Self Employed List of Available Business Deduction

 It costs money to make money, and much of what business owners spend on their companies — their business expenses — can be deducted from their gross income to reduce their taxes. The list of deductible business expenses includes obvious ones like office rent, salaries and computers, but might also include water bills and window cleaning.

Read on to find information about deductions that can help your business save on taxes.

List of Business Expense Categories

The IRS says a business expense must be ordinary, necessary and directly related to running a company to be deductible. Most business expenses fall into specific categories. Schedule C, the IRS form which sole proprietors use to report their income, lists 20 broad business expense categories that include:

• Advertising
• Car and truck expenses
• Commissions and fees, contract labor
• Depletion
• Depreciation and section 179 expense deduction
• Employee benefit programs
• Insurance, interest
• Legal and professional services
• Office expense
• Pension and profit-sharing plans
• Rent or lease
• Repairs and maintenance
• Supplies
• Taxes and licenses
• Travel and meals
• Utilities
• Wages

Categorizing expenses is an important part of keeping good business records. The IRS wants business expenses accounted for and reported in the correct categories so it can determine if the deductions are legitimate. Categorizing expenses correctly will also mean a smaller bill from your accountant at tax time.

Time to Gather Your Tax Documents - 2021

 Tax filing step 1: Gather all year-end income documents

Tax Season 2021 is upon us.  Now is the time to start gathering your tax documents.

As taxpayers are getting ready to file their taxes, the first thing they should do is gather their records. To avoid processing delays that may slow their refund, taxpayers should gather all year-end income documents before filing a 2021 tax return.

It's important for people to have all the necessary documents before starting to prepare their return. This helps them file a complete and accurate tax return. Here are some things taxpayers need to have before they begin doing their taxes.

• Social Security numbers of everyone listed on the tax return. Many taxpayers have these numbers memorized. Still, it's a good idea to have them on hand to double check that the numbers on the tax return are correct. An SSN with one number wrong or two numbers switched will cause processing delays.
 
• Bank account and routing numbers. People will need these for direct deposit refunds. Direct Deposit is the fastest way for taxpayers to get their money and avoids a check getting lost, stolen or returned to IRS as undeliverable.

• Don't have a bank account? Learn how to open an account at an FDIC - Insured Bank or through the National Credit Union. Veterans can access the Veterans Benefits Banking Program.

• Forms W-2 from employer(s).

• Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan.

• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy.

• Form 1099-INT for interest received.

• Other income documents and records of virtual currency transactions.

• Forms 1095-A, Health Insurance Marketplace Statement. Taxpayers will need this form to reconcile advance payments or claim the premium tax credit.

• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments.

• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit.

Forms usually start arriving by mail or are available online from employers and financial institutions in January. Taxpayers should review them carefully. If any information shown on the forms is inaccurate, the taxpayer should contact the payer ASAP for a correction.

For more on this, please contact your accountant.

IDA Tax Relief

 

Tax relief now available to victims of Hurricane Ida; Oct. 15 deadline, other dates extended to Jan. 3

Victims of Hurricane Ida that began on Aug. 26 now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance. Currently this includes the entire state of Louisiana, but taxpayers in Ida-impacted localities designated by FEMA in neighboring states will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

Tax P.O.A.

 

Request Power of Attorney (POA) Individual Client

Before You Start

You must have:

• A Centralized Authorization File (CAF) number, which the IRS assigns the first time you file a third-party authorization
• One of the following credentials and not be suspended or disbarred from practice before the IRS per Circular 230 Tax Professionals
  • Attorney
  • Certified Public Accountant
  • Enrolled Agent
  • Enrolled Actuary
  • Enrolled Retirement Plan Agent

How It Works

1. Prepare

To request POA online, have this ready:

• Client's Social Security number or Taxpayer Identification Number
• Tax matters and periods for which you are requesting authorization are limited to the following matters from the year 2000 forward:
  • Form 1040 Income Tax
  • Split Spousal Assessment or Form 8857 Innocent Spouse Relief
  • Shared Responsibility Payment
  • Shared Responsibility Payment - Split Spousal Assessment
  • Civil Penalty (limited to periods of March, June, September and December)

To request authorization for multiple representatives:

• Each representative must log in with their account
• Only 2 representatives may receive copies of a client’s IRS notices and communications
• The client must authorize all representatives on the same day

2. Complete the Request

It should take around 15 minutes to complete the request. You cannot save requests to continue later.

