Self Employment 1099's

Going through old articles from the IRS, I ran across this information for self employment income. With tax season upon us this article may be helpful to those filing 1099’s

“What is Taxable?
Taxpayers must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands.
Generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the law specifically provides an exemption. This document discusses a few types of reportable income. Information on how to report other types of income can be found in Publication 525, Taxable and Nontaxable Income.
Self-Employment Income
It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income.
All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.
Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income.
Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.
Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.”

P. Harker, Tax Advisor-4/Tax Preparation
http://www.effectur.com/

Reporting Capital Gains

With the 2007 Tax Season upon us, I've found some old articles in the IRS archive that never loose their value. My intent is to educate and also remind taxpayers of the basics.

"In order to educate taxpayers about their filing obligations, this fact sheet, the twelfth in a series, provides information with regard to capital gains reporting. Incorrect reporting of capital gains accounts for part of an estimated $345 billion per year in unpaid taxes, according to Internal Revenue Service estimates.
Almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset, including:
Your home
Household furnishings
Stocks or bonds
Coin or stamp collections
Gems and jewelry
Gold, silver or any other metal, and
Business property
Understanding Basis
The difference between the amount for which you sell the capital asset and your basis, which is usually what you paid for it, is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis.
Your basis is generally your cost plus improvements. You must keep accurate records that show your basis. Your records should show the purchase price, including commissions; increases to basis, such as the cost of improvements; and decreases to basis, such as depreciation, non-dividend distributions on stock, and stock splits.
While all capital gains are taxable and must be reported on your tax return, only capital losses on investment or business property are deductible. Losses on sales of personal property are not deductible. More information about increases and decreases to basis can be found in Publication 551, Basis of Assets.
Schedule D
Capital gains and deductible capital losses are reported on Form 1040, Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040, U.S. Individual Income Tax Return. Capital gains and losses are classified as long-term or short term. If you hold the asset for more than one year, your capital gain or loss is long-term. If you hold the asset one year or less, your capital gain or loss is short-term. To figure the holding period, begin counting on the day after you received the property and include the day you disposed of the property.
You may have to make estimated tax payments if you have a taxable capital gain. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
Other Rules
Home –– If you sell your residence, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). To exclude the gain, you must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Generally, you cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude gain, you must include it in income. To determine the maximum dollar limit you can exclude and for additional information, refer to Publication 523, Selling Your Home. You cannot deduct a loss on the sale of your home.
Property outside U.S. –– U.S. citizens who sell property located outside the United States must also report gains from these sales, unless the property is exempt by U.S. law. Reporting is required whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer.
Installment sales –– If you sold property (other than publicly traded stocks or securities) at a gain and will receive any payments in a year after the year of sale, you generally must report the sale on the installment method using Form 6252, Installment Sale Income. You can elect out of the installment method by reporting the entire gain in the year of sale.
Investment Transactions –– Gains from sales and trades of stocks, bonds, or certain commodities are usually reported to you on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or an equivalent statement. Your basis, the sales price, and the resulting capital gain or loss is entered on Form 1040, Schedule D, Capital Gains and Losses.
Gains from the sale of business property are reported on Form 4797, Sales of Business Property and flow to Form 1040, Schedule D. See Publication 544, Sales and Other Dispositions of Assets for additional information on the sale of business property.
Capital gain distributions from mutual funds are reported to you on Form 1099-DIV, Dividends and Distributions. Capital gain distributions are taxed as long-term capital gains regardless of how long you have owned the shares in the mutual funds. If capital gain distributions are automatically reinvested, the reinvested amount is the basis of the additional shares purchased.
For additional information about reporting gains from investments see Publication 17, Your Federal Income Tax; Publication 550, Investment Income and Expenses; and Publication 564, Mutual Fund Distributions. Answers to Frequently Asked Questions about capital gains may also be helpful."



