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Are There Tax Advantages to Having an EIN? And More Tax Q&A – Ask the Tax Pro 1/31/13

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The experts from Corporate Tax Network answer tax questions for free on the LegalZoom Facebook Page on Thursdays. Did you miss the last Ask the Tax Pro? Don’t worry. We’ve got it all right here.

David: For Sole Proprietors, are there advantages to getting an EIN vs using your Social Security number when filing taxes? I know getting the EIN is easy, I was told by my banker to do this to keep things nice and separated.

Corporate Tax Network: Hi David, There is no tax advantage per se, however it would help show that you are operating a real business, and may help distinguish it from a hobby.

Guadalupe: What exactly is a 1040EZ?

Corporate Tax Network: Hi,The 1040 EZ form is a simple return that some taxpayer may be eligible to file with the IRS to report their annual US federal earnings and taxes. Taxpayers eligible to file a 1040EZ form are either single or married filing jointly with a combined income no greater than $100,000. Individuals or a couple must be younger than 65 years of age and they cannot earned more than $1500 a year in interest income. In addition, a single taxpayer or couples cannot have any dependents and cannot be legally blind. For more information to find out if you can use form 1040EZ please visit the IRS website or the following website: http://www.irs.gov/pub/irs-pdf/i1040ez.pdf

David: Small Business tax rates businesses making less than $50k for NJ have they changed since 2011? Thank you!

Corporate Tax Network: David, are you referring to corporate tax rates or is your business set up as a pass-through entity? If it’s a pass through entity you will be taxed on the individual level. According to NJ division of taxation, their tax rates have remained unchanged since 2010. If you have an S Corporation your franchise tax actually went down this year to only $375 per year

Aer: Can you deduct the income you invested in your new LLC you started in 2012 as a deduction ? I invested about $7000 in 2012 and have not received any income yet. My corporation start date is Sept 1. End August 31.

Corporate Tax Network: Hi,
Expenses incurred for starting the business could be deducted in the year in which the business became active. If your business was active in 2012, then you could claim your start-up expenses as a deduction, up to $5000, and depreciate the rest over 15 years. Most other expenses incurred after your business becomes active could be written off in the same year, and assets can be depreciated. If you have a single member LLC, you would report the business activity on form Schedule C on your personal tax return, and as long as your business is active, you can claim a loss ( if no income was generated). However if your business was not active in 2012, the expenses you incurred would have to be capitalized, and expensed in the year in which your business becomes active, as start-up expenses.
If your business is taxed as a C-corp, and you have a loss, the loss would carry over to the following year, and will offset future profit.

Patricia: I am living on social security, no pension. I have some savings but I think I don’t have to file federal and NJ income taxes, am I right?

Corporate Tax Network: Patricia, Social Security by itself is not taxable. You do not need to file a return unless you have other taxable income. If your savings earn you enough taxable income then you will have to file but not if that income is over standard deduction amount for your filing status and your personal exemption, which is a minimum of $9,750

Samuel: Will my income tax be higher or lower this year..due to new taxes.

Corporate Tax Network: Hi Samuel, You will see an increase in employment tax, because the Social Security tax has gone back up to 6.2% for the employee. (2% increase) You may be facing some income tax rate increases as well, but I would suggest to consult your accountant, to determine how these tax changes would affect your personal tax situation.

A’Shy: Hello i am wondering does the IRS have to pay interest on owed taxes to us??? i have been waiting for three years for a over charge on taxes and they still have not pasid … thanks

Corporate Tax Network: Hi, the IRS typically owes interest to taxpayers on delayed refunds. However, the date for computing interest begins 45 days after the later of:
The original due date, without extension, or the date filed. If you are in this situation and have been waiting for a long time to receive your refund/interest, I would suggest to contact the IRS, and find out the status. 1-800-829-1040
Good Luck!

