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Q. I have a Corp that I want to discontinue doing business. The net loss is approximately $6,000 that I would like to use as a Section 1244 stock loss. My question is what forms should I send in, if any, to the IRS to discontinue the business. I am the only stockholder with an initial stock investment of $6,000.
>>>>>>IR$Maven's reply:
There is no special notification to the IRS that is necessary. The final corporate tax return should reflect the $6,000 net loss. Be sure to check the box "final return" on the Form 1120. As the stockholder, you will then be entitled to take the $6,000 loss on Schedule D, Form 1040 as a short-term loss. Show $6,000 in the cost column and write "Loss on 1244 stock" on the line just below your entry. For higher amounts, see IRS Publications for limitations on the maximum amounts allowable as Section 1244 losses.
Q.
I have a
small candy vending business in addition to my salaried position. My question
is two fold: 1. If, I have a $1,100 net loss in the business (costs/mileage/
and depreciation were pretty high), how will that affect my Adjusted Gross
Income? 2. How much can I deduct as depreciation in my business? I've
heard 1/7th, or all in one lump sum.
>>>>IR$Maven's reply:
(1) the $1,100 of losses will offset all other types of income (W-2, interest, dividends). Total income is called Adjusted Gross Income- and is the last line on page one of Form 1040. This is a definite advantage(reducing AGI), because a lower AGI may entitle you to increased itemized deductions such as medical expenses or the whole new array of tax credits such as the Child Credit or the Hope Learning Credit.
(2) Depreciation can be a bit complicated. However, generally you can depreciate such assets as furniture and equipment ratably over a five or seven year life. Also, generally you can immediately expense up to $19,000 ($20,000 for year 2000)of new furniture & equipment purchases BUT this special depreciation cannot reduce your net business income below zero. If you already have a net loss before depreciation, you would only be entitled to depreciate items over the longer periods of 5 or 7 years. Call the IRS at 800-829-3676 or on the internet at www.IRS.GOV for publications on the subject of Depreciation.
***************************************************
Q. If you use your car to drive to and from your job which is your main source of income, can you do the following:1- use that on your tax return as a deduction? 2- which form, if any, can you itemize this on? 3- need documents or receipts for proof of use including receipts from gas stations and auto repair shops?
>>>IR$Maven's reply:
1. You cannot deduct car expenses for commuting from your home to your job & back- even if it is your main income. However, if you are self-employed, you can deduct auto expense for the travel between your office and other stops you make during the day. And, for a self-employed person whose principal office is his home, all travel to places of business are deductible.
2. If you are entitled to deduct auto expense, such as auto expense related to your job that your boss did not reimburse you for, you would deduct it on Schedule A, Form 1040, as a miscellaneous itemized deduction- subject to a 2% of Adjusted Gross Income deductible. Self-employed people can fully deduct expenses on Schedule C, Form 1040.
3. If you can deduct auto expense, I believe your best bet is to use the mileage method whereby you are entitled to the number of business miles multiplied by 30 cents (32.5 cents in 2000). Then, you do not need itemized bills for repairs, gas & oil and insurance. You can also deduct tolls & parking fees in addition to the auto mileage costs. One last point- keep an informal diary of your business travels.
Q.
Can
a laborer who has to carry his own tools to work each day, be able to
deduct his commuting expenses. I.e. Car expense, gas, tolls , and parking?
>>>>>>IR$Maven's reply:
Generally, the answer is NO. Some transportation expenses would be deductible if you could prove that the expenses were incurred in adition to the ordinary, nondeductible commuting expenses. An example would be the renting of a trailer to carry your tools. Merely storing your tools in your car trunk does not make any of the expenses deductible. P.S.- Transportation expense from one job location to another in the same day is deductible.
********************************
Q. I have a small candy vending business in addition to my salaried position. My question is two fold: 1. If, I have a $1,100 net loss in the business (costs/mileage/ and depreciation were pretty high), how will that affect my Adjusted Gross Income? 2. How much can I deduct as depreciation in my business? I've heard 1/7th, or all in one lump sum.
