Unemployment and Other Income – Yes That’s Taxable

Unemployment and Other Income – Yes That’s Taxable

by | Sep 7, 2020 | Business Tax, Individual Tax

 

Income may come from a lot of sources. Most of it is taxable. Taxpayers often report income on their tax returns from things such as wages, dividends from stocks, and business-related income. However, there are some not-so-commonly known income sources that are taxable, such as income from unemployment. Here’s a list of some “yes-that’s-actually-taxable” income:

  • Unemployment benefits – A hot topic as of late. Many people who suffered a job loss or furlough during this pandemic rely on this financial lifeline. Just as if they had earned a wage, unemployment money is taxable. Submitting a W-4V Form will allow a withholding to be applied to the unemployment income.
  • Gains from the sale of property – The capital gains made from the sale of property like buildings and stocks are taxable. Notably, this also applies to the sale and exchanges of virtual currency like bitcoin. Check out our article on capital gains for more info.
  • Gambling winnings – Lady Luck have a thing for you? Well you’ll be on the hook for the income taxes connected to those sweet, sweet winnings. Winners are issued a Form W-2G to report those winnings above a certain threshold on your income tax return.
  • Bartering – Exchanges of services, such as a plumber doing plumbing work for an accountant in exchange for accounting services, is consider taxable and needs to be reported as income. Generally gets reported on Schedule C.
  • Alimony (paid to you) – Alimony money paid to you in a divorce arrangement is treated as taxable income. Report any alimony money on the Form 1040 Schedule 1 on line 2a.
  • Loan forgiveness – Worked a deal with a bank or collection agency on an outstanding debt to have it forgiven? Well, depending on some circumstances, that forgiven debt balance may be taxable income. Check out our article on cancelled debts for more info.

Generally, it may be easier to consider your sources of income as most likely taxable unless otherwise specifically exempted, such as child-support money or qualified gains made from the sale of your home.

 Figuring taxable income can get complicated. Business owners already have enough on their plate running and expanding their business. Having the right backup can help move your business forward, and we at MiklosCPA can help you. We are a California-based firm that supports emerging businesses with their tax and accounting needs so owners can focus on their business goals and dreams. Learn more how we can help your business by giving us a call. Also follow our social media pages for future “good-to-know” articles like this and other interesting tax tidbits.

Income Tax? Sales Tax? – A Plethora of Different Taxes

Income Tax? Sales Tax? – A Plethora of Different Taxes

by | Aug 7, 2020 | Business Tax, Individual Tax

An old college acquaintance recently made a fiery statement on social media stating that a certain kind of nonprofit “is not taxed” and that they should “lose their tax exempt status.” For the sake of peace, I won’t specify what kind of nonprofit it is. As for the matter of that “lose their tax exempt status” statement, it demonstrates a common, hazy misconception that taxes are all the same. 501c3 nonprofits are exempt from INCOME tax, but may be (and usually are) subject to other taxes, such as sales tax and employee taxes.

In reality, there are actually many different types of taxes. It’s worth getting a general picture where those taxes may appear in your daily life.

Just My (Tax) Type

Generally speaking, taxes can be broadly split into these categories:

  • Income Taxes
    • Taxes based upon your income earned. Factors such as the type of income, how it was earned, and where it was earned often affect how your income tax is calculated. This tax exists at the federal and state level. Some states do not have an income tax. The IRS is the most well-known agency involved in income tax. Nonprofits may qualify for an “exemption” from income tax through the IRS and state income tax agencies.
  • Consumption Taxes
    • Very broad category of taxes based on taxable transactions that take place. Some common ones are:
      • Sales Tax – taxes applied often to retail sales. Does not exist at the federal level but almost all states enact some form of sales tax.
      • Use Tax – taxes applied to the use of goods where a sales tax would normally apply. E.g. purchasing items from out-of-state with no sales tax applied. Exists often at the state level.
      • Excise tax – A tax applied to a specified type of good, such as alcohol, gasoline, and cigarettes. Exists usually at the state level.

 Property Taxes

    • Taxes based upon the value of owned property or any improvements made upon it. Often exists at the county and city level.
  • Payroll Taxes
    • Otherwise known as “employee taxes.” These taxes apply towards business owners with employees. Exists at both the federal and state level. The taxes collected go to assorted unemployment and social security programs.

 

There’s quite a plethora of taxes that can affect our daily lives! Business owners should especially be aware of these taxes, and we at MiklosCPA can help! MiklosCPA supports business owners in emerging and mid-sized firms with their accounting and tax needs. We got your back so you can focus on what drives you, your business! Give us a ring (or email) and learn more how we can help your business. Meanwhile, let’s keep in touch and follow our social media pages.

