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Tax day tips for small business owners

Written By: Ambrianna Freeze

Running a small business is a difficult endeavor. There are hundreds of things to remember every day, from paying the electricity bills to making sure that your employees are not haggling with clients for extra tips. Tax season is the last thing on a small business owner’s mind. Luckily, there are plenty of resources and tips available to help small business owners stay on top of their taxes as well as run their business efficiently.

Tax deductions for small businesses

The more deductions a business qualifies for, the fewer taxes the business has to pay. There are quite a few deductions that a small business can claim on their tax forms. They are enticing, and most of them will apply to a small business, but being overzealous is sometimes dangerous; a run-in with the IRS is never good for a small business.

Auto expenses

It may be a hassle to keep up with automobile expenses all year long, but expenses related to a private vehicle used for work can be deducted. This is great for businesses that go to their clients’ homes or spend a lot of time on the road marketing.

Bad debts

Depending on what the small business deals in, a poor investment in a client can be deductible. This does not apply to businesses that offer services.

Business entertaining

Fifty percent of business entertaining, like taking a group out for dinner or catering lunch, can be deducted as long as the entertainment was strictly and directly related to business.

Travel

Lots of travel-related expenses can be written off for small businesses. Things like plane fare, meals and even tips can be deducted at the end of the year, as long as the travel was mostly for business.

Moving expenses

Business owners that move because of their job, or business, can deduct some of their moving costs. The move would have to be over 50 miles from the person’s previous home.

Tax resources for small businesses

When running a business, it is very important that a small business owner know exactly what needs to happen before April 15th. There are three fantastic resources for small business owners that are completely free.

The IRS has a fantastic online toolbox for company owners who are a little out of their depth. There are answers to nearly every question out there.

This website is a cheap and easy way to print W2 and 1099 forms. It is simple to use and very, very cheap. Plus, the forms are filed with the IRS electronically.

This service acts like a dating site for accountants and bus
iness owners. It sets up the meetings and the data sharing is secure.

Filing taxes as a small business owner does not have to be scary. With these tools and resources, tax day can be a little less frightening and maybe even less stressful. Maybe. Either way, with the appropriate deductions and some excellent help, any small business owner can find the help they need to file their taxes like a professional.

Federal income tax return amendment in relation to state taxes

Written By: Martina James

For the amendment of a federal income tax return, the IRS provides Form 1040X, Amended Individual U.S. Income Tax Return. A federal income tax return can be amended due to errors or omissions on the originally filed return. For example, an individual had several jobs in one year and received more than one W-2 Form. He files his income tax return and two weeks later receives a W-2 Form in the mail from an employer he had forgotten about because he only worked for this particular employer for a short time period. The additional income from this W-2 Form will change the amount of income and the amount of taxes owed or the refund due to him on his return. It is advisable to amend the previously filed return due to the changes caused by the omitted W-2. An amendment may also be necessary for other reasons, such as change in filing status, number of dependents and forgotten or overlooked credits and deductions.

After filing an amended federal income tax return for reasons such as the ones mentioned above, or for other reasons, the question of whether it is necessary to amend the state income tax return as well presents itself. If errors and omissions are discovered on a previously filed federal income tax return before the state income tax return is filed, Form 1040X, Amended Individual U. S. Income Tax Return should be filed, and after all corrections are made, the state income tax return can be filed as usual with the amended federal return in hand. If errors and omissions are discovered on a previously filed return after the state income tax return has been filed, it is recommended to amend the state tax return as well for reasons that will be discussed below.

Although all states have different forms and schedules for filing state income tax returns, the starting point for most state tax forms is the Federal Adjusted Gross Income (AGI). If the AGI changes on an amended federal income tax return, it also changes on the state income tax return. Therefore, it is necessary to amend the state income tax return as well. However, even if the amount of the Federal Adjusted Gross Income does not change on an amended federal income tax return, as it could be the case in an amendment due to a change in the number of dependents or a change in filing status, the state income tax return should be amended regardless. Any change on an amended federal income tax return may change the amounts on state-specific forms for credits and deductions on a state income tax return in the taxpayer’s favor.

