10 Questions pertaining to your taxes
1.Refund Inquiries
Question: Can a person receive a tax refund if they are currently in a payment plan for prior year's federal taxes?
Answer: As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe.
Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.
You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.
IRS will automatically apply the refund to the taxes owed.
2 Amended Returns & Form 1040X
Question: What should I do if I made a mistake on my federal return that I have already filed?
Answer: It depends on the type of mistake that you made:
Many mathematical errors are caught in the processing of the tax return itself.
If you did not attach a required schedule the service will contact you and ask for the missing information.
If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return.
When filing an amended or corrected return:
Include copies of any schedules that have been changed or any Form W-2 (PDF) you did not include.
The Form 1040X (PDF) should be submitted after you receive your refund or by the due date of the return, whichever, is earlier.
Generally, to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.
3. American Recovery and Reinvestment Act (ARRA) of 2009?
Question: What is the American Recovery and Reinvestment Act (ARRA) of 2009?
Answer: The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama on February 17, 2009. The bill is intended to provide a stimulus to the U.S. economy in the wake of the economic downturn. The bill includes federal tax cuts, expansion of unemployment benefits and other social provisions, including domestic spending in education, health care, and infrastructure, including the energy sector.
4. General Procedural Questions
Question: What are the tax changes for this year?
Answer: For highlights of any tax changes for the current tax year please refer to the "What's New" section of the following:
Form 1040 Instructions (PDF), the Form 1040A Instructions (PDF), or the Form 1040EZ Instructions (PDF).
Additional Information:
Publication 553, Highlights of the Current Year Tax Changes
5. Depreciation & Recapture
Question: What kinds of property can be depreciated for tax purposes?
Answer: To be depreciable, the property must:
Be used in a trade or business or in an income producing activity
Be something that wears out or becomes obsolete
Have a determinable useful life substantially beyond the tax year
The kinds of property that can be depreciated include, but are not limited to, machinery, equipment, buildings, vehicles, and furniture. Some intangible property may also be depreciable (e.g. patents).
Additional Information:
Tax Topic 704, Depreciation
Publication 946, How to Depreciate Property
6. Question: Can the entire acquisition cost of a computer that I purchased for my business be deducted as a business expense or do I have to use depreciation?
Answer: The acquisition cost of a computer purchased for business use:
Can be expensed under Code section 179 in the first year, if qualified, by electing to recover all or part of the cost up to a dollar limit, by deducting it in the year you place the property in service, and any remaining cost is depreciated over 5 years.
Can be depreciated over a 5-year recovery period.
May be eligible for a 50-percent special depreciation allowance if the computer meets certain conditions.
NOTE: Increased section 179 limits. The maximum section 179 deduction you can elect for qualified property placed in service in 2008 has increased to $250,000 ($285,000, for qualified zone and qualified renewal property). This limit is reduced by the amount by which the cost of qualified section 179 property placed in service during the tax year exceeds $800,000. For qualified section 179 Gulf Opportunity (Go) Zone property, the maximum section 179 deduction is higher than the deduction for most other section 179 property. You may also see the IRS site for Code Section 179 for the expanded definition.
Additional Information:
Publication 946, How to Depreciate Property
Publication 535, Business Expenses
7. Question: I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won't be affected?
Answer: If you qualify, for the part of your home that is a home office:
You can claim depreciation.
The home office portion is depreciated over a recovery period of 39 years using the straight line method of depreciation and a mid-month convention.
If you do not claim depreciation on that part of your home that is a home office, you are still required to reduce the basis of your home for the allowable depreciation of that part of your home that is a home office when reporting the sale of your home.
Additional Information:
Publication 946, How to Depreciate Property
Publication 544, Sales and Other Dispositions of Assets
Publication 587, Business Use of Your Home
8. Question: We have incurred substantial repairs to our rental property: new roof, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?
Answer: Replacements of roof, rain gutters, windows, and furnace on a residential rental property:
Are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life.
Would be in the same class of property as the rental property to which they are attached.
Are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention since the property is residential rental property.
