1040 | Nesteggg Accounting

Home office deduction benefits eligible small business owners

Small business owners may qualify for a home office deduction that will help them save money on their taxes, and benefit their bottom line. Taxpayers can take this deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:

As the taxpayer’s main place of business.
As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
Under certain circumstances, the structure where the taxpayer provides day care services.

Deductible expenses for business use of a home include:

Real estate taxes
Mortgage interest
Rent
Casualty losses
Utilities
Insurance
Depreciation
Repairs and Maintenance

Certain expenses are limited to the net income of the business. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation. While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.

There are two options for figuring and claiming the home office deduction.

Regular method
This method requires dividing the above expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829.

Simplified method
The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.

There are special rules for certain business owners:

Daycare providers complete a special worksheet, which is found in Publication 587.
Self-employed individuals use Form 1040, Schedule C, Line 30 to claim deduction.

Taking care of business: Recordkeeping for small businesses

Small business owners should keep good records. This applies to all businesses, whether they have a couple dozen employees or just a few. Whether they install software or make soft-serve. Whether they cut hair or cut lawns. Keeping good records is an important part of running a successful business. [Read more…]

For Small Business Week: Backup withholding rate now 24 percent, bonuses 22 percent; workers urged to do a Paycheck Checkup

WASHINGTON — The Internal Revenue Service today reminded small businesses that recent tax reform legislation lowered the backup withholding tax rate to 24 percent and the withholding rate that usually applies to bonuses and other supplemental wages to 22 percent. The agency also urged employers to encourage their employees to check their withholding using the IRS Withholding Calculator. [Read more…]

Tips for Taxpayers Who Need to Amend a Return

Some taxpayers may need to amend their tax return

Taxpayers who discover an error after filing may need to amend their tax return. Taxpayers should file an amended return if there’s a change in filing status, income, deductions or credits.

The IRS may correct mathematical or clerical errors on a return. They also may accept returns without certain required forms or schedules. In these instances, there’s no need to file an amended return. [Read more…]

IRS: Rushing to file taxes can result in errors, use e-file, file extension if needed

IRS: Rushing to file taxes can result in errors, use e-file, file extension if needed

As the April tax-filing deadline nears, many taxpayers may rush to finish their tax returns or find they need extra time to get them done.

The IRS recommends that taxpayers file for an extension if they need one. Filing an extension will help taxpayers avoid paying penalties for filing a late return. Extensions provide more time to file, but not more time to pay any tax owed.

The deadline to file 2018 individual tax returns and pay taxes owed is Monday, April 15, 2019, for most taxpayers. Because of the Patriots’ Day holidays on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019, to file their tax returns.

Mistakes can happen when hurrying to file a tax return by the due date. This can mean longer processing times and possible tax refund delays. Electronic filing is the best way to avoid common mistakes and file the most accurate tax return; it is also the most accurate way to file a tax return. The IRS estimates that about 70 percent of taxpayers can file their tax return at no charge by using IRS Free File software.

Follow these tips to avoid common tax-filing errors:

Prepare before you start. Gather all your documents such as Forms W-2 and 1099, gather your supporting tax deductions or credits such as state tax or mortgage interest payments. Find your prior-year tax return, you may need it. Make sure you have your dependents’ Social Security numbers. Because the standard deduction has increased this year, many taxpayers may determine itemizing deductions is no longer necessary.

File electronically. Filing electronically reduces common tax return errors. And, taxpayers who use software benefit because it does the calculations, flags possible mistakes and prompts taxpayers for missing information.

Double check bank routing and account numbers. Requesting direct deposit of a federal tax refund into one, two or even three accounts is convenient and allows the taxpayer access to their money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.

Find adjusted gross income. Taxpayers who changed tax software products may be asked to enter their prior-year adjusted gross income as part of the electronic signature process. Taxpayers who did not retain a copy of their prior-year tax return may have to use Get Transcript Online or Get Transcript by Mail to obtain their prior-year AGI.

Keep a copy of the return. Taxpayers should make a copy of their signed tax return and all schedules and keep these records in a safe place. Tax returns should be retained for three to six years depending on the complexity.