No matter what the reason for filing Form 1040X, Amended U.S. Individual Income Tax Return may be, it is good practice to amend the state income tax return for the same year as well. It will take about 8 to 12 weeks to receive an additional refund check because amended returns can only be filed by mail and are processed manually.

Federal income tax return amendment in relation to state taxes

Written By: Martina James

For the amendment of a federal income tax return, the IRS provides Form 1040X, Amended Individual U.S. Income Tax Return. A federal income tax return can be amended due to errors or omissions on the originally filed return. For example, an individual had several jobs in one year and received more than one W-2 Form. He files his income tax return and two weeks later receives a W-2 Form in the mail from an employer he had forgotten about because he only worked for this particular employer for a short time period. The additional income from this W-2 Form will change the amount of income and the amount of taxes owed or the refund due to him on his return. It is advisable to amend the previously filed return due to the changes caused by the omitted W-2. An amendment may also be necessary for other reasons, such as change in filing status, number of dependents and forgotten or overlooked credits and deductions.

After filing an amended federal income tax return for reasons such as the ones mentioned above, or for other reasons, the question of whether it is necessary to amend the state income tax return as well presents itself. If errors and omissions are discovered on a previously filed federal income tax return before the state income tax return is filed, Form 1040X, Amended Individual U. S. Income Tax Return should be filed, and after all corrections are made, the state income tax return can be filed as usual with the amended federal return in hand. If errors and omissions are discovered on a previously filed return after the state income tax return has been filed, it is recommended to amend the state tax return as well for reasons that will be discussed below.

Although all states have different forms and schedules for filing state income tax returns, the starting point for most state tax forms is the Federal Adjusted Gross Income (AGI). If the AGI changes on an amended federal income tax return, it also changes on the state income tax return. Therefore, it is necessary to amend the state income tax return as well. However, even if the amount of the Federal Adjusted Gross Income does not change on an amended federal income tax return, as it could be the case in an amendment due to a change in the number of dependents or a change in filing status, the state income tax return should be amended regardless. Any change on an amended federal income tax return may change the amounts on state-specific forms for credits and deductions on a state income tax return in the taxpayer’s favor.

No matter what the reason for filing Form 1040X, Amended U.S. Individual Income Tax Return may be, it is good practice to amend the state income tax return for the same year as well. It will take about 8 to 12 weeks to receive an additional refund check because amended returns can only be filed by mail and are processed manually.

Federal income tax return amendment in relation to state taxes

Written By: Martina James

For the amendment of a federal income tax return, the IRS provides Form 1040X, Amended Individual U.S. Income Tax Return. A federal income tax return can be amended due to errors or omissions on the originally filed return. For example, an individual had several jobs in one year and received more than one W-2 Form. He files his income tax return and two weeks later receives a W-2 Form in the mail from an employer he had forgotten about because he only worked for this particular employer for a short time period. The additional income from this W-2 Form will change the amount of income and the amount of taxes owed or the refund due to him on his return. It is advisable to amend the previously filed return due to the changes caused by the omitted W-2. An amendment may also be necessary for other reasons, such as change in filing status, number of dependents and forgotten or overlooked credits and deductions.

After filing an amended federal income tax return for reasons such as the ones mentioned above, or for other reasons, the question of whether it is necessary to amend the state income tax return as well presents itself. If errors and omissions are discovered on a previously filed federal income tax return before the state income tax return is filed, Form 1040X, Amended Individual U. S. Income Tax Return should be filed, and after all corrections are made, the state income tax return can be filed as usual with the amended federal return in hand. If errors and omissions are discovered on a previously filed return after the state income tax return has been filed, it is recommended to amend the state tax return as well for reasons that will be discussed below.

Although all states have different forms and schedules for filing state income tax returns, the starting point for most state tax forms is the Federal Adjusted Gross Income (AGI). If the AGI changes on an amended federal income tax return, it also changes on the state income tax return. Therefore, it is necessary to amend the state income tax return as well. However, even if the amount of the Federal Adjusted Gross Income does not change on an amended federal income tax return, as it could be the case in an amendment due to a change in the number of dependents or a change in filing status, the state income tax return should be amended regardless. Any change on an amended federal income tax return may change the amounts on state-specific forms for credits and deductions on a state income tax return in the taxpayer’s favor.

