Tax Facts

Information to help individuals and small business navigate our complex Tax Laws. Not to be construed as tax advice. Contact your hired tax advisor for your specific tax situation and advice.

Small Business Inventory and Charity

What if you have a small business such as a sole proprietorship that files on Schedule C and you want to contribute some of your inventory to charity? How should you account for that? There are some things to consider regarding charitable contributions of inventory before you do so.

First, consider that unfortunately, charitable contributions of any kind cannot be deducted on Schedule C. They are deducted on Schedule A of your personal tax return as itemized deductions. Obviously, you should consider whether or not you even itemize your deductions or take the standard. And with the new tax legislation that is going into effect for 2018, you may have itemized in the past but will not in the new year.

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Hurricane Areas and E-filing for 2016 Tax Year


Just a reminder that taxpayers who need to file a 2016 federal tax return electronically, should do so by Saturday, November 18, 2017. On November 18, 2017 the IRS is shutting down their e-filing system so they can get ready for the new tax season. It will remain closed for e-filing until January 1, 2018.

Most taxpayers have already filed their 2016 federal tax return, but if you live in an area that was federally declared a disaster area (hurricanes Harvey, Irma and Maria, for example and wildfire victims in California) and you obtained a 6-month extension of time to file then you have until January 31, 2018 to file your federal 2016 tax return.

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Florida 2016 Tax Extension Filers and Hurricane Irma


If you are living in Florida in any area designated by the FEMA as qualifying for either individual assistance or public assistance from Hurricane Irma, and you filed an extension for your 2016 individual or corporate tax return, the IRS has announced an additional extension for you. Taxpayers with valid extensions that normally run out on October 16, 2017 and businesses with extensions that ran out on September 15, 2017 will now have until January 31, 2018 to file returns.

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Medical Expenses: 10% Floor for All in 2017

This change is most important to note for those who are 65 and over. For tax year 2017 the amount of qualifying medical expenses that can be deducted on Schedule A of the tax return must now exceed 10% of your adjusted gross income (AGI) for all taxpayers. In previous years, for those 65 years and over, the floor was 7.5% of AGI, which has now expired.

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Electing to Deduct Sales Tax


The election to deduct sales tax on your tax return only applies to taxpayers who itemize their deductions. Normally, if you're itemizing, you should hire a licensed tax professional to prepare your taxes for you. Itemizing can quickly become complex, involve more details in the preparation process, involve strategy for maximizing deductions and minimizing tax and most importantly take up lots of your time.

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Where are State and Local Taxes Deducted?


State and local income taxes are deductible as itemized expenses on your tax return in the year that they are paid. The tax may be paid either through withholding on a paycheck or through estimated tax payments made each quarter of the year or through an over payment from a prior year. Careful how you shift your payments, if you are planning with strategy for maximizing your deduction in a particular year, though.

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Get Your Tax Refund

If you did not file a tax return in the past three years, perhaps because you did not meet the filing threshold or you encountered a life event that put you on hold, maybe it's a good idea to meet with a tax professional and determine if you are due a refund!

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Home Office Measurement Methods

In today's economy and with today's technology it is becoming more common that people work as independent contractors, statutory employees or simply have side jobs in the evening that provide extra income. For each of these scenarios, a person might use part of their home as their place of business.

One of the first things you'll have to do when meeting the requirements for and intending to take a home office deduction on your tax return, is to estimate the amount of space in your home you're using for business. There are two ways you can do this:

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Safe Harbor Home Office Deduction

A taxpayer (either a business owner or an employee) may elect a simplified method to compute the home office deduction for tax years beginning on or after January 1, 2013 without having to substantiate, calculate, and allocate deductible home office expenses. This is referred to as a safe harbor method of taking the home office deduction.

Under the safe harbor, the deduction is equal to $5.00 times the number of square feet of the home office. It is limited to a maximum of 300 square feet. So even if your home office is 500 square feet, the maximum deduction you can take is $1,500. Additionally, the deduction cannot exceed the taxpayer's gross income from the business (and this has to be calculated as a percentage if you are conducting your business elsewhere for parts of the day, week or year).

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Startup Business Deductions

If you are starting a business, be careful that you do not spend too much before you technically "start" the business. Of course, you have to do some spending, but you are limited to $5,000 in business startup costs on your first year's tax return. Any overage is amortized over 180 months (yes, that's 15 years!).

What is the startup phase? That depends on a number of factors and it can differ for each individual business, since each one is unique. However, generally, you are in the startup phase during development and planning of the business. Once you become operational - generally when you are available for hire (and not necessarily that anyone has yet hired you) - then your expenses are considered those of a business in operation (and no longer "starting up").

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Can I Deduct IRA Investment Fees?

Check your IRA statement for investment or custodian fees. If you are being charged investment fees in such an account you may be wondering if you can deduct those fees on your tax return. The answer is "it depends." There are some fees that are deductible, but only if they were paid with non-IRA funds. That means you must tell your IRA custodian that you want to write a separate check to pay for those fees. By doing so, your payment is considered a tax deductible investment fee and not considered a contribution to the IRA.

What are those fees? If you are charged an annual fee, this may qualify for the deduction (usually an annual fee to manage the IRA). However, if your custodian charges you a fee according to a percentage of assets under management (AUM) - this fee would be considered part of the IRA contribution you made and is not deductible (because it is already coming from a tax-free contribution).

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Do You Need to File a Tax Return?

Many potential clients call to ask me to help them determine if they are required to file a federal tax return at all or if they should file to receive a refund. This is a question that requires additional information to be accurately answered.

Some of the questions I ask are: what will be your filing status? Do you have a W-2 or 1099 Misc document from your employer or contract work? Was any federal income tax withheld from your paycheck or did you pay in any estimated self-employment taxes on your contract income?

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Taxes and Deductions on Gambling Income

It's a common misconception that unless you receive a Form W-2G at a casino, your gambling winnings don't have to be reported at the end of the year on your federal tax return.

However, like any other income, regardless of whether or not you received documentation at the time it was earned (or won), all income must be reported on your federal tax return.

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Health Premium Tax Credit

Do you currently receive an advanced payment on the premium tax credit? If you do, be sure to report any changes in your circumstances to the Health Insurance Marketplace Exchange.

If your income has increased, you may be eligible for a smaller payment. If you don't report the change, then you'll have to make a reimbursement of this overage when you file your tax return.

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