Repairs, such as repainting the residential rental property:
Are currently deductible expenses.
Keeps your property in good operating condition but does not materially add to the value of your property or substantially prolong its life.
NOTE: Repainting your property inside or, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. In that case, you should capitalize and depreciate the repair costs as the same class of property that you have restored or remodeled as discussed above.
Additional Information:
Publication 527, Residential Rental Property
Publication 946, How to Depreciate Property
9. Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation
Question: Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
Answer: For a business to be classified as a sole proprietorship:
Either the husband or the wife would be the ownerof the business.
Either of the spouses can work in the business as an employee.
If a married couple who file a joint tax return elects to conduct their business activities as a qualified joint venture:
The husband and wife must materially participate in the trade or business.
The spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture.
For more information see Election for Husband and Wife Unicorporated Businesses.
This is effective for taxable years beginning after December 31, 2006.
Also, see Rev. Proc. 2002-69 for Special Rules for Spouses in Community States.
Additional Information:
Publication 334, Tax Guide for Small Business
Publication 541, Partnerships
and finally # 10.
Question: I am self-employed. How do I report my income and how do I pay Medicare and social security taxes?
Answer: Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person:
You pay your Medicare and social security taxes the same way you pay your income taxes.
You can pay them when you file your income tax return if you expect to owe less than $1,000 in total taxes.
You will need to make estimated tax payments if you expect to owe $1,000 or more in total taxes,. These payments are made quarterly using Form 1040-ES (PDF), Estimated Tax for Individuals. You will need to figure these taxes at the beginning of the year.
Additional Information:
Publication 334, Tax Guide for Small Business
Publication 505, Tax Withholding and Estimated Tax
Franklin Katz, ATP ,PA, PB
Frank’s Tax and Business Service
120 York Rd
Kings Mountain, NC 28086-3151
(704) 739-4039
Fax: (704) 739-3934
Providing Professional Accounting Services and Income Tax Preparation
Circular 230 Disclaimer – Any tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax related penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matters addressed herein.
1.Refund Inquiries
Question: Can a person receive a tax refund if they are currently in a payment plan for prior year's federal taxes?
Answer: As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe.
Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.
You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.
IRS will automatically apply the refund to the taxes owed.
2 Amended Returns & Form 1040X
Question: What should I do if I made a mistake on my federal return that I have already filed?
Answer: It depends on the type of mistake that you made:
Many mathematical errors are caught in the processing of the tax return itself.
If you did not attach a required schedule the service will contact you and ask for the missing information.
If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return.
When filing an amended or corrected return:
Include copies of any schedules that have been changed or any Form W-2 (PDF) you did not include.
The Form 1040X (PDF) should be submitted after you receive your refund or by the due date of the return, whichever, is earlier.
Generally, to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.
3. American Recovery and Reinvestment Act (ARRA) of 2009?
Question: What is the American Recovery and Reinvestment Act (ARRA) of 2009?
Answer: The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama on February 17, 2009. The bill is intended to provide a stimulus to the U.S. economy in the wake of the economic downturn. The bill includes federal tax cuts, expansion of unemployment benefits and other social provisions, including domestic spending in education, health care, and infrastructure, including the energy sector.
4. General Procedural Questions
Question: What are the tax changes for this year?
Answer: For highlights of any tax changes for the current tax year please refer to the "What's New" section of the following:
Form 1040 Instructions (PDF), the Form 1040A Instructions (PDF), or the Form 1040EZ Instructions (PDF).
Additional Information:
Publication 553, Highlights of the Current Year Tax Changes
5. Depreciation & Recapture
Question: What kinds of property can be depreciated for tax purposes?
Answer: To be depreciable, the property must:
Be used in a trade or business or in an income producing activity
Be something that wears out or becomes obsolete
Have a determinable useful life substantially beyond the tax year
The kinds of property that can be depreciated include, but are not limited to, machinery, equipment, buildings, vehicles, and furniture. Some intangible property may also be depreciable (e.g. patents).