No matter what the reason for filing Form 1040X, Amended U.S. Individual Income Tax Return may be, it is good practice to amend the state income tax return for the same year as well. It will take about 8 to 12 weeks to receive an additional refund check because amended returns can only be filed by mail and are processed manually.

Tax brackets for singles in 2014

Written By: Doreen Martel

Those who are salaried employees, hourly employees and those who are self-employed know that as the year wraps up, tax time will soon descend upon them. Some preparation for the filing due in April of 2015 may be necessary, especially for those in very low or very high tax brackets. It is typically helpful to understand what the taxable rates are well before preparing an annual tax return.

Single filer tax brackets

Single taxpayers often have to face steeper taxes than their married counterparts. For the tax year ending in December of 2014, single taxpayers can expect the following tax brackets.

  • Earnings up to $9,075 – tax bracket is 10%
  • Earnings between $9,076 and $36,900 – tax bracket is 15%
  • Earnings between $36,901 and $89,350 – tax bracket is 25%
  • Earnings between $89,351 and $186,350 – tax bracket is 28%
  • Earnings between $136,351 and $398,350 – tax bracket is 33%
  • Earnings between $398,351 and $400,000 – tax bracket is 35%
  • Earnings over $400.001 – tax bracket is 39.6%

According to the Internal Revenue Service, a person who is married during 2014, even if it is the last day, has the legal right to file as married which can reduce their overall tax burden. 

Difference for head of household

The Internal Revenue Service allows a single person to qualify as a head of household if they are financially responsible for a “qualifying person.” Under the rules, qualifying persons are persons for whom the taxpayer may claim a deduction and can include:

  • Children – whether a person was married or not, if they maintained a home for at least six months out of the tax year and have a child they may qualify for head of household. This includes children born during the year (through December 31) provided the person may claim the child as a dependent. There is an important note to this as well: If a child has been kidnapped and remains missing for the entire year, they may still be claimed by the parent for tax purposes. 
  • Parents – if a child is caring for a parent and may claim that parent as a dependent provided they are paying for more than one-half of their upkeep. Support may include paying for nursing home care or other long-term care of the parent provided the parent is not filing their own tax return and/or can be claimed as a dependent on the return of another taxpayer.
  • Other – siblings, adopted children, foster children, grandparents, nieces and nephews and even in-laws can be considered a qualifying person provided the support requirements are met.

There is a significant difference in tax brackets for those filing head of household versus single. The income differences are:

  • Single person at a 10% tax bracket could earn a maximum of $9,075 while a head of household filer could earn $12,950
  • Single person at 15% tax bracket could earn a maximum of $36,900 while a head of household filer could earn $49,400 
  • Single person at 25% tax bracket could earn a maximum of $89,350 while a head of household filer could earn $127,550
  • Single person at 28% tax bracket could earn a maximum of $186,350 while a head of household filer could earn $206,600
  • Single person at 33% tax bracket could earn a maximum of $405,100 while a head of household filer could earn up to $405,100
  • Single person at 35% tax bracket could earn a maximum of $406,750 while a head of household filer could earn up to $432,200

During this year, there have been a number of changes to the tax code. In addition to potentially saving money by filing head of household, taxpayers should be certain they do not miss any important deductions or personal exemptions offered through the tax code. 

Tax brackets now and then

Written By: Martina James

The US tax code is an extensive and complex document with over 1 million words. However, the US tax code only includes the statutes that have been passed by Congress. Since the IRS is the appointed agency that has to set up the rules to implement the statutes that have been passed by Congress, the IRS tax code is an even more extensive document with about 4 million words and it is only getting longer each year. One of the most important rules contained in the tax code is the rule about how much of an individual’s income is taxable and at what rate. This is where tax brackets come in.

The US uses a progressive tax system, which means that the more income an individual taxpayer has, the higher his overall taxes are. Tax brackets are used to show individuals at what percentage rate their income is taxed. This also depends on the filing status that is being used. Tax brackets change frequently. In 2014, the following tax brackets will be used for taxes due April 15, 2015.