Let’s Make a Deal – the Like-Kind Exchange

Let’s Make a Deal – the Like-Kind Exchange

by | Jul 15, 2020 | Business Tax, Individual Tax

For decades, the Internal Revenue Code allowed for “section 1031” exchanges, more commonly known as like-kind exchanges, which allowed business owners of a plethora of “qualified property” such as real estate, vehicles, and livestock to make arrangements to swap equivalent property without incurring an income tax liability. Inevitable discrepancies and questionable exchanges cropped up over the years. This led to revisions following the enactment of the Tax Cuts & Jobs Act of 2017. Like-kind exchanges became limited solely to business or real estate investment property. However, utilized correctly, it still can be advantageous for business property owners.

Like-Kind Property?

Currently, only business or real estate investment property qualify for like-kind exchanges. Personal property like your home cannot be used in like-kind exchanges. The property must generally be of the same nature or character, even if they may differ in quality or grade. For example:

Wendy owns an apartment complex in Buena Park, CA built in 2015 worth $3.5 million. Her business friend, Irene, owns an apartment complex worth also approximately $3.5 million. It is in well-kept condition, built in 2008, and is located in Indio, CA. The two own qualified property in these circumstances and can make arrangements for a like-kind exchange.

 

Like-kind exchanges may also allow the seller to defer depreciation recapture, which tends to increase the taxability of that property if it were in a regular sale. Utilizing like-kind exchanges may also come with advantages in relation to state taxes, depending on the applicable laws and regulations that the like-kind exchange takes place in. Form 8824 is used to report any like kind exchanges.

 

Like-kind exchanges can help property owners save time from going through the extra steps of making a sale and acquiring new property. However, figuring a roadmap to a successful like-kind exchange may require some guidance from a team knowledgeable of any anticipated tax concerns, such as us here at MiklosCPA, a California-based firm. MiklosCPA supports clients of emerging and specialized firms with their tax and accounting needs. Drop us a line to learn know more of our services. Or, let’s stay in touch & follow our social media pages.

Some Common “Not-Really” Deductible Expenses

Some Common “Not-Really” Deductible Expenses

by | May 27, 2020 | Business Tax, Individual Tax

Chatting with colleagues, we’ve noticed some interesting trends in the inquiries we get regarding itemized deductible expenses. The Tax Cuts & Jobs Act of 2017 shook up decades of common knowledge of formerly deductible expenses, such as moving expenses. Here is a list of some common “Not-actually” deductible expenses:

  • Donations to non-501c3 nonprofits – A business owner received mail from a well-known environmental nonprofit soliciting donations. He ordered his bookkeepers to donate a neat sum to that nonprofit. However, weeks later when they were reviewing expenses with the boss, they did a little research and realized that donation did not qualify as a deductible expense! The environmental nonprofit was classified as a 501c4 “social welfare” nonprofit entity and not a 501c3 nonprofit where donations are eligible for an income tax deduction. Before donating to a nonprofit, utilize the “Tax exempt Organization search” by the IRS to see the type of nonprofit that entity is and ensure they’re a 501c3 so that donations are tax-deductible.
  • Commuting expenses – One client described how she drives 55 miles one way from her home to her work, which has been a common reality for Southern Californians for some time. Unfortunately, commuting expenses from your home to your place of work aren’t income tax deductible. However, expenses related to temporary work locations from your home may be tax deductible, e.g. working temporarily at a project site location for a week while commuting from home every day.
  • Over-the-counter medicine – Deductible medical expenses cover a wide spread, but one notably common misconception is the cost of over-the-counter medicine. Example: if your doctor recommends an over-the-counter pain medication for lower back pain, you cannot deduct the cost of that medicine. Medicine has to be prescribed by your doctor and paid out of pocket to be deductible.
  • Moving expenses – Prior to 2018, certain moving expenses were deductible if you were relocating due to work. However, the deduction is now currently only available to active military taxpayers through 2025.
  • Casualty & theft losses – Another deduction shaken up by the TCJA. Before it went into effect in 2018, taxpayers were able to claim an itemized deduction on losses related to theft & casualty losses such as a faulty toaster suddenly causing your house to burn down. Currently, casualty & theft losses can only be claimed if the federal government declares a “disaster zone” in your area.

