On Thursdays, CPA and President of Corporate Tax Network, Gary Milkwick and his team, answer tax questions for free on the LegalZoom Facebook Page. Did you miss the last Ask the Tax Pro? Don’t worry. We’ve got it all right here.
Susan: When is the first day I can file my taxes? And how long will it take for my refund to be issued?
Corporate Tax Network: Susan, due to the last minute law that was passed to avoid the fiscal cliff, the opening of tax season will begin later than normal this year – Jan. 30 will be the first day that taxpayers can file. If you e-file, you will generally receive your refund within two weeks if you are entitled to one.
Koreena: Can I claim any exemptions for expenses that were incurred by caring for others children in my home 5 days a week?
Corporate Tax Network: Koreena, yes, you can claim expenses against the income earned by caring for children in your home. If you have not set up a business entity for this operation, you will claim the income and expenses for this activity on Schedule C of your personal tax return.
Jim: My wife has cancer and the town we live in had some fund raiser. They set up a bank account for the donations. What are our tax implications
Corporate Tax Network: Jim, you have no tax implications for receiving this money. Donors can potentially be subject to gift tax if they exceed the legal threshold, but you personally do not include donations / gifts to you as income on your tax return. We wish your wife a speedy recovery and the best for your family!
J Cersey: The IRS WANTS 16k from me for 2009. Us it too late to file?
Corporate Tax Network: No, it is not too late to file your return for 2009. If you don’t file your tax return for a given year, the IRS often performs a computation of tax due based on the limited information they may have received for you for that year – for example, Form 1099s for contract labor, W-2s for work performed as an employee, etc. It can often be to your advantage to actually file the return for that year to “fill in the holes” of information that the IRS does not actually have.
For example, if you worked as a contractor and were issued a 1099 (or multiple 1099s) for $40,000 in a given year, you likely have expenses that can help offset at least some of that income. However, if you don’t file a tax return, the IRS only knows about the income side of the equation; they have no way of knowing what your expenses were for the year. Hope this helps – good luck!
Deb: If your business is insolvant, and you lose your home and business is it tax deductable?
Corporate Tax Network: Deb, if your business is running at a loss you can still claim those losses on your taxes as long the activity qualifies as an active business and not a hobby. Foreclosures on homes are treated as sales and reported for tax purposes accordingly. I am assuming you’re referring to your primary residence. If your residence is foreclosed for the amount which is less than your adjusted basis, which is the original purchase price plus any improvements minus any depreciation taken, then you have a loss on disposition of your primary residence, which is not deductible for tax purposes. If the disposition amount is higher than your basis then you may actually have taxable income; however, in this situation you would most likely be able to exclude it if you used the home as your primary residence for at least 2 years out of the last 5 that you owned it.
Rod: Does a company have to charge sales tax to its customers or can they pay those taxes themselves?
Corporate Tax Network: Rod, a company can theoretically pay sales tax itself, but many companies find that approach cost prohibitive. A more common scenario occurs when companies do not collect sales tax for whatever reason when they actually should have collected it; in that case, the taxing agency generally requires the business to pay the amount that it should have collected plus penalties and interest.
Rod: What situations must a service based company collect sales tax?
Corporate Tax Network: Rod, many states do not require sales tax to be collected on most types of services. However, like most tax and accounting questions, the answer is “it depends!” Different states have different rules for what types of services are subject to sales tax.
Mike: My nonprofit was incorporated (not 501c3 yet) in Dec and as of now it has not earned any income and I paid out a thousand as starter fund. Do I need to file taxes on it?
Corporate Tax Network: Mike, all corporations, whether for profit or non-profit must file a tax return annually. This must be done whether there is any activity to report or not. The due date to file is May 15, if you are using a calendar tax year.
If your non-profit organization’s total revenue for the year is less than $50,000, you will file an electronic postcard, form 990-N. You can do this by logging on the IRS website at IRS.gov and in the search window type 990-N, which will bring you to the appropriate screen.
Christian: I filed chapter 7 bankruptcy last year do I need to wait for paperwork from the government to file taxes?
Corporate Tax Network: Christian, in general bankruptcy does not affect the way you file your tax returns. Usually if you have debt discharged in bankruptcy it may not have to be reported as taxable income, but that is usually the case in chapter 11 bankruptcy cases. The only thing that might affect your taxes is that any tax refund you receive may be used to pay off some of your debts. I would recommend speaking with a bankruptcy attorney to find out about the exact ramifications for your specific situation.
Tom: I started a business through Legal Zoom in 2012. I haven’t had time to get it off the ground and so the biz has been stagnant. Do I have to file taxes even though I didn’t gain or spend any money?
Corporate Tax Network: Tom, if your business is taxed as either a sole proprietorship or a partnership, then you do not have any tax filing obligations. If your business is taxed as either a C Corporation or an S Corporation, then you would be required to file what’s called a zero return in which you report no income and no expenses.
Barb: I payed 700 for my kid in high school to take a trip to new York can i claim that on my taxes
Corporate Tax Network: Barb, unfortunately this is a personal expense and is not tax deductible. The only time a trip like this would be deductible is if you are in business and your business is a primary purpose of the trip.
Roy: Thanks ! Ok here’s the question:
In the event of taxes due on debt forgiveness in Nov 2012 – from a mortgage lender – on a loan signed by 2 people, a primary borrower and the other co owner of the property – where the lender now says they will issue a 1089 ( number not known) for the amount of debt forgiveness.. to BOTH parties:
a) Can ONE party claim all the debt forgiveness on their return?
b) If so, is the other party relieved of the requirement to claim any of those amounts on their return?
c) If the party who claims it is in active ch 11 bankruptcy, will that wipe out any taxes due on the debt forgives rendered?
d) any other input or tax saving strategy or advice on the topic or this hypothetical situation?