                                                         Married Filing
                                Married Filing       Separately/        Head of
             Single              Jointly              Qualifying        Household
                                                           Widow(er)

10%    Up to $9,075     Up to $18,150     Up to $9,075     Up to $12,950

15%    $9,076 to          $18,151 to          $9,076 to          $12,951 to
           $36,900            $73,800              $36,900            $49,400

25%    $36,901 to        $73,801 to          $36,901 to        $49,401 to
           $89,350            $148,850            $74,425            $127,550

28%    $89,351 to        $148,851 to        $74,426 to        $127,551 to
           $186,350          $226,850            $113,425          $206,600

33%    $186,351 to      $226,851 to        $113,426 to      $206,601 to
           $405,100          $405,100            $202,550          $405,100

35%    $405,101 to      $405,101 to        $202,551 to      $405,101 to
           $406,750          $457,600           $228,800          $432,200

39.6% $406,751         $457,601            $228,801         $432,201 
           or more           or more              or more         &n
bsp; or more

Tax brackets have considerably changed over the course of history and in all likelihood will continue do so. The very first tax brackets in the United States became effective in 1862. There were two: the first one was 3% for income up to $10,000 and the second was 5% for income over $10,000. These tax brackets stayed in place until 1872, when the government did not need the money from the collected taxes anymore since the Civil War was over. The taxes were then nullified. It was not until the 16th amendment gave the federal government the right to levy income taxes that tax brackets were re-established in 1913, and they have been continuously effective since then.

It is evident from the history of tax brackets that their rates increase in times of crisis and economic hardship and they decrease when the economy is stable. In 1913, for instance, the tax brackets ranged from 1% to 7%. In 1916, they ranged from 2% to 15%. However, in 1917, the War Revenue Act increased tax brackets dramatically to a range between 2% and 67%. During the Roaring 1920s, the economy was doing extremely well and tax rates were cut, only to increase again during the Great Depression in the 1930s, when the lowest tax bracket was 4% and the highest 72%. World War II also brought an increase of tax rates. In 1944, tax brackets ranged between 23% and 94%. The number of tax brackets also has fluctuated over time. The highest number used was in place during the Great Depression, when there were 55 tax brackets. The Tax Reform Act of 1986 decreased taxes as well as the number of tax brackets from 15 used in 1986 to 7 used in 1987, the same number that will be used during th
e tax season in 2015.

Knowing the difference between federal taxes and state taxes

Written By: Martina James

Every year, individuals all over the United States file their income tax returns. It is an inevitable task that involves many forms, schedules and personal information. Some taxpayers have their return prepared by professionals in the tax field such as certified public accountants and tax preparation companies; others use tax preparation software that is readily available these days. Federal and state income tax returns are both filed, but the difference between the two is not always clear to taxpayers. However, in order to save money and time, it is important to understand what the differences are between them and how they correspond with each other. Nobody wants to over or underpay on his/her tax returns.

Every citizen and permanent resident of the United States is subject to federal income taxes. These taxes have to be paid on all income worldwide from whatever sources, unless such income is excluded from taxation by law. The most common forms used to file a federal tax return are Forms 1040, 1040A and 1040EZ. The tax system in the US is a progressive system, which means the more money is earned, the more money has to be paid in taxes. Social Security and Medicare taxes, as well as federal income tax, are withheld on every paycheck earned throughout the year. If, at the end of the year, not enough tax was withheld to meet tax liability, additional money is owed to the IRS. If too much was paid in taxes, the IRS owes money back to the taxpayer in the form of a federal income tax return. Federal tax laws are written and passed by Congress and the president. The IRS enforces the tax laws, collects taxes owed, issues refund checks and transfers the money collected to the US D!
epartment of the Treasury.

