A question I get a lot this time of year is, “If I didn’t make any money do I even need to report it on my taxes??” And my answer is YES! Here’s why:
1. If you put money into starting a new business you can deduct the startup expenses. There can be a lot of costs to get a business off the ground. It is important to keep track of all of these expenses so they can offset income later.
2. Certain losses, such as those from rental properties, can offset other types of income. For example, if you have a rental condo that lost $5,000 and you have a job where you get $40,000 on a W-2, your income would net out to $35,000.
3. Sometimes businesses can generate what we call net operating losses. This is when the business’s deductions are bigger than it’s income. While it stinks to lose money in business, these losses can be applied to other years and offset income- or even generate tax refunds!
4. Investment losses – up to $3,000 in capital losses can offset other income (similar to the rental property example above). If you have more than $3,000 in capital losses you can carry them forward until they are used up.
The key to taking advantages of these money losing situations is to have good documentation, and the help of a knowledgeable CPA. Contact me for a free consultation!
Usually when you work with a payroll company, the last thing you expect is for them to not send your tax payments into the IRS. Unfortunately, in a recent court case, when a payroll company declared bankruptcy, that is exactly what happened.
In this particular case, when the payroll company went under it held client funds that were supposed to be paid to the IRS. Some clients received IRS notices that they still owed money while others never received those notices because they went straight to the payroll company. The bankrupt payroll company told some clients it was an IRS error. Regardless, the clients’ money was gone- and they still owed the taxes.
To reduce the risk of something like this happening to you, follow these steps:
Well if you filed your taxes and you feel like the tax bill you were handed was an unfair amount, you are not alone. According to a recent gallup poll only 55% of Americans think their income taxes are fair. Turns out that there isn’t a big difference in this perception based on income or demographics, but rather political affiliation- democrats thinking it more fair, republicans less. Not shockingly, more people this year compared to last think that their taxes are going to go up.
There is some interesting information and graphs in the poll. Check it out.
Have you ever wondered how your state comes up with the amount of unemployment tax you pay for your employees? Generally the formula is:
taxable wages up to the wage base X tax rate = state unemployment tax
Taxable wages up to the wage base simply means that you take the wages for an employee for the quarter and see if it is more or less than the wage base. If it is less than the wage base (ie your employee was paid $6,000 in the quarter and the wage base is $7,000) than all of the wages are taxable. If it is more than the wage base (ie your employee was paid $8,000 in the quarter and the wage base is $7,000) than the taxable portion is only up to the wage base ($7,000 in this example).
Keep in mind the wage bases apply for the calendar year. However, state payroll tax returns for unemployment are due quarterly. This means that each quarter you will need to determine if the employee has reached the wage base cumulatively. Using the example from above, if an employee was paid $6,000 in the first quarter and another $6,000 in the second quarter and the wage base is $7,000, then the taxable income would look like this:
Quarter Taxable Wages
If you are curious what the different wage bases are for different states in different years, this is a great resource that I found from the folks at the American Payroll Association.
Don’t forget that you need file state unemployment tax forms for household employees! Learn more about that process here in an article I wrote for Kveller.com.
With all of the changes to the tax code that were signed earlier this year the IRS is scrambling to catch up. If you are a taxpayer that claims one of the education tax credits- the American Opportunities Credit and the Lifetime Learning Credit- using Form 8863 you will need to wait until mid February to file your return. This is because the IRS needs time to test their systems and ensure proper computations. Read more about it here.