Additionally, taxpayers who choose to file a paper return should remember the following:

Everyone will file Form 1040. IRS reminds taxpayers that Form 1040 has been redesigned for tax year 2018. The revised form consolidates Forms 1040, 1040A and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.
Mail a paper return to the right address. Paper filers should check their tax form instructions for the appropriate address to avoid processing delays. Taxpayers can also look up where to file on IRS.gov.
Take a close look at the tax tables. When figuring tax using the tax tables, taxpayers should be sure to use the correct column for the filing status claimed.
Fill in all requested information clearly. When entering information on the tax return, including Social Security numbers, take the time to be sure it is accurate and easy to read. Also, check only one filing status and the appropriate exemption boxes.
Review all figures. While software catches and prevents many errors on e-filed tax returns, math errors remain common on tax returns prepared by hand.
Sign and date the return. If filing a joint tax return, both spouses must sign and date the return.
Attach all required forms. Attach W-2s and other forms and schedules to the tax return to the front of their tax returns that reflect tax withholding. If requesting a payment agreement with the IRS, also attach Form 9465, Installment Agreement Request, to the front of the return. Attach all other necessary schedules and forms to the upper right-hand corner of the tax form in the order shown in the instructions.

For taxpayers who cannot meet the April deadline, requesting a filing extension is easy and will prevent late-filing penalties. Taxpayers who need more time to file should follow these tips:

Request a filing extension. The easiest way to file an extension is to use IRS Free File. All taxpayers are eligible to use Free File to file a Form 4868. Simply review the Free File extension offers and select the software program of choice.

Automatic extensions with payments. Other fast, free and easy ways to get an extension include using IRS Direct Pay, the Electronic Federal Tax Payment System or by paying with a credit or debit card. There is no need to file a separate Form 4868 extension request when making an electronic payment and indicating it is for an extension. The IRS will automatically count it as an extension. But keep in mind that while an extension grants additional time to file, tax payments are still due by the April deadline.

Alternatively, taxpayers may file Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return, electronically or by mail.

Owe tax? Several payment options are available. If sending a check or money order, make it payable to the “U.S. Treasury.” Taxpayers who can’t pay what they owe also have options to consider.

Do a ‘Paycheck Checkup.’ The IRS recommends that everyone do a paycheck checkup early in 2019. It is especially important for anyone with a tax bill when they file their return, but it’s also important for anyone whose refund is larger or smaller than expected. By changing withholding now, taxpayers can get the refund they want next year. For those who owe, boosting tax withholding early in 2019 is the best way to head off a tax bill a year from now. In addition, taxpayers should always check their withholding when a major life event occurs or when their income changes.

All taxpayers will file using 2018 Form 1040; Forms 1040A and 1040EZ no longer available

All taxpayers will file using 2018 Form 1040; Forms 1040A and 1040EZ no longer available

As the April filing deadline approaches, IRS reminds taxpayers that Form 1040 has been redesigned for tax year 2018. The revised form consolidates Forms 1040, 1040A and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.

Forms 1040-A and 1040-EZ are no longer available to file 2018 taxes. Taxpayers who used one of these forms in the past will now file Form 1040. Some forms and publications released in 2017 or early 2018 may still have references to Form 1040A or Form 1040EZ. Taxpayers should disregard these references and refer to the Form 1040 instructions for more information.

The new form uses a building block approach that can be supplemented with additional schedules as needed. Taxpayers with straightforward tax situations will only need to file the Form 1040 with no additional schedules.

People who use tax software will still follow the steps they’re familiar with from previous years. Since nearly 90 percent of taxpayers now use tax software, the IRS expects the change to Form 1040 and its schedules to be seamless for those who file electronically.

Electronic filers may not notice any changes because the tax return preparation software will automatically use their answers to the tax questions to complete the Form 1040 and any needed schedules.
For taxpayers who filed paper returns in the past and are concerned about these changes, this year may be the year to consider the benefits of filing electronically. Using tax software is a convenient, safe and secure way to prepare and e-file an accurate tax return.

More information:

As the April tax deadline approaches, the IRS reminds members of the U. S. Armed Forces of special tax breaks, helpful resources

As the April tax deadline approaches, the IRS reminds members of the U. S. Armed Forces of special tax breaks, helpful resources

WASHINGTON – The Internal Revenue Service today encouraged members of the military and their families to learn more about the special tax benefits available to them as the April 15 tax filing season deadline approaches.

Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after the April tax filing deadline. Service members who prepare their own return qualify to e-file their federal tax return for free using IRS Free File.