Taxes are also imposed on the state and local level. There are only seven states in the US that do not collect income tax and two additional states that only impose income tax on income from interest and dividends. Most people, therefore, have to file a state tax return along with their federal tax return. Each state’s government levies their own taxes, and each state’s tax forms are different. However, in most cases, the state return form will ask for the federal adjusted gross income as a starting point to calculate state taxable income after applying all state-specific deductions, credits and adjustments. Most states, like the federal government, use the progressive tax system, and forms used to file a state tax return look similar to federal forms. Some states impose a flat rate, which means that a certain amount is paid in taxes no matter how high an individual’s income is. In those states, the forms used to file a state tax return look very different.

While federal tax laws apply to every citizen and permanent resident of the United States in the same way, state tax laws are unique to the state in which a taxpayer resides. Both are important, and neither one should be neglected.

Amending a federal income tax return

Written By: Martina James

When filing taxes, it is important to ensure that all the correct information is reported on the income tax return. Mistakes, however, can happen, and the need to adjust or amend an income tax return may arise. This may be necessary for several reasons, including incorrect reporting of filing status, number of dependents, total income and overlooked credits and deductions. In the case of simple math errors on an income tax return, or documents that weren’t turned in with the return such as W-2 forms and specific schedules, amendment is not necessary. The IRS will adjust small math errors and usually request the missing documents.

 

Form 1040X, Amended U.S. Individual Income Tax Return, is provided by the IRS to correct errors or omissions on previously filed returns where Forms 1040, 1040A and 1040EZ were used. It is important to state the tax year for which a return is being amended on Form 1040X. If more than one year’s return is being amended, one Form 1040X should be prepared for each year and be mailed in separate envelopes. In case the changes on the original return involve other forms or schedules, these schedules or forms should be attached to the amended return Form 1040X. Amended returns are processed manually by IRS employees and cannot be filed electronically. Processing time for amended returns can take from 8 to 12 weeks.

 

Form 1040X has three columns. Column A contains the amounts reported on the original return, Column C contains the corrected amounts and Column B contains the difference in the amounts of Columns A and C. This difference in amounts has to be justified. For this purpose, there is a space on the back of Form 1040X where changes have to be explained and reasons for the changes have to be given. The amended income tax return has to be prepared in accordance with tax laws, schedules, rules and rates applicable to the tax year for which it is being amended. When amending a joint return, personal information such as names and social security numbers should be shown in the same order as given on the original return. If the filing status is changed from married filing separately into married filing jointly and one of the spouses did not file an original return, the name and social security number of the spouse that did file an original return should be listed first. While a switch!
from married filing separately to married filing jointly is accepted by the IRS, a switch the other way around is not allowed.

 

If an amended return is filed for an additional refund, the first refund check may be cashed while waiting for the additional refund. If additional taxes are owed, it is recommended to pay the amount due as soon as possible in order to lessen interest and penalty charges. Form 1040X, Amended U.S. Individual Income Tax return, should be filed within three years of the date the original return was filed to claim a refund or within two years of the date the tax was paid, whichever date comes later.

Calculating federal tax withholding

Written By: Doreen Martel

Regardless of size, business owners who have one or more employees that are paid an hourly wage are typically required to withhold federal taxes as well as other taxes. It is important to keep in mind that if an employer depends on the services of independent contractors, they will not be required to withhold any type of tax.

Calculating withholding taxes

In order to calculate the amount of taxes that must be withheld from paychecks, there is certain information an employer must obtain from the employee. Generally speaking, this is accomplished by having the employee fill out a Form W-4.

In order to calculate the amount of withholding accurately, the following information must be readily available:

    • How often employee is to be paid
    • Whether the employee is married or single
    • How many exemptions the employee plans to claim
    • How much the employee will earn

State taxes also come into play

Depending on the state, there may also be requirements for certain withholdings. In addition to federal income tax withholding, employers may also be required to withhold the following:

    • Social Security taxes
    • Medicare taxes
    • Federal and or state unemployment taxes (FUTA)
    • Taxes imposed by the state or municipality
    • Some states may require state disability insurance tax be withheld

Internal Revenue Service guidance

The Internal Revenue Service provides easy-to-follow instructions to employers for the purposes of calculating the proper amount of withholding. There are two basic types of calculations that may be used to properly withhold taxes. They are:

    • Using wage bracket tables – wage bracket tables allow employers to easily identify how much taxes to be withheld depending upon the wage bracket, number of exemptions, employee marital status as well as what payroll period the company is using. These tables provide for weekly, monthly, semimonthly, bimonthly or for daily income calculations.
    • Percentage tables -while this method is also common, it is slightly more complicated than using wage bracket. While they are available for the same payroll periods, there are separate sets of tables for employees depending upon their marital status. Rather than provide a specific dollar amount to be withheld, a percentage is presented to the employer.

