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July 2019

How to File the Taxes of My Kids When They Are Taking a Summer Job 

It comes the time in every kid’s life when they are old enough to start taking casual jobs, from the classic lawn mowing gigs to more formal summer jobs at fast-food restaurants or local businesses. This might give parents a great sense of satisfaction as they see their kids growing up and becoming responsible members of a community. However, this also raises the question of who will be in charge of filing their income taxes on the money they make during this job. If you are asking yourself this question, these are some aspects to keep in mind.  

To begin with, we need to remember that, as it is stated in IRS Publication 929, Tax Rules for Children and Dependents, our kids are the ones responsible for filing their own income taxes using standard Form 1040, as well as paying for any penalties or interests they may accrue. However, if our kids are not able to file their own income taxes for any reason, then the parents or guardians become legally responsible for filing their kids’ taxes. Parents and guardians are also able to sign the return if the kid isn’t able to, but we must include the words “By (signature), parent (or guardian) for minor child”.  

Now, there are some situations on which our children will need to file their federal income tax return, and we should make sure we go over these situations with them as clearly as possible. Otherwise, they would be failing to file, and this could lead to IRS penalties and interests. These include:  

  • Your kid has more than $1,100 of unearned income. 
  • Your kid’s gross income exceeds the greater of $1,1000 or earned income of up to $11,650 plus $350. 
  • Your kid’s earned income is more than $12,200. 
  • Your kid owes other taxes, such as the self-employment tax or the alternative minimum tax. 

Many parents tend to ask us if it isn’t easier for them to simply report the income of their kids as part of their own return, which is a very good question. As a parent or guardian, you can choose to report your kid’s income as part of your own return by including Form 8814 Parents’ Election To Report Child’s Interest and Dividends. However, this only applies if your child will be under age 19 as of December 31st, 2019, or if they will be a full-time student under age 24 by that same time, and their only income is generated by interests and dividends.  

If your kid has taken a summer job this year and you are not sure about how to report their income tax, don’t hesitate and give us a call. It is never too early to get a professional giving the assistance that you need in this kind of situations.  

If You Are a Business Owner, These Are the Taxes Your Company Must Pay 

Having our own business comes with many different challenges and responsibilities and making sure we overcome all of them while remaining compliant with all our requirements can be tough at first. However, if we took the time to work on a business plan, we might already have a clear idea of the steps we need to take. Part of these responsibilities includes paying our company’s taxes, whether we need to do this quarterly or annually. These are some of the taxes you need to be aware of when you start or own a business.  

Income taxes. To begin with, every business must pay taxes on the profit they generate, which corresponds to their total income minus deductible expenses. Small business owners, partners in corporations, and owners of S-Corps can pay these taxes through their personal income tax returns. However, sole proprietors and members of single-member LLC’s need to file a Schedule C and include it in their personal return.  

Sales tax. Depending on the state our business operates, our company might be subject to paying sales taxes on the products and services we sell, which may also vary from one state to another. Nonetheless, companies in most states are required to collect sales taxes and pay them to the department of revenue of each state. These taxes also include the items and services we offer online, which may be required for specific types of online stores.  

Property tax. if our company owns buildings, land, or any other type of real estate, we will be subject to property taxes, which are paid to our local taxing authorities, such as the city or the county our property is located at. These taxes are determined based on the assessed value of our property, and even when a portion of these can be deductible, we need to consult with the IRS before assuming our property expenses are eligible for a deduction.  

Self-employment taxes. These correspond to Social Security and Medicare, and sole proprietors and partners must pay them based on their business’s income. This is because business owners, proprietors, and partners do not qualify as employees of their companies, which means that they cannot withhold these taxes that way. The only ones who would be exempt from self-employment taxes are the owners of corporations who work as employees. 

Payroll taxes. Companies are also required to pay taxes on employment or payroll corresponding to the earnings of our employees. These taxes must be paid to both the IRS and the Social Security Administration. Employment and payroll taxes are used to cover different types of taxes, including FICA taxes, unemployment, and workers compensation taxes on both federal and state levels. 

How to Pay and Deduct Property Taxes as Small Business Owners 

Just as individuals do, businesses have to pay taxes on any property they own, including land and buildings, and it might be a bit tricky for small business owners who have just started operations. However, understanding how to pay and deduct property taxes as small business owners will help us keep our company compliant while making our accounting and legal responsibilities more manageable. This is what you should know regarding property taxes if you or your company have just purchased a property or any real estate assets. 

As we mentioned above, businesses that own property or real estate are required to pay tax on such properties to the IRS. These taxes are called ad valorem because they depend on the value of the property, which means that the value is determined by a property assessor. We must remember, though, that the assessed value for tax purposes is not the same as the fair market value, which would then be determined by a business appraiser.  

When it comes to property taxes, these are assessed by different local entities, like towns, cities, counties, or villages, and they are used for local purposes such as building and improving roads, schools, and any infrastructure that the community needs. Therefore, the corresponding tax authority will register the properties owned by your business and send a tax bill showing the amount of tax you should cover year by year.  

You should keep in mind that some property expenses can be deductible, but the IRS has set different limitations that you need to be aware of. TO begin with, you will be able to make a deduction based on the assessed value of your property. In order to deduct a portion of your property taxes, expenses must be made for local benefit, including maintenance, repair, or interest charges. However, you need to consult your local taxing authority to make sure your company’s expenses will qualify.  

