The Small Business Filing – Schedule C

The Small Business Filing – Schedule C

by | Jun 17, 2019 | Business Tax, Individual Tax

Are you the sole proprietor of your small business? When it comes time to file your taxes, where do you put those expenses to claim the plethora of deductions available to small businesses? The answer, you see, is the Schedule C.

Schedule C is used to report income or losses for a business, operated as a sole proprietorship. To qualify as a business to use Schedule C, the individual must be regularly and continually involved in the operations of that business with a main focus on income or profits. It cannot be something mostly passive such as selling cookies for the annual church bake sale. Corporations and partnerships have different forms to report income or losses. For now, we’re focusing on the Schedule C that gets attached to an individual’s Form 1040.

The Schedule C – Simplified

The form itself can be outlined as:

  • Biographic info, such as name, address, accounting method, etc.
  • Income – gross sales, returns and allowances.
  • Expenses – such as actual expenses, depreciation, commissions, contract labor, premiums on business insurance, contributions, and business use of home.
  • Cost of Goods Sold (COGS), if applicable.
  • Vehicle Information, to claim deductible expenses for business use of a vehicle.
  • Other Expenses, not already listed above such as amortization, bad debt expenses, and business start-up costs.

Once this is all added up, a small business owner can determine if they had a profit or a net operating loss. Profits are always good, but even a net operating loss can be useful for deductible expenses or carrying the losses over to the next year.

Taking advantage of small business-related expense deductions on Schedule C like the business use of home, vehicle expense, and others require a bit of planning and know-how to use properly. Sometimes up-and-coming businesses and their owners may not have the time to plot these things out. Imagine having a knowledgeable support team take care of those needs, while you can focus on what counts most, growing your business! That’s us here at MiklosCPA. We are a California-based accounting firm that supports small and mid-sized business clients with their accounting and tax needs. Contact us to learn more about our services, and follow us on our social media pages for future good-to-know articles like this one!

A Place for Your Deductions – The Schedule A Form

A Place for Your Deductions – The Schedule A Form

by | May 27, 2019 | Individual Tax

You’ve probably heard of people claiming deductions for their taxes. But where exactly do you put those deductions when you file your taxes? Individuals who file their Form 1040 will need to fill out Schedule A, and the form is less intimidating than it sounds. For more information on HOW to calculate certain deductions, check out our articles on those deductions that are linked in this article.

Schedule A Breakdown

The form can be found on the IRS website in a fillable format. The form itself is broken down into major categories of itemized deductions with information on any needed additional forms and calculations. The major categories in order:

The last section tallies up all the claimed itemized deductions and the final line is a confirmation that you are electing to itemize deductions even if it may be less than the standard deduction, in case you may be inclined to do so.

Overall, the form itself is straightforward and only a single page. The calculation of certain itemized deductions may require some extra work and recordkeeping. Most individuals opt to do it on their own, but individuals with more complex accounting issues may require some assistance, especially business owners.  Which is where we at MiklosCPA come in. MiklosCPA is a California-based accounting firm that has helped many small business owners with their accounting and tax needs through our “virtual office” team. Contact us to learn more of our services and follow us on our social media for future updates and other good-to-know postings!

Cancelled Debts? They May Still be Taxable.

Cancelled Debts? They May Still be Taxable.

by | May 1, 2019 | Business Tax, Individual Tax

Debt has become inevitable in many lives in the modern age. In fortuitous circumstances and probably after jumping through many legal hoops, debts may be cancelled and loans forgiven by a lender. However, even though you may be freed from those debts by a lender, that cancelled debt may still be taxable. Most people don’t know, but they may still end up having to pay taxes related to those cancelled debts since the balance of those cancelled debts are treated like income for tax purposes.

 

Cancelled debts

Say for example, a lender compromises with you regarding an outstanding personal loan of $8,000. They agree with you that if you pay off $4,000 of that debt, they’ll accept it in satisfaction of the loan. The remaining $4,000 of that loan now gets treated as part of your gross income for annual tax filing.

 

Bankruptcy, Gifts, and Other Exceptions

Of course, there are exceptions to keep in mind. Generally, debts cancelled in relation to a bankruptcy are excluded and not taxable on a person’s income. Debts canceled as a gift or inheritance are also not taxable. Cancelled qualified debts in real property and farming may also be excluded from being taxable.

 

1099-C

If you have any canceled debts, you should receive a 1099-C form from an applicable entity, such as a bank or a government entity like FDIC. Besides the usual identifying information, the form has an “Identifiable Event Code” section where a letter denoting what kind of event the canceled debt is related to. For example, “A” would be for Bankruptcy, “F” would be for By Agreement. You’ll need this document with your individual filing.

