Tax Year Explained - Pay Less, Obtain More!
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How a taxpayer’s filing status affects their tax return..
Here are the five filing statuses:
- Single. Normally, this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
- Married filing jointly. ...
- Married filing separately. ...
- Head of household. ...
- Qualifying widow or widower with dependent child.
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knowledgegroup1.com - can and will help you with all of your financial questions. Do you need a finance tutor today? We have tutors who are available to teach you anything you ever wanted to know about the subject. When preparing and filing a tax return, filing status determines:
- If the taxpayer is required to file a federal tax return
- If they should file a return to receive a refund
- Their standard deduction amount
- If they can claim certain tax credits
- The amount of tax they owe
----------Here are the five filing statuses:- Single. Normally, this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
- Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. If one spouse died in 2021, the surviving spouse can use married filing jointly as their filing status for 2021 if they otherwise qualify to use that status.
- Married filing separately. Married couples can choose to file separate tax returns. This may benefit taxpayers who want to be responsible only for their own tax or if it results in less tax than filing a joint return.
- Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
- Qualifying widow or widower with dependent child. This status may apply to a taxpayer filing a 2021 tax return if their spouse died in 2019 or 2020, and they didn't remarry before the end of 2021 and have a dependent child. Other conditions also apply.
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What Is Capital Gains Tax?
- The capital gains tax is a tax you may have to pay if you sell a capital asset for a profit. Capital assets could include stocks, bonds, property, vehicles, collectibles, antiques, cryptocurrencies and businesses. The capital gains tax rate is lower than many people's ordinary income tax rate, which may be an incentive to make long-term investments.
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What Is Capital Gains Tax?
The capital gains tax only applies to profits from capital assets when you actually realize a gain, not when an asset simply rises in value.
For example, if you buy a stock for $100 and its value increases to $250, you have $150 in unrealized gains. You don't have to pay taxes on the stock's increased value because you haven't made any money yet—the stock might even drop in value before you sell it.
Capital gains and losses are realized when the asset is sold. If you sell an asset for more than you bought it for, you could then have to pay capital gains taxes on the difference.
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Tax Credit
- A tax credit is an amount of money that taxpayers can subtract, dollar for dollar, from the income taxes they owe.
- Tax credits are more favorable than tax deductions because they reduce the tax due, not just the amount of taxable income.
- There are three basic types of tax credits: nonrefundable, refundable, and partially refundable.
- A nonrefundable tax credit can reduce the tax you owe to zero, but it can't provide you with a tax refund.
Types of Tax Credits
- Nonrefundable Tax Credits. The remaining part of a nonrefundable tax credit that can't be utilized is lost, in effect.
- Refundable Tax Credits. Refundable tax credits are the most beneficial credit because they're paid out in full. This...
- Partially Refundable Tax Credits. Some tax credits are only partially refundable. The Child Tax Credit became.
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- I hope all your endeavors this year are successful.Best wishes for peace and prosperity for this year..KNOWLEDGE FINANCIAL GROUP - FACEBOOK.COM/
KNOWLEDGEFINANCIALGROUP -------------Wishing you a fresh start with renewed energy and confidence throughout the Year.The Year stands before us, like a chapter in a book, waiting to be written = WWW.KNOWLEDGEFINANCIALGROUP.COM May joy and peace surround you, contentment latch your door, and happiness be with you now and bless you evermore!MONEY WISERS GROUP - FACEBOOK.COM/MONEYWISERSMay the sun always shine on your windowpane;
May a rainbow be certain to follow each rain;-------------------- Understanding Tax Credits...
Federal and state governments may grant tax credits to promote specific behaviors that benefit the economy, the environment, or anything else the government deems important.
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Common Types of Tax Credit... Different Types of Tax Credits
Earned Income Credit - Credit For The Elderly And Disabled
Retirement Savings Contribution Credit - Mortgage Interest Credit
Family Tax Credit - - Child Credit - Child And Dependent Care Credit
Work Opportunity Tax Credit - American Opportunity Tax Credit -Foreign Tax Credit -
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Short-Term Capital Gains Tax Rates...
If you purchase an asset and then sell it within a year, you have to use the short-term capital gains tax rate—which is the same as the tax rate charged on your ordinary income.
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Long-Term Capital Gains Tax Rates''
The long-term capital gains rate also depends on your filing status and taxable income. For many people, the long-term capital gains tax rate will be lower than their short-term tax rates.
