IF I NEED FOUR CUPS OF FRENCH ROAST TO WAKE UP FOR WORK EVERY DAY, IS MY COFFEE TAX DEDUCTIBLE?
(And other frequently asked tax questions)
Q: Is there an age limit on claiming my children as dependents?
A: Age is a factor in the qualifying child test, but a qualifying relative who is not a child may be any age.
Q: How much does an unmarried dependent student have to make before he or she must file an income tax return?
A: You must file a tax return if you are under 65 years old and your earned and/or unearned income exceeds $9,350.
Q: If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?
A: If you claim your daughter (or son, for that matter) as a dependent on your income tax return, she cannot claim herself on her tax return.
Q: To qualify for head-of-household filing status, do you have to claim a child as a dependent?
A: In certain circumstances, you do not need to claim the child as a dependent to qualify for head-of-household filing status, such as when the qualifying child is unmarried and is your child, grandchild, stepchild or adopted child.
Q: What is the American Recovery and Reinvestment Act (ARRA) of 2009?
A: ARRA was signed into law by President Obama in February, 2009, and is intended to provide a stimulus to the U.S. economy in the midst of a serious recession. The bill includes federal tax cuts, expansion of unemployment benefits and other social provisions, including domestic spending in education, health care, infrastructure and energy.
Q: What should I do if I made a mistake on a federal return I already filed?
A: Many mathematical errors are caught during processing of your return. But if you failed to report all your income or claim a credit for which you were eligible, you should file an amended or corrected return. To claim a refund, you must file a new return within three years of the date you filed the return you are changing.
Q: What is a split refund?
A: If you are due a refund, you are permitted to split the refund any way you want and direct deposit the funds in up to three different accounts with U.S. financial institutions.
Q: How do I know if I have to file quarterly individual estimated tax payments?
A: You must make estimated tax payments for the current tax year if you expect to owe at least $1,000 in taxes after subtracting your withholding and credits or if you expect your withholding and credits to be less than the smaller of two sums – 90 percent of the tax on your current year’s tax return or 100 percent of the tax shown on your prior year’s 12-month return.
SMALL BUSINESSES & PARTNERSHIPS
Q: Can a husband and wife run a business as a sole proprietor, or do they need to be in a partnership?
A: For a business to be classified as a sole proprietorship, one spouse would be the owner of the business and the other an employee. A married couple who own and operate a business jointly may elect for each to be treated as a sole proprietor by choosing to file as a qualified joint venture if they are the only partners, file a joint tax return and if both participate materially in the business.
Q: Must a partnership file an income tax form even if it had no income for the year?
A: Yes. A domestic corporation must file an income tax form whether it had taxable income or not.
Q: What’s the difference between a Form W-2 and a Form 1099-MISC?
A: A W-2 is used by an employer to report wages, tips and other compensation paid to an employee and to report Social Security taxes withheld. A 1099-MISC is used to report made to contractors who are not employees of the company. This form is required when a non-employee is paid $10 or more in gross royalties or $600 or more in rents or compensation.
Q: How do you determine if a person is an employee or an independent contractor?
A: It’s complex, but it is based on whether the person for whom the services are performed has the right to control how the services are performed. It is not based merely on how the person is paid, how often the person is paid or whether the person works full- or part-time. The three basic factors that cover this question are: behavioral control, financial control, and the relationship of the parties.
Q: As an employer, do I have any liability of my employees receive tips but don’t report them to me?
A: Yes. You have a liability to withhold and pay Social Security and Medicare tax on your employees’ tips. Employees must report tips to you if they exceed $20 a month. If the employee does not report tips to you, you may be at risk of possible assessment of the employer’s share of the Social Security and Medicare taxes on the unreported tips.
Q: If an employee claims more than 10 exemptions on his Form W-4, does the employer have to report this to the IRS?
A: No. This requirement has been eliminated.
Q: Does a small company need a tax ID number?
A: A sole proprietor who does not have any employees, and who does not file any excise or pension plan tax returns, does not need an employer identification number. The sole proprietor uses his Social Security number. If you are the sole owner of an unincorporated LLC that has employees, you need an EIN to file employment taxes starting on or after Jan. 1, 2009.
Q: If I pay personal expenses out of my business bank account, should I count the money as part of my income, or can I write off the expenses?
A: It is recommended that you never mix business and personal accounts. But if you do, the personal expenses paid from the business account must be declared as business income. Personal, living or family expenses not specifically provided by law are not deductible.
Q: Are there limits on allowable meal deductions during business travel?
A: Meal expenses are deductible only if travel requires that you be away from home overnight or if the meal is business related. If you want to deduct actual cost, you must have records of all meals. There is a standard meal allowance, as well, which your CPA can get for you.