Income Taxes

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Income Taxes

Covers all the basic forms of income taxation from self employment to corporate. This section explains the different types of incomee taxes including the pass through formats and the corresponding compliance deadlines. It also explains the basic tax code concepts and the respective why’s and how to comply.  

FEATURE ARTICLES:

  • Self-Employment Tax: You Can Stop Staring At Me Now!

    Self-Employment Tax:  You Can Stop Staring At Me Now!
    Simply put, this is a tax on your net earnings from your small business operation. If you are unincorporated, you have to pay this tax. This includes those in partnership arrangements, and in any form of Limited Liability Company status. Why don’t corporations pay the tax? Actually they do, it’s just called a different name. 
  • Mileage Deduction – New Rate for 2013

    Mileage Deduction – New Rate for 2013
    The Internal Revenue Service announced the mileage rate deduction for the calendar year 2013 on November 21, 2012. The new rate increased 1 cent over 2012’s rate to 56.5 cents per mile. How do you calculate and use the mileage rate formula for tax purposes? 
  • Small Business Tax Depreciation – Section 179

    Small Business Tax Depreciation – Section 179
    The Internal Revenue Service sets the depreciation allowance based on the Code as promulgated by Congress. The most commonly referenced section is 179. This is a form of accelerated depreciation allowing the small business owner the opportunity to take a large expense deduction and reduce their tax obligation immediately. 
  • How is a Sole Proprietorship Taxed? Understanding Schedule C

    How is a Sole Proprietorship Taxed?  Understanding Schedule C
    The sole proprietorship is taxed at the individual tax level. Basically, the income earned during the calendar year is calculated on Schedule C of Form 1040. The final number is transferred to the front page of Form 1040 to line 12. Schedule C is divided into three major sections.
  • What is a K-1?

    What is a K-1?
    A K-1 is a reporting tool to the Internal Revenue Service. It is used by Partnerships, S-Corporations and Trusts to report the taxpayer’s share of income, deductions, and credits. A K-1 is similar to Form W-2 or 1099 in that the information provided informs the taxpayer of what has been reported to the Internal Revenue ...
  • What is an S-Corporation?

    What is an S-Corporation?
    Within the family of corporations, the Internal Revenue Service (IRS) grants tax free status to S-Corporations. It is strictly an IRS term.  In the IRS code, there are several subchapters pertaining to corporations; Subchapter S identifies and regulates S-Corporations. In essence, S-Corporations are a pass through entity meaning that all income, losses, credits and special deductions are ...
  • What is an Audit?

    What is an Audit?
    An audit is defined as a methodical examination. Audits are grouped into two principal sets – financial and organizational compliance (usually related to licensure). For the small business entrepreneur, it is almost unheard of for them to have an organizational compliance audit.
  • Internal Revenue Service (IRS) Definition of an Expense

    Internal Revenue Service (IRS) Definition of an Expense
    The Internal Revenue Service defines a business expense as ‘ordinary’ and ‘necessary’. Ordinary expenses are those costs typically incurred in your industry. A restaurant would not ordinarily purchase vaccines. And a medical practice would not purchase 50 heads of lettuce.
  • Passive Income

    Passive Income
    Passive income is a form of earning money without materially participating in the activity from which the income is derived. There are two definitions for the reader to understand. There is the common business definition and the tax code definition. 
  • Internal Revenue Service – Definition of Revenue

    Internal Revenue Service – Definition of Revenue
    The Sixteenth Amendment to the Constitution of the United States gives authority to Congress to tax income. The Internal Revenue Service defines revenue via a term ‘Gross Income’. In Chapter 26 of the Federal Code (Chapter 26 is the Internal Revenue Code) Section 61, Congress defines gross income as “… all income from whatever source derived…”. This means ...
  • Realized and Unrealized Gains or Losses

    Realized and Unrealized Gains or Losses
    When a product or investment is sold, the seller must realize a gain or loss from the transaction. The actual sale or transaction will trigger the gain or loss realized.  In effect, the receipt of cash sets the threshold for a ‘REALIZED’ amount. Unrealized gains or losses are potential i.e. on paper transactions.
  • Mileage Deduction – Rate for 2014