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- TAXES, ALL ABOUT INCOME TAX...Understand tax-filing fundamentals, from due dates to itemized deductions. www.knowledgefinancialgroup.
com Failing to file will cost you more than failing to pay your taxes. ...Refunds are forfeited after three years. ...There are plenty of ways to reduce your taxable income this year. ...Taxes should be part of every retirement planning discussion.------------TAXES: Things Everyone Must Know About Taxes...Filing taxes can feel daunting, regardless of your income bracket, filing status or familiarity with current rules and regulations..---------------Taxes: important documents prepped and learning basic concepts, including how taxes are assessed and collected, can help make the process easier to navigate.-------------Failing to file will cost you more than failing to pay your taxes. "You need to file your return on time," www.moneywisers.blogspot.com--------------People may be hesitant to file if they can't pay their bill, but you can always request a payment plan. What's more, the penalty for failing to file is significantly more than the penalty for failing to pay.-----------------Refunds are forfeited after three years. Some people don't bother filing their federal return because they are short on time and know the government owes them money.While there is no failure-to-file penalty on returns that are due a refund, procrastinating can still cost you. If you wait too long, you won't be able to claim the refund at all. www.knowledgefinancialgroup.com/institute ------------------You may not need to itemize your deductions. Taxpayers of all filing statuses will see their standard deductions nearly double when they file returns next year, thanks to the Tax Cuts and Jobs Act. The law increases the standard deduction for married couples filing jointly.------------------People can still get a tax break for charitable contributions through. One way is for retirees to direct a portion of their required minimum distribution, known as an RMD, to a nonprofit organization.When seniors turn age 70 ½, they are required to take an RMD from traditional IRA and 401(k) accounts, even if they don't need the money. www.knowledgefinancialgroup.com/incometax ------------------Taxes should be part of every retirement planning discussion. Part of planning for retirement should be planning for taxes. Some money, such as funds from traditional retirement accounts, is taxable in retirement.However, cash from Roth accounts can be withdrawn tax-free. Meanwhile, Social Security benefits can be partially taxed once an individual reaches $25,000 in combined income or a couple has $32,000 in combined income. www.knowledgefinancialgroup.com/TAXES -----------Tax professionals can help navigate complex situations. Don't leave money on the table. Make sure you've claimed all possible deductions by using a CPA or professional tax preparer. This may be especially important for those with investments or business owners. www.knowledgefinancialgroup.com/NEWS-LETTER - ----------------
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Adjusted Gross Income ...
You want to see if you can deduct a retirement contribution or submit your income on a mortgage application, and the term adjusted gross income (AGI) pops up. What is it? Although you may know your annual salary or weekly unemployment benefit amount offhand, AGI is another thing altogether.
AGI is common shorthand for your overall income. It's calculated as part of your tax return and often used on loan, credit or government benefit applications.
What Is Adjusted Gross Income?
AGI is your gross—or total—income minus a few "adjustments." Gross income includes wages, dividends, capital gains, business income, retirement distributions and additional items like tips, rental property income and unemployment benefits. Adjustments include educator expenses, student loan interest, alimony you've paid or contributions you've made to a retirement account.
To distinguish between three types of income you may be asked about:
- Gross income is all income that is not specifically tax-exempt.
- Adjusted gross income subtracts "above the line" adjustments like student loan interest and retirement contributions.
- Taxable income is AGI minus standard or additional itemized deductions.
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What Is AGI Used for?
AGI is one of the key metrics that determine how much income tax you owe, both at the state and federal levels. Once you calculate your AGI, you're ready to take your allowable deductions and exemptions and figure out how much tax you owe.
The IRS also requires you to enter your prior year's AGI when you e-file if you've prepared your own taxes. You'll find your AGI on last year's IRS Form 1040, line 8B.
AGI is the figure lenders are looking for when they ask for your income on a mortgage application. Your AGI provides insight into multiple sources of income, not just your wages. This helps your lender get a clearer picture of how large a loan payment you can afford each month, based on all of your monthly income. Your AGI is also relatively easy for a lender to verify by reviewing your past tax returns.
Applying for financial aid? AGI is the income used for the Free Application for Federal Student Aid (FAFSA). Overall, it's never a bad idea to clarify what a credit card company, lender or even the IRS means when they ask you for income information. But, more often than not, your AGI is the number they're looking for. Femkonsa Capital Investment - www.facebook.com/femkonsa
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Married Filing Jointly
How does the married filing jointly status work?
The IRS recognizes five filing statuses on the Form 1040: single, married filing jointly, married filing separately, head of household and qualifying widow(er).
If you’re married, you and your spouse have the option of filing one federal income tax return.
Joint filers report their income, deductions and credits on the same federal return — even if only one spouse had income in the tax year. Both spouses will also list dependents on that joint return, both Social Security numbers will appear on the return, and both must sign it to use the joint status.
Married taxpayers may also choose to file separate tax rules for the married filing separately status are different from married filing jointly rules
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-----The married filing jointly status typically gives married couples the highest standard deduction, the lowest tax bill and more tax breaks than if they file separately.
The downside? Both spouses are liable for taxes owed on a joint return, even if one didn’t earn any income. And in some cases, it might make sense to file separate returns
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Head of Household vs Single...
