- Tax Tips for Divorced or Separated Individuals
- Hold On to Your Tax Returns
- Reporting Gambling Income and Losses
- Tax Tips for Starting a Business
Is Canceled Debt Taxable?
Generally, debt that is forgiven or canceled by a lender is considered taxable income by the IRS and must be included as income on your tax return. Examples include a debt for which you are personally liable such as mortgage debt, credit card debt, and in some instances, student loan debt.
When that debt is forgiven, negotiated down (when you pay less than you owe), or canceled you will receive Form 1099-C, Cancellation of Debt, from your financial institution or credit union. Form 1099-C shows the amount of canceled or forgiven debt that was reported to the IRS. If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. Give the office a call if you have any questions regarding joint liability of canceled debt.
Creditors who forgive $600 or more of debt are required to issue this form. If you receive a Form 1099-C and the information is incorrect, contact the lender to make corrections.
If you receive a Form 1099-C, don’t ignore it. You may not have to report that entire amount shown on Form 1099-C as income. The amount, if any, you must report depends on all the facts and circumstances. Generally, however, unless you meet one of the exceptions or exclusions discussed below, you must report any taxable canceled debt reported on Form 1099-C as ordinary income on:
- Form 1040 or Form 1040NR, if the debt is a nonbusiness debt;
- Schedule C or Schedule C-EZ (Form 1040), if the debt is related to a nonfarm sole proprietorship;
- Schedule E (Form 1040), if the debt is related to non-farm rental of real property;
- Form 4835, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or
- Schedule F (Form 1040), if the debt is farm debt and you are a farmer.
Exceptions and Exclusions
If you’ve had debt forgiven or canceled this year and receive a Form 1099-C, you might qualify for an exception or exclusion. If your canceled debt meets the requirements for an exception or exclusion, then you don’t need to report your canceled debt on your tax return. Under the federal tax code, there are five exceptions and four exclusions for tax year 2015. Here are the five most commonly used:
Note: The Mortgage Debt Relief Act of 2007, which applied to debt forgiven in calendar years 2007 through 2014, allowed taxpayers to exclude income from the discharge of debt on their principal residence. Up to $2 million of forgiven debt was eligible for this exclusion ($1 million if married filing separately) and debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, also qualified for the relief. As of this writing, Congress has yet to reauthorize the Act for calendar year 2015.
1. Amounts specifically excluded from income by law such as gifts, bequests, devises or inheritances
In most cases, you do not have income from canceled debt if the debt is canceled as a gift, bequest, devise, or inheritance. For example, if an acquaintance or family member loaned you money (and for whom you signed a promissory note) died and relieved you of the obligation to pay back the loan in his or her will, this exception would apply.
2. Cancellation of certain qualified student loans
Certain student loans provide that all or part of the debt incurred to attend a qualified educational institution will be canceled if the person who received the loan works for a certain period of time in certain professions for any of a broad class of employers. If your student loan is canceled as the result of this type of provision, the cancellation of this debt is not included in your gross income.
3. Canceled debt, that if it were paid by a cash basis taxpayer, would be deductible
If you use the cash method of accounting, then you do not realize income from the cancellation of debt if the payment of the debt would have been a deductible expense.
For example, in 2014, you obtain accounting services for your farm using credit. In 2015, due to financial troubles you are not able to pay off your farm debts and your accountant forgives a portion of the amount you owe for her services. If you use the cash method of accounting you do not include the canceled debt as income on your tax return because payment of the debt would have been deductible as a business expense.
4. Debt canceled in a Title 11 bankruptcy case
Debt canceled in a Title 11 bankruptcy case is not included in your income.
5. Debt canceled during insolvency
Do not include a canceled debt as income if you were insolvent immediately before the cancellation. In the eyes of the IRS, you would be considered insolvent if the total of all of your liabilities was more than the FMV of all of your assets immediately before the cancellation.
For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account).
Here’s an example. Let’s say you owe $25,000 in credit card debt, which you are able to negotiate down to $5,000. You have no other debts and your assets are worth $15,000. Your canceled debt is $20,000. Your insolvency amount is $10,000. Because you are insolvent at the time of the cancellation, you are only required to report the $10,000 on your tax return.