If you are thinking about buying or selling business property, you also need to keep in mind that during the year of the transaction, the tax bill would then be shared between the buyer and the seller. This will be determined by the period of time during which a real estate asset was owned by the seller and the period of time during which the buyer became the new owner.  

Property taxes for small business owners might be a bit trickier than we think but having the right tax professional by your side giving you the guidance you need will make this process much easier. If you are a business owner who wants to buy or sell a property for your company, get in touch with us and we will give you the assistance you deserve.  

4 Simple Steps for Small Businesses to File Their Federal Income Taxes 

One of the biggest responsibilities for business and corporations, regardless, is ensuring compliance when filing their income tax report. Since failing to do so, either by mistake or intentionally, can have severe consequences on any company, we need to make sure we are submitting our information accurately and in a timely matter. This might feel more difficult for small businesses for many different reasons, as they may not have enough experience or an assigned tax advisor to guide them. That’s why we have summarized four simple steps for small businesses to file their federal income taxes in an easy and efficient way.  

The very first step of the process must be gathering all our records, making sure we have every paper and every receipt that we need in order to accurately document our business expenses and earnings. In order to make this step even easier, we should consider using an expense-tracking software or keeping the record on a spreadsheet. This would allow us to have a digital backup of our receipts in case we need one, and we might also be able to import our information directly to our income tax report.  

Once we have put together all our expense and earnings information, we need to find the right form for our business, which will change depending on how we are operating our businesses. Many small businesses are run as a sole proprietorship, so they are able to report their income taxes by attaching a Schedule C form to their personal taxes. The IRS would also allow you to use Schedule C if you run your business as an LLC and you are the only owner. In the case that you ran your business as a corporation or you treated your LLC as one, then you would also need to file your taxes filling a separate Form 1120. 

After finding the right form for our business, we can move onto filling out the information required. If we are going to be filing Schedule C, we shouldn’t worry much, as it is a two-pages long form which lists all the possible expenses and deductions our business can claim. Form 1120 is quite similar, but this form requires more detailed information that might not always apply to small businesses. Besides, this form must be separate from your personal taxes, unlike Schedule C. 

Every business owner must pay a lot of attention to the different tax deadlines that might apply for their companies, depending on the organization structure and the tax form they will be submitting. Since Schedule C is part of the regular Form 1040 for personal taxes, the April deadline would not change. C-Corporations filling Form 1120 need to file their taxes on the 15th of the fourth month after the tax year closes, which would be April. S-Corporations filing Form 1120S need to submit their taxes on the 15th of the third month after the tax year closes, which would be March.  

If you want to know more about the different steps for small businesses to file their federal income, don’t hesitate and get in touch with us. We will be glad to give you all the assistance and guidance you and your company need.  

Deductible Business Expenses You Should Take Advantage Of 

As many of us are aware of, there are many business expenses that can be deducted from our taxes, whether we are self-employed, or we are owners of our own company. However, there are so many different types of expenses that business of any size make as part of their daily operations, that missing some deductions can happen at any time. Therefore, we are bringing an extensive list with plenty of deductible business expenses so that you can take advantage of them and use this to make your business grow and become more successful.  

To begin with, we need to keep in mind that we will come across two different types of business expenses, ordinary and necessary expenses. Ordinary expenses refer to all the expenses that other companies working on your field will make on a regular basis. Necessary expenses refer to all the payments we make that are needed in order to keep our operations going. This is a list of the most common fully deductible business expenses, including both ordinary and necessary expenses:

  • Accounting fees        • Advertising       Bank charges          Commissions          Consultation fees       
  • Professional education           Credit and collections         Delivery charges       Employee benefits 
  • Equipment rental         Insurance         Interests          Internet services           Legal fees 
  • Licenses         Maintenance          Office supplies        Training fees        Rent         Salaries 
  • Security          Software          Travel           Utilities 

 Other deductible expenses that we might not be aware of include gifts to customers or clients. Sometimes, a small detail to show appreciation can go a long way, helping us secure a long-lasting relationship with our clients or business partners. However, we need to keep in mind that gift expenses are only deductible for up to $25 per person. So, if you are buying $100 gifts, the remaining $75 will be out of your pocket, but if you buy $20 gifts, these would be fully deductible. Also, gifts you give to your employees also fall under this category with the same $25 limit still applying.  

Another commonly forgot business expense that can be deductible is that of meals and entertainment. These costs are usually deductible up to 50% of what you spend, as long as the meal or entertainment cost was business related. So, taking a client or our employees to dinner and paying for their meals qualify for a business expense deduction, and you can even add the tip.  

Car and transportation expenses are also deductible, and these consist in the costs of gas and fees, for example, when we are going to our business or when we are meeting a client. The best way to make sure we are keeping track of our daily expenses is by having a log, whether on paper or using a smartphone app. This way, we will be able to have an accurate record that will come quite handy when it is time to file our taxes.  

In order to deduct your business expenses, you need to complete and file either Schedule C or Schedule C-EZ so that you can itemize your expenses and calculate how much income will be left after you have taken care of the deductions. If you want to get more information on business expenses and how to deduct them, get in touch with us and you will get all the assistance you need.