The key difference between single and head of household is that Single is a tax filing status for unmarried people who do not qualify for another filing status while Head of Household is an IRS tax filing status for single people who have a qualifying child or relative living with them, and pay more than half the costs of their home.
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Your Guide to Filing Head of Household vs. Single...
When you file your tax return, it’s important to know your correct filing status because it can affect the amount of tax you owe for that year. The Internal Revenue Service advises that your marital status on December 31 of the previous calendar year is your tax filing status for that entire year.
Sometimes more than one tax filing status may apply to you for a given year. If you are single, meaning not married on December 31, your filing status could be either single or head of household: single if you have no dependents, and head of household if you have qualifying dependents.
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What Qualifies You As Head of Household Filing Status?
Head of household status applies to taxpayers who are not married, but some specific rules are involved. You must meet certain criteria to qualify as head of household. You can use a head of household calculator such as eFile’s HOHucator Tool to determine if you meet these requirements. You must:
- Have a qualifying child or dependent
- Be unmarried on December 31 of the filing tax year
- Have paid for more than half of the household expenses for the tax filing year.
- At end of the tax year, must be under age 19 if not a student; under 24 if a full-time college student
- Must be biological, adopted, step, or foster child; sibling, step sibling, half sibling, or descendant of one of these relatives
- Must not have paid for more than half of their living expenses during the tax year
- Must have lived in your home for more than six months during the tax year
Qualifying Dependent
- Your parent: mother or father
- Your stepparent, niece, nephew, aunt or uncle of one of your parents, son-in-law, daughter-in-law, father-in-law, brother-in-law or sister-in-law
- Your biological, adopted, step, or foster child; sibling, step, half sibling, or disabled descendant of one of these relatives.
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Tax Advantages of Filing as Head of Household
As a result of filing as head of household, single and separated taxpayers can potentially save thousands of dollars. Compared to single and married filing separately, head of household filing status has a larger standard deduction.
Under certain circumstances, you can file as head of household even if you do not have any children. For instance, you can claim a live-in partner as a qualifying relative or dependent if they meet all of the following IRS rules.
- They are not someone else’s qualifying child.
- They lived with you for the entire tax filing year.
- Their income is less than $4,300.
- You provided more than half of the household expenses during the entire tax filing year.
Since you are supporting at least one person besides yourself, filing head of household has the advantage of lowering your tax liability just as those who are married filing jointly.
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Child tax credit
A child tax credit is a tax credit for parents with dependent children given by various countries. The credit is often linked to the number of dependent children a taxpayer has and sometimes the taxpayer's income level. For example, in the- United States, only families making less than $400,000 per year may claim the full CTC
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---------------Child Tax Credit
The American Rescue Plan’s expansion of the Child Tax Credit will substantially reduce child poverty by (1) supplementing the earnings of families receiving the tax credit, and (2) making the credit available to a significant number of new families. Specifically, the Child Tax Credit has been revised in the following ways for 2021:
- The credit amount has been increased. The American Rescue Plan increased the amount of the Child Tax Credit from $2,000 to $3,600 for qualifying children under age 6, and $3,000 for other qualifying children under age 18.
- The credit is now fully refundable. By making the Child Tax Credit fully refundable, low- income households will be entitled to receive the full credit benefit, as significantly expanded and increased by the American Rescue Plan.
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Signing the Return
For signing an electronic return see Validating Your Electronically Filed Tax Return.
For signing a paper tax return:
- If you file a joint return, both spouses must sign the return. If your spouse cannot sign because of a medical condition and requests that you sign the return, sign your spouse's name in the proper place, followed by the word "by" then your signature, followed by the word "husband" or "wife." Be sure to also sign in the regular space provided for your signature.
- Attach a statement that includes the form number of the return you're filing, the tax year, the reason your spouse cannot sign the return, and that your spouse has agreed to your signing for him or her. If you're the guardian for your spouse who is mentally incompetent, you may sign the return for your spouse as "guardian."
- If your spouse cannot sign the return for any other reason, you may only sign it if you have a valid power of attorney. You should attach the document granting you power of attorney to the return. You may use Form 2848, Power of Attorney and Declaration of Representative (PDF) for this purpose.
- If you're filing a return for a minor child who cannot sign the return, sign the child's name followed by the word "by," your signature, and your relationship, such as "parent" or "guardian for minor child.
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Tax Treatment of Unemployment Compensation...
- In most cases, if you already filed a tax return that includes the full amount of your unemployment compensation, the IRS will automatically determine the correct taxable amount of unemployment compensation and the correct tax. If you paid more than the correct tax amount, the IRS will either refund the overpayment or apply it to other outstanding taxes owed.