If you exclude canceled debt from income under one of the exclusions listed above, you must reduce certain tax attributes (certain credits, losses, basis of assets, etc.), within limits, by the amount excluded. If this is the case, then you must file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the amount qualifying for exclusion and any corresponding reduction of those tax attributes.
Exceptions do not require you to reduce your tax attributes.
Don’t hesitate to call if you have any questions about whether you qualify for debt cancellation relief.
Lending Money? Make it a Tax-Smart Loan
Lending money to a cash-strapped friend or family member is a noble and generous offer that just might make a difference. But before you hand over the cash, you need to plan ahead to avoid tax complications down the road.
Let’s say you decide to loan $5,000 to your daughter who’s been out of work for over a year and is having difficulty keeping up with the mortgage payments on her condo. While you may be tempted to charge an interest rate of zero percent, you should resist the temptation. Here’s why.
When you make an interest-free loan to someone, you will be subject to “below-market interest rules.” IRS rules state that you need to calculate imaginary interest payments from the borrower. These imaginary interest payments are then payable to you and you will need to pay taxes on these interest payments when you file a tax return. Further, if the imaginary interest payments exceed $14,000 for the year, there may be adverse gift and estate tax consequences.
Exception: The IRS lets you ignore the rules for small loans ($10,000 or less), as long as the aggregate loan amounts to a single borrower are less than $10,000 and the borrower doesn’t use the loan proceeds to buy or carry income-producing assets.
In addition, if you don’t charge any interest, or charge interest that is below market rate (more on this below), then the IRS might consider your loan a gift, especially if there is no formal documentation (i.e. written agreement with payment schedule) and you go to make a nonbusiness bad debt deduction if the borrower defaults on the loan–or the IRS decides to audit you and decides your loan is really a gift.
Formal documentation generally refers to a written promissory note that includes the interest rate, a repayment schedule showing dates and amounts for all principal and interest, and security or collateral for the loan, such as a residence (see below). Make sure that all parties sign the note so that it’s legally binding.
As long as you charge an interest rate that is at least equal to the applicable federal rate (AFR) approved by the Internal Revenue Service, you can avoid tax complications and unfavorable tax consequences.
AFRs for term loans, that is, loans with a defined repayment schedule, are updated monthly by the IRS and published in the IRS Bulletin. AFRs are based on the bond market, which changes frequently. For term loans, use the AFR published in the same month that you make the loan. The AFR is a fixed rate for the duration of the loan.
Any interest income that you make from the term loan is included on your Form 1040. In general, the borrower, who in this example is your daughter, cannot deduct interest paid, but there is one exception: if the loan is secured by her home, then the interest can be deducted as qualified residence interest–as long as the promissory note for the loan was secured by the residence.
If you have any questions about the tax implications of loaning a friend or family member money, don’t hesitate to call.
Tax Benefits for Higher Education
Many tax benefits are available to help you pay higher education costs, whether for your children or yourself. Let’s take a look at what’s available and how you can take advantage of these benefits to ease the financial burden of paying for education.
Coverdell Education Savings Accounts (Section 530 Programs)
Starting in 2013, you can contribute up to $2,000 to a Coverdell Education Savings account (a Section 530 program formerly known as an Education IRA) for a child under 18. These contributions are not deductible, but they do grow tax-free until withdrawn. Contributions for any year, for example, 2015 can be made through the (unextended) due date for the return for that year (April 15, 2016).
Only cash can be contributed to a Section 530 account and you cannot contribute to the account after the child reaches his or her 18th birthday. Section 530 programs can also be used to build up funds for primary and secondary education and the tax rules are similar to those for higher education.
Anyone can establish and contribute to a Section 530 account, including the child. You may establish 530s for as many children as you wish, but the amount contributed during the year to each account cannot exceed $2,000. The child need not be a dependent, and, in fact, does not even need to be related to you. The maximum contribution amount for each child is subject to a phase-out limitation with a modified AGI between $190,000 and $220,000 for joint filers and $95,000 and $110,000 for single filers.