Corporate Tax Network: Roy, if this happened with your primary residence and the foreclosure was finalized in 2012, then you can exclude up to $2 million dollars from reporting on your taxes as income (or $1 million if you are married but filing a separate tax returns). If both people are married to each other and both lived in the property then you have no tax consequences assuming that the amount forgiven is under $2 million. It would still have to be reported on your tax return but would not be taxable. If you are not married it would depend on how the Form 1099 will be issued; will there be one for each person or will there be one joint? If the property is not your primary residence, you will have to show it as disposition and either claim it as a capital gain or loss or disposition of business property. Depending on your situation you might be able to nominate this extra income to the other person involved. In general, cancellation of debt income is excludable in chapter 11 bankruptcy cases. There will be different approaches to take depending on specific circumstances. I would recommend discussing your situation one on one with a tax advisor to make sure this issue is addressed most effectively.
Augie: Are casino winnings considered earned income ?
Corporate Tax Network: Augie, the most basic definition of earned income is “all the taxable income and wages you get from working plus some disability benefits.”
Therefore, gambling wages are not considered earned income for tax purposes. However, they ARE taxable. Another important point to note is that gambling winnings can be offset by gambling losses!
Jesse: my husband left in july can he still claim us on a tax return and if he does or can do we file a joint return them half the return should be mine!!!plz advise
Corporate Tax Network: Jessie, yes, your husband could file a joint tax return and have the refund pointed to a bank account that he controls. Theoretically, both spouses should sign the tax return or e-file authorization form, but it would be easy for one spouse to file via an electronic filing program without the consent of the other spouse. The only recourse once one spouse actually receives the refund is legal action. Depending on your situation, it may make sense to use the filing status Married Filing Separately, but I would advise you to speak to an accountant about your specific situation.
Jihea: How many n what type of corp if u have empty land, shopping centers, run/own 3 businesses? Thank u!!
Corporate Tax Network: This is a really tough question without many more details – the answer is “it depends!” It depends on the types of businesses, number / types of owners of the businesses, the personal tax situation of the owner(s), etc. I would suggest you speak to an accountant about your specific situation, as this question looks like it would require a fairly long conversation to discuss.
Dean: Taxes- In Ohio if I start cleaning windows do I need to pay or charge tax on my services if I’m only doing 1 job a month making $50. If not, at what amount do I need to pay?
Corporate Tax Network: Dean, building maintenance services in Ohio are subject to sales tax if they exceed $5,000 annually, so you would not need to collect sales tax given the situation you described. You would need to pay income tax on the profits generated by this business, which would be the $50 per month less the expenses incurred to operate the business.
Carole: Can you please explain the tax filing for college students? I can’t remember the name of the form, but all school expenses are deductible if you received loans and aid? I’m a single mom, student, not working at the moment and this sounds helpful! Thank you for your time.
Corporate Tax Network: There are some different credits and deductions that you may take – which ones you qualify for depend on your personal situation / income level, as well as which credit is most advantageous (you can only take one!). Following is a quick rundown:
Lifetime learning credit – A credit of up to $2,000 on education-related expenses, including tuition, fees, textbooks, class supplies and equipment.
American opportunity credit – A credit of up to $2,500 for the first four years of post-secondary education. Same expenses as listed for the lifetime learning credit are eligible. The nice thing about this credit for many students is that 40% of the credit is refundable. This means that you can receive up to $1,000 as a tax refund even if you don’t owe any taxes!
Tuition and fees deduction – A deduction of up to $4,000 in tuition and fees. Note a deduction is generally less valuable than a credit; a credit is a dollar for dollar reduction of your tax liability, while a deduction is an amount used to offset income BEFORE your taxes are calculated.
Hope this helps – good luck with your studies!
Mark: hello was married of june 2012 and then seperated septemebr of 2012. my wife has not yet got her greencard therefore no SSN yet. How should i file my own taxes cause married filing seperate still ask for my wifes SSN number. i have no contact with her so i am no sure what to do. thanks
Corporate Tax Network: One approach would be for you to file a paper return by mail (since an e-filing would reject this method). Simply leave the field that asks for her SSN blank and attach a signed statement to the return explaining that she never obtained an SSN or ITIN and that you have no contact with her. Include as much information you about her, such as full name, address, phone number or last known address, last known phone number, etc. This statement will show the IRS that you made your best effort to meet the requirement of providing her SSN.
Robert: Tax question
Does any health plan with deductible over 2500.00 qualify for an HDP health savings account?
Corporate Tax Network: For 2013, high deductible health plans must have minimum deductibles of $1,250 for an individual and $2,500 for an individual plus family coverage. The maximum in-network out-of-pocket limits for HDHPs are $6,250 for an individual and $12,500 for an individual plus family coverage.
Note the warning found in IRS Publication 969 on page 4:
“There are some family plans that have deductibles for both the family as a whole and for individual family members. Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. If either the deductible for the family as a whole or the deductible for an individual family member is below the minimum annual deductible for family coverage, the plan does not qualify as an HDHP.”
I hope this helps – good luck in finding a plan that best fits your needs!
LegalZoom: The pros from Corporate Tax Network will be back next week for more free tax Q&A! Join us then: http://zoo.mn/AskTheTaxPro