2013 Fair Tax & Bookkeeping 

Fair Tax & Bookkeeping

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Individual Tax

 

One of the stated aims of the September 27 “Unified Framework” for tax reform is to make the tax code “simple, fair, and easy to understand.” Some changes to current law include reducing the number of tax brackets for individuals from seven to three (at rates of 12%, 25%, and 35%), roughly doubling the standard deduction, increasing the child tax credit, and eliminating all itemized deductions except those for charitable contributions and home mortgage interest. The proposal suggests there will continue to be tax benefits for retirement savings, higher education, and the encouragement of work.

Payroll

 

Employment Tax Due Dates
Starting with tax year 2016, employers are required to file their copies of Form W-2, submitted to the Social Security Administration, by Jan. 31. Businesses who use Form 1099-MISC to report non-employee compensation, such as payments to independent contractors, are also now required to file (with the IRS) by Jan. 31. In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Copies of Forms W-2 and 1099-MISC must be provided to the worker by Jan. 31.

Outsourcing Payroll and Third Party Payers
Many employers outsource some of their payroll and related tax duties to third-party payroll service providers. They can help assure filing deadlines and deposit requirements are met and greatly streamline business operations.

Worker Classification

Worker Classification (Independent Contractors vs. Employees)
Are you or your help independent consultants or employees? Before you can know how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services.

Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program (VCSP) is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes.

Employees and Employment Taxes

Employment Taxes for Businesses
This is the starting point on irs.gov for employment tax information. These links provide good, basic information on employment taxes and worker classification (independent contractors vs. employees).

Businesses with Employees
This section briefly discusses a variety of topics that employers and/or businesses who have employees should know.

Correcting Employment Taxes
Information on correcting errors on previously filed employment tax returns, including the new 94X forms established in 2009.

find more info https://www.irs.gov/businesses/small-businesses-self-employed/payroll-professionals-tax-center-information-for-payroll-professionals-and-their-clients

Obamacare: What’s Next for the IRS?

By Colleen Murphy

Republicans’ failed efforts to repeal the Affordable Care Act ended months of speculation about what role the Internal Revenue Service would play in an overhauled health care system.

The role remains the same: The agency will continue enforcing and administering tax provisions of the law and move forward on guidance projects it may have avoided advancing during the months of tumult in Congress, health care attorneys told Bloomberg BNA.

The House-passed bill (H.R. 1628) would have repealed ACA tax provisions, implemented a new system of tax credits, and zeroed out coverage requirement penalties. A pared-down version of the bill failed in the Senate July 28, which means there is now no formal effort, or clear path, to pass a health care bill when lawmakers return in September. Also the IRS has stated that it will not accept returns without the 1095Aattached to your return, or unless it has a shared responsibility payment, or have the Health Care questions answered. So the penality for not having Health Care is still in place as of right now, unless you are exempt due to income.

AMERICAN OPPORTUNITY CREDIT/EDUCATION CREDITS

FILL OUT YOUR FAFSA HERE: https://fafsa.ed.gov/index.htm

 

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

Who is an eligible student for AOTC?

To be eligible for AOTC, the student must:

  • Be pursuing a degree or other recognized education credential

  • Be enrolled at least half time for at least one academic period* beginning in the tax year

  • Not have finished the first four years of higher education at the beginning of the tax year

  • Not have claimed the AOTC or the former Hope credit for more than four tax years

  • Not have a felony drug conviction at the end of the tax year

*Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. The schools determine the academic periods. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

Claiming the credit

Generally, students receive a Form 1098-T Tuition Statement, from their school by January 31. This statement helps you figure your credit. The form will have an amount in either box 1 or 2 to show the amounts received or billed during the year. But, this amount may not be the amount you can claim. See qualified education expenses for more information on what amount to claim.

Check the Form 1098-T to make sure it is correct. If it isn’t correct or you do not receive the form, contact your school.

To claim AOTC, you must complete the Form 8863 and attach the completed form to your Form 1040 or Form 1040A.

Be careful claiming the AOTC

Make sure you are qualified before claiming the credit. And, make sure you keep copies of all the documents you used to find out if you qualify and determine the amount of your credit. If the IRS audits your return and finds your AOTC claim is incorrect and you don’t have the documents to show you qualified, you must pay back the amount of the AOTC you received in error with interest. The IRS may also charge you an accuracy or a fraud penalty. Or, you can be banned from claiming the AOTC for two to ten years.

If your tax year 2016 AOTC claim is disallowed in 2017, you may need to file the Form 8862 before claiming the credit again in future tax years. The Form 8862, Information to Claim Earned Income Credit After Disallowance, is being revised for use beginning in 2018 to include not only EIC, but also CTC/ACTC and AOTC. See My EITC, CTC/ACTC and/or My AOTC was Disallowed Previously and Now I Want To Claim It for more information.