    Mileage Deduction – Rate for 2014
    On December 6, 2013, the Internal Revenue Service announced the mileage rate deduction for 2014. They reduced the amount allowed one-half a cent to 56 cents per mile. How do you calculate and use the mileage rate formula for tax purposes?
  • Capital Expenditures – IRS Definition

    Capital Expenditures – IRS Definition
    The Internal Revenue Service uses a complex definition to identify capital expenditures (assets). A capital expenditure is not deductible as an expense in the tax year purchased; the taxpayer or entity must use depreciation, amortization or depletion to obtain deductible value on the entity’s return.
  • Form 1099-C: Cancellation of Debt

    Form 1099-C: Cancellation of Debt
    If you received a 1099-C, the first question you ask is: ‘Do I have to include this in my taxable income?’ Well, the answer is ‘it depends’. Not what you want to hear but there are a lot of variables involved in answering this question.
  • Phantom Income

    Phantom Income
    Those small businesses using partnership or S-Corporation formats issue Form K-1 to the respective owners. When income is assigned to the owner and there is no corresponding cash related to that income, then this income is referred to as ‘Phantom Income’. In effect, it is assigned income for tax purposes without the corresponding cash to pay ...
  • At-Risk Rules – An Elementary Understanding

    At-Risk Rules – An Elementary Understanding
    Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars ...
  • Mailbox Rule in Business

    Mailbox Rule in Business
    There is one tax rule that confuses business owners and it relates to the year-end practice of paying bills and receiving compensation for receivables. This is referred to as the ‘Mailbox Rule’. This is strictly a tax issue for cash basis taxpayers. I’m here to set the record straight! 
  • Mileage Deduction – Rate for 2015

    Mileage Deduction - Rate for 2015
    On December 10, 2014, the Internal Revenue Service announced the mileage rate deduction for 2015. They increased the amount allowed 1.5 cents to 57.5 cents per mile. How do you calculate and use the mileage rate formula for tax purposes?
  • Estimated Tax Payments – Why and How

    Estimated Tax Payments – Why and How
    In the normal taxpayer relationship with the Internal Revenue Service, the taxpayer is an employee and via withholding, taxes are paid the U.S. Government by the employer. Basically the employer pays the tax after each payroll run on behalf of all the employees and the corresponding mandated matching taxes (Social Security and Medicare). But in the small ...
  • Nondeductible Expenses in Small Business

    Nondeductible Expenses in Small Business
    One of the more significant expenses for the small business owners is income taxes. Since most small businesses are tax pass through entities, it is beneficial to the business to have the least amount of net income in order to reduce the tax obligations of the owner(s). This is achieved by making sure every dollar expensed ...
  • Individual Retirement Accounts (IRA’s) – Basic Rules

    Individual Retirement Accounts (IRA’s) – Basic Rules
    The American Benefits Council estimates that about 80% of all American workers have access to an employer sponsored retirement plan. This means that 20% of the workforce has no access to a formal retirement plan. To alleviate this issue, Congress created laws allowing those with earned income access to a retirement via Individual Retirement Accounts or more ...
  • Double Taxation – Not an Issue in Small Business

    Double Taxation - Not an Issue in Small Business
    In the world of big business corporate earnings are taxed twice under the Internal Revenue Code. The first layer of taxation occurs with the traditional corporate income tax. The second tier of taxation happens when dividends are issued to shareholders. The shareholder pays an income tax at their personal rate. 
  • Constructive Dividends – Definition, Understanding and Application

    Constructive Dividends - Definition, Understanding and Application
    When a corporation confers an economic benefit upon a shareholder, in his capacity as such, without an expectation of reimbursement, that economic benefit becomes a constructive dividend, taxable as such. See INTERNAL REVENUE SERVICE NATIONAL OFFICE FIELD SERVICE ADVICE MEMORANDUM FOR DISTRICT COUNSEL, Number 200011003 dated October 27, 1999; specifically Page 4, 3rd paragraph.

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