Frequently Asked Questions

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photo IRS tag on drawerIf you have a corporation (or an LLC), you can elect S Corporation status by filing a form with the IRS. You have to obtain approval form the IRS before you can file taxes as an S Corporation. Fill out and file IRS Form 2553, Election by a Small Business Corporation or use a service to file the form for you.

Not all corporations can obtain S Corporation status, so check the regulations.

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Categories: Legal, Taxes

photo IRS Schedule CAs a sole proprietor, you generally use Schedule C or Schedule C-EZ Profit or Loss from a Business, and file it with your personal Form 1040 tax return.

Your income will be subject to the self-employment tax of 15.3% on net earnings.

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Category: Taxes

yield sign with IRS on itMaking a donation using a text message is easy and being increasingly used by charities to reach a wider audience quickly.

For tax deduction purposes you still need to document the contribution to deduct it, so check your phone bill to see if the text message indicates the date, the charity’s name and the amount.

If it does, that should suffice to meet the written documentation standard. If it doesn’t show all three items, you’ll need to contact the charity to get the needed paperwork.

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Category: Taxes

tax returns and calculatorThe IRS “period of limitations” refers to the time period in which you can amend a tax return to claim a credit or a refund. It is also the period during which the IRS can assess additional tax.

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Category: Taxes

photo form 1040You can request a free transcript of your return by snail mail using Form 4506T or 4506T-EZ. A transcript lists all transactions related to your return for that year, including payments and any adjustments.

The request can also be made by phone or on the IRS website. Transcripts are usually available for up to 10 years of returns.

If you want an actual copy of your tax return, use Form 4506. There is a fee for each year requested.

Copies are usually available for the current year and the previous six filing years. But this is not guaranteed, so keeping a copy of all your own returns is the safest way to insure you have them if needed.

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Category: Taxes

FIFO inventory valuationFIFO stands for First In First Out.

It is used in the calculation of the cost of inventory items when a product sale is made.

When calculating the inventory costs for an item sold, FIFO uses the costs of the oldest available inventory to calculate the gross profit or loss on a sale.

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keyboard with word taxes in redIf you’ve been wondering what all the fuss is about the AMT or Alternative Minimum Tax, you’re not alone.

It’s a very complicated subject, but in a nutshell it’s effectively a minimum tax that hits certain higher and middle income tax payers.

Basically these taxpayers (and you may be one of them) have to calculate their income tax two ways to satisfy the IRS. If the alternative (AMT) calculation is lower than the regular calculation, you’re in the clear. If it’s more, you’re stuck with the higher tax.

Originally, the idea was to make certain that high income tax payers paid their fair share of taxes. Unfortunately, over time it’s begun to hit a much larger group of people than was originally intended.

Definitely consult your tax professional about this if you think it might affect you as you may need to increase your tax withholding to accommodate it.

If you do your own taxes, the IRS has an AMT calculator on its website to help you figure out your tax liability yourself. If you are using tax preparation software, it should be able to handle the calculation for you.

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Category: Taxes

Business losses for tax purposes can often be used to offset business income taxes in future years.

This is known as a loss carryforward. In some instances, losses can also be carried “back” but the rules are complex so consult a tax advisor as to how to make use of this tax benefit.

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Category: Taxes

Sole proprietors who are not doing business within an entity (such as an LLC) usually report their business income & expenses on Schedule C of the Form 1040 personal income tax form.

There can be exceptions to this depending on the type of business you are running, so check with your accountant or on the IRS website before filing your taxes.

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Category: Taxes

sub-s-taxesIf you are a corporation (or an LLC), you can elect S Corporation status by filing a form with the IRS.

You have to obtain approval from the IRS before filing taxes as a Sub S.

Use IRS Form 2553, Election by a Small Business Corporation.

Not all corporations can obtain S Corporation status, so check the regulations.

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Category: Taxes
Tag: Sub S

A tax credit directly lowers the amount of tax you pay, so it is a dollar for dollar reduction in the amount of your tax remittance.

A tax deduction lowers your net taxable income, so it can shrink the total amount of taxes you owe. But deductions can be subject to various limitations which can impact how much value they have in overall tax reduction.

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Category: Taxes

Notebook with capital gains tax sign on a table. Business concept.It is a type of income that is realized when an asset is sold at a profit. As a simple example, if you buy a stock & then sell it for more than it cost you to purchase, you’ll have a capital gain.

The difference between your basis in the asset & your net sales revenue typically equals your capital gain, although “basis” calculations can be quite complex.

Capital Gains are taxed at different tax rates than regular income such as wages.

For tax purposes, long term capital gains & short term capital gains are also subject to different tax rates.

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Category: Taxes

VAT or value added tax text on black blockVAT stands for Value Added Tax.

Used predominantly in Europe, it is considered a “consumption” tax. At each stage of manufacture, a tax is levied (“added”) to the cost of the item based on the materials or value added in the manufacturing step.

VAT taxes may also be collected at the point of final sale.

