Choosing the Right Business Entity
When you decide to start a business, one of the most important decisions you’ll need to make is choosing the right business entity. It’s a decision that impacts many things–from the amount of taxes you pay to how much paperwork you have to deal with and what type of personal liability you face.
Forms of Business
The most common forms of business are Sole Proprietorships, Partnerships, Limited Liability Companies (LLCs), and Corporations (C-Corporations). Federal tax law also recognizes another business form called the S-Corporation. While state law controls the formation of your business, federal tax law controls how your business is taxed.
What to Consider
Businesses fall under one of two federal tax systems:
1. Taxation of both the entity itself on the income it earns and the owners on dividends or other profit participation the owners receive from the business. C-Corporations fall under this system of federal taxation.2. “Pass through” taxation. This type of entity (also called a “flow-through” entity) is not taxed, but its owners are each taxed (more or less) on their proportionate shares of the entity’s income. Pass-through entities include:
- Sole Proprietorships
- Partnerships, of various types
- Limited liability companies (LLCs)
- “S-Corporations” (S-Corps), as distinguished from C-corporations (C-Corps)
The first major consideration when choosing a business entity is whether to choose one that has two levels of tax on income or one that is a pass-through entity with only one level directly on the owners.
The second consideration, which has more to do with business considerations rather than tax considerations, is the limitation of liability (protecting your assets from claims of business creditors).
Let’s take a general look at each of the options more closely:
Types of Business Entities
The most common (and easiest) form of business organization is the sole proprietorship. Defined as any unincorporated business owned entirely by one individual, a sole proprietor can operate any kind of business (full or part-time) as long as it is not a hobby or an investment. In general, the owner is also personally liable for all financial obligations and debts of the business.
Note: If you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.
Types of businesses that operate as sole proprietorships include retail shops, farmers, large companies with employees, home-based businesses and one-person consulting firms.
As a sole proprietor, your net business income or loss is combined with your other income and deductions and taxed at individual rates on your personal tax return. Because sole proprietors do not have taxes withheld from their business income, you may need to make quarterly estimated tax payments if you expect to make a profit. Also, as a sole proprietor, you must also pay self-employment tax on the net income reported.
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
There are two types of partnerships: Ordinary partnerships, called “general partnerships,” and limited partnerships that limit liability for some partners but not others. Both general and limited partnerships are treated as pass-through entities under federal tax law, but there are some relatively minor differences in tax treatment between general and limited partners.
For example, general partners must pay self-employment tax on their net earnings from self-employment assigned to them from the partnership. Net earnings from self-employment include an individual’s share, distributed or not, of income or loss from any trade or business carried on by a partnership. Limited partners are subject to self-employment tax only on guaranteed payments, such as professional fees for services rendered.
Partners are not employees of the partnership and do not pay any income tax at the partnership level. Partnerships report income and expenses from its operation and pass the information to the individual partners (hence the pass-through designation).
Because taxes are not withheld from any distributions partners generally need to make quarterly estimated tax payments if they expect to make a profit. Partners must report their share of partnership income even if a distribution is not made. Each partner reports his share of the partnership net profit or loss on his or her personal tax return.
Limited Liability Companies (LLC)
A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state is different, so it’s important to check the regulations in the state you plan to do business in. Owners of an LLC are called members, which may include individuals, corporations, other LLCs and foreign entities. Most states also permit “single member” LLCs, i.e. those having only one owner.
Depending on elections made by the LLC and the number of members, the IRS treats an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return. A domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it elects to be treated as a corporation.
An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it elects to be treated as a corporation.
In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.
A corporate structure is more complex than other business structures. When you form a corporation, you create a separate tax-paying entity. The profit of a corporation is taxed to the corporation when earned and then is taxed to the shareholders when distributed as dividends. This creates a double tax.
The corporation does not get a tax deduction when it distributes dividends to shareholders. Earnings distributed to shareholders in the form of dividends are taxed at individual tax rates on their personal tax returns. Shareholders cannot deduct any loss of the corporation.