P. Harker, Tax Advisor 4/Tax Preparation

http://www.effectur.com/

IT'S ALL ABOUT CHOICE

A recent IRS article talked of restricting tax preparers such as H&R Block Inc and Jackson Hewitt Tax Service Inc from offering refund loans to customers because doing so could encourage fraud.
If adopted, the IRS proposal would limit tax preparers’ ability to provide customers’ tax return information to lenders that provide the tax refund loan.
The article goes on to say, “that because the loans are often limited to the size of refunds, unscrupulous tax preparers might be tempted to inflate refunds to collect higher fees.” “Loan fees might create an incentive for preparers not to comply with due diligence requirements to ensure that claims for earned income tax credits are accurate.”
It’s all about choice. Taxpayers come into our office with thoughts of getting refund money as quickly as they can without regard to what it’s going to cost them.
I talk to my clients, try to get as much information out of them as possible to help lower their tax liability under the guidelines of due diligence. When it comes time to go over the refund options, I make an effort to encourage them to wait two weeks for their refunds. I explain all of the options, but in the end the taxpayer has the final decision on how they will receive their refund.
I find it very disheartening that in the article tax preparers are portrayed as the ones that would inflate refund claims to collect higher fees .
You must know:
1. That the banks offer the loans
2. The tax services provides the product
3. The tax preparers explain the refund options to the taxpayers
4. Taxpayers make the final decision whether to accept or not.

Am I the only one that is upset by this article?
P. Harker, Tax Advisor 4/Tax Preparation

http://www.effectur.com/

The Forgotten Medical Deduction

Medical expenses are probably the most forgotten or over looked deduction on a tax return. Taxpayer's just don't think they have enough expense to surpass the 7.5% of the adjusted gross income. But, if you were to take a few minutes and jot down the number of trips you've made with Johnnie & Sally in tow to the:
1. Doctor's Office, Dentist Office
2. Hospital and clinics
3. To the Lab for Xrays
4. To pick up medical aids such as eyeglasses, contact lenses, hearing aids, braces, crutches, wheelchair,etc.
5. Possible Medical Equipment and Supplies.
There's a deduction for medical miles driven. Parking fees, tolls and local transportation for medical activity. Lodging for medical purposes (up to $50.00 per night per person). Health insurance premiums are deductible, even Stop Smoking expenses are allowed. And of course the most common expense, Prescription Medication. And if you use the same pharmacy all year, most will provide a print out at the end of the year for all your medication purchased.

The numbers may surprise you, so start today, make a list, contact the doctors and dentists and pharmacies you've worked with this past year. Be prepared to try and take this deduction for 2007.



P. Harker, TaxAdvisor 4/Tax Preparation

http://www.effectur.com/

Voluntary Firefighters Tax Deduction

Voluntary Firefighters and Rescue Squad Workers Deduction for 2007

North Carolina has announced a $250.00 deduction for Voluntary Firefighters and Rescue Squad Workers on their 2007 State Tax Return.
You may deduct the $250.00 from the federal taxable income if you were an unpaid volunteer firefighter or an unpaid volunteer rescue worker who attended at least 36 hours of fire department drills and meetings or 36 hours of rescue squad training and meetings during the taxable year. An individual may not claim a deduction as both a volunteer firefighter and a volunteer rescue squad worker. In the case of a married couple filing a joint return, each spouse may qualify separately for the deduction.
This deduction is correctly a step n the right direction for the individuals that put their lives on the line on a daily basis to protect our families, homes and businesses. The second step would be to make this a federal deduction. If it was only that easy!