- Unemployment compensation is taxable. However, the American Rescue Plan Act of 2021 allows an exclusion of unemployment compensation of up to $10,200 for individuals for taxable year 2020. In the case of married individuals filing a joint Form 1040 or 1040-SR, this exclusion is up to $10,200 per spouse. To qualify for this exclusion, your adjusted gross income (AGI) must be less than $150,000. This threshold applies to all filing statuses and it doesn't double to $300,000 if you are married and file a joint return..
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Earned Income Tax Credit
The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children. For a person or couple to claim one or more persons as their qualifying child, requirements such as relationship, age, and shared residency must be metWhat Is the Earned Income Tax Credit?
- The earned income tax credit (EITC) is a refundable tax credit designed to provide relief for low-to-moderate-income working people.
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assuranceofamerica How Do Earned Income Tax Credits Work?
If you qualify for the EITC, you can apply the credit directly toward your tax bill. For example, if you owe the U.S. government $2,300 in taxes for 2020 and you qualify for an EITC of $3,584, the U.S. government owes you $1,284. Because the EITC is a refundable tax credit, you can receive this money as a tax refund.
Income eligibility for the EITC is based on your adjusted gross income and your earned income. Adjusted gross income is all the money you made in a year minus specific deductions and credits. Earned income includes:
- Wages, salaries and tips
- Pay received for gig work or contracting
- Union strike benefits
- Nontaxable combat pay
- Certain disability benefits received before you reach minimum retirement age
- Net earnings from self-employment
Other types of income are not considered earned. These include:
- Interest and dividends - Retirement income - Social security
- Unemployment benefits - Alimony - Child support
- Pay received for work while in prison
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How Do I Qualify for the Earned Income Credit?
EITC rules vary depending on your filing status and family size. Here are the basics.
For All Taxpayers
- Your earned income and adjusted gross income must be within defined limits (see table below).
- Your investment income cannot exceed $3,650.
- If married, you and your spouse file jointly, not separately.
- You and your spouse have valid Social Security numbers.
- You were a U.S. citizen or resident alien for the full tax year.
- You have not filed Form 2555 (related to foreign income).
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For Single Taxpayers
If you don't have children—or don't have "qualifying children" as described below—you must meet these additional requirements:
- Be older than 25 but younger than 65 at the end of the tax year.
- Live in the United States for more than half the year.
- Not be the dependent or "qualified child" of another taxpayer.
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What Is a "Qualifying Child?"
For the purposes of the EITC, your "child" does not have to be your biological child. Rather, they must live with you in the U.S. for more than half the year, and have one of the following qualifying relationships with you:
- Son or daughter - Stepchild - Legally adopted child - Foster child
- Sibling (step, half or whole) - A descendant of any of the above
Your qualifying child must also be younger than you are and under the age of 19 at the end of the tax year—24 if they are a full-time student. A child who is permanently and totally disabled can be any age.
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Tax Credits and Tax Deductions for Individuals...
How Tax Credits and Tax Deductions Work?
When you claim federal tax credits and deductions on your tax return, you can change the amount of tax you owe.
- Deductions can reduce the amount of your income before you calculate the tax you owe.
- Credits can reduce the amount of tax you owe or increase your tax refund, and some credits may give you a refund even if you don't owe any tax..
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Credits for Individuals
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- --------- Tax Write-Offs Not to Overlook for this year.
- As a small business owner, many of your expenses may be deductible.
- You likely know a few things you can write off, but there are probably
- more savings opportunities than you realize.
- 1. Business Casualty Losses. Perhaps the most noteworthy deduction
- to take note of this year is business casualty loss. If your commercial property .
{ Small Business Tax Deductions }
What exactly is a tax deduction?
A tax deduction (or “tax write-off”) is an expense that you can deduct from your taxable income. You take the amount of the expense and subtract that from your taxable income. Essentially, tax write-offs allow you to pay a smaller tax bill. But the expense has to fit the IRS criteria of a tax deduction.
Business insurance
You can deduct the premiums you pay for business insurance.
This may include:
- Property coverage for your furniture, equipment, and buildings
- Liability coverage
- Group health, dental and vision insurance for employees
- Professional liability or malpractice insurance
- Workers compensation coverage
- Auto insurance for business vehicles
- Life insurance that covers employees, as long as the business or business owner is not a beneficiary on the policy
- Business interruption insurance that covers lost profits if your business is shut down due to fire or another cause
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- Perhaps the most noteworthy deduction to take note of this year is business casualty loss. If your commercial property experienced damage or theft resulting from a federally declared disaster, you could deduct up to 100% of those losses. Natural disasters, vandalism, and civil disturbances, all of which have been prevalent recently, qualify..
- 2. Phone and Internet Expenses.
Phone and Internet Expenses
One expense you can certainly write off this year is your business’s phone and internet costs. If your business relies on phone and internet services, you can deduct their cost. Since so many companies have embraced remote work in the past year, that now applies to far more people.
