May 242015
 
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Facts about Filing an Amended U. S. Individual Income Tax Return

You’ve filed your tax return and received your refund and later discover that you left out a tax document.  Perhaps it was an oversight or you received a tax document after filing your return.  You may also need to make a correction to the information previously reported or for some other reason.  How do you handle this situation?  Generally, filing an amended U. S. individual income tax return is the solution.

There are nine points you should know about when filing an amended U. S. individual income tax return:

  1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended income tax return.
  1. Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ.  An amended return cannot be filed electronically, thus you must file it by mail.  It’s always best to use a method of mailing which allows for tracking so that you can confirm the IRS received your return.  This is also true for original returns filed by mail.
  1. Generally, you do not need to file an amended return due to math errors.  The IRS will automatically make that correction.  Also, do not file an amended return because you forgot to attach tax forms such as W-2s or schedules.  The IRS normally will send a request asking for those.
  1. Be sure to enter the year of the return you are amending at the top of Form 1040X.  Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
  1. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS address.  The 1040X instructions list the addresses.
  1. If the changes involve another schedule or form, you must attach that schedule or form to the amended return.
  1. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X.  You may cash that check while waiting for any additional refund.
  1. If you owe additional tax, file Form 1040X and pay the tax before the due date to limit interest and penalty charges that could accrue on your account.  Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
  1. Your state tax liability may be affected by a change made on your federal return.  For information on how to correct your state tax return, contact your state tax agency.

Filing an Amended U. S. individual income tax return can be a complex and confusing task.  For assistance with preparing and filing Form 1040X, you may wish to seek the services of a professional tax preparer.  For more information contact me via the form below.

Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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Aug 282014
 
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New business owners often ask, “How do I set up my business?”  One of the choices you make when starting a business is the type of legal organization you select. This decision can affect how much you pay in taxes, the amount of bookkeeping and paperwork required, the personal liability you might be responsibility for, and your ability of borrow money.

For-profit businesses fall under one of four structures for tax purposes:

1.  Sole Proprietor – An individual who owns an unincorporated business by themselves.  Most small and home based businesses are sole proprietorships.  For tax purposes, the business activity of a sole proprietor is reported on Schedule C of Form 1040.  This is included in the business owner’s personal income tax return.

2.  Partnership – Two or more persons join together to carry on a trade or business.  Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.  For tax purposes, a partnership doesn’t pay income tax.  Instead, Form 1065 is filed by the partnership and Schedule K-1, which shows the respective share of income and expenses for each partner, is provided to the partners for use in preparing their personal income tax return (Form 1040).

3.  Corporation – A relationship where prospective shareholders exchange money, property, or both, for the corporation’s capital stock.  Profits are taxed to the corporation when earned and then taxed to the shareholders when distributed as dividends (double taxation).  A corporation is created by filing paperwork with the secretary of state in the state of incorporation.  A corporation is an entity in itself and can sue and be sued.  Form 1120 is used to report the income and expenses for a corporation and any income tax.

Common stock issued in 1967

Common stock issued in 1967 (Photo credit: Wikipedia)

4.  S Corporation – A corporation (see item 3. above), meeting certain criteria, that elects to be treated as as S corporation.  Generally, an S corporation is exempt from income tax; the shareholders report the S corporation’s income and expenses (via Schedule K-1) on their personal income tax return (Form 1040) similar to a partnership.  There are certain tax advantages to electing S status for a corporation.  The S Corporation files an information return (Form 1120S) similar to that of a partnership.

5.  Limited Liability Company (LLC) – An entity created by statute in certain states that is characterized by limited liability for debts similar to that of a corporation.  It is managed by members or managers.  An LLC is not a taxable entity per se.  Depending on the number of members, an LLC may be taxed as a sole proprietor (see item 1.) or as a partnership (see item 2.).

For more information regarding entity selection or assistance in answering the question, “How do I set up my business,” submit your request below:

Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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Jul 232014
 
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5 Basic Tax Tips for New Businesses

If you start a business, one key to success is to know about your federal tax obligations. You may need to know not only about income taxes but also about payroll taxes. Here are five basic tax tips that can help get your business off to a good start.

1. Business Structure. Prior to start up, you’ll need to choose the structure of your business. Some common types include sole proprietorship (Form 1040), partnership (Form 1065) and corporation (Form 1120). You may also choose to be an S corporation (Form 1120-S) or Limited Liability Company. You’ll report your business activity using the IRS forms which are right for your business type. A Limited Liability Company (created by state statute) may be taxed as a sole proprietorship (single member), a partnership (multiple members), or other taxable entity.

2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The type of taxes your business pays usually depends on which type of business you choose to set up. You may need to pay your taxes by making estimated tax payments.

3. Employer Identification Number. You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.

4. Accounting Method. An accounting method is a set of rules that determine when to report income and expenses. Your business must use a consistent method. The two that are most common are the cash method and the accrual method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Under the accrual method, you generally report income in the year that you earn it and deduct expenses in the year that you incur them. This is true even if you receive the income or pay the expenses in a future year.

5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. Beginning in 2014, the maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the Employer Shared Responsibility provision.

For assistance with starting a business, feel free to contact me via the form below.

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Credit: irs.gov

 

Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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May 242014
 
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If your mortgage debt has been partly or entirely forgiven, you may be able to exclude the forgiven debt from your income.  Normally, the amount of debt forgiven by a lender must be reported on your tax return as income.  But because of a special tax relief program, in general, you will not have to report as income mortgage debt on your home that was forgiven or reduced by the lender.  This includes mortgage debt that was forgiven or reduced through a mortgage work-out, short sale or foreclosure.

English: Mortgage debt

English: Mortgage debt (Photo credit: Wikipedia)

 

This tax relief is only available on mortgages taken out to buy, build or improve your home and it is only available for debt that was forgiven in the years 2007 through 2013.

There is also a limit on how much forgiven debt can be excluded from your income.  If you qualify, just fill out Form 982 and attach it to your tax return.  See the instructions for Form 982 for more information, including information on restrictions that apply.

A word of caution though.  Most other kinds of debt are not eligible for this relief, and special rules and limitations apply.  So before you claim this tax relief, check out the details on irs.gov.

For assistance with Form 982 related to reduction of tax attributes and mortgage debt forgiveness, contact me via the form below:

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Disclosure of Material Connection: Some of the links on this blog are “affiliate links.” This means if you click on the link and purchase the item, I might receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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