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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA |
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Volume 2, Issue #66, June 2, 2000 Please, if you like this publication, invite at least a half a dozen friends to subscribe ... Give them our Subscription Page ( Taxmama.com ) Ask TaxMama is sent to you for FREE every Friday (And subscribers get it earlier than websurfers.) ------------------------------------------------ Dear Family, Now that June is here, if you are self-employed, you're probably thinking about making your second estimated tax payments. Check back here on Monday ... for an article with instructions "Estimated Payments - Hate Them? But Pay Them!" You, with the job, don't worry about this. You're lucky, your employer takes all the taxes...gives you a retirement plan ... a regular paycheck ... don't complain. You've got it pretty good. When you're self-employed, if you don't work, you don't get paid. Unless, of course, you have an Internet business - or a website that makes clever use of a affiliate programs. Even simple hobbyists can make a fortune on the web while they are simply having fun. (Try to get the IRS to let you have a business loss, now! They'll know only a fool could lose money on the WWW <g>) Do you want to know how? Well, if you really want to do it right; if you are serious about building a business on the Web, one that makes money even if you take the day off ... you've got to attend this seminar - The Affiliate Force 2000 on June 16 - 17. This month, it's in Los Angeles, next in Seattle, then ... Your TaxMama will be talking about your Internet TimeLine, a business outline and checklist for doing it right. To be invited to our 'Free Lunch," sign up from here. (link removed after the date was closed) Another income alternative. With the summer here, lots of people are out pounding the pavement looking for work. Particularly college students. Did you know that you can become a tax professional, an Enrolled Agent, even if you don't have a college degree? That's right. (Most EA's I know have at least one degree ... but many got it while they were making a living in the field.) The truth is, this is an excellent business for college students and stay-at-home moms. Working for yourself, the hours are flexible. The money is dependant on how skilled you are, so it pays to become well-trained. But, and that's the big 'but!' You don't have to wait to graduate from college and work for someone for two years to be able to put out a shingle. You can spend this summer taking classes and learning enough to pass the IRS's Special Enrollment Examination in September. Want to know how? I'll tell you if you drop by on Tuesday, June 13th at 1:00 p.m PDT The AccountingWEB Workshop (4:00 pm EDT) FREE. Be good to yourself and each other. Best wishes, Eva Rosenberg, EA Your TaxMama is watching ... out for you. <NOTE TO TAX PROFESSIONALS - Join a weekly discussion list just for tax professionals, please read and sign up at our Submission Guidelines page> In-Dependent ----------------------------- >From a flower in Kansas TaxMama, I am a small business owner and am still claimed by my mother on her taxes. However, I have a chance to take advantage of deductions. Since I claim a tax refund every year, will I be able to take advantage of these small business deductions or do they simply not have any effect on my return at the end of the year please explain!! I would appreciate an e-mail reply Thank you, Alisha Viola, KS <TaxMama Replies> Hi Alisha, Good for you! I hope your business is doing well. As long as your business expenses are legitimate and reasonable, there is no reason that you cannot claim them on Schedule C, where you will also report your business income. Take some time to read more about how it works, Publication 334 - Tax Guide for Small Business You'll also find some useful articles and tips here: Taxmama Articles with new ones appearing all the time. Your business won't affect your mother's ability to claim you as a dependent. In fact, last year, I had a college student whose profits were around $100,000 who generously let his dad continue to take him as a dependent. Best wishes Eva Back to Brazil ---------------------------- >From a caring CPA, From: Tracy Negrin, CPA Hi TaxMama! Regarding the Brazil ex-pat. First, there would be no double tax. The tax laws are not design that way. The tax treaties generally apply to US residents working in country and avoiding foreign withholding. If his company pays him out of the US, I am assuming they are not doing any thing devious, then if it is done properly he should have no state liability. He would qualify for the foreign earned income exclusion on his US 1040NR(Yes, there would be a filing requirement). If