Additional Information:
Tax Topic 704, Depreciation
Publication 946, How to Depreciate Property
6. Question: Can the entire acquisition cost of a computer that I purchased for my business be deducted as a business expense or do I have to use depreciation?
Answer: The acquisition cost of a computer purchased for business use:
Can be expensed under Code section 179 in the first year, if qualified, by electing to recover all or part of the cost up to a dollar limit, by deducting it in the year you place the property in service, and any remaining cost is depreciated over 5 years.
Can be depreciated over a 5-year recovery period.
May be eligible for a 50-percent special depreciation allowance if the computer meets certain conditions.
NOTE: Increased section 179 limits. The maximum section 179 deduction you can elect for qualified property placed in service in 2008 has increased to $250,000 ($285,000, for qualified zone and qualified renewal property). This limit is reduced by the amount by which the cost of qualified section 179 property placed in service during the tax year exceeds $800,000. For qualified section 179 Gulf Opportunity (Go) Zone property, the maximum section 179 deduction is higher than the deduction for most other section 179 property. You may also see the IRS site for Code Section 179 for the expanded definition.
Additional Information:
Publication 946, How to Depreciate Property
Publication 535, Business Expenses
7. Question: I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won't be affected?
Answer: If you qualify, for the part of your home that is a home office:
You can claim depreciation.
The home office portion is depreciated over a recovery period of 39 years using the straight line method of depreciation and a mid-month convention.
If you do not claim depreciation on that part of your home that is a home office, you are still required to reduce the basis of your home for the allowable depreciation of that part of your home that is a home office when reporting the sale of your home.
Additional Information:
Publication 946, How to Depreciate Property
Publication 544, Sales and Other Dispositions of Assets
Publication 587, Business Use of Your Home
8. Question: We have incurred substantial repairs to our rental property: new roof, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?
Answer: Replacements of roof, rain gutters, windows, and furnace on a residential rental property:
Are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life.
Would be in the same class of property as the rental property to which they are attached.
Are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention since the property is residential rental property.
Repairs, such as repainting the residential rental property:
Are currently deductible expenses.
Keeps your property in good operating condition but does not materially add to the value of your property or substantially prolong its life.
NOTE: Repainting your property inside or, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. In that case, you should capitalize and depreciate the repair costs as the same class of property that you have restored or remodeled as discussed above.
Additional Information:
Publication 527, Residential Rental Property
Publication 946, How to Depreciate Property
9. Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation
Question: Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
Answer: For a business to be classified as a sole proprietorship:
Either the husband or the wife would be the ownerof the business.
Either of the spouses can work in the business as an employee.
If a married couple who file a joint tax return elects to conduct their business activities as a qualified joint venture:
The husband and wife must materially participate in the trade or business.
The spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture.
For more information see Election for Husband and Wife Unicorporated Businesses.
This is effective for taxable years beginning after December 31, 2006.
Also, see Rev. Proc. 2002-69 for Special Rules for Spouses in Community States.
Additional Information:
Publication 334, Tax Guide for Small Business
Publication 541, Partnerships
and finally # 10.
Question: I am self-employed. How do I report my income and how do I pay Medicare and social security taxes?
Answer: Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person:
You pay your Medicare and social security taxes the same way you pay your income taxes.
You can pay them when you file your income tax return if you expect to owe less than $1,000 in total taxes.
You will need to make estimated tax payments if you expect to owe $1,000 or more in total taxes,. These payments are made quarterly using Form 1040-ES (PDF), Estimated Tax for Individuals. You will need to figure these taxes at the beginning of the year.
Additional Information:
Publication 334, Tax Guide for Small Business
Publication 505, Tax Withholding and Estimated Tax
Franklin Katz, ATP ,PA, PB
Frank’s Tax and Business Service
120 York Rd
Kings Mountain, NC 28086-3151
(704) 739-4039
Fax: (704) 739-3934
Providing Professional Accounting Services and Income Tax Preparation
Circular 230 Disclaimer – Any tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax related penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matters addressed herein.