Nontaxable income

Employers must also be aware of what must be deducted prior to calculating federal or state withholding. In general, contributions to 401(k) plans as well as health insurance plans are removed prior to calculating withholding. Small companies who do not use a payroll service will generally need to review the rules prior to their first set of payroll deductions being calculated.

The amount of money withheld from an employee’s paycheck must be segregated and paid to the proper taxing authority. In the case of federal taxes, the money would be paid to the federal government and in the case of state withholding those funds will be paid to either the state or locality where they are due. In many cases, these taxes must only be paid on a quarterly basis but must be reported accurately.

At the end of the year, employers are required to issue a W-2 form which will provide the employee a complete summary of all withholding throughout the year to be used in preparing their tax returns.

The following PDF documents provide employers the information they need to accurately withhold taxes:

Publication 15 (Circular E), Employer’s Tax Guide
Publication 15A Employer’s Supplemental Tax Guide

These publications are for the 2014 tax year.

Amending a filed tax return

Written By: Doreen Martel

When filing an income tax return, the final statement on the document is “signed under the penalties of perjury” meaning the information contained in the document is accurate based on the taxpayer’s knowledge at the time. Unfortunately, mistakes do happen and when they do a taxpayer may be required to file an amended return.

Understanding amended returns

An amended tax return does not have to be filed in the event that simple errors occur. Certain items, such as mathematical mistakes or failure to attach forms will not require an amended return to be filed. However, there are some specific instances where a taxpayer may benefit from filing an amended return. Some of the common reasons include:

  • Missing dependent – a new baby could result in a taxpayer failing to add a dependent a tax return. In this instance, chances are the taxpayer may be entitled to an additional refund.
  • Late forms – in some instances, a taxpayer may receive an important document that should have been filed but was unavailable. This may result in either an additional refund, or in additional tax being owed.
  • Missed deductions – additional deductions that may have been discovered by a taxpayer after filing their tax return could mean an additional refund. However, without filing an amended return, it would be impossible to recuperate that refund.

The legalities of amended returns

In fact, while it is typically a good idea to file an amended return, a taxpayer is under no obligation to do so. However, in the event an amended return may require additional tax payment to the Internal Revenue Service, should the IRS find that mistake later, the taxpayer may be held liable and prosecuted for filing a fraudulent return.

Individual state tax returns

In nearly all cases, filing an amended federal tax return will also require a taxpayer to file a new state return. For most taxpayers, this may also result in an obligation to pay additional state tax as well as the penalties for late payment.

The process of filing an amended return

Unlike a preliminary tax return, amended tax returns may not be filed electronically. In fact, the Internal Revenue Service has specific requirements regarding filing more than one amended return. Specifically, if a taxpayer is amending more than one year’s tax return each must be mailed in a separate envelope.

To file an amended return, taxpayers will need the following:

  • Filed return (Form 1040, Form 1040EZ, Form 1040C)
  • Form 1040X
  • Additional documents that must be filed such as K-1, 1099s or new W-2 forms
  • Accurate tax tables which may be obtained through the IRS website

Once the amended return has been prepared, the taxpayer should review carefully to ensure there are no missed deductions, no math errors and when necessary attach tax underpayments to the form prior to mailing to the IRS. Once the 1040X has been completed, the taxpayers should also review state income tax filings for accuracy and if warranted fill out the appropriate forms to amend that return as well.

Making a mistake on a tax return is not the end of the world; simple mistakes typically do not require an amended return however any mistakes that could result in a significantly higher refund or amount of tax owed should result in an amended tax return being filed as quickly as possible.