he makes more than the exclusion, he would pay tax in the US, but get a credit for any Brazilian tax he paid. Yes, since he is a resident of Brazil, he owes tax. One way or another, they will withhold it. I am sure that his company could find out for him how this is done and how much it would be. Now, the question remains whether paying the social security taxes in the US is worth it. Since he must be an employee to qualify for the 401(K). I just finished reading an article in the current issue of "Outlook", which is a CPA publication. They strongly advise against ex pat's being on a foreign affiliate's payroll. They advise in most circumstances an ex-pat's should be on the U. S. parent's payroll due to benefit plans and Social Security benefits. They also strongly advise the ex pat's having a good preparer in the foreign country to do that country's tax filings and of course having someone here to the U.S. filing. Hope that helps. Tracy Negrin <TaxMama Replies> Hi Tracy, Thanks for the help. Good point to remind people. If you ARE working out of the country and you know that you are not subject to US tax because of the foreign income exclusion --- FILE THE RETURN anyway. In order NOT to have to pay the taxes, you have to file this form on time, within your extension periods. (OK, sure, there is a way to do it if you're filing years too late. But, it's not well known ... and that's one of the few secrets I won't give away for free ... <g> ) Your TaxMama Refinancing Merry-Go-Round ----------------------------------------- >From Off-off Broadway ... Dear Tax Mama, Since houses have appreciated, in most cases, over the years ... is there a limit on the deductibility of interest paid on refinances OR home equity loans for amounts that are in excess of the original price paid for the house? THANKS. Sue J. T. Mamaroneck, NY ps. your letters are soooo helpful and interestingly written. <TaxMama Replies> Hi Sue, <Blush> Thanks for the kind words. Actually, there is a limit. But unless you're very wealthy - or seriously in debt, you probably won't hit that limit. Publication 936 Home Mortgage Interest Deduction addresses this issue "Home acquisition debt limit. The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately)." Then, add $100,000 for home equity debt, for loans that were not used to improve the property Part II. Limits on Home Mortgage Interest Deduction "Home equity debt limit. There is a limit on the amount of debt that can be treated as home equity debt. The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home." In other words, your mortgage interest deduction is for loans not exceeding all of these added together (Sort of):
Essentially ... yes, there are always some other things to consider ... this is the tax CODE, after all.<g> Good luck Eva Rosenberg Your TaxMama Way Past Due ----------------------------- Dear TaxMama I owe the irs money from l989, although I paid some monthly I stopped and still owe about $5000. Is there a statue of limitations stopping them from collecting anymore, the principal has been paid and this is mostly interest. Evidently they still think they can because they took my refund this year of $700 and applied it to my arrears. Can they do this? Your reply will be greatly appreciated I am now 66 years old <TaxMama Replies> Dear Baby, The statute of limitations on collections is 10 years after the debt was assessed. Call them. If the assessment is over 10 years old and there were no bankruptcies, appeals filings, tax court filings, or problem resolutions filings to stop the clock on the statute of limitations ... you may be done. They WILL tell you the truth if you have them check your file. If not, call the Taxpayer Advocate and they'll take care of it for you - no charge. You can reach the advocate by calling the 800-829-1040 number and just asking to be connected. But you can only get their help if you have gotten nowhere with the regular channels. These days, the regular folks tend to be quite helpful. Honestly. Good luck Best wishes Eva Too Much Paperwork -------------------------------------- >From across the Northern Border ... Hi Eva Hello there, how are you? :) I/we want to know what happens with W9's once we get them filled out from people. Do we file them away?? Dumb question probably, but neither one of us is sure. Take care G. B. <TaxMama Replies> Hi Gwen, When you get them from the vendors, put them into their permanent file. In January, when it comes time to issue 1099s to people, you will have their social security or ID# for the forms. Best wishes Eva In The Paper Biz ------------------------------- Connecting from Connecticut ... Dear TaxMama I deliver newspapers to peoples homes in the early morning hours. ( This is my seventh week so far.) At the end of the week I receive a bill from the newspaper company for the papers and any supplies I purchased(bags, elastics,envelopes,ect.). Some people pay the newspaper by mail I'm credited for that. Others I have to collect from. Whatever's left after paying the paper is what I earn. As far as I know I'm considered self employed. My husband is self employed also. He is a contractor. He does various work on peoples homes. Every three months he receives a form from the state of Connecticut. He has to report his earnings, write off expenses, pay sales tax, and pay estimated income tax. My first question is about income taxes. How do I pay Income taxes before the end of the year?