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Category: Taxes
Tags: taxes, VAT, VAT tax

Calculator with text on the display - LossesLosses and Profits from LLCs are usually reported on the owner or owners’ personal tax return Form 1040 Schedule E.

However your ability to deduct the loss against current income is restricted by your “basis” and your “risk of loss” in the business.

It’s a complicated set of rules, so consult a tax advisor to be sure you are eligible to take the deduction or review the regulations on the IRS site.

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Category: Taxes

sales tax, 3D rendering, blue street signA resale number commonly refers to the number issued to your business by your state or local sales tax authority. It registers you to collect sales tax from your customers.

It is known as a “resale number” because businesses use it to prove they are not subject to sales tax on their raw materials or goods purchased for resale.

However, businesses are subject to paying sales tax on goods or services they use & which are not part of an item that will be resold. It is important to understand the distinction in order to use a resale certificate correctly.

Usually, sales tax is collected only on finished goods or on professional or other services provided. But sales tax laws are administered on the state and local level, so they vary widely among states, cities, counties or towns.

Regulations, tax rates, services & products subject to sales tax differ from location to location. It is important to understand when & how you are required to collect sales tax, especially if you are an online retailer.

Getting appropriate tax and legal advice on this issue is very important as business owners can, in some circumstances, be held personally liable for unpaid sales taxes.

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Category: Taxes

Property tax exemptionsA property tax exemption reduces your property tax assessment value by a specific dollar amount.

So it your property is assessed at $100,000 and you qualify for a $25,000 tax exemption, you will be taxed on $75,000 of value instead of $100,000.

Exemptions are not automatic, you usually need to apply for them.

States and localities have many different type of exemption categories, depending on your location.

Some of the typical exemptions are based on homestead, age, veteran status or disability reasons.

Check with your tax assessor’s office to see what exemptions are available and how to apply for them.

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Categories: Real Estate, Taxes

year-end-tax-planningTwo words: Tax Planning.

Now is the time to take a hard look at your business and personal financial results for the year so far. Profits, losses, contributions to tax advantaged accounts, salary and bonus decisions all need to be made before December 31st.

And that planning shouldn’t be done in a rush as you approach New Year’s Eve. This is particularly important this year since Congress is not at all clear about the changes that will be in effect January 1st.

So review your tax information and see if there are moves you should be making now because those same moves may cost you more if you wait until next year.

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Category: Taxes

Section 179 refers to a section of the IRS tax code. It accelerates the write-off of certain types of capital expenditures, such as, equipment or off the shelf software.

Under the rules, up to $500,000 of the cost can be written off in the first year, rather than taking depreciation expense over 3, 5, 7 or more years. This accelerates the tax benefit of making the capital purchase.

Check with you accountant as this is effective for 2017, but the rules may be subject to change in the future.

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Category: Taxes

Real estate transfer taxIn many states and localities, there is a tax on the value of real estate when it is sold. It is a good way for governments to add to their revenue, but is often a surprise to Sellers.

This tax is usually, but not always, paid by the Seller. Generally, the tax is calculated as a percentage of the gross sales price of the property.

The tax is usually collected and paid at Closing. It can apply to sales of both residential and commercial property and may be tax deductible.

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http://askconny.com/Millage Rate is a term that impacts property tax calculations.

The Millage Rate is multiplied by the Assessed Property Value (which often differs from the market value) to calculate the annual real estate tax amount due.

Real Estate Taxes rates are generally referred to by the Millage Rate. So when you hear people talking about the Real Estate Tax Rate, they are referring to the Millage Rate.

The Millage Rate is the amount charged per $1,000 in property value.

The calculation is:

Assessed Property Value divided by 1,000 multiplied by the millage rate

Here’s a sample calculation for a home valued at $100,000 with a Millage Rate of $4.50:

$100,000 /1,000 = 100

100 x $4.50 = $450 in tax

Millage Rates are set for each new budget year & the current rate can be found on the tax assessor’s website or by calling the tax assessor’s office.

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Category: Taxes

Estimated taxesThe IRS requires that individuals and businesses pay in most of the taxes that they will owe each year before the end of their tax year.

Full payment is required to be made before the due date for the tax return. Failure to do so will result in interest and penalties.

One way to do this is to make estimated tax payments during the course of the year. For individuals, these payments are usually made on April 15th, June 15th, September 15th of the current tax year & January 15th of the following calendar year.

Dates sometimes vary if the day falls on a holiday or weekend, so check the IRS website to confirm the dates each year.

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Category: Taxes

Tax paymentsThere are a variety of ways to make tax payments. The primary ones are:

1. Deductions through payroll withholding.
2. Send a check the IRS with a paper form.
3. Use the EFTPS system to pay from a bank account.
4. Use the IRS Direct Pay system & pay directly from your bank account.
5. Use a credit card (there are fees charged for this option).

Additional options, include wire transfers & setting up a payment agreement if you can’t pay in full. More details about making tax payments are available on the IRS website.

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Category: Taxes