Business Car Deduction - Some important points

If you have a business that is a separate legal entity from you, the business may not pay your personal expenses and you personally may not pay the business’s expenses. To this extent, the payments made by the business for your personally owned car should be classified a loan to you.
From there, your business is going to reimburse you for business vehicle expenses one of two methods:

• It can reimburse you at the IRS standard mileage rate;  OR
• It can reimburse you for actual expenses

Regardless of the reimbursement method, you need to send proof of the business mileage and all expenses you need to be reimbursed, to your business.

Depreciation expenses for the vehicle may only be deducted by the business if the business owns the title for the vehicle used. You may not deduct depreciation for the vehicle, nor may he deduct fuel, insurance, lease payments or repairs to the vehicle on your personal income tax return, regardless of the percentage the car is used for business purposes.

So, If the business owns the car, it can fully deduct car expenses, subject to dollar limits on depreciation, against its business income. If you, as an employee or shareholder, own the car and use it for business, your expenses are deductible as a miscellaneous itemized deduction to the extent they exceed 2% of your adjusted gross income. And even this deduction may be further limited by the overall reduction in itemized deductions.

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(858)247-1680

 

Installments - What you need to know

If you are unable to pay the full amount of tax owed, you may request a monthly installment plan.

Before applying for any payment agreement, a taxpayer must file all required tax returns.

Installment agreements generally provide up to 72 months to pay the tax. In certain circumstances, the payment period could be longer or the amount agreed to could be less than the amount of tax owed.

An installment plan is not valid unless accepted by the IRS. However, if a taxpayer owes $10,000 or less and meets certain other criteria*, the IRS must accept the request.

To request an installment agreement a taxpayer can attach Form 9465 - Installment Agreement Request to the front of his tax return, or in cases where the return is already filed-mail it directly to the IRS.

If the balance due is not more than $50,000, the taxpayer can apply online for a payment agreement instead of filing Form 9465.

If the IRS approves a request, they send a notice detailing the terms of the agreement and request a fee.

If a taxpayer is able to pay the full amount owed within 120 days, he should not request an installment agreement on Form 9465.

If the total amount the taxpayer owes is greater than $25,000 but not more than $50,000, the taxpayer may use a slightly expanded Form 9465-FS - Installment Agreement Request.

contact@officetaxservices.com

(858)247-1680

What is an ITIN?

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the IRS upon receipt of Form W-7.  Each ITIN is a nine-digit number that always begins with the number nine.

Who Must Apply?

IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN.
   • A nonresident alien required to file a U.S. tax return
   • A U.S. resident alien (based on days present in the United States) filing a U.S. tax return
   • A dependent or spouse of a U.S. citizen/resident alien
   • A dependent or spouse of a nonresident alien visa holder

What documents are acceptable as proof of identity and foreign status?

IRS streamlined the number of documents the agency accepts as proof of identity and foreign status to obtain an ITIN. There are 13 acceptable documents. Each document must be current and contain an expiration date. IRS will accept documents issued within 12 months of the application if no expiration date is normally available.  Documents must also show your name and photograph, and support your claim of foreign status. Below is the list of the only acceptable documents:

• Passport (stand alone document)
• National identification card (must show photo, name, current address, date of birth, and expiration date)
• U.S. driver's license
• Civil birth certificate (required for dependents under 18 years of age)
• Foreign driver's license
• U.S. state identification card
• Foreign voter's registration card
• U.S. military identification card
• Foreign military identification card
• Visa
• U.S. Citizenship and Immigration Services (USCIS) photo identification
• Medical records (dependents only - under 6)
• School records (dependents only - under 14, under 18 if a student)

A valid (unexpired) passport is the only stand-alone document to prove both identity and foreign status.
Reminder, all documents must be original documents or certified copies by the issuing agency. 

Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless an exception applies.

An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

 We can help you to get your ITIN number. 

contact@officetaxservices.com

(858)247-1680

Parents' Election To Report Child's Interest and Dividends - Form 8814

Parents can elect to include a child’s income on the parent’s return (Form 8814) when a child’s only income is interest, dividends or capital gain distributions. If making this election, the child does not have to file a return. The child must meet the following conditions to qualify:

• At the end of the year, must be younger than age 19 or a full-time student younger than age 24
• Must have gross income of less than $10,500
• Must be required to file a return unless the election is made
• Must not file a joint return for the year
• Must not have made estimated tax payments for the tax year, and no overpayment from the previous year can apply to the tax year under his name and Social Security number
• Must not have any federal income tax taken out of his income under the backup withholding rules

If you elect to report your child’s income on your return, you cannot take certain deductions that your child could take on his or her own return such as:
• Additional standard deduction of $1,550 if the child is blind, 
• Penalty on early withdrawal of child’s savings, and
• Itemized deductions such as the child’s investment expenses or charitable contributions. 

If your child received qualified dividends or capital gain distributions, you may pay up to $105 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child’s income between $1,050 and $2,100 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions.

Form 8814

Use Form 4868 to File Tax Extension

A taxpayer may request an automatic six-month extension by filing Form 4868 (via paper or electronically) by the due date of the return or by paying all or part of the income tax due using a credit or debit card. For most taxpayers, this extends the due date until October 15.

Please note that this is NOT an extension of time to pay taxes. The taxpayer must estimate the taxes due and can submit the payment with the extension request.

There are three ways to request an automatic extension of time to file a U.S. individual income tax return.
1. You can pay all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System, or using a credit or debit card. See How To Make a Payment, on page 3.
2. You can file Form 4868 electronically by accessing IRS e-file using your home computer or by using a tax professional who uses e-file.
3. You can file a paper Form 4868 and enclose payment of your estimate of tax due. 

Late Payment Penalty
The late payment penalty is usually 1⁄2 of 1% of any tax (other than estimated tax) not paid by April 18, 2016. It is charged for each month or part of a month the tax is unpaid. The maximum penalty is 25%.
The late payment penalty will not be charged if you can show reasonable cause for not paying on time. Attach a statement to your return fully explaining the reason. Do not attach the statement to Form 4868.
You are considered to have reasonable cause for the period covered by this automatic extension if at least 90% of your actual 2015 tax liability is paid before the regular due date of your return through withholding, estimated tax payments, or payments made on Form 4868. 

Late Filing Penalty
A late filing penalty is usually charged if your return is filed after the due date (including extensions). The penalty is usually 5% of the amount due for each month or part of a month your return is late. The maximum penalty is 25%. If your return is more than 60 days late, the minimum penalty is $135 (adjusted for inflation) or the balance of the tax due on your return, whichever is smaller. You might not owe the penalty if you have a reasonable explanation for filing late. Attach a statement to your return fully explaining your reason for filing late. Do not attach the statement to Form 4868. 

Form 4868

What should be included in Income? What is fully deductible? Am I qualified for any credits?

So many questions about taxes and you need to finish it before April 18, 2016. You can find answers on the Internet, but it is not always simple to understand it, every year the tax code change a little bit. It is why a tax preparer is very helpful. 

Building a relationship with a tax preparer can help you save time, money and sometimes a lot of headaches. 

This blog is for sharing experiences and helping people to understand clearly the tax code and what they should do in common cases. I am a certified Tax Preparer by CTEC. My next step becomes an Enrolled agent.

Please feel free to ask or comment in the comment section of this post. I will try my best to answer all as soon as possible.