Valid TIN before the due date of the return

You may not claim the AOTC unless you, your spouse (if you are filing a joint return) and the qualifying student have a valid taxpayer identification number (TIN) issued or applied for on or before the due date of the your return (including extensions). A TIN is a Social Security number, an individual taxpayer identification number (ITIN) or an adoption taxpayer identification number (ATIN).

You may not claim the AOTC on a later original return or an amended return if the TIN is issued on or applied for after the due date of the return (including extensions).

To ensure you receive the benefit of the AOTC if you qualify for it, you should timely obtain the required TIN.

What are the income limits for AOTC?

  • To claim the full credit, your MAGI,♦ modified adjusted gross income must be $80,000 or less ($160,000 or less for married filing jointly).

  • You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).

  • You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

♦MAGI for most people is the amount of AGI, adjusted gross income, shown on your tax return. On Form 1040A, AGI is on line 22 and is the same as MAGI.

If you file Form 1040, you add the following amounts to AGI (line 38):

Bookkeeping

 

Everyone in business must keep records. Keeping good records is very important to your business. Good records will help you do the following:

  • Monitor the progress of your business

  • Prepare your financial statements

  • Identify sources of your income

  • Keep track of your deductible expenses

  • Keep track of your basis in property

  • Prepare your tax returns

  • Support items reported on your tax returns

Monitor the progress of your business

You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success. 

Prepare your financial statements

You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business. 

  • An income statement shows the income and expenses of the business for a given period of time.

  • A balance sheet shows the assets, liabilities, and your equity in the business on a given date. 

Identify sources of your income

You will receive money or property from many sources. Your records can identify the sources of your income. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. 

Keep track of your deductible expenses

Unless you record them when they occur, you may forget expenses when you prepare your tax return.

Keep track of your basis in property

Your basis is the amount of your investment in property for tax purposes. You will use the basis to figure the gain or loss on the sale, exchange, or other disposition of property, as well as deductions for depreciation, amortization, depletion, and casualty losses.

Prepare your tax return

You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statement. 

Support items reported on your tax returns

You must keep your business records available at all times for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination. 

New Business Owners:   
This is what you Need to Know:

An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service and you can get your EIN immediately. You must check with your state to make sure you need a state number or charter.

Apply for an EIN Online

Check out our Interview-style online EIN application. No need to file a Form SS-4! We ask you the questions and you give us the answers. The application includes embedded help topics and hyperlinked keywords and definitions so separate instructions aren’t needed. After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your confirmation notice. It’s fast, free, and user-friendly!

Filing for Tax Exempt Status?

It’s best to be sure your organization is formed legally before you apply for an EIN. Nearly all organizations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years. When you apply for an EIN, we presume you’re legally formed and the clock starts running on this three-year period.

Change of Ownership or Structure

Generally, businesses need a new EIN when their ownership or structure has changed. Refer to "Do You Need a New EIN?" to determine if this applies to your business.

Verify Your EIN

If you want to verify your EIN, see the Lost or Misplaced Your EIN page for instructions.

Daily Limitation of an Employer Identification Number

Effective May 21, 2012, to ensure fair and equitable treatment for all taxpayers, the Internal Revenue Service will limit Employer Identification Number (EIN) issuance to one per responsible party per day. This limitation is applicable to all requests for EINs whether online or by fax or mail. We apologize for any inconvenience this may cause.

 BUSINESS STRUCTURE

When beginning a business, you must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

For additional information, refer to Small Business Administration's Choose Your Business Structure Web https://www.irs.gov/businesses/small-businesses-self-employed/business-structures

WASHINGTON — The Internal Revenue Service today announced the tax year 2018 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2017-58 provides details about these annual adjustments. The tax year 2018 adjustments generally are used on tax returns filed in 2019.
 
The tax items for tax year 2018 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.

  • The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)

  • For tax year 2018, the 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2018 are described in the revenue procedure.

  • The limitation for itemized deductions to be claimed on tax year 2018 returns of individuals begins with incomes of $266,700 or more ($320,000 for married couples filing jointly).

  • The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).

  • The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

  • For tax year 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking,

  • For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains as it was for 2017:  $695.

  • For tax year 2018, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,300, an increase of $50 from tax year 2017; but not more than $3,450, an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. For tax year 2018, participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017; however, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.

  • For tax year 2018, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.

  • For tax year 2018, the foreign earned income exclusion is $104,100, up from $102,100 for tax year 2017.

  • Estates of decedents who die during 2018 have a basic exclusion amount of $5,600,000, up from a total of $5,490,000 for estates of decedents who died in 2017.

  • The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.

  • For more information  https://www.irs.gov/newsroom/in-2018-some-tax-benefits-increase-slightly-due-to-inflation-adjustments-others-unchanged

CHANGES FOR 2017