“The IRS appreciates the women and men who are serving in the United States military, both at home and abroad,” said IRS Commissioner Chuck Rettig. “We encourage military families to review the resources available at IRS.gov since there are special circumstances that can affect tax payment and return filing deadlines for military personnel. Lastly, we extend our personal appreciation to each and every member of the military, their families and veterans for your service to our country. We are extremely proud of the many veterans now employed by the IRS, and all of our employees are pleased to serve the members of the military family.”

IRS Publication 3, Armed Forces Tax Guide, is a free booklet filled with valuable information and tips designed to help service members and their families take advantage of all the tax benefits allowed by law. Several key benefits are outlined below.

Combat pay is partially or fully tax-free. Service members serving in support of a combat zone or in a qualified hazardous duty area may also qualify for this exclusion. In addition, U.S. citizens or resident aliens, such as spouses, that worked as contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones, may now qualify for the foreign earned income exclusion.
Members of the military, such as those who serve in a combat zone or are serving in contingency operations outside the United States, can postpone most tax deadlines. Those who qualify can get automatic extensions of time to file and pay their taxes.
The Earned Income Tax Credit is worth up to $6,431. Low- and moderate-income service members who receive nontaxable combat pay can use a special computation method that may boost the EITC, meaning they may owe less tax or get a larger refund.
Those who served in the Sinai Peninsula of Egypt may qualify for combat zone tax benefits retroactive to June 2015. Under the Tax Cuts and Jobs Act (TCJA) members of the U.S. Army, U.S. Navy, U.S. Marines, U.S. Air Force, and U.S. Coast Guard who performed services in the Sinai Peninsula can now claim combat zone tax benefits.
Dependent care assistance programs for military personnel are excludable benefits and not included in the military member’s income.
The moving expenses deduction is suspended, except for certain Armed Forces members. Beginning in 2018, active duty members of the U.S. Armed Forces who must move because of a military order to a permanent change of station can still claim this deduction. Also, allowances paid to move members of the U.S. Armed Forces for a permanent change of station are excluded from tax.

Both spouses normally must sign a joint income tax return, but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. A power of attorney is required in other instances. A military installation’s legal office may be able to help.

The IRS has a special page on IRS.gov with Tax Information for Members of the U.S. Armed Forces.

Taxpayers must report health care coverage on 2018 tax return

Taxpayers must report health care coverage on 2018 tax return

As taxpayers are completing their 2018 tax returns this year, they must complete the lines related to health care.

For tax year 2018, the IRS will not consider a return complete and accurate if individuals do not do one of the following on their return:

Report full-year health coverage
Claim a coverage exemption
Report and make a shared responsibility payment for everyone on the tax return

The law continues to require taxpayers who do not qualify for an exemption to maintain health care coverage in 2018 or make a shared responsibility payment when they file their tax return.

Most taxpayers have qualifying health coverage or a coverage exemption for all 12 months in the year and will check the box on the front of their tax return. Taxpayers who can check the box don’t have to file Form 8965, Health Coverage Exemptions, to claim any coverage exemptions. This includes the coverage exemption for household income below the filing threshold.

Taxpayers who did not have coverage for the entire year and therefore can’t check the box generally must report a shared responsibility payment when they file. They will report this payment for each month that anyone listed on the tax return didn’t have qualifying health care coverage or a coverage exemption.

Taxpayers can determine if they are eligible for a coverage exemption or are responsible for the individual shared responsibility payment by using the Interactive Tax Assistant on IRS.gov.

In addition, taxpayers may be eligible for the premium tax credit if they purchased health coverage through the Health Insurance Marketplace. Anyone who needs health coverage can visit HealthCare.gov to learn about health insurance options that are available for them and their family.

Under the Tax Cuts and Jobs Act, the shared responsibility payment is reduced to zero for tax year 2019 and all subsequent years. See Publication 5307, Tax Reform Basics for Individuals and Families, for information about the shared responsibility payment for tax year 2019.

Taxpayers can visit IRS.gov/aca for more information about the Affordable Care Act and filing a 2018 tax return.

Avoid the rush: Get a tax transcript online

Avoid the rush: Get a tax transcript online

WASHINGTON — The Internal Revenue Service today reminded taxpayers who need their prior-year tax records to either complete their 2018 tax return or to validate their income can use Get Transcript Online or Get Transcript by Mail.

Taxpayers often call or visit the IRS seeking their prior-year tax transcript, which is a record of their tax return. But the days around Presidents Day mark the busiest time of the year for the IRS. Taxpayers can avoid the rush by using online options that are faster and more convenient.

