Choosing the Right Filing Status

Federal, State, Local and International Taxes – Using the correct filing status is very important when you file your tax return. You need to use the right status because it affects how much you pay in taxes. It may even affect whether you must file a tax return.

When choosing a filing status, keep in mind that your marital status on Dec. 31 is your status for the whole year. If more than one filing status applies to you, choose the one that will result in the lowest tax.

Note for same-sex married couples. New rules apply to you if you were legally married in a state or foreign country that recognizes same-sex marriage. You and your spouse generally must use a married filing status on your 2013 federal tax return. This is true even if you and your spouse now live in a state or foreign country that does not recognize same-sex marriage.

Here is a list of the five filing statuses to help you choose:
1. Single. This status normally applies if you aren’t married or are divorced or legally separated under state law.
2. Married Filing Jointly. A married couple can file one tax return together. If your spouse died in 2013, you usually can still file a joint return for that year.
3. Married Filing Separately. A married couple can choose to file two separate tax returns instead of one joint return. This status may be to your benefit if it results in less tax. You can also use it if you want to be responsible only for your own tax. Head of Household. This status normally applies if you are not married. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Some people choose this status by mistake. Be sure to check all the rules before you file.
4. Qualifying Widow(er) with Dependent Child. If your spouse died during 2011 or 2012 and you have a dependent child, this status may apply. Certain other conditions also apply.
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What is Business Income?

Small Business Accounting – Business income is income received for products or services sold. For example, fees paid to a professional person are considered business income. Rents paid to a person in the real estate business are business income. Payments received in the form of property or services must be included in income at their fair market value.

Normally a business is organized as either a sole proprietorship, partnership, or corporation. A sole proprietorship is the simplest form of business organization. It has no existence apart from its owner. Business debts are personal debts of the owner. As a sole proprietor, you file Form 1040 Schedule C, or Form 1040 Schedule C-EZ, with Form 1040, to report the profit or loss from your business. Also, you must file Form 1040 Schedule SE if you had net earnings (from Schedule C or C-EZ) of $400 or more or had church employee income of $108.28 or more. Schedule SE is used to figure self-employment tax, which is the combined social security and Medicare tax on self-employment income.

A partnership is an unincorporated business organization that is the result of two or more persons joining together to carry on a trade or business. Each person contributes a combination of money, property, labor, or skills, and each expects to share in the profits and losses. A limited liability company with more than one owner is generally treated as a partnership for tax purposes. A partnership’s income and expenses are generally reported on Form 1065, an annual information return. No income tax is paid by the partnership itself. Each partner receives a Form 1065 Schedule K-1, which generally allocates the income and expenses among the partners according to the terms of the partnership agreement.

A corporation, for Federal income tax purposes, generally includes a business formed under Federal or state laws that refer to it as a corporation, body corporate, or body politic. It also includes certain businesses that elect to be taxed as a corporation by filing Form 8832. The owners of a corporation are the shareholders. The tax on a corporation’s income is figured on Form 1120 or Form 1120A. For more information on corporations in general, refer to Publication 542, Corporations. Corporations that meet certain requirements may elect to become S corporations, which are treated in a manner similar to partnerships. An S corporation files Form 1120S, and generally does not pay tax on its income. Most income and expenses are “passed through” to the shareholders on Form 1120S Schedule K-1. These amounts are to be included on the shareholders’ individual returns.

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