3. Salaries and Benefits.
Salaries and Benefits
As a small business, employee salaries and benefits likely constitute a large portion of your expenses. Thankfully, you can write these off on your tax return to mitigate their financial impact. This deduction covers everything from regular wages to commissions to bonuses and even vacation time.
You should be aware that there are some stipulations to deducting salaries and benefits. You can only write off payments to employees who aren’t partners, sole proprietors, or LLC members.
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Charitable Contributions
The past year or so has been challenging for many people, so you might’ve contributed to charity to help out. If you’ve made these donations under your business’s name, you may be able to deduct them. While these deductions are more limited for companies than individuals, you can still benefit from them as a business.
Your charitable gifts must be cash, fall under the current tax year, and benefit a qualified organization to qualify for the deduction. The IRS has a charitable organization search tool you can use to make sure your donations qualify. These typically include things like religious, civil defense, and war veterans’ organizations
Business use of your car
Do you use your vehicle for business? If you use your vehicle solely for business purposes, then you can deduct the entire cost of operating the vehicle. If you use it for both business and personal trips, you can only deduct the costs associated with business-related usage.
There are two methods for deducting vehicle expenses, and you can choose whichever one gives you a greater tax benefit.
Standard mileage rate. Multiply the miles driven for business during the year by a standard mileage rate. For miles driven in 2020, the standard mileage deduction is $0.57½ per mile. In 2021, it is $0.56 per mile.
Actual expense method. Track all of the costs of operating the vehicle for the year, including gas, oil, repairs, tires, insurance, registration fees, and lease payments. Multiply those expenses by the percentage of miles driven for business.
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Interest
Many business owners have to take out loans to cover operating or startup expenses. Given the widespread financial hardships of the past year, these situations are more likely this tax season. If you’ve taken out a business-related loan this tax year, you can deduct the interest you’ve paid on it.
Interest from credit card payments also falls under this category. As long as you are legally liable for the debt, have a genuine debtor-creditor relationship, and the loan isn’t a gift, you can deduct the interest. You should also note that capitalized interest, like that added to a mortgage’s principal balance, doesn’t count.
You may have a loan or credit card payment that is part business and part personal. If that’s the case, you can write off the business portion, but not the entire amount.
Home Office Expenses
Another relevant tax write-off for 2021 is home office expenses. At the end of 2020, 41.8% of American workers worked remotely, and 26.7% expect to still do so by 2021. If you’re in that group, you can deduct expenses related to maintaining your home office.
Home office expenses include things like rent, utilities, designated phone lines, home repairs, and housekeeping services. You can’t deduct the entire cost of these expenses, but you can write off however much goes towards your work. You also have to use part of your home regularly and exclusively for work for it to count as a home office.
There are two ways to calculate the total here. With the simplified method, you deduct $5 for every square foot of your home used for business, up to $1,500. The standard method involves adding all the relevant expenses then multiplying them by the percentage of your home you use for work.
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When you purchase furniture, equipment, and other business assets, depreciation rules require you to spread the costs of those assets over the years you’ll use them rather than deducting the full cost in a single hit.
Expensing these items upfront is more attractive because of the quicker tax benefit. Fortunately, the IRS gives business owners several ways to write off the full cost in one year.
De minimis safe harbor election. Small businesses can elect to expense assets that cost less than $2,500 per item in the year they are purchased. You can read more about the de minimis safe harbor election in this IRS FAQ.
Section 179 deduction. The Section 179 deduction allows business owners to deduct up to $1,040,000 of property placed in service during the tax year. This includes new and used business property and “off-the-shelf” software. The Section 179 deduction is limited to the business’s taxable income, so claiming it cannot create a net loss on your return. However, any unused Section 179 deduction can be carried forward and deducted on next year’s return.
Bonus depreciation. Businesses can take advantage of bonus depreciation to deduct 100% of the cost of machinery, equipment, computers, appliances, and furniture.
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Advertising and Promotion
You’ve most likely engaged in some form of marketing in the past year. On average, marketing accounts for 11.7% of overall company budgets, and in some sectors, it’s close to 20%. That’s a considerable amount of money going to advertising and promotion. As a small business, you can deduct all of it.
Any money you spend on campaigns to get new customers or retain current ones is eligible for deduction. That includes printing costs, influencer marketing, social media ads, and hiring freelancers like graphic designers. Sponsorships also count unless they’re sponsoring a political candidate, party, or event.
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8. Business Insurance
Another often-overlooked tax write-off for small businesses is business insurance. State laws and industry standards often require some amount of insurance, so this is likely an expense you have. If these services are ordinary and necessary for your company, they are 100% deductible.