 

The taxability of cancelled debts may not be something commonly known. Having a knowledgeable accounting support team can help you and your business swerve around these potential financial potholes. MiklosCPA is a California-based accounting firm that helps many clients with their accounting and tax needs. Learn more of how our services can your business reach its growth potential! Contact us, and also follow our social media for more future “good-to-know” posts.

Individual Filing Gets a Facelift – The Revised Form 1040

Individual Filing Gets a Facelift – The Revised Form 1040

by | Mar 13, 2019 | Individual Tax

Tax season always brings lively moments to accountants and other tax professionals, and this year is no different with the Tax Cuts and Jobs Act (TCJA) seeing itself fully implemented. Individual filers will find a dramatically revised Form 1040. The IRS scuttled the 1040-EZ and 1040-A versions of the 1040. In its place for tax years 2018 and beyond, the 1040 will now be the main form that most taxpayers with simple income will file with, similar to how the 1040-EZ was used in the past.

Put Your Items on a Schedule

For certain other items like claiming certain tax credits, the IRS has provided six schedules to attach to the 1040.

  • Schedule 1 focuses on additional income items (e.g. capital gains, interest income) and adjustments (e.g. IRA and student loan interest deductions).
  • Schedule 2 pertains to those who owe alternative minimum tax and excess advanced premium tax repayments.
  • Schedule 3 deals with claiming nonrefundable credits such as the Foreign Tax Credit and Lifetime Learning Credit.
  • Schedule 4 concerns those owing “other taxes” like the self-employment tax and household employment taxes.
  • Schedule 5 involves “other payments and refundable credits” like excess social security and estimated tax payments.
  • Schedule 6 relates to foreign filers and third-party designees.

Popular credits like the American Opportunity Tax Credit and Earned Income Credit still require their associated attachments, such as Form 8863 for AOTC. Other schedules such as Schedule A and C haven’t changed much. Essentially, these new schedules divide up the previous 1040 form and relegate certain line items onto associated schedules to attach to the taxpayer’s 1040.

While our California-based firm, MiklosCPA, focuses on helping small and mid-sized businesses with their tax and accounting needs, we enjoy dispensing information for our readers on useful “good-to-know” developments in the accounting and tax world, such as this one. Follow us on our social media pages for more future pieces like this one, or if you wish to know more of our services, contact us!

A Window into the Home Mortgage Interest Deduction

A Window into the Home Mortgage Interest Deduction

by | Feb 22, 2019 | Individual Tax

The Home Mortgage Interest Deduction is a popular deduction that homeowners use to save on their taxes. It is a part of a category of deductions called “itemized deductions”, such as medical expenses and charitable contributions, which are all reported on Schedule A of Form 1040. As a quick refresher, gathering enough itemized deductions allows a taxpayer to deduct more than the standard deduction and lower their taxable income, which will ultimately lower their tax bill due to the IRS.

Qualifying for the Deduction

In general, to be able to claim the deduction, interest expense payments must be on a secured debt and for a qualified residence. Secured debt are things like a mortgage or land contract. Qualified residence generally means the principal residence of the homeowner. Let’s look at a typical example:

Johnny and June own a modest single-story home in Lakewood, CA. They have a mortgage on the house that they have been paying monthly for the past decade. Of the amount they pay monthly, $200 goes to the interest accrued on that mortgage. The $2,400 they pay during that year can be used for the Home Mortgage Interest Deduction.  

The mortgage holder will send homeowners who pay more than $600 in interest a Form 1098 that indicates the amount that a homeowner paid on interest during the year they can claim for the deduction.

Pushed to the (Deduction) Limit

The recently-enacted Tax Cuts and Jobs Act (TCJA) revised some provisions of the deduction amount. Prior to 2018, taxpayers could deduct up to $1,000,000 (for married, filing jointly) on interest paid towards their home mortgage. TCJA pared that limit down to $750,000 (married, filing jointly). Any interest a taxpayer paid over the limit is not deductible.

 

Utilizing the Home Mortgage Interest Deduction in tandem with other itemized deductions requires some careful planning. Small business owners often already have enough on their plate to concern themselves with. Having a supporting team cover the accounting and tax concerns of the business can free small business owners to focus on their growth goals. MiklosCPA is a California-based firm that serves many small businesses, in assorted industries, with their accounting and tax needs. If you wish to learn more about our services, contact us, and also follow us on our social media pages for future articles like this one and other good-to-know accounting posts.

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