Frequently Asked Questions

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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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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

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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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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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