If you organize your business as a corporation, generally are not personally liable for the debts of the corporation, although there may be exceptions under state law.
An S-corporation has the same corporate structure as a standard corporation; however, its owners have elected to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S-corporations generally have limited liability.
Generally, an S-Corporation is exempt from federal income tax other than tax on certain capital gains and passive income. It is treated in the same way as a partnership, in that generally taxes are not paid at the corporate level. S-Corporations may be taxed under state tax law as regular corporations, or in some other way.
Shareholders must pay tax on their share of corporate income, regardless of whether it is actually distributed. Flow-through of income and losses is reported on their personal tax returns and they are assessed tax at their individual income tax rates, allowing S-Corporations to avoid double taxation on the corporate income.
To qualify for S-Corporation status, the corporation must meet a number of requirements. Please call if you would like more information about which requirements must be met to form an S-Corporation.
When making a decision about which type of business entity to choose each business owner must decide which one best meets his or her needs. One form of business entity is not necessarily better than any other and obtaining the advice of a tax professional is critical. If you need assistance figuring out which business entity is best for your business, don’t hesitate to call.
IRS Warns of Fake Tax Bill Emails
Numerous reports of scammers sending fraudulent CP2000 Notices for tax-year 2015 have been received by the IRS, resulting in an investigation by the Treasury Inspector General for Tax Administration.
The notice relates to the Affordable Care Act (ACA) and requests information regarding 2014 coverage. It also includes a request for payment of unpaid taxes.
Here’s what taxpayers need to know:
What is a CP2000 Notice?
A CP2000 Notice is generated by the IRS Automated Underreporter Program when income reported from third-party sources (such as an employer) does not match the income reported on the tax return. It provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed.
Commonly mailed to taxpayers through the United States Postal Service, a CP2000 Notice is never sent as part of an email to taxpayers.
What to watch out for:
Taxpayers and tax professionals should be on guard against fake emails purporting to contain an IRS tax bill related to the Affordable Care Act. Generally, the scam involves an email that includes the fake CP2000 notice as an attachment.
Indicators that the CP2000 Notice you received is a scam include the following:
- Notices are sent electronically, even though the IRS does not initiate contact with taxpayers by email or through social media platforms;
- The CP2000 notices appear to be issued from an Austin, Texas, address;
- The underreported issue is related to the Affordable Care Act (ACA) requesting information regarding 2014 coverage;
- The payment voucher lists the letter number as 105C.
The fraudulent CP2000 Notice includes a payment request that taxpayers mail a check made out to “I.R.S.” and sent to the “Austin Processing Center” at a Post Office Box address. This is in addition to a “payment” link within the email itself. In addition, if taxpayers are unable to pay, it provides instructions for payment options such as installment payments.
Unlike the fake version a real CP2000 Notice provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed. A real notice also requests that checks be made out to “United States Treasury.”
To determine if a CP2000 Notice that you received in the mail is real, go to the IRS website and use the search term, “Understanding Your CP2000 Notice.” You will see an image of a real notice.
IRS Impersonation Scams
IRS impersonation scams take many forms: threatening telephone calls, phishing emails, and demanding letters. Anyone who receives this scam email should forward it to firstname.lastname@example.org and then immediately delete it from their email account.
Taxpayers should always beware of any unsolicited email purported to be from the IRS or any unknown source. Never open an attachment or click on a link within an email sent by an unknown person or a source you do not know.
What you should do:
Individuals with questions about a notice or letter they receive from the IRS can generally do a keyword search for “Understanding Your IRS Notice or Letter” on the IRS.gov website and view explanations and images of common correspondence.
Don’t hesitate to contact the office if you have any questions about IRS notices or letters you have received in the mail or otherwise.