The child must be named (designated as beneficiary) in the Coverdell document, but the beneficiary can be changed to another family member (for example, to a sibling where the first beneficiary gets a scholarship or drops out) and funds can be rolled over tax-free from one child’s account to another’s. Funds must be distributed not later than 30 days after the beneficiary’s 30th birthday (or 20 days after the beneficiary’s death if earlier). For special needs; beneficiaries the age limits (no contributions after age 18, distribution by age 30) don’t apply.
Withdrawals are taxable to the person who gets the money, with these major exceptions: Only the earnings portion is taxable (the contributions come back tax-free). Also, even that part isn’t taxable income, as long as the amount withdrawn doesn’t exceed a child’s qualified higher education expenses; for that year. The definition of qualified higher education expenses” includes room and board and books, as well as tuition. In figuring whether withdrawals exceed qualified expenses, expenses are reduced by certain scholarships and by amounts for which tax credits (see Educational Tax Credits, below) are allowed. If the amount withdrawn for the year exceeds the education expenses for the year, the excess is partly taxable under a complex formula. There’s another formula if the sum of withdrawals from this 530 program and from the qualified tuition (Section 529) program exceed education expenses.
Qualified Tuition Programs (Section 529 Programs)
Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations among them:
- The prepaid education arrangement. Here one is essentially buying future education at today’s costs, by buying education credits or certificates. This is the older type of program and tends to limit the student’s choice to schools within the state. Private colleges and universities may now offer this type.
- Education savings accounts. Here, contributions are made to an account to be used for future higher education.
In approaching state programs one must distinguish between what the federal tax law allows and what an individual state’s program may impose.
You may open a Section 529 program in any state. Unlike certain other tax-favored higher education programs, such as the American Opportunity Tax Credit and Lifetime Learning Credits, federal tax law doesn’t limit the benefit to tuition, but can also extend it to room, board, and books (individual state programs could be narrower).
Contributions must be in cash, and must not total more than reasonably needed for higher education (as determined initially by the state). Neither account owner nor beneficiary may direct investments, but the state may allow the owner to select a type of investment fund (e.g., fixed income securities), and to change the investment annually, and when the beneficiary is changed. The account owner decides who gets the funds (can pick and change the beneficiary) and is legally allowed to withdraw funds at any time, subject to tax and penalty discussed later.
Distributions from the fund are tax-free to the extent used for qualified higher education expenses. Distributions used otherwise are taxable to the extent of the portion which represents earnings.
A Section 529 distribution can be tax-free even though the student is claiming an American Opportunity Tax Credit or Lifetime Learning Credit, or tax-free treatment for a Section 530 Coverdell distribution, if the programs aren’t covering the same specific expenses.
Education Tax Credits
Two tax credits are available for education costs – the American Opportunity Tax Credit and the Lifetime Learning Credit. These credits are available only to taxpayers with adjusted gross income below specified amounts.
How These Credits Work
The amount of the credit you can claim depends on (1) how much you pay for qualified tuition and other expenses for students and (2) your adjusted gross income (AGI) for the year.
You must report the eligible student’s name and Social Security number on your return to claim the credit. You subtract the credits from your federal income tax. If the credit reduces your tax below zero, you cannot receive the excess as a refund. If you receive a refund of education costs for which you claimed a credit in a later year, you may have to repay (“recapture”) the credit.
Caution: If you file married-filing separately, you cannot claim these credits.
Which costs are eligible? Qualifying tuition and related expenses refer to tuition and fees, and course materials required for enrollment or attendance at an eligible education institution. They now include books, supplies and equipment needed for a course of study whether or not the materials must be purchased from the educational institution as a condition of enrollment or attendance.
“Related” expenses do not include room and board, student activities, athletics (other than courses that are part of a degree program), insurance, equipment, transportation, or any personal, living, or family expenses. Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. For expenses paid with borrowed funds, count the expenses when they are paid, not when borrowings are repaid.
Tip: If you pay qualified expenses for a school semester that begins in the first three months of the following year, you can use the prepaid amount in figuring your credit.