After you submit the request, you'll get confirmation that it's been sent to your client's online account.

If the information you entered for your client is not correct, they will not see the request in their online account.

3. Contact Your Client

Ask your client to log in to their account to review and electronically sign the authorization request at www.irs.gov/account.

For multiple representatives requesting authorization for the same tax matters and periods:

• Ask your client to authorize all representatives on the same day

4. Client Authorizes or Rejects and Contacts You

Your client logs in to their account at www.irs.gov/account to authorize or reject the request.

The authorization will be processed after your client approves and electronically signs. Allow up to 2 business days to process after your client signs.

Your client may print confirmation and give you a copy of the signed authorization.

The IRS won’t notify you if your client rejects the request or if the request failed to process.

Contact your client with any questions about the status of a request.

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Submitting with Tax Pro Account will revoke any prior authorization(s) on file with the IRS for the same tax matters and periods. If you don’t want a prior authorization to be revoked, use Form 2848

Tax Tip for Teachers

 Staten Island CPA, David C Egan

A tip for teachers: Some educator expenses may be tax deductible

 

The educator expense deduction allows eligible teachers and administrators to deduct part of the cost of technology, supplies and training from their taxes. They can only claim this deduction for expenses that were not reimbursed by their employer, a grant or other source.

 

Who is an eligible educator:

The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

 

Things to know about this deduction:

Educators can deduct up to $250 of trade or business expenses that were not reimbursed. As teachers prepare for the school year, they should remember to keep receipts after making any purchase to support claiming this deduction.

 

The deduction is $500 if both taxpayers are eligible educators and file their return using the status married filing jointly. These taxpayers cannot deduct more than $250 each. Qualified expenses are amounts the taxpayer paid themselves during the tax year.

 

Here are some of the expenses an educator can deduct:

• Professional development course fees
• Books
• Supplies
• Computer equipment, including related software and services
• Other equipment and materials used in the classroom

IRS to Begin issuing unemployment compensation related refunds

 

IRS readies nearly 4 million refunds for unemployment compensation overpayments

The IRS announced today it will issue another round of refunds this week to nearly 4 million taxpayers who overpaid their taxes on unemployment compensation received last year.

The American Rescue Plan Act of 2021, which became law in March, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

Refunds by direct deposit will begin July 14 and refunds by paper check will begin July 16. The IRS previously issued refunds related to unemployment compensation exclusion in May and June, and it will continue to issue refunds throughout the summer.

To ease the burden on taxpayers, the IRS has been reviewing the Forms 1040 and 1040SR that were filed prior to the law’s enactment to identify those people who are due an adjustment. For taxpayers who overpaid, the IRS will either refund the overpayment, apply it to other outstanding taxes or other federal or state debts owed.

For this round, the IRS identified approximately 4.6 million taxpayers who may be due an adjustment. Of that number, approximately 4 million taxpayers are expected to receive a refund. The refund average is $1,265, which means some will receive more and some will receive less.

Most taxpayers need not take any action and there is no need to call the IRS. However, if, as a result of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.

Taxpayers should file an amended return if they:

• did not submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit after the unemployment compensation exclusion;
• did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible for the credit after the unemployment compensation exclusion;
• are now eligible for any other credits and/or deductions not mentioned below. Make sure to include any required forms or schedules.