(I'm sure what little I earn will be spent by then.) Second question, I've heard that there isn't sales tax on news papers. That leads me to believe I can not get a tax number like my husband, so how can I write off expenses like supplies and gas? (It takes me about an hour and a half to do the papers, I drive about three miles a day. The car is running all that time using gas, I go through a lot of gas, if I turn off the car each time I stop it'll put more wear and tear on the car plus take longer to do the route.) I was talking to another paper carrier and he said he has an accountant who itemizes for him, that way he can write off everything. I don't make enough to afford an accountant (this is my only job besides the kids.) and we don't usually have anything to itemize at the end of the year. So even if we tried that I don't think the gas expense would be more than the standard deduction. Also I get tips ,and being religious I have to listen to my conscience and report them. last question ,what rules are there about that and how do you do that? Thank you very much for your time and attention to this ! I worry about everything, hopefully you'll be able to ease it some. Until I learn not to worry. thank you, Mary Naugatuck CT <TaxMama Replies> Dear Mary, Whew! That's quite a load of questions. OK, first off, you think you can't afford an accountant. I think that you and your husband cannot afford NOT to have a tax professional. You are both in business and there are so many things you need to know. Messing up on any of them can cost you more in penalties and interest than you would pay a good tax pro. Besides, I have never had anyone come to me, who was in business, whose tax liability I couldn't reduce by helping them do some digging or planning. However, if you have more time than money, DO some reading. The IRS has a publication full of details on tax issues if you are running a business. You can get it online. Publication 334 Tax Guide for Small Business or call 1-800-829-FORM to order the book by mail. READ IT. I can only give you a little help and guidance - you have all your day-to-day issues to handle. First of all, let's deal with your question about how to make payments during the year. You're right about not having tax money at the end of the year, if you don't take care of sending it in along the way. Very wise of you! So, the IRS has a means to let you pay each quarter. Use Form 1040-ES to send in payments on April 15th, June 15th, Sept 15th and January 15th. This link has all the instructions and mailing addresses. - IRS Forms - CT Forms You will base your payment on your profits for the quarter, not the income you collected. Use the same information to figure out how much you will owe your state. Don't worry about not reporting sales taxes. You are still entitled to all the deductions. Expenses include things like - home phone, in excess of the base monthly rate, office supplies, cost of the newspapers, commissions to others who help you sell, wages you might pay to your children who help you fold, assemble, answer phone calls ... see notes in The Family Business If you like, come back after June 5th. You will find a detailed article about how to figure out how much to pay - I am working on the article this month: Estimated Payments - Hate Them? But Pay Them! Also, as a coincidence, (see - all great minds think alike) it occurred to me that this time of year is a good time to write a detailed article on auto expenses. So, also in time for the beginning of June, you will find this article up: To Give Or To Get, That Is The Question! In the meantime, keep track of ALL your auto expenses (gasoline, repairs, car washes - or the materials with which to wash it - insurance, parking, etc.) AND keep track of your business miles. Come back and read the tips in the article. Or ... read this part of IRS Publication 463 - Car Expenses Yes, dear, do report your tips. They are income. If you are raising children and want to teach them ethics and honor, the only way you can do that effectively is to let them see your behavior as a guide. Incidentally, there's one more big tax benefit you are able to use - the office in home. And, of course, that's one of the other articles I am preparing for June. Open the Door to the Most Popularly Misunderstood Business Deduction - The Home Office Please understand - NONE of these links will work before, at least, June 5, 2000. But, after that, they'll be there for the duration. Good luck, Sherry. Sounds like you're a wonderful lady. Best wishes Eva Rosenberg TaxMama MONEY FUNNIES ----------------------- Submitted by Dottie Brewer of Biz-USA Three Men and a River One day three men were walking along and came upon a raging, violent river. They needed to get to the other side, but had no idea of how to do it. The first man prayed to God saying, "Please God, give me the strength to cross this river." Poof! God gave him big arms and strong legs, and he was able to swim across the river in about two hours. Seeing this, the second man prayed to God saying, "Please God, give me the strength and ability to cross this river." Poof ! God gave him a rowboat and he was able to row across the river in about three hours. The third man had seen how this worked out for the other two, so he also prayed to God saying, "Please God, give me the strength, ability, and intelligence to cross this river." And Poof! God turned him into a woman ... She looked at the map, then walked across the bridge. (took, oh, about 20 minutes!) (I Thank goodness I can blame Dottie for this one! <g>) IRS NEWS -------------- >From the IRS bulletin to professionals ... received just seconds ago. **THIS JUST IN -- IRS to Drop Paper 1040PC Format in 2001** The Internal Revenue Service will not accept paper returns in the 1040PC format after the current processing year. "We have been encouraged by the public's response to the various filing alternatives we have offered in recent years," said IRS Commissioner Charles O. Rossotti. "We hope that computer users who tried the 1040PC will take the step to file electronically in the future." The IRS introduced the 1040PC, a three-column printout option, in 1991, and offered it as an alternative for computer-prepared returns that could not be filed electronically. After reaching a peak of 8.4 million returns in 1997, 1040PC usage has declined each year. As of May 19, the IRS had received about 5 million 1040PC forms, down 20 percent from the same time last year. The availability of e-filing for home computer users and the increase in forms eligible for e-filing have reduced the need and attractiveness of the 1040PC format. Individuals can e-file more than 95 percent of returns now and the IRS expects all will be eligible by 2002. More than 35 million taxpayers have e-filed so far this year -- nearly 30 percent of all returns. + Although the IRS had expected the 1040PC to be more economical to process, this did not happen. The minimal productivity gains were offset by the need for more experienced personnel to handle these returns. [TaxMama: It was kind of a nuisance for us, too. Required special handling, which meant it took more time, anyway. Eva] Tooting Her Own Horn --------------------- TaxMama's goal is to help you break the code that is the U.S. Income Tax System. We will gladly entertain your questions. Please feel free to submit them to Now`s Your Chance to Ask TaxMama There's no guarantee that we'll have room for all your questions, so we'll try to address those issues that will help the most people. Some of your questions may have already been answered in the past year or so. There are a wealth of articles already in place at The Directory of TaxMama's Articles After flirting outrageously at the Abraham-Netrageous Summit, TaxMama joined forces with Dr. Website to create Outrageous Flirt a safe, fun and friendly way to communicate with those you love - even your own spouse! Drop by for Valentine's Day Outrageous Flirt - all year round! After spending years looking for the perfect gift idea, I found it. And I've just opened a new website to introduce it to you: PhotoMasterPieces If you are looking for a clever and inexpensive way to decorate your home or office - what a great treat for Valentine's Day! If you are thinking about using a car donation, last year, my favorite Los Angeles Times business reporter, Liz Pulliam, wrote an article about donating your car to charity. It is linked from my article written this time last year, To Give Or To Get, That Is The Question! or - read it directly at Car Donations Not Charitable at Tax Time TaxMama On the WWW --------------------- You can find weekly tax tips at: Robert Sullivan's Small Business Advisor Visit Deb Nyberg's Women in Business - Cyberspace Field of Dreams, BizWomen And for all you ExPats out there ... there's Iain William's site for overseas investing. Overseas Investing Critical Dates:
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