Example: You pay $1,500 of tuition in December 2015 for the winter 2016 semester, which begins in January 2016. You can use the $1,500 in figuring your 2015 credit. If you paid in January instead, you would take the credit on your 2016 return.
Tip: As future year-end tax planning, this rule gives you a choice of the year to take the credit for academic periods beginning in the first 3 months of the year; pay by December and take the credit this year; pay in January or later and take the credit next year.
Eligible students. You, your spouse, or an eligible dependent (someone for whom you can claim a dependency exemption, including children under age 24 who are full-time students) can be an eligible student for whom the credit can apply. If you claim the student as a dependent, qualifying expenses paid by the student are treated as paid by you, and for your credit purposes are added to expenses you paid. A person claimed as another person’s dependent can’t claim the credit. The student must be enrolled at an eligible education institution (any accredited public, non-profit or private post-secondary institution eligible to participate in student Department of Education aid programs) for at least one academic period (semester, trimester, etc.) during the year.
No “double-dipping.” The tax law says that you can’t claim both a credit and a deduction for the same higher education costs. It also says that if you pay education costs with a tax-free scholarship, Pell grant, or employer-provided educational assistance, you cannot claim a credit for those amounts.
Income Limits. To claim the American Opportunity Tax Credit, your modified adjusted gross income (MAGI) must not exceed $90,000 ($180,000 for joint filers). To claim the Lifetime Learning Credit, MAGI must not exceed $65,000 ($130,000 for joint filers). “Modified AGI” generally means your adjusted gross income. The “modifications” only come into play if you have income earned abroad.
The American Opportunity Tax Credit
The American Opportunity Tax Credit was extended through tax year 2017 by the American Taxpayer Relief Act of 2012. The maximum credit, available only for the first four years of post-secondary education, is $2,500 for tax years 2013 to 2017. You can claim the credit for each eligible student you have for which the credit requirements are met.
Special Qualification Rules. In addition to being an eligible student, he or she:
- Must be enrolled in a program leading to a degree, certificate, or other recognized credential;
- Must be taking at least half of a normal full-time load of courses, for at least one semester or trimester beginning in the year for which the credit is claimed; and
- May not have any drug-related felony convictions.
Amount of credit. The maximum amount of the AOC credit is $2,500. Generally, 40 percent of the AOC is now a refundable credit for most taxpayers, which means that you can receive up to $1,000 even if you owe no taxes.
The Lifetime Learning Credit
You may be able to claim a Lifetime Learning Credit of up to $2,000 (20 percent of the first $10,000 of qualified expense) for eligible students (subject to reduction based on your AGI). Only one Lifetime Learning Credit can be taken per tax return, regardless of the number of students in the family.
- The credit can help pay for undergraduate, graduate and professional degree courses, including courses to improve job skills.
- For courses taken to acquire or improve job skills, there are no requirements as to course loads so that even one or two courses can qualify.
- The number of years for which this credit can be claimed is not limited.
Choosing the Credit. You can’t claim both credits for the same person in the same year. But you can claim one credit for one or more family members and the other credit for expenses for one or more others in the same year – for example, an American Opportunity Tax Credit for your child and a Lifetime Learning Credit for yourself.
Electing Not To Take the Credit. There are situations in which the credit is not allowed, or not fully available, if some other education tax benefit is claimed – where the higher education expense deduction is claimed for the same student, see below, or where credit and tax exemption (under a Section 529 or 530 program) are claimed for the same expense. In that case the taxpayer – or, more likely, the taxpayer’s tax adviser – will determine which tax rule offers the greater benefit and if it’s not the credit, elect not to take the credit.
Qualified Tuition and Related Expenses Deduction Phased Out for 2015
A $4,000 above the line deduction (Form 8917) for “qualified higher education expenses” under the same definition as for tuition credits, above, was allowed for qualified tuition expenses in 2014, but has been phased out for 2015.
