How Business Website Expenses Are Deducted

With the explosion of online businesses, one would think that there would be a standard method of deducting the cost of your business website. But some questions still exist as to what part of a website is considered software, and to date, the IRS has not fully clarified that issue for tax purposes. Purchased Websites – If the website is purchased from a contractor who is at economic risk should the software not perform, the design costs are amortized (ratably deducted) over the three-year period, beginning with the month in which the website...

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Is Your Hobby a For-Profit Endeavor?

The tax treatment for a hobby is substantially different than it is for a business, which sometimes makes it difficult to distinguish one from the other. The IRS provides appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby. Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.” This...

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Is Your Child a Full-Time Student?

If you have a qualified child you can claim an exemption for that child on your tax return, which results in a $3,800 deduction for 2012 (up from $3,700 in 2011). Depending upon your tax bracket, that deduction can produce a substantial tax savings. To be treated as a qualified child, a child must be under the age of 19 or a full-time student under the age of 24. Generally, children under the age of 19 who have investment income, such as interest and dividends, are also subject to the so-called “kiddie tax,” which, except for small amounts, causes...

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Identity Theft and Tax Fraud Are Growing Problems

Cyber criminals have been using stolen identities to file tax returns and obtain fraudulent refunds. Tax preparers have reported an increase in e-file rejections because the taxpayers’ or their children’s SSNs have already been used in a previously e-filed return, which results in the e-filed return being rejected. Generally, identity thieves use personal data to steal financial accounts and run up charges on the victim’s existing credit cards. However, identity theft can also affect your tax records as follows: Undocumented workers or other...

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Read This before Tossing Old Tax Records

Now that you’ve completed your taxes for 2011, you are probably wondering what old records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. To determine how to proceed, it is helpful to understand why the records needed to be kept in the first place. Generally, we keep “tax” records for two basic reasons: (1) in case the IRS or a state agency decides to question the information reported on our tax returns; and (2) to keep track of the tax basis of our capital assets so that the...

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May 2012 Dates to Remember

May 2012 Individual Due Date Reminders May 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during April, you are required to report them to your employer on IRS Form 4070 no later than May 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year....

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