You must be wondering if you need to file a federal tax return this year? Perhaps. The amount of your income, filing status, age and other factors determine if you must file.
Even if you don’t have to file a tax return, there are times when you should. Here are FIVE good reasons why you should file a return, even if you’re not required to do so:
1. Tax Withheld or Paid: Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.
2. Earned Income Tax Credit: Did you work and earn less than $51,567 last year? You could receive EITC as a tax refund if you qualify. Families with qualifying children may be eligible for up to $6,044.
3. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.
4. American Opportunity Credit. Are you a student or do you support a student? If so, you may be eligible for this credit. Students in their first four years of higher education may qualify for as much as $2,500. Even those who owe no tax may get up to $1,000 of the credit refunded per eligible student.
5. Health Coverage Tax Credit. Did you receive Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation? If so, you may qualify for the Health Coverage Tax Credit. The HCTC helps make health insurance more affordable for you and your family. This credit pays 72.5 percent of qualified health insurance premiums.
To sum it all up, check to see if you would benefit from filing a federal tax return. You may qualify for a tax refund even if you don’t have to file. And remember, if you do qualify for a refund, you must file a return to claim it.
Do feel free to write to clientservices@aotax.com or call us on 703-584-5533 for any tax filing assistance. Wish you Happy Tax Filing :)
Whether you are self-employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business.
To deduct expenses for business use of the home, part of your home must be used as one of the following:
1. Exclusively and regularly as your principal place of business for your trade or business
2. Exclusively and regularly as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
3. A separate structure used exclusively and regularly in connection with your trade or business that is not attached to your home
4. On a regular basis for certain storage use
5. For rental use
6. As a day care facility
When the exclusive-use requirement applies, you cannot deduct business expenses for any part of your home that you use for both personal and business purposes.
For example, if you are an attorney and use the den of your home to write legal briefs and also for personal purposes, you may not deduct any business-use-of-your-home expenses. Further, under the principal-place-of-business test, you must determine that your home is the principal place of your trade or business after considering where your most important activities are performed and most of your time is spent, in order to deduct expenses for the business use of your home.
Additionally, a portion of your home may qualify as your principal place of business if you use it for the administrative or management activities of your trade or business and you have no other fixed location where you conduct substantial administrative and management activities for that trade or business. An employee may only deduct business-use-of-the-home expenses when the business part of the home is used regularly and exclusively and for the employer’s convenience.
Deductible expenses for business use of your home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. You may not deduct expenses for lawn care in general or for painting a room not used for business.
When figuring the amount you can deduct for the business use of your home, you can use the entire amount of expenses attributable solely to the portion of the home used in your business. The amount you can deduct for expenses attributable to the whole house depends on the percentage of your home used for business. To figure this percentage, you may divide the number of square feet used for business by the total square feet in your home. Or, if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home. You figure the business portion of your expenses by applying this percentage to the total of each expense. If you are a qualified day-care provider who does not use any area exclusively for day care, your business portion is further limited by the ratio of the number of hours the area is used exclusively for business to the total number of hours the portion was available for any use.
You may not deduct you business expenses in excess of the gross income limitation (your gross income derived from the business use of your home less the business portion of mortgage interest, real estate taxes, and casualty losses, and business expenses like salaries and supplies). However, you may be able to carry forward some of these business expenses to the next year, subject to the gross income limitation for that year. If you itemize your deductions on Form 1040, Schedule A, you may still be able to deduct your personal portion of mortgage interest, property taxes, and casualty losses on that schedule.
Please write to blog@aotax.com for detailed information on rules for the business use of your home, including how to determine if your home office qualifies as your principal place of business.
It is learnt that IRS will soon shift its audit focus from Large Corporations (C-Corps) to Small Business Owners (S-Corps/Partnerships/Independent Contractors), especially Pass-Through Entities. Pass-Through Entities are the entities in which the Entity does not pay any tax but the members of such entities will do pay tax on their Individual Returns.
The reason behind IRS drifting its focus to Pass-Through Entities is that IRS found that many of the business expenses incurred by these entities are of personal in nature which they falsely claim as Business Expenses on their Business Tax Return.
In order to have a hassle-free tax filing experience and ensure long-run tax creditability of your business, it is important that every Small Business Owner will try to adhere to the following guidelines suggested by our Tax Consultants:
#1: Avoid Cash Payments
The chances of getting audited by IRS is higher if you do a lot of your business payments in Cash. It goes without saying that if you receive more of your business income/receipts in Cash, the chances of IRS attacks are almost higher. You should always try to use Checks/Cards to support your expenses or receipts and avoid using Cash, except for certain ordinary and necessary petty business expense.
#2: Do not mix Your Personal & Business Bank Accounts
This is one of the most common mistakes made by a large number of small business owners. Keep your business expenses for business purpose and don’t use your personal bank account to pay for them. Having two separate checking accounts for both business and personal purposes is very important. You can have more than one checking account as well for your business purposes, but they should be used only for business purposes and not for personal purposes.
#3: Ensure Proper Record Keeping
Have a clear track of your incomes and expenses. You can use at least an Excel Spread Sheet to track all your incomes and expenses, if your business is too small to use an accounting software like QuickBooks, Peach Tree, etc. for recording day-to-day incomes and expenses of your business. If you are a medium sized business, it is advisable that you have your accountant do all this work for you while you focus on your business. Having proper records will also save you in times of audits/notices from IRS, when the Tax Authorities would like to vouch the actual expenses claimed on your tax returns.
#4: Draw Reasonable Salary
The IRS requires you to earn reasonable compensation for the type of work that you’re doing. As a guideline, the government suggests choosing an amount similar to what another business would pay someone to do what you do. Owners of Pass-Through Entities have come under increased scrutiny of the IRS over the past several years, as they usually prefer to take withdrawals rather than Salary to avoid paying the associated payroll taxes. One of the largest financial risks to entrepreneurs is penalties and interest for incorrect payroll-tax reporting. Deciding how much to pay yourself, and whether to take the money as a salary or as a draw, requires careful consideration. You may consider taking an Expert Opinion before your plan your Salary withdrawals.
For any queries on this article, please write to blog@aotax.com.
Advantage One Tax Consulting, Inc. (AO Tax) is a full service tax consulting firm offering tax return preparation, tax planning, tax compliance, accounting, bookkeeping, business advisory, business incorporation, and payroll to a wide variety of clients ranging from individuals to small to medium-sized businesses since 2003.
We understand the challenges of running a small business, whether it’s sorting through six-thousand pages of tax code, writing a comprehensive financial statement, establishing a line of credit, representing you at a tax audit or other important business meetings, or teaming up with other qualified professionals to help make your business a success.
We know that meeting any of these challenges can be a daunting task for any size business, but even more so for a small, growing one. That’s where we can help. The sole purpose of our firm is to serve as a trusted advisor and business advocate by helping you cut through the red tape, viewing the big picture and understanding the options that make your business move forward and grow.