Record Keeping

If you have a business, keeping track of income and expenses is part of the job.
Be sure to keep:

• Track of ALL spending;
• A copy of EVERY tax form you file;
• Separate bank accounts for business and personal purposes;
• Personal expenses separate from business expenses;
• All business records at least four years after return is filed.

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When You Should Use Schedule E

You should use schedule E to report income or loss from rental real state, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.

If you are filing schedule E, you may have to file other schedules and forms:

• Schedule A (Form 1040) to deduct interest, taxes, and casualty losses not related to your business. 
• Form 3520 to report certain transactions with foreign trusts and receipt of certain large gifts or bequests from certain foreign persons. 
• Form 4562 to claim depreciation (including the special allowance) on assets placed in service in 2015, to claim amortization that began in 2015, to make an election under section 179 to expense certain property, or to report information on listed property.
• Form 4684 to report a casualty or theft gain or loss involving property used in your trade or business or income-producing property. 
• Form 4797 to report sales, exchanges, and involuntary conversions (not from a casualty or theft) of trade or business property. 
• Form 6198 to figure your allowable loss from an at-risk activity. 
• Form 8082 to notify the IRS of any inconsistent tax treatment for an item on your return. 
• Form 8582 to figure your allowable loss from passive activities. 
• Form 8824 to report like-kind exchanges. 
• Form 8826 to claim a credit for expenditures to improve access to your business for individuals with disabilities. 
• Form 8873 to figure your extraterritorial income exclusion. 
• Form 8910 to claim a credit for placing a new alternative motor vehicle in service for business use. 
• Form 8960 to pay Net Investment Income Tax on certain income from your rental and other passive activities. 

 

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What is Gross Income?

Gross income for federal income tax purposes means all income from all sources except for those items specifically excluded by the code prior to any deduction or taxes.

Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident.

Gross income includes wages and salaries, interest, dividends, stock sales, self-employment income, income from business entities, prizes, rents, real estate sales, bartering, babysitting and most other forms of income. Any money that you receive from any source is almost always part of gross income.

If you sell personal property, only the profit (gain) would have to be included in gross income.

If you have reimbursements for employee business expenses based on actual expenses they are not included in gross income.

If you have a repayment of personal money you loaned to family or friends is not included in gross income; however any interest that you charged them would be included.

If you have a house that is provided for the convenience of the employer is not include in gross income.

If you have a gift or inheritance that would not have been taxable to the gifter or decedent, it is not included in gross income.

The courts adopted the accounting concept that measures income only when a realization event occurs for tax purposes. 

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The Work Opportunity Tax Credit (WOTC) - Earn Federal Income Tax Credits for your Company

WOTC is a federal income tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
The WOTC tax credit is a one-time tax credit for each new hire – and there is no limit to the number of new hires who can qualify an employer for a tax credit. 

What are the WOTC target groups ?

• Qualified Veterans 
• Qualified Disabled Veterans 
• Qualified Unemployed Veterans 
• Qualified Designated Community Resident 
• Qualified Ex-Felons 
• Qualified Vocational Rehabilitation Recipient (requires release form) 
• Qualified Supplemental Nutritional Assistance Program (SNAP) (Food Stamps) Recipient 
• Qualified Supplemental Security Income (SSI) Recipient (requires release form)
• Qualified Recipients of Temporary Assistance to Needy Families (TANF) 
• Qualified Summer Youth

The WOTC Program has been reauthorized through December 31, 2019. An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work.
The credit is limited to the amount of the business income tax liability or social security tax owed.

The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired and the number of hours worked in the first year. Employees must work at least 120 hours in the first year of employment to receive the tax credit.
Relatives or dependents (this includes a spouse), majority owners of the employer, and former employees do not qualify for WOTC.

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FATCA - Foreing Account Tax Compliance - Who must file?

The Foreign Account Tax Compliance Act (FACTA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The legislation created new self-reporting requirements and increased penalties for failure to comply fully with complex reporting rules. The regulation imposes on all foreign financial institutions a vast new legal mandate to determine who among their clients are "U.S. Persons" and report directly to the IRS information on those clients' accounts. Usually, a withholding agent is required to withhold 30% on a withholdable payment made to a Foreign Financial Institution (FFI) or to a Non Financial Foreign Entity (NFFE), unless the FFI or NFFE meets certain requirements.

In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. 

Generally U.S citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad).

Specified individuals, which include U.S. citizens, resident aliens, and certain nonresident aliens that have an interest in specified foreign financial assets and meet the reporting threshold must file Form 8938.

Form 8938 is due with your annual income tax return and filed with the applicable IRS service center.

There is a penalty up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply.

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(858)247-1680