>>>>IR$Maven's reply:
(1) the $1,100 of losses will offset all other types of income (W-2, interest, dividends). Total income is called Adjusted Gross Income- and is the last line on page one of Form 1040. This is a definite advantage(reducing AGI), because a lower AGI may entitle you to increased itemized deductions such as medical expenses or the whole new array of tax credits such as the Child Credit or the Hope Learning Credit.
(2) Depreciation can be a bit complicated. However, generally you can depreciate such assets as furniture and equipment ratably over a five or seven year life. Also, generally you can immediately expense up to $19,000 ($20,000 for year 2000)of new furniture & equipment purchases BUT this special depreciation cannot reduce your net business income below zero. If you already have a net loss before depreciation, you would only be entitled to depreciate items over the longer periods of 5 or 7 years. Call the IRS at 800-829-3676 or on the internet at www.IRS.GOV for publications on the subject of Depreciation.
*******************************
Q. This year I started a sideline business at home. What kind of guidelines should I use in order to deduct the costs of my home office, computer, telephone, etc.?
>>>>>>IR$Maven's reply:
Since the principal place of business is your home, you can deduct on your tax return both direct and indirect costs incurred at the home office. Examples of direct costs are travel, entertainment, telephone (business portion), cellular phone, office supplies, postage, stationery, office furniture, fixtures and equipment (subject to annual limits) and any other direct "out of pocket" costs. Examples of indirect costs are homeowners insurance, utilities (gas & electric), home repairs, cleaning & maintenance and a portion of your rent, or a portion of your mortgage interest & real estate taxes if you own the residence (Note: mortgage interest & real estate taxes would be deductible on Schedule A, Form 1040 even if you have no home office). For tax years 1998 and prior, in order to deduct indirect expenses, you had to perform the most important aspects of your job (in your case, the side line job) at the home office. For example, a surgeon who performs all operations at hospitals and does only routine administrative duties at home, would not be entitled to many of the home office deductions. However, beginning January 1, 1999, merely doing administrative and/or routine paper work at home will allow you to take the full home office deductions assuming the home is your principal place of business.
*******************************
Q. How do you base your fees, by the hour, by the case? I was audited and I got $600.00 back, BUT my lawyer charged me $2,500. Can a lawyer charge you whatever he wants?
>>>>IR$Maven's reply:
As a C.P.A., I charge by the hour. For complicated tax cases, a charge of $200 per hour would not be extraordinary. However, it looks like you were charged a flat fee, or some sort of minimum fee. In either case, you were surprised. As a good business man, your lawyer should have explained the fee arrangement to you in advance. Unfortunately, it is "caveat emptor"- which means "buyer beware", before going ahead.
********************************
Q. I am beginning a new career as a Real Estate agent this year. I know I will be classified as self employed. I have always worked for a company that issues W-2's, and withholds taxes from my pay. What would be your best advise on starting off right as far as what records I need to keep during the year and how much of my commission checks should I tuck away for taxes.
>>>>>IR$Maven's Reply:
As the year progresses, keep a running list of your income checks, since mistakes are often made by payers when preparing the year-end 1099 forms. Next, open a separate checking account for the business income & expenses. If you use personal cash for business expenses, try to reimburse yourself with a business check so that all business expenses are recorded in one place. Lastly, estimate what your net income for the year will be. It will be subject to self-employed (FICA) tax at the rate of approximately 15%. This net income less your standard deduction (or itemized personal deductions) and personal exemptions produces your taxable income, which is taxable at the tax table rate. Info on tables, deductions, etc. is easily obtainable from the IRS 1040 booklets or the IRS web site at IRS.GOV. To keep down penalties, try to pay the combined FICA and income tax in 4 quarterly installments, which are due on 4/15, 6/15, 9/15/99 and 1/17/00.
Q. I am a part-time college instructor and am paid as a private contractor. I file the self-employed tax forms each year. In 1999 I made only $336 teaching two short classes. The college I work for says if I made less than $600 I don't have to report, and they don't have to provide a 1099. Is this true? Even if I made $29,000+ at my primary job? I'd love not to have to file the extra forms, but I'd prefer not to underpay my taxes!
>>>>>IR$Maven's Reply:
It is true that the college does not have to file a 1099 for amounts under $600 annually, paid to one individual. However, you must include Any amount of earned income on your tax return. The absence of a 1099 form is irrelevant.
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