Cash Flow Management: the Secret to Success
Cash flow is the lifeblood of any small business. Some business experts even say that a healthy cash flow is more important than your business’s ability to deliver its goods and services.
While that might seem counterintuitive, consider this: if you fail to satisfy a customer and lose that customer’s business, you can always work harder to please the next customer. If you fail to have enough cash to pay your suppliers, creditors, or employees, you are out of business!
What is Cash Flow?
Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers but keep in mind that inflow only occurs when you make a cash sale or collect on receivables. It is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.
Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.
Note: A tax and accounting professional is the best person to help you learn how your cash flow statement works. He or she can prepare your cash flow statement and explain where the numbers come from. If you need help, don’t hesitate to call.
Cash Flow versus Profit
While they might seem similar, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.
Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place.
In theory, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.
Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.
Analyzing your Cash Flow
The sooner you learn how to manage your cash flow, the better your chances of survival. Furthermore, you will be able to protect your company’s short-term reputation as well as position it for long-term success.
The first step toward taking control of your company’s cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.
Some of the most important components to examine are:
- Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable balance sheet is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
- Credit terms. Credit terms are the time limits you set for your customers’ promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
- Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy – neither too strict nor too generous – is crucial for a healthy cash flow.
- Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
- Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable at some point in the near future – “near” meaning 30 to 90 days. Without payables and trade credit, you’d have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.
Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts or spend extra cash to expand its line of business.
For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.
Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.
Make sure your business has adequate funds to cover day-to-day expenses.
If you need help analyzing and managing your cash flow more effectively, please call the office.
Eight Ways Children Lower your Taxes
Got kids? They may have an impact on your tax situation. If you have children, here are eight tax credits and deductions that can help lower your tax burden.
- Dependents: In most cases, a child can be claimed as a dependent in the year they were born. Be sure to let the office know if your family size has increased this year. You may be able to claim the child as a dependent this year.
- Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax.
- Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child under age 13 while you work or look for work. Be sure to keep track of your child care expenses so we can claim this credit accurately.
- Earned Income Tax Credit: The EITC is a benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.
- Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child.
- Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution. Contributions are not deductible; however, qualified distributions generally are tax-free.
- Higher Education Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your taxable income.
- Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income, so you do not need to itemize your deductions.
As you can see, having children can make a big impact on your tax profile. Make sure that you’re getting the appropriate credits and deductions by speaking to a tax professional today.
Lending Money to a Friend? It Pays to Plan Ahead
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 for yourself down the road.
Take a look at this example: 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.
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. To complicate matters 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.
As was mentioned above, 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.
Five Tips for Starting a Business
When you start a business, you need to know about income taxes, payroll taxes, understanding your tax obligations, and much more. Here are five tips to help you get your business off to a good start:
1. Business Structure. One of the first decisions you need to make is which type of business structure to choose. The most common types are sole proprietor, partnership, and corporation. This is an important step because the type of business you choose will determine which tax forms you file. See, Choosing the Right Business Entity, above.
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, you can use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from your checking or savings account.
3. Employer Identification Number (EIN). You may need to get an EIN for federal tax purposes. The easiest way to find out if you need an EIN is to use the search term “do you need an EIN” on the IRS.gov website. If you do need one, contact the office or apply for one online at IRS.gov.
4. Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. The two that are most common are the cash and accrual methods, and you must use a consistent method. 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. You’re eligible for the credit if you have 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.
Questions about starting a business?
Don’t hesitate to call the office if you need answers!
Apps for Tracking Business Mileage
Every business owner, no matter how small, must keep good records. But whether it’s keeping track of mileage, documenting expenses, or separating personal from business use, keeping up with paperwork is a seemingly never ending job.
No matter how good your intentions are in January, the chances are good that by summer that mileage log is looking a bit empty. Even worse, you could be avoiding tracking your mileage altogether–and missing out on tax deductions and credits that could save your business money at tax time.