Employer-Provided Education Assistance
If your employer paid education assistance benefits (e.g., reimbursements of tuition), part or all of them may be tax-free. You can exclude up to $5,250 per year of the benefits you receive under a qualified educational assistance program. But you can’t both exclude and deduct the same item, even if it’s otherwise deductible. In order to qualify, your employer must have established an educational assistance plan that does not discriminate in favor of highly paid employees or owners. The exclusion applies to undergraduate level courses other than those involving sports, game and hobbies. The courses do not need to relate to your job. The exclusion is available for tuition, fees, books, and supplies but not meals, lodging or transportation. And it applies to benefits for graduate level courses.
In addition to the exclusion for qualifying education plans, your employer can provide reimbursement for business related courses, including graduate courses. If your employer does not reimburse you for these expenses, you may be entitled to deduct them as a miscellaneous itemized deduction subject to the 2 percent deduction floor. To qualify, the expense must meet the requirement of your employer or the law or maintain or improve skills in your current job. The course must not meet minimum education requirements for your job or qualify you for a new trade or business.
You may be able to deduct interest on student loans. You may also be able to exclude income that you would otherwise have to report if a student loan is canceled.
Interest Deduction. You may deduct student loan interest you pay, including interest paid that’s not currently due because payment is deferred.
Deduction is allowed even though it would otherwise be nondeductible personal interest. But you may deduct only if you are the one legally bound to pay the interest, and only on loans solely for qualified expenses (so not under open credit lines).
The student loan deduction (up to $2,500 starting in 2013), was made permanent by AFTRA, but only to taxpayers whose AGI is below $160,000 (joint filers) or $80,000 (single filers). Married couples filing separately can’t take the deduction.
The student loan interest deduction is an “above the line” deduction. In other words, you don’t have to itemize in order to claim it. The loan must have been taken out to cover education expenses of at least half-time study for yourself, your spouse, or a person who was your dependent when you took out the loan.
Caution: You cannot deduct interest on a loan from a related person, for example, a relative, or a business entity in which you have an ownership interest as defined by the tax law. And you can’t deduct if you are claimed as a dependent.
Tip: Where interest fails to qualify under these tests, consider a home equity loan, interest on which is generally deductible.
Cancellation of Student Loan. If certain requirements are met, cancelations of student loans that are intended to induce students to perform certain services do not increase the student’s gross income. This relief extends to certain private programs, as well as government and public programs.
Need assistance? Help is just a phone call away.
Tax Tips for Divorced or Separated Individuals
Income tax may be the last thing on your mind after a divorce or separation, but these events can have an impact on your taxes. Alimony and a name change are just two of the items you may need to consider. Here are some key tax tips to keep in mind if you get divorced or separated.
- Child Support. If you pay child support, you can’t deduct it on your tax return. If you receive child support, the amount you receive is not taxable.
- Alimony Paid. If you make payments under a divorce or separate maintenance decree or written separation agreement you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. If the decree or agreement does not require the payments, they do not qualify as alimony.
- Alimony Received. If you get alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
- Spousal IRA. If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
- Name Changes. If you change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund.
Health Care Law Considerations
- Special Marketplace Enrollment Period. If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
- Changes in Circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit in 2015. If you do, you should report changes in circumstances to your Marketplace throughout the year. Changes to report include a change in marital status, a name change and a change in your income or family size. By reporting changes, you will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
- Shared Policy Allocation If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.
If you would like more information on this topic, please call the office.
Hold On to Your Tax Returns
You should always keep a copy of your tax return for your records. You may need copies of your filed tax returns for many reasons. For example, they can help you prepare future tax returns. You’ll also need them if you have to amend a prior year tax return. You often need them when you apply for a loan to buy a home or to start a business. You may need them if you apply for student financial aid.
If you can’t find your copies, the IRS can provide a transcript of the tax information you need or a copy of your tax return. Here’s more information, including how to get your federal tax return information from the IRS:
- Transcripts are free and you can get them for the current year and the past three years. In most cases, a transcript includes the tax information you need.
- A tax return transcript shows most line items from the tax return that you filed. It also includes items from any accompanying forms and schedules that you filed. It doesn’t reflect any changes you or the IRS may have made after you filed your original return.
