasible to track & report)
or
2.  a barter transaction and your cost to review the item would be equal to the fair market value of the item so the net income would be 0.  Unless the company providing the product issued a 1099-MISC for the fair market value of the product (and I don’t believe they ever will).

In my opinion filing a “de minimis” would be opening up a whole can of worms so I don’t think I would even report it.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-What Can I Not Deduct?

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

Question:

What expenses can you not claim on your taxes?

Answer:

The items not deductible are expenses that would not be used to generate a profit.  One example would be groceries.  You could not deduct groceries from a shopping trip that you used to post on your website.  The groceries are a necessary item needed to sustain life, not make a profit.  Commuting mileage cannot be deducted, only the mileage to and from couponing class held outside of your home/office.  Personal expenses and profit distributions are not deductble.  This question is better answered by including what is deductible…epenses directly related to the generation of profit, that are not necessary living expenses

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant: Setting Up Your Business

 

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

I have received A LOT of questions lately about setting up a business.  I wrote a post HERE about deciding on what entity to be.  My husband (the accountant) has created a graph below that may make things more understandable.

There are several choices for set up…however, depending on the structure of the business, the liability protection, and the money you are going to be taking out of the business as compensation will determine the best way to organize.  I have omitted the Partnership Entity simply because this MUST be made up of 2 or more individuals and is a hybrid form of LLC & S-Corp (pays Self Employment tax, can have W-2 wages, limited distributions, files a Form 1065 that flows through to personal return. See chart below:

Structure Cost to set-up/maintain Liability Protection Ease of Getting out $$$
Sole Proprietor (Sch C) Low, files Sch C on your 1040.  Pays self-employment tax None No W-2 for owner/can take unlimited distributions
LLC Medium files Sch C on your 1040.  Pays Self-Employment tax Limited Personal protection No W-2 for Owner/can take unlimited distributions
Incorporated (C-Corp) High, files its own 1120 tax return, pays its own tax at higher corporate tax rates Excellent personal protection Compensation on W-2, can take dividends (these are taxed)
Incorporated (S-Corp) High, files its own tax return, pays no tax at corporate level, profit “flows through” to personal tax return Excellent personal protection Compensation on W-2, can take non-taxable distributions, but is limited to “basis” in the business.

This chart is not all-inclusive, but is a good start for you to make a determination as to what you think you may want to do.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Will My Taxes Be Raised Next Year If I Am Self Employed?

Although tax season is over, tax questions arise year round.  My husband is an experienced accountant and will be answering questions sent to me at momondeals@yahoo.com

Question:
I read on Yahoo today that Social Security Tax is being raised. The article said that in 2012 the rate will go up to 12.4%, meaning 12.4% of a self employeed person’s income goes straight to Social Security Tax.  Is this true?

Answer:
Social Security tax has always been 12.4% except this past year because in 2011 the government gave a reprieve making the tax only 10.4%. Starting next year it will go back to 12.4% as its always been. However tax laws change a hundred times in the tax year so it could be less or more by the time tax season rolls around again. On another note, don’t forget Medicare will still be applied, so really self employed individuals will pay 15.3% (as its always been).

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Deciding What Type of Business Entity To Be

Recently, I have received numerous requests for assistance in “setting up” blogs from a tax perspective, so I figured I would address this to give a basic understanding of the options that are out there & compare them. 

Let’s start with the need behind organizing the entity.
 1.  Taxes – a necessary part of our economy…nobody likes to pay them, but without a tax structure,  we would not be where we are today as a country.
 2.  Liability protection – we want to protect and seperate our personal assets (homes, vehicles, bank  accounts) from any business activities in the event there is a problem, error, or mistake another person or entity can hold you liable for.  You do not want the legal system to use these personal   assets for retribution.

Here are the different types of entities:

Let’s start with the sole proprietor. From an administrative standpoint, this is the most simplistic.  There are no additional tax forms, as the income is reported on your 1040, however, this essentially is an extension of you personally, and any income from these operations are considered Self Employment income and come with an additional Self Employment Tax in addition to your regular income tax rate.  Self Employent Tax can be estimated at approx. 15% of the self-employment income.  The drawback here is there is no liablitity protection in the event of litigation. 

The next option, is an LLC.  They have become a very popular business form for new entities, and many existing entities have converted to this form. They exist in some form in every state. They combine limited liability features of corporations and pass through characteristics of partnerships and S corps, but are more flexible than S corps.  For federal tax purposes, LLC’s are treated as partnerships (unless they elect otherwise).  There is one exception, a Single-Member LLC, which retains the liability protection, but is taxed as a sole-proprietor.  The profit from these entities also trigger Self-Employment tax.

Finally, Corporations:  The S Corp (so named from a chapter of the tax code) is a regular corporation with regular limited liability, whose owners elect “pass through” status meaning the corporation itself pays no tax.  The profit is passed through to the owner and the tax is paid on the owner’s 1040. Corporations whose owners don’t choose to make the federal S corp. election-that choose to be taxed as corporations-are called C corps and pay tax a higher corporate tax rates.  The benefit here is there is no self-employment tax on the profits.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

Ask An Accountant-Determining Home Office Space

As we all know, it’s that dreaded time of the year-Tax time!  In honor of tax season, I have a new series called “Ask An Accountant”.  Send in your tax questions each week to momondeals@yahoo.com and I will post the question and give an answer from an experienced accountant

Question:
How do I determine the amount of office space to use for a write off?

Answer:
A home office is defined by IRS guidelines as “any area of your home used exclusively for business”.  This means, it cannot serve any other purpose other than business use.  If an area of you home qualifies, the easiest way to determine the area is to estimate the suare footage of the business area of the home as a percentage of the entire square footage  of the home.

This is reported on Form 8829, then you are able to apply that percentage to mortgage interest, real estate taxes, hazard insurance, repairs, and utilities and get a better deduction than you would normally get from those items on schedule A.  The remaining percentage of the mortgage interest & real estate tax then goes on the appropriate line on Schedule A.

Here is an example:  Your home is 1,000 sqaure feet and your home office is 100 square feet. Therefore your business percentage is 10%.  You would then apply the 10% to your mortgage interest, real estate taxes, hazard insurance, repairs, and utilities.  Your remaining percentage of mortgage interest and real estate tax would be 90% and would go on your scedule A.

*Please keep in mind this post is for informational purposes only and answers given are very general.  Many things depend on individual circumstances.  Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org