Common examples of deductible insurance include property coverage, liability coverage, employee health plans, workers’ compensation, and auto insurance for company vehicles. As cybercrime becomes more prominent, you may be able to write off data breach insurance. If you can make a reasonable argument that it’s necessary and ordinary, you can deduct it. = Your specific policy may matter, too.
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Education
You may offer educational benefits to your employees to encourage professional development. If so, you can write off the costs of providing these programs and resources. Employers spend $1,308 per employee on average on learning and development so that these deductions can be substantial.
Deductible educational expenses include classes and workshops, seminars, and professional publication subscriptions. If you cover the cost of transportation to and from classes, those costs are also deductible. Keep in mind that all of this refers to continued professional development programs, and not minimum education requirements.
To qualify for this deduction, your employee education costs must maintain or improve required skills in your business. Courses that aren’t relevant or that would qualify employees for a different career aren’t eligible.
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Tax Credits & Tax Deductions for Businesses...
Make the Most of Your Taxes This Year
No matter what your company’s budget looks like, you can find areas to write off for your this year taxes.
Life insurance coverage.
You can't deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business if you’re directly or indirectly the beneficiary of the policy..
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Sick and Vacation Pay
Sick pay.
You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages.
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Rent
Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business.
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Rent on your home.
If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part.
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Education
Education costs are fully deductible when they add value to your business and increase your expertise. In order to decide if your class or workshop qualifies, the IRS will look at whether the expense maintains or improves skills that are required in your current business.
The following list contains examples of valid business education expenses:
- Classes to improve skills in your field
- Seminars and webinars
- Subscriptions to trade or professional publications
- Books tailored to your industry
- Workshops to increase your expertise and skills
- Transportation expenses to and from classes
Keep in mind that any education costs that would qualify you for a new career, or costs related to education outside of the realm of your business, don’t qualify as business tax deductions.
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How To Claim a Business Bad Debt
There are two methods to claim a business bad debt.
The specific charge-off method.
The nonaccrual-experience method.
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Reimbursement of Travel and Non-Entertainment Related Meals
The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel and non-entertainment related meals expenses.
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How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have:
An accountable plan, or
A nonaccountable plan.
If you reimburse these expenses under an accountable plan, deduct them as travel and non-entertainment related meals expenses.
If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, and deduct them as wages on the appropriate line of your tax return.
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Per Diem and Car Allowances
You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. In these cases, your employee is considered to have accounted to you for the amount of the expense that doesn’t exceed the rates established by the federal government.
Federal rate.
The federal rate can be figured using any one of the following methods.
For car expenses:
The standard mileage rate.
A fixed and variable rate (FAVR).
For per diem amounts:
The regular federal per diem rate.
The standard meal allowance.
The high-low rate.
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Car allowance.
Your employee is considered to have accounted to you for car expenses that don’t exceed the standard mileage rate.
For tax year 2020, the standard business mileage rate is 57.5 cents per mile.
You can choose to reimburse your employees using an FAVR allowance.
This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc.) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc.)
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Per diem allowance.
If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate.
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Club dues and membership fees.
Generally, you can’t deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.
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Education expenses.
Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible.
You can also deduct the cost of your own education (including certain related travel) related to your trade or business. You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job.
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Franchise, trademark, trade name.
If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are:
Contingent on productivity, use, or disposition of the item;
Payable at least annually for the entire term of the transfer agreement; and
Substantially equal in amount (or payable under a fixed formula)
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When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferor reasonably expect the agreement to be renewed.
A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area
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Internet-related expenses.
Generally, you can deduct Internet-related expenses including domain registration fees and webmaster consulting costs. If you are starting a business, you may have to amortize these expenses as start-up costs. For more information about amortizing start-up and organizational costs, see chapter 8.
Interview expense allowances.
Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment aren’t wages. You can deduct the reimbursements as a business expense. -However, expenses for food and beverages are subject to the 50% limit discussed earlier under Meals and Entertainment.
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Taxes and licenses
You can deduct various taxes and licenses related to your business. This may include:
- State income taxes - Payroll taxes - Personal property taxes
- Real estate taxes paid on business property
- Sales tax - Excise taxes - Fuel taxes - Business licenses
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Telephone and internet expenses
If telephone and internet services are integral to your business, they can be deductible business expenses.
Keep in mind, if you use a landline at home, you cannot deduct the cost of your first line, even if you use it solely for work. However, if you have a second landline devoted to the business, the cost of that line is deductible.
If you use your cell phone and internet connection for both personal and business reasons, you can only deduct the percentage allocable to business use. Keep an itemized bill or other detailed records to prove the amount of business use in case your return is audited.
Travel expenses
For a trip to qualify as business travel, it has to be ordinary, necessary, and away from your tax home. Your tax home is the entire city or area in which you conduct business, regardless of where you live. You need to travel away from your tax home for longer than a normal day’s work, requiring you to sleep or rest en route.