- A tax account transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income. It does include any changes that you or the IRS made to your tax return after you filed it.
- You can order your free transcripts online, by phone, by mail or fax at this time.
- The IRS has temporarily stopped the online functionality of the Get Transcript application process on the IRS.gov website that delivered your transcript immediately. The IRS is making modifications and further strengthening security for the online service. While you can still use the Get Transcript tool to order your transcript, the IRS will send it to you via mail to the last address we have on file for you.
- To order your transcript online and have it delivered by mail, go to IRS.gov and use the Get Transcript tool.
- To order by phone, call 800-908-9946 and follow the prompts.
- To request an individual tax return transcript by mail or fax, complete Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses and individuals who need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.
- You should receive your transcript within five to 10 days from the time the IRS receives your request. Please note that ordering your transcript online or over the phone are the quickest options.
- Keep in mind that the method you used to file your return and whether you have a refund or balance due affects your current year transcript availability.
- If you need a copy of your filed and processed tax return, it will cost $50 for each tax year. You should complete Form 4506, Request for Copy of Tax Return. Mail the request form to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. Allow 75 days for delivery.
Mortgage Applicants. If you are applying for a mortgage, most mortgage companies only require a tax return transcript for income verification purposes, which can be obtained through the IRS IVES (Income Verification Express Service) program. If you need to order a transcript, please follow the process described above and have it mailed to the address that the IRS has on file for you. Please plan accordingly and allow for time for delivery.
Disaster Victims. If you live in a federally declared disaster area, you can get a free copy of your tax return. Don’t hesitate to call the office if you need more information about disaster relief information.
Financial Aid Applicants. If you are applying for financial aid, you can use the IRS Data Retrieval Tool on the FAFSA website to import your tax return information to your financial aid application. The temporary shutdown of the Get Transcript tool does not affect the Data Retrieval Tool. You may also click on their help page for more information.
If you need a copy of your transcript you should follow the information above to request it as soon as possible. It takes 5 to 10 calendar days for transcripts to arrive at the address the IRS has on file for you.
Identity Theft Victims. Did you receive a notice from the IRS about a suspicious return? Has the IRS notified you that it did not accept your e-filed return because of a duplicate Social Security Number? If you answered yes to either question, then you may be a victim of tax-related identity theft. If you are a tax-related identity theft victim you first need to file the Identity Theft Affidavit. If you are waiting for the IRS to resolve your case but need a transcript, you will need to call the IRS Identity Protection Specialized Unit at 800-908-4490 to process your request.
If you’ve been a victim of identity theft, help is just a phone call away.
Reporting Gambling Income and Losses
Whether you play the lottery, roll the dice, play cards, or bet on the ponies, all of your gambling winnings are taxable and must be reported on your tax return. If you gamble, these tax tips can help you at tax time next year: Here’s what you need to know about figuring gambling income and loss.
1. Gambling income. Income from gambling includes winnings from lotteries, raffles, horse races and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips and you must report them on your tax return
2. Payer tax form. If you win, you may receive a Form W-2G, Certain Gambling Winnings, from the payer. The form reports the amount of your winnings to you and the IRS. The payer issues the form depending on the type of game you played, the amount of winnings, and other factors. You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.
3. How to report winnings. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G. If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.
4. How to deduct losses. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.
5. Keep gambling receipts. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or statements. You should also keep a diary or log of your gambling activity. Your records should show your winnings separately from your losses.
If you have questions about gambling income and losses, please call.
Tax Tips for Starting a Business
When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules but also about payroll tax rules. Here are five tax tips that can help you get your business off to a good start.
1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s a fast, easy and secure way to pay from your checking or savings account. Don’t hesitate to call if you need assistance or have any questions about IRS Direct Pay.
3. Employer Identification Number. You may need to get an EIN for federal tax purposes. Call the office to find out if you need this number. If you do, help is available to make sure this process goes smoothly.
4. Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
5. Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.
The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.
Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their full-time employees. Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.
Give the office a call if you’re thinking about starting a business but don’t know where–or how–to start.