P. Harker Tax Advisor/Tax Preparation

http://www.effectur.com/

All Tax Preparers' should read this article

This article was forwarded to me by a co-worker:

NEW YORK - The U.S. Internal Revenue Service said on Thursday it may restrict tax preparers such as H&R Block Inc and Jackson Hewitt Tax Service Inc from offering refund loans to customers because doing so could encourage fraud.
The agency's proposal sent shares of both companies lower. H&R Block closed down 86 cents, or 4.6 percent, at $17.75, and matched a five-year low during the trading session. Jackson Hewitt slid $7.25, or 23.1 percent, to $24.13, the lowest level in more than two years.
If adopted, the IRS proposal would limit tax preparers' ability to provide customers' tax return information to lenders that provide the tax refund loans.
Also known as refund anticipation loans, they tide over customers who expect to receive refunds but want their money immediately.
Many consumer groups complain about the loans' fees, which often equate to annualized interest rates of 40 percent to 60 percent. They also say the loans burden lower-income people, who often use them but can least afford them.
Acting IRS Commissioner Linda Stiff wrote that because the loans are often limited to the size of refunds, unscrupulous tax preparers might be tempted to inflate refunds to collect higher fees. She also said loan fees might create an incentive for preparers not to comply with due diligence requirements to ensure that claims for earned income tax credits are accurate.
"The Treasury Department and the IRS are concerned that RALs and certain other products may provide tax preparers with a financial incentive to take improper tax return positions in order to inappropriately inflate refund claims," wrote Stiff. She is also the IRS deputy commissioner for services and enforcement.
Schumer calls loans "usurious"Sen. Charles Schumer, a New York Democrat and member of the Senate Banking Committee, said in a statement "people all over the country are getting ripped off by these so-called refund loans, and it's time to stop them dead in their tracks." He called the loans "usurious."
H&R Block, based in Kansas City, Mo., said its tax preparers are not compensated for selling "ancillary" products, "so there is no incentive for them other than serving taxpayers' best interests." It said it would work with the IRS to develop best practices for refund loans.
Jackson Hewitt, based in Parsippany, N.J., said it believed adoption of the IRS proposal would not end tax refund loans. Chief Executive Michael Yerington said the company "firmly believes in the taxpayer's right to control their tax return information through a written consent process."
H&R Block offers a refund loan known as Instant Money, while Jackson Hewitt has a similar product called Money Now. Both stopped offering some refund loans in the last year.
Banks that make the loans include HSBC Holdings Plc, Santa Barbara, Calif.-based Pacific Capital Bancorp's Santa Barbara Bank & Trust unit, and Louisville, Ky.-based Republic Bancorp Inc., according to the companies' and tax preparers' Web sites.



P. Harker Tax Adivsor 4/Tax Preparation

http://www.effectur.com/

The True Tax Consultation

In the tax industry there are many so called "Tax Experts" who claim to be experts in "Tax Relief" or "IRS Tax Relief" , however they usually are no more an expert than a used car salesman is an expert mechanic. The reality of the situation is that most Tax Consultants do not have any type of technical training much less any legal credentials to represent tax payers before the IRS or any taxing authority. So the question is what is a considered a true tax consultation?
My definition of what is a true tax consultation does not necessicarily have to begin with someone who is legally licisenced to represent taxpayers but it should begin with someone who is thoroughy versed in tax code or at least a specific area of tax code, such as the IRS Collections Division.
A true tax consultation for someone seeking "IRS Tax Relief" should start with a firm that thoroughly trains their consultants. How do you know if a consultant is thoroughly trained? If a consultant is thoroughly trained they should be able to educate a client on how they arrived at their current situation, what caused this situation, what needs to be done immediately to alleviate their current situation and what needs to be done to avoid this situation in the future. They should also be able to accurately and honestly tell the client what can realisticly be done to resolve their situation, meaning they should know what the IRS' parameters are regarding all aspects of tax resolution. This involves knowing the law in regards to "Offers In Compromise", "Installment Agreements", "Currently Not Collectable Status", "Amended Returns", "Penalty Abatements" and numerous other possible resolution options.
If a consultant cannot or does not explain to a client what the qualifing parameters involved with each resolution option is and whether or not the client is within the qualifing parameters then they are not providing the client a true tax consultation. What they would be providing at that point is a dream, just to collect fees from you. Remember if it sounds to good to be true then it more than likley is.