Deductible, IRS approved business travel expenses include:
- Travel to and from your destination by plane, train, bus, or car
- Using your car while at a business location
- Parking and toll fees
- The cost of taxis and other methods of transportation used on a business trip
- Meals and lodging
- Tips
- Dry cleaning while on a business trip
- Business calls
- Shipping of baggage and sample or display materials to your destination
- Other similar ordinary and necessary expenses related to your business travel
Remember to keep records that include the amount of each expense, as well as dates of return/departure, details of the trip (whom you met with), a mileage log if you drove your own vehicle, and the business reason for the trip.
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- Paying mortgage interest may reduce your taxable incom
A mortgage interst credit is a tax deduction that can be filed on your federal income tax returns. According to the IRS (and Form 8223 that is filed for mortgage interest credit), you have to possess a Mortgage Credit Certificate (MCC). An MCC is deducted from your income so it makes additional money available to you that you can in turn apply to qualifying for a mortgage.
Determining How Much Interest You Paid on Your Mortgage
You should receive Form 1098, the Mortgage Interest Statement, from your mortgage lender after the close of the tax year,
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Federal Income Tax Rates, Brackets, & Standard Deduction
Standard deduction...
Under United States tax law, the standard deduction is a dollar amount that non-itemizers may subtract from their income before income tax is applied. Taxpayers may choose either itemized deductions or the standard deduction, but usually choose whichever results in the lesser amount of tax payable. The standard deduction is available to US citizens and aliens who are resident for tax purposes and who are individuals, married persons, and heads of household. The standard deduction is based on filing status and typically increases each year.- -------------
Income Tax: What to Know About Tax Evasion and Avoidance...
- The true total cost of tax evasion cannot be known, but the IRS reported an average annual gross tax gap of $441 billion , with the IRS recovering $60 billion through voluntary late payments and enforcement activities.
- "The tax gap is how much people should have paid versus how much they actually paid.
Tax evasion is the use of illegal means to avoid paying taxes. Examples of tax evasion might include claiming illegitimate deductions, misreporting or underreporting income and setting up shell corporations overseas.
"People who take cash payments or work under the table, that is tax evasion and that is illegal – even if they did not get a 1099, they are required to report it"
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What Is Tax Evasion vs. Tax Avoidance?
While tax evasion is illegal, tax avoidance – also known as strategic tax planning – is taking legal steps to pay less in taxes. Tax avoidance is a common practice among individuals and businesses. In fact, anyone who has utilized a company 401(k) or personal IRA has engaged in tax planning to limit taxes owed.
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For the typical taxpayer who is not self-employed, options for tax avoidance are limited. Examples include using tax-advantaged savings accounts, such as retirement or educational savings plans, taking steps to avoid realizing capital gains over the years or engaging in charitable giving.
Experts say corporations, self-employed individuals and individuals with the means to hire accountants and tax attorneys to manage their wealth may have more options at their disposal.
Whether a business or an individual, deciding when tax avoidance becomes tax evasion can be a gray area depending on who you consult.
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Penalties for Tax Evasion
Tax evasion is a criminal activity and can result in jail time. However, the penalties for underpaying taxes can vary widely. Taxpayers who realize their income was underreported or that they otherwise made a mistake on their return can file a 1040-X, which can correct an already-filed form 1040, make certain elections after the deadline and change amounts adjusted by the IRS, among other things.
In more severe cases, taxpayers and corporations may be able to negotiate what they owe with the IRS or may need to go through proceedings in a formal tax court setting. But for the typical taxpayer, experts say a worst-case scenario would involve paying a penalty.
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- TAXES, ALL ABOUT INCOME TAX...Understand tax-filing fundamentals, from due dates to itemized deductions. www.knowledgefinancialgroup.