 

MiklosCPA has always been about helping people stay well-informed, whether through the details of a client’s bookkeeping or informative pieces for curious readers on interesting tax tips. As a California-based CPA firm, we help emerging and specialized firms navigate the plethora of tax and accounting questions they will eventually face. How can we help your business? Schedule a time and let’s chat. Want to stay in touch? Follow our social media pages.

Qualified Business Income Deduction – An Overview… Part 2

Qualified Business Income Deduction – An Overview… Part 2

by | Apr 29, 2020 | Business Tax, Individual Tax

The Qualified Business Income (QBI) Deduction is a relatively new income tax deduction available to certain types of businesses. If you’re just joining us, check out our previous article for some background on the QBI deduction and what businesses and types of income qualify. Today, we’re looking at the income thresholds taxpayers need to be within to qualify, what forms to use, and where QBI gets calculated into federal income tax.

Making the Cut

Assuming the business income met the qualifications in our previous article, QBI is also dependent on the income of the individual taxpayer filing their return. For 2019, single filers with taxable income of less than or equal to $160,700 ($321,400 for married filing jointly) can take the full 20% deduction. Single filers with taxable income up to $210,725 ($421,400 for married filing jointly) can claim a reduced QBI deduction.

As for the specified service, trade or businesses (SSTBs) mentioned in the previous article, if an SSTB’s taxable income is within these thresholds, they may qualify for QBI up to certain applicable percentages and exceptions. So let’s take an example:

Ted is the sole owner of a small online apparel shop. After adding together the income of $60,000 earned from his business with the income from his regular job, his taxable income totals to $150,000 to qualify for the full deduction. Using the $60,000 earned from his business, Ted calculates that his QBI deduction will be $12,000 ($60k x 20%).

Making the Claim

QBI is claimed by using Form 8995. Taxpayers with income above the thresholds for the full deduction use Form 8995-A. The QBI is then reported on line 10 of the individual Form 1040. In the income tax formula, the QBI is calculated as a “below the line” deduction (like an itemized deduction) to lower the AGI towards the individual’s taxable income and ultimately towards what someone will owe in taxes.

Small and emerging businesses can definitely take advantage of the new Qualified Business Income deduction. Trusted accounting firms can help those business make the most of those and other deductions. MiklosCPA has helped many emerging businesses with their tax and accounting needs. Learn more how we may help YOUR business & drop us a line. Also check out our social media pages for additional tax tidbits.

Qualified Business Income Deduction – An Overview

Qualified Business Income Deduction – An Overview

by | Apr 1, 2020 | Business Tax, Individual Tax

There’s a new deduction on the block, if you haven’t heard of it already. Another new item from the Tax Cuts & Jobs Act of 2017, the Qualified Business Income (QBI) Deduction allows certain businesses to claim a deduction of up to 20% of qualified business income. That deduction operates similarly to itemized deductions by reducing the income that will be used to calculate what you owe in taxes. As you may expect, there’s a lot to unpack in the calculation of that 20% QBI deduction.

Qualify for QBI

The QBI deduction is available to sole proprietorships, partners in a partnerhsip, or the shareholders in S corporations. Certain trusts and estates, such as Real Estate Investment Trusts (REITs), may also claim QBI. Corporations cannot claim QBI. Generally, QBI is geared towards individual taxpayers with small businesses formed as “pass-through” entities such as the aforementioned examples.

Specified service, trade or businesses (SSTBs) may be unable to claim QBI as well. See Form 8995 Instructions for a full list. Some businesses to note that do not qualify:

  • Health
  • Law
  • Accounting
  • Consulting
  • Investing & investment management

However, if an SSTB is below certain income thresholds, they may qualify for QBI. More on those thresholds later.

Adding up for QBI

QBI is the net amount of qualified income, gains, deductions, and losses connected to the operations of a trade or business in the United States. To figure your QBI, you should consider all related expenses and income to your qualified business. However, certain items cannot be included in your QBI calculation such as:

  • Interest income not related to the business.
  • Non- Effectively Connected Income (ECI) with the USA.
  • Amounts received as guaranteed payments (such as partners in a partnership)
  • Capital gains or losses
  • Dividends and dividend equivalents

QBI is a new tax frontier to grasp, so this is a good place to pause. Join us here at MiklosCPA for part 2 as we drill down further into the how QBI is calculated and where to report it.

MiklosCPA is a California based CPA firm that works with emerging businesses in various industries with their accounting and tax needs. Check out our social media pages for additional tax tidbits. Or if you’d like to learn more how we can help YOUR business, drop us a line.

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