It’s always a good idea to keep copies of previously-filed tax returns. That recommendation is more important this year because, for some taxpayers, certain data from the 2017 tax return – the adjusted gross income — will be required to validate their electronic signature on their 2018 tax return due April 15 for most filers. This is especially true for taxpayers who have switched tax software products this year.

Generally, for returning users, the commercial tax software product will carry over the prior-year information and make for an easy, seamless validation process. However, taxpayers using a new tax software product for the first time may be required to enter the information manually.

Here’s the way the electronic signature and signature validation work:

Taxpayers sign their returns electronically by creating a four-digit Personal Identification Number (PIN), also known as a Self-Select PIN. To validate that e-signature PIN, taxpayers must enter their birthdates and either their adjusted gross income from the prior-year return or the prior-year Self-Select PIN.
If taxpayers have kept a copy of their prior-year tax return, completing this task is easy. On the 2017 tax return, the Adjusted Gross Income (AGI) is on line 37 of Form 1040; line 21 on Form 1040-A; or line 4 on Form 1040-EZ.
If a copy of their 2017 tax return is not available, taxpayers may be able to obtain a copy from their previous year’s tax preparation software or previous tax preparer.
Taxpayers may also obtain a tax transcript online from the IRS.
- Use Get Transcript Online to immediately view the AGI. Taxpayers must pass the Secure Access identity verification process. Select the “Tax Return Transcript” and use only the “Adjusted Gross Income” line entry.
- Use Get Transcript by Mail or call 800-908-9946. Taxpayers who fail Secure Access and need to request a Tax Return Transcript can use the mail option. Allow five to 10 days for delivery. Use only the “Adjusted Gross Income” line entry.

The electronic signature is the way the taxpayer acknowledges that information on the tax return is true and accurate. Validating the electronic signature by using prior-year adjusted gross income is one way the IRS, state tax agencies and the tax industry work to protect taxpayers from identity thieves.

Taxpayers who have been issued an Identity Protection (IP) PIN should enter it when prompted for an IP PIN by the software. The IP PIN will serve to verify the taxpayer’s identity. If the taxpayer has never filed a tax return before and is age 16, enter zero as the AGI.

The IRS has redesigned tax transcripts to partially mask all personally identifiable information for any person or entity on the 1040-series return. All financial entries remain fully visible. Taxpayers who need a tax transcript for income validation purposes can still use Get Transcript Online or by Mail. Review About the New Tax Transcript and the Customer File Number for more information.

As the IRS, state tax agencies and the tax industry have made progress against tax-related identity theft as part of the Security Summit effort, cybercriminals try to steal more personal information to file fraudulent tax returns. Masking personal data on tax transcripts is one way the IRS is helping to protect taxpayers from identity thieves.

IRS: Don’t be victim to a ‘ghost’ tax return preparer

IRS: Don’t be victim to a ‘ghost’ tax return preparer

WASHINGTON – Today, towards the end of the second full week of the 2019 tax filing season, the Internal Revenue Service warned taxpayers to avoid unethical tax return preparers, known as ghost preparers.

By law, anyone who is paid to prepare or assist in preparing federal tax returns must have a valid 2019 Preparer Tax Identification Number, or PTIN. Paid preparers must sign the return and include their PTIN.

But ‘ghost’ preparers do not sign the return. Instead, they print the return and tell the taxpayer to sign and mail it to the IRS. Or, for e-filed returns, they prepare but refuse to digitally sign it as the paid preparer.

According to the IRS, similar to other tax preparation schemes, dishonest and unscrupulous ghost tax return preparers look to make a fast buck by promising a big refund or charging fees based on a percentage of the refund. These scammers hurt honest taxpayers who are simply trying to do the right thing and file a legitimate tax return.

Ghost tax return preparers may also:

Require payment in cash only and not provide a receipt.
Invent income to erroneously qualify their clients for tax credits or claim fake deductions to boost their refunds.
Direct refunds into their own bank account rather than the taxpayer’s account.

The IRS urges taxpayers to review their tax return carefully before signing and ask questions if something is not clear. And for any direct deposit refund, taxpayers should make sure both the routing and bank account number on the completed tax return are correct.

The IRS offers tips to help taxpayers choose a tax return preparer wisely. The Choosing a Tax Professional page has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.

Taxpayers can report abusive tax preparers to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a tax preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.