The good news is that there are a number of phone applications (apps) that could help you track those pesky business miles. Most of these apps are useful for tracking and reporting expenses, mileage and billable time. They use GPS to track mileage, allow you to track receipts, choose the mileage type (Business, Charitable, Medical, Moving, Personal), and produce formatted reports (IRS compliant HTML and CSV tax return reports) that are easy to generate and share with your CPA, EA, or tax advisor.
Here are three popular apps that help you track your business mileage:
1. TripLog – Mileage Log Tracker
Works with: Android and iPhone
What it does: Tracks vehicle mileage and locations using GPS
- Automatic start when plugged into power or connected to a Bluetooth device and driving more than five mph
- Reads your vehicle’s odometer from OBD-II scan tools
- Syncs data between the web service and multiple mobile devices
- Supports commercial trucks including per diem allowance, state-by-state mileage for IFTA fuel tax reports, and DEF fuel purchases and gas mileage
2. Track My Mileage
Works with: Android and iPhone
What it does: Keeps track of mileage for business or personal use
- Provides mileage rates used to calculate the deductible costs of operating your automobile
- Allows you to group your trips by client
- Tracks multiple drivers and vehicles tracking
- Localized and translated into more than 20 languages
Works with: iPhone and iPad
What it does: Tracks mileage, as well as expenses and billable time
- Allows you to choose which way you want to track your mileage
- Remembers Frequent trips
- Creates reports in PDF format or CSV for importing into Excel
- Ability to email your reports and photo receipts
Call the office today if you have any questions about using apps that track business mileage or need help choosing the right one for your business needs.
Keep Track of Miscellaneous Deductions
Miscellaneous deductions such as certain work-related expenses you paid for as an employee can reduce your tax bill, but you must itemize deductions when you file to claim these costs. Many taxpayers claim the standard deduction, but you might pay less tax if you itemize.
Here are some tax tips that may help you reduce your taxes:
Deductions Subject to the Two Percent Limit. You can deduct most miscellaneous costs only if their sum is more than two percent of your adjusted gross income (AGI). These include expenses such as:
- Unreimbursed employee expenses.
- Job search costs for a new job in the same line of work.
- Work clothes and uniforms required for your job, but not suitable for everyday use.
- Tools for your job.
- Union dues.
- Work-related travel and transportation.
- The cost you paid to prepare your tax return. These fees include the cost you paid for tax preparation software. They also include any fee you paid for e-filing of your return.
Deductions Not Subject to the Limit. Some deductions are not subject to the two percent limit. They include:
- Certain casualty and theft losses. In most cases, this rule applies to damaged or stolen property you held for investment. This may include personal property such as works of art, stocks, and bonds.
- Gambling losses up to the total of your gambling winnings.
- Losses from Ponzi-type investment schemes.
You claim allowable miscellaneous deductions on Schedule A, Itemized Deductions, but keep in mind, however, that there are many expenses that you cannot deduct. For example, you can’t deduct personal living or family expenses.
Need more information about itemizing deductions or help setting up a system to track your itemized deductions? Help is just a phone call away.
Tax Tips for Hobbies that Earn Income
Millions of people enjoy hobbies such as stamp or coin collecting, craft making, and horse breeding, but the IRS may also consider them a source of income. As such, if you engage in a hobby that provides a source of income, you must report that income on your tax return; however, taxpayers (especially business owners) should be aware that the way income from hobbies is reported is different from how you report income from a business. For example, there are special rules and limits for deductions you can claim for a hobby.
Here are five basic tax tips you should know if you get income from your hobby:
Business versus Hobby. There are nine factors to consider to determine if you are conducting business or participating in a hobby. Make sure to base your decision on all the facts and circumstances of your situation. To learn more about these nine factors, please call.
Allowable Hobby Deductions. You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. Don’t hesitate to call if you need more information about these rules.
Limits on Expenses. As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.
How to Deduct Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. Use Schedule A, Itemized Deductions to report these types of expenses.