com Failing to file will cost you more than failing to pay your taxes. ...Refunds are forfeited after three years. ...There are plenty of ways to reduce your taxable income this year. ...Taxes should be part of every retirement planning discussion.------------TAXES: Things Everyone Must Know About Taxes...Filing taxes can feel daunting, regardless of your income bracket, filing status or familiarity with current rules and regulations..---------------Taxes: important documents prepped and learning basic concepts, including how taxes are assessed and collected, can help make the process easier to navigate.-------------Failing to file will cost you more than failing to pay your taxes. "You need to file your return on time," www.moneywisers.blogspot.com--------------People may be hesitant to file if they can't pay their bill, but you can always request a payment plan. What's more, the penalty for failing to file is significantly more than the penalty for failing to pay.-----------------Refunds are forfeited after three years. Some people don't bother filing their federal return because they are short on time and know the government owes them money.While there is no failure-to-file penalty on returns that are due a refund, procrastinating can still cost you. If you wait too long, you won't be able to claim the refund at all. www.knowledgefinancialgroup.com/institute ------------------You may not need to itemize your deductions. Taxpayers of all filing statuses will see their standard deductions nearly double when they file returns next year, thanks to the Tax Cuts and Jobs Act. The law increases the standard deduction for married couples filing jointly.------------------People can still get a tax break for charitable contributions through. One way is for retirees to direct a portion of their required minimum distribution, known as an RMD, to a nonprofit organization.When seniors turn age 70 ½, they are required to take an RMD from traditional IRA and 401(k) accounts, even if they don't need the money. www.knowledgefinancialgroup.com/incometax ------------------Taxes should be part of every retirement planning discussion. Part of planning for retirement should be planning for taxes. Some money, such as funds from traditional retirement accounts, is taxable in retirement.However, cash from Roth accounts can be withdrawn tax-free. Meanwhile, Social Security benefits can be partially taxed once an individual reaches $25,000 in combined income or a couple has $32,000 in combined income. www.knowledgefinancialgroup.com/TAXES -----------Tax professionals can help navigate complex situations. Don't leave money on the table. Make sure you've claimed all possible deductions by using a CPA or professional tax preparer. This may be especially important for those with investments or business owners. www.knowledgefinancialgroup.com/NEWS-LETTER - ----------------
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- Health Savings Account (HSA). Contributions to your HSA will lower the amount of your income that is subject to taxes. If you have a high-deductible healthcare plan, you may qualify for an HSA.
Form 1099
Form 1099 is one of several IRS tax forms used in the United States to prepare and file an information return to report various types of income other than wages, salaries, and tips.The term information return is used in contrast to the term tax return although the latter term is sometimes used colloquially to describe both kinds of returns.- ==============
- Form 1040 For US citizens - resident aliens
- Form 1040NR for non-resident aliens , non-immigrant
- Form 1040SR For senior citizens 65 years age and above
- Form 1040x Used to make correction, amendment.
- Form 1040C For departing aliens.
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- Personal tax filing is not just about reporting wage income - Form W2.
- All of these must or should be reported:
- Interest income, form 10999 INT
- Dividend income, form 1099 INT
- Retirement income, form 1099R
- Social security benefits, form SSA1099
- State and local tax refunds, form 1099G
- Unemployment compensation, form 1099G
- Independent contractor, form 1099 MISC
- Income from shares/stocks,/securities, form 1099B
- Employee stock options plan {ESOP} form W2
- Income from pass-through entities, SCHEDULE K-1
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- TAX FORMULA OF: A-B-C-D-E
- 5 Principal ways to reduce your taxable income and tax liability...
- A = Ajustment - B= Benefits - c= Credits - D= Deductions - E= Exemptions
- Choose your tax preparer very wisely.
- Be very careful with unknown online websites tax filing...
- ------------Remember that when filing your taxes; your spouse is not your dependent..
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===================Real Estate (& How to Choose Yours).CHANGE YOUR LIFE PREPARE FOR TOMORROW. Real Estate is the way to go..=======Anthony Real estate Service For Buyers And Sellers.We put our clients interest first. We assist our clients from the beginning to the end. www.agentanthony.wordpress.com/ When you’ve chosen a niche (or niches), your basic target property description may look something like this:Single family houses with 3 bedrooms and 2 baths in the zip codes.Target full market price range is between Ideal properties are on quiet, safe streets convenient to schools and shopping. Ideal properties also include a garage or other storage and a useable yard. https://www.facebook.com/visiononerealestates REITs vs. REIT ETFs: How They Compare...Learn about the difference in investing in a REIT for a single real estate cREITs vs. REIT ETFs: An OverviewReal estate investment trusts (REITs) are companies that own and operate real estate to produce and generate income. Investors can purchase shares in REITs—which represent ownership of an individual real estate company—just like regular stocks. The individual performance of REITs can vary widely.Many REITs are traded on major stock exchanges, but there are also a number of private and non-publicly traded REITs. = http://www.knowledgefinancialgroup.com/ Real-Estate.html -----------------REIT exchange-traded funds (ETFs), on the other hand, invest their assets primarily in equity REIT securities and other derivatives.They often have low expense ratios and passively track indexes for the larger real estate market.2 These REIT indexes include a number of different types of REITs as components.By tracking an index, an investor can gain exposure to the larger real estate sector without having to risk capital on one individual company.------------------Real estate investment trusts are companies that own and operate real estate to produce and generate income.REIT exchange-traded funds invest their assets primarily in equity REIT securities and other derivatives.There are three different kinds of REITs: Equity REITs, mortgage REITs, and hybrid REITs.REITs don't have to pay income taxes as long as they comply with certain federal regulations.REIT ETFs are passively managed around indexes of publicly-traded owners of real estate. =----------------More sophisticated real estate investors may wish to invest in a single REIT. The investor may want to focus on a REIT with good management, a strong business plan or a focus on a certain portion of the real estate sector.----------------
