The Small Business Tax Help Blog

Archive for November, 2009

Question: What qualifications do I have to meet to be able to make tax deductions when working from home?

2008 was my first year of working from home. Now that tax time has rolled around I am unclear on if I can deduct certain expenses from from my taxes.

My biggest question is how do I know if I qualify or not? I am an employee of a company and I constantly read about this following language:

“In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.”

What does this mean exactly? I understand the first part about the using your office space for only work related matters. I am unclear on the part about my employer and what that means.

Any help would be appreciated. I already understand what I can deduct if I qualify and how my office space must be used only for work related matters.

Answer: They are saying that your employer can not be compensating you for the use of the office space. Many do because once you start claiming this it effects your capital gains tax when you sell. Part of your house is 100% taxable as it is not your residence but a place of employment. Many employers give you extra to work at home so that you are not loosing value in your property by working in it.

Nett: New tax rules now in effect may affect your preparations

There weren't any big, sweeping changes in the federal tax law for this year, but there were a few tweaks here and there - things to have in mind when you meet with your tax preparer about your 2009 Form 1040, and things to know, or at least think about, as you do business in 2010.

Tax Deduction Tips for Businesses : Basics of Tax Deductible Business Expenses

Question: Calculating self employment taxes, am I doing this right?

Hello all, desperately need some help in making sure I don’t make a huge tax error. I currently have a route that I do for the local paper where I collect old papers and coins from the racks. They pay $57 a week. Here are the current figures I’ve come up with:

52 weeks a year x $57 =$2964.00
$2964 x .9235=$2737.26

$2737.26 x.153=418.80 in yearly taxes

Does this calculation sound correct for me?

Is it safe to say that my weekly taxes are $8.06?
I’m signed up with the IRS online tax payment system and I’d like to pay my estimated taxes at least bi-weekly.

The company has factored in the mileage of the route into my weekly pay, I am wondering that since they did this, can I no longer deduct gas expenses?

I live in California, and file the rest of my income taxes as single, itemized deductions (have a mortgage and real estate taxes.)
I really appreciate any intelligent answers from anyone who knows a thing or two about taxes, I’m having a hard time!

Answer: The calculation for your self employment tax looks correct, except that you might be able to deduct mileage from what you make before figuring the tax. You said they "factor in mileage" - if you mean they reimburse you for miles but don't include it on your 1099, then you can't deduct the miles. If they reimburse you for miles, but that's included in the $57 they pay you and it will be on your 1099, then you can deduct your mileage expenses.

Since you have other income, you'll also owe income tax on this amount in addition to your self employment tax. Without knowing what your tax bracket is for your other income, there's no way to tell what it will be on the route. That's very likely another 15 or 25%.

And there will also be CA tax on it - again, without knowing about the rest of your income, no way to tell what that might be either, but it could be substantial.

Finally, what's this IRS online tax payment system you are signed up with? It's common to make quarterly payments (mailing them in), but an online system that automatically takes money bi-weekly is a new one one me - be sure it's really the IRS.

Fairbanks Ranch deal protested

Fairbanks Ranch Country Club By Joe Tash Contributor The Fairbanks Ranch Country Club, according to its Web site, is a "distinctly private, member-owned Club consisting of the most prominent business, professional and social personalities of the community." While the club itself may be private, its 27-hole golf course, opulent clubhouse and other facilities sit on public land, owned by the city ...

Estimated Taxes Online

Free tax preparation services VITA sites to open across SWLA

Tax season is here and in Southwest Louisiana, an estimated $10 million of Federal Earned Income Tax Credits (EITC) go unclaimed by local taxpayers. However, not all eligible taxpayers may be aware or claim the credit.

Chris Lovett Interviews MASSCAP Executive Director Joe Diamond on the ETIC on January 26, 2009

Tax experts weigh in on common errors

Filing income tax can be complicated enough, between knowing what is deductible and what isn’t. But what seems to trip up most taxpayers is simple math.

Self Employment Tax Tips : 50 Percent Rule for Self Employment Tax

In November 2009, the IRS started a new National Research Program Initiative (the Initiative): an industry wide specific random audit of employment taxes for 6,000 entities to encompass the course of the next thirty six months. The scope of the Initiative is dual in nature: First: assess systemic Employment Tax Compliance: and second: collect assessments from delinquent employers.

With tax revenues decreasing from the down economy, the U.S. Treasury Department is increasing its efforts to close the tax gap the difference between the total tax liabilities and taxes paid to the IRS. Auditing employment taxes is seen by the IRS as a crucial means of closing the tax gap. For tax year 2001 for example, the gross tax gap was estimated by the IRS at around $345 billion, with underreporting of employment taxes accounting for around 17% of the tax gap.

The IRS will audit companies to ensure that Federal withholding taxes are deducted and paid over to the government from employees wages for Social Security and Medicare as well as Federal Unemployment taxes. An employer found to be in noncompliance could face harsh civil penalties and interest on unpaid taxes. These fines could have a particularly severe impact on small business owners.

The IRS has prioritized four areas to focus their auditing efforts under the Initiative, including:

Worker Classification: i.e. whether an employer properly classifies an employee as an employee or independent contractor for tax purposes. Determining which depends on the behavioral, financial and type of relationship the company has with the person performing the work.

Employee Fringe Benefits: A fringe benefit is a form of pay for the performance of services. i.e. benefits such as insurance coverage, company car or child care, etc. that are provided by employers tax free to employees but not to independent contractors.

Reimbursed Business Expenses: e.g. reimbursement for taking a client to lunch, purchasing office supplies: which requires a written business expense plan. I.E. You must have paid or incurred expenses that are deductible while performing services as an employee. You must adequately account to your employer for these expenses within a reasonable time period, and you must return any excess reimbursement or allowance within a reasonable time period.

Compensation of Owners who are also employees of the company, whereby unpaid taxes may result in personal liability for the employer.

Since the employment tax audits Initiative has begun, it has been reported that the IRS has already started the process of selecting businesses for audit of their employment taxes. Noncompliance with employment tax law can result in severe repercussions for employers. To ensure that procedures are in place to meet with compliance of applicable tax law can save time, money and distress in the event of an audit.

For example, the Internal Revenue Code requires each employer to properly categorize their Worker classification in order to not only make sure they are in compliance with the tax laws but also be able govern their workers appropriately . Employers should consider consulting with experienced counsel in preparation for the Initiative and in the event of an audit of their employment taxes.

How Mich. gov candidates would handle Business Tax

_Oakland County Sheriff Mike Bouchard: Eliminate the Michigan Business Tax. As a state senator, voted against setting up a board that grants tax credits to encourage businesses to locate or expand in Michigan.

Wealth Of Information For Small Business Tax Savings