Use a tax professional. Hobby rules can be complex, but using a tax professional makes filing your tax return easier. If you need have any questions about reporting income from a hobby, please call.
Tax Tips for 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, don’t hesitate to call.
What Are Payroll Items in QuickBooks?
Are you considering processing your own payroll in QuickBooks? Whether you’re moving from a payroll service or getting ready to pay your first employee, you’re taking on a complex set of tasks that requires a great deal of setup and absolute precision. But the reward is complete control over your compensation records and transactions, and constant access to your payroll data.
If you have no experience dealing with paychecks, deductions, and payroll taxes, we strongly recommend that you call the office before you get started. While QuickBooks simplifies the actual mechanics of setting up and running payroll, there’s still a lot you need to know.
It goes without saying that accuracy is critical here. You’re responsible for your employees’ livelihoods and for maintaining any benefits they receive. Federal, state and local taxing agencies will count on you to submit the proper payroll taxes and filings on time; failure to do so can result in stiff penalties and worse.
A Look Around Payroll Items
That said, here is a brief preview of how QuickBooks Payroll Items work. First, make sure that payroll is turned on. Next, open the Edit menu and click Preferences, then click Payroll & Employees | Company Preferences.
Figure 1: The Company Preferences screen in Payroll & Employees Preferences
Under QUICKBOOKS PAYROLL FEATURES, make sure the button in front of Full Payroll is filled in by clicking on it. If you’re interested in exploring Intuit’s online payroll service, someone can tell you about that, as well as advise you on the other options displayed here.
This element of your accounting is complicated enough that QuickBooks has a separate setup tool to guide you through the myriad details you’ll need to provide. You find this tool by going to Employees | Payroll Setup. This is a multi-screen, wizard-like tool that walks you through the process of providing information about employees, compensation, benefits and other additions/deductions, and taxes. Each page poses questions, and you provide answers by entering data and selecting options from drop-down lists. In doing so, you’re creating Payroll Items.
This is a time- and labor-intensive process, one that will send you scrambling for all of the minutiae that make up your payroll system. Once you have your payroll framework established, though, as we said earlier, everything will be in one place and easily accessible.
A Useful List
The information you entered in Payroll Setup is likely to change and need modification. Maybe you forgot to account for something while you were working in the wizard, or perhaps you just want to look up a bit of payroll data. To do any of these, open the Listsmenu and click on Payroll Item List.
Figure 2: You can access this menu from the bottom of the Payroll Item List screen.
The window that opens contains a list of the Payroll Items you created. It looks like a checkbook register, with one line devoted to each item. You’ll be able to view, for example, its Type, any Limit imposed, the Payable To name, and Tax Tracking designations. At the bottom of this list, you’ll see three drop-down menus: Payroll Item, Activities, and Reports. When you click on the down arrow next to Payroll Item you’ll see the menu displayed in the above image.
Warning: There are many options in this menu for altering Payroll Item definitions. QuickBooks allows you to do this, but use caution here. If it involves an action that you are not familiar with, please call the office for assistance.
This is fairly self-explanatory. To Edit or Delete a Payroll Item or make it Inactive, highlight it in the list and click on the correct option. You can also Customize Columns in the table and perform other related tasks. When you click on New Item and select EZ Setupon the next page, this window opens:
Figure 3: You can add Payroll Items by working your way through this wizard-like progression of screens.
QuickBooks will help you here by asking questions and building a Payroll Item based on your responses.
There’s much more to know about working with Payroll Items and assigning them to employees. When you’re ready to start processing payroll in QuickBooks, don’t hesitate to call the office for help getting started!
Tax Due Dates for October 2016
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 2015, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due.
Electing Large Partnerships – File a 2015 calendar year return (Form 1065-B). This due date applies only if you timely requested a 6-month extension of time to file the return.
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 2016. 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 2016 but less than $2,500 for the third quarter.
Employers – Federal Unemployment Tax. Deposit the tax owed through September if more than $500.
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