Kevin: Do i need itemized receipts from medical bill for my tax returns

Corporate Tax Network: Hi Kevin, If you are planning on claiming medical expenses on your tax return, and qualify for the deduction, you should keep all related receipts for at least 7 years, in case of an audit. Schedule A Itemized deduction splits the medical expenses as follows: Prescription Medicine and Drugs; Doctors, dentists and nurses; Hospitals and nursing homes, insurance premiums, and other out of pocket medical expenses. You would need to provide a list of all the “other” out of pocket medical expenses you are claiming.

Gabriel: Tax Pros, my question is that we had our home loan remodified last year under the Attorney General plan implemented by President Obama. Can the IRS tax us for the amount they modified?

Corporate Tax Network: Hi Gabriel, a loan modification would not result in taxable income. You would have to report and pay tax if the bank cancelled some or all of your debt, but this would not apply to a loan modification or a re-financing.

Stephen: What should be done if an employer does not issue a W2 by the IRS deadline of Jan 31st?

Corporate Tax Network: Hi Stephen, Employers have until January 31st to prepare a w-2 and it is not unusual for a w2 to be received in the mail as late as February 14th. If a w2 has not been received by the middle of February, contact the employer and verify the address. The Internal Revenue Service can contact your employer and request a w2 on your behalf. You can call the IRS and ask for intervention, but you will need to provide the IRS with your employer’s name, address, phone and employer identification number and your information and an estimate of annual wages, withheld taxes and employment dates.
On the other hand, you can file your income taxes without a w2, the IRS provides a substitute document Form 4852 to be used in place of the missing w2s. Please refer to the IRS website for instructions on how to complete Form 4852. However, using Form 4852 slows down the tax filing process because the IRS has to verify the wages and tax withholdings.

Cindy: My husband is a trucker — not an owner operator, but a company employee. Do we have to print out actual log books to prove days out or just calculate ourselves? Any other deductions you can think of besides the per diem we should be claiming?

Corporate Tax Network: Cindy, per diem rates are normally used for employers to reimburse employees for general expenses while away from home on business. If your husband is not being reimbursed by his employer for his expenses he is not eligible to claim per diem rates and will have to claim the actual expenses instead. These would include things like lodging, meals, and any other incidental expenses while away from home overnight. Log books will be extremely useful in the even of an IRS audit because the auditors tend to question the expenses, so it would be helpful if your husband can prove he was away on business on the night when the expenses were incurred.

Nicole: If a company has 4 employees, how can providing a health debit card benefit the small company & employees vs trying to afford/provide health insurance.

Corporate Tax Network: Hi Nicole, expenses paid by the employer to either subsidize health insurance for its employees, or provide reimbursements for their out of pocket medical expenses are both valid and deductible business expenses. The company would decide which benefits they would prefer to offer (and sometimes can offer both).

Melissa: Our girls each have a savings account, do we have to put the interest accrued on their accounts onto our taxes?

Corporate Tax Network: Hi Melissa, The Kiddie tax is a tax rule that is levied on unearned income; interest, dividends and capital gains earned by children under the age of 19 and college students under the age of 24. For 2013, the first $1000 of unearned income a child earns will be offset by the $1000 standard deduction, assuming the child has no earned income. The next $1000 of unearned income will be taxed at the child’s tax rate. All of the child’s unearned income in excess of $2000 is taxed at the parent’s tax rate.

Rocky: What entity do you use for your home and vehicles??

Corporate Tax Network: Hi, typically your personal residence and vehicles are not reported on a business return. If you have a home office, and use it for your business, you can claim this as a home office expense. If you use your vehicle for business travel you can either claim actual expenses related to business, or your business related mileage as a deduction. If you are referring to moving your assets into a trust, you may want to consult with an attorney for more detail regarding the process. Hope this helps.

LegalZoom: Thanks to Corporate Tax Network for lending us their Tax Pros! The Tax Pros will be back next week. Join us then: http://zoo.mn/AskTheTaxPro

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February 4th, 2013 at 6:23 am