Taxpayers do not need to file an amended return if they:

• already filed a tax return and did not claim the unemployment exclusion; the IRS will determine the correct taxable amount of unemployment compensation and tax;
• have an adjustment, because of the exclusion, that will result in an increase in any non-refundable or refundable credits reported on the original return;
• did not claim the following credits on their tax return but are now eligible when the unemployment exclusion is applied: Recovery Rebate Credit, Earned Income Credit with no qualifying dependents or the Advance Premium Tax Credit. The IRS will calculate the credit and include it in any overpayment;
• filed a married filing joint return, live in a community property state, and entered a smaller exclusion amount than entitled on Schedule 1, line 8.

Taxpayers will generally receive letters from the IRS within 30 days of the adjustment, informing them of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.

Advance Child Tax Credit - The American Rescue Plan

The American Rescue plan signed in March, 2021 requires the IRS to pay out ½ of enhanced Child Tax Credits (CTC) to eligible taxpayers beginning this month. If you have children or know of anyone who has children, here is how you can help:

What’s happening now

IRS web-sites. The IRS is establishing two web sites. One to help ensure you will get your Child Tax Credit if you are a non-filer and a second one to opt out of the monthly payments. Both can be accessed from the following IRS webpage;

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

The monthly payments are automatic. Beginning Mid-July you will begin receiving payments for ½ of your projected 2021 Child Tax Credit if:

• You filed a 2019 or 2020 tax return and claimed the credit. OR

• You gave information in 2020 to receive the Economic Impact Payment using the IRS non-filer tool. AND

• The IRS thinks you are eligible. AND

• You did not opt-out of the early payments.

*The Opt-out option

Not everyone should look forward to receiving payments each month for ½ of their Child Tax Credit. Here’s why;

You do not qualify for the credit. The IRS is using past tax returns to estimate who should get advance payments of this credit. They are going to often be wrong. If your 2021 income is too high, you may need to pay back the advance payments when you file your tax return.

You need the large credit. If you use this credit to balance out your year-end tax bill, you may find yourself owing money at the end of the year. If the early payments are gone, this could create a tax bill hardship.

For example:

With two kids you might be eligible for a $6,000 credit, with $3,000 paid to you in advance. When you file your tax return in April 2022, your unclaimed credit on the return will be $3,000 (you already received $3,000). Last year your tax return credit was $4,000. If you saved some of the advance payment, you will not have a problem. If it is spent, you now have $1,000 less of a credit to offset your other income on the return and may have to come up with some cash to pay your tax bill.

Your circumstances change. If your tax life changes, advance payments of the credit will complicate things. For example, if you are in the midst of a separation or divorce, the advanced payments could become a big conflict.

Action to take NOW!

*Look for notices. The IRS is sending out notices in the mail to those they think should receive the Advance Child Tax Credit payments. If you have not received one, the IRS may not think you should receive payments. So follow-up to ensure you are on their radar by reviewing your most recent tax returns (2019 and 2020). But don’t fret, if you are owed the credit you will receive it when you file your tax 2021 tax return.

*Opt-out. The Opt-Out portal is new and recently set up by the IRS. So if you do not want the early Child Tax Credit payments go to this site immediately and opt-out of the payments. No one is sure how efficient this will be, so you need to stay on top of this.

*Keep track of payments. You will need to know how much you receive in advanced payments when you file your tax return next year. Do not assume the IRS is going to accurately keep track of this for you.

*Forecast the impact. Moving from $2,000 to as much as $3,600 per child is a big change in most families’ tax bill. Know what the change does to yours and look to adjust withholdings to account for this change.

*It is fully refundable. Finally, remember the Child Tax Credit is now a fully refundable credit. So if you know of anyone that does not pay income tax and has children, tell them. The new Child Tax Credit may be helpful to them.

For more information or to schedule an appointment, please call our office at 718-227-6035 ext. 301. or visit us at www.gosucpa.com

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