Customize Forms for a More Professional Image
You probably don’t get as many paper forms in the U.S. Mail as you used to. But when you do, do you draw conclusions about the business that sent them based on what their forms look like?
Whether or not you think you do, most people make judgements on businesses based on collateral materials. You might notice that there’s no company logo, or that there are unnecessary blank fields. Maybe the print is very light or blurry, and there’s no message at the bottom thanking you for your business and your payment.
How you present yourself on paper does matter. There’s a lot of competition out there, and you need to use all of the tools available to you to stand out. QuickBooks provides one way to do so with its simple forms customization features.
To see what forms are available for customization, open the Lists menu and select Templates to open this window:
Figure 1: QuickBooks’ Templates window shows you what forms can be customized and provides tools for working with them.
Before you try your hand at customizing a form, make a copy to work with first. Highlight Intuit Product Invoice. Click the down arrow next to Templates in the lower left, and select Duplicate. A small window will open, displaying your options. Select Invoice and click OK.
QuickBooks will then take you back to the Templates window, and you’ll see a new entry labeled Copy of: Intuit Product Invoice. Right-click on it and select Edit Template from the menu that opens. This will open the Basic Customization window.
There are two parts to this screen. The editing options for the template you selected will appear on the left, and a preview of your invoice will display on the right. As you make modifications to the template, the preview will change to reflect them.
The best, most noticeable thing you can do to customize your invoice is to add a logo. Click the box in front of Use logo, and locate the file in the computer directory that opens. Double-click it. You logo will appear to the left of your company name and address in the upper left corner of the preview.
Figure 2: The Basic Customization window displays options for modifying your copy of the Intuit Product Invoice template.
You can make numerous changes to your template in this window, like:
- Selecting a new color scheme,
- Changing fonts,
- Deciding how much of your contact information should appear, and
- Indicating whether the Print Status Stamp (PAID, PENDING, etc.) should appear where appropriate on your invoices.
Note: You can choose to use the same modified design on multiple types of forms. This is a little complicated; let us help you.
More Customizing Options
The changes you just made were fairly superficial. However, QuickBooks offers tools that let you go much further, modifying the actual content of the invoice itself, its columns, and its fields. To get started on this, click the Additional Customization button at the bottom of the screen. The window that opens displays a preview of your invoice on the right side, just like in the previous window.
Your customization options appear on the left side, divided into five different sections. You’ll work primarily with three of them for your invoice:
Header. This includes all of the information that appears on about the top third of the form, like Bill To, Terms, Due Date, and Project/Job.
Columns. What are you billing the customer for? Item, Description, Quantity, Rate, etc.
Footer. What information will you want to enter after you’ve completed the invoice’s product or service content? You’ll likely want fields like Total, Balance Due, and Payments/Credits, perhaps a Message.
Figure 3: QuickBooks gives you tremendous control over the content in your forms.
As you can see in the above image, QuickBooks lets you choose whether specific fields and columns will appear on your invoices onscreen and/or in print. You can also change field labels if you’d like. And if you have overlapping fields or want to further modify the appearance of the invoice, you can use the Layout Designer. It’s a simple tool, but it requires some design skills.
Of course, you may not be printing many invoices at all if you’re set up to email them and accept payments online. But your customers, of course, will still see how carefully you’ve crafted your forms, which will feed into their overall perception of you. Let this impression be a good one.
Tax Due Dates for October 2015
Employees who work for tips – If you received $20 or more in tips during September, report them to your employer. You can use Form 4070.
Individuals – If you have an automatic 6-month extension to file your income tax return for 2014, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due.
Electing Large Partnerships – File a 2014 calendar year return (Form 1065-B). This due date applies only if you were given an additional 6-month extension. See March 16 for the due date for furnishing the Schedules K-1 to the partners.
Employers (nonpayroll withholding) – If the monthly deposit rule applies, deposit the tax for payments in September.
Employers (Social Security, Medicare, and withheld income tax) – If the monthly deposit rule applies, deposit the tax for payments in September.
Employers – Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2015. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.
Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2015 but less than $2,500 for the third quarter.