Is it a Business or Hobby? Answer Has Implications for Deductions

What New Business Owners Need to Know About Taxes

Small Business Accounting – The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit. 

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. 

In order to make this determination, taxpayers should consider the following factors:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Does the taxpayer depend on income from the activity?
  • If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
  • Has the taxpayer changed methods of operation to improve profitability?
  • Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
  • Has the taxpayer made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses. 

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations. For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

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It’s not too late to file your 2011 tax return

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Income tax Services – Believe it or not, your kids don’t always have to separate you from your money. Sometimes they can actually help you keep some. If you haven’t filed your 2011 tax return yet, you have five good reasons to file today.  

Adoption Credit

You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. For tax year 2011, the adoption credit, at up to $13,360 per child, is the largest refundable tax credit available to individual taxpayers.

Child Tax Credit

You may be able to take this credit for each of your children under age 17. The Child Tax Credit may be worth as much as $1,000 per qualifying child depending on your income. If you can’t claim the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. 

Child and Dependent Care Credit

You may be able to claim the Child and Dependent Care Credit if you pay someone to care for your children, age 13 or younger, so you can work or look for work.

Earned Income Tax Credit

The EITC is a tax benefit for people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax owed and may also give a refund. To qualify, you must meet certain requirements and file a tax return — even if you don’t owe any tax or aren’t required to file, you must file to claim the credit.

Education Credit

Education tax credits can help offset the costs of higher education by letting people claim qualifying education-related expenses. The American Opportunity Tax Credit and the Lifetime Learning Credit can be subtracted in full from federal income tax, not just deducted from taxable income. A portion of the American Opportunity Tax Credit is refundable if no other outstanding debt exists.

For information about these credits and much, contact us today to for Free Consultation! 

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

Like to get out of a tax debt caused by misdeeds committed by your spouse?

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Innocent Spouse Relief – Did you know that you can get out of the tax debt due to the misdeeds or fraud committed by your spouse? Innocent Spouse Relief was designed to alleviate unjust situations where one spouse was clearly the victim of fraud perpetrated by their spouse or ex-spouse. 

If you qualify for Innocent Spouse Relief, you may not owe any tax. Please contact us for Free Consultation to see if you qualify for Innocent Spouse Relief.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Increased Control Over Business Outcomes

ImageAffordable 100% U.S. Based Outsourcing Solutions – Outsourcing gives companies the ability to manage and organize business results in a variety of critical areas, including increasing reliability, improving cost variability and allowing effective planning and implementation of ideas. For more info or to explore possibilities please contact us today.

ABA Tax Accounting

Amare Berhie, Managing Member

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Back-to-School Tips for Students and Parents Paying College Expenses

Federal, State, Local and International Taxes – Whether you’re a recent high school graduate going to college for the first time or a returning student, it will soon be time to head to campus, and payment deadlines for tuition and other fees are not far behind.

The IRS offers some tips about education tax benefits that can help offset some college costs for students and parents. Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

  • American Opportunity Credit. This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education at an eligible institution. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.
  • Lifetime Learning Credit. In 2012, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.

You can claim only one type of education credit per student in the same tax year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.

  • Student loan interest deduction. Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, you may be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

These education benefits are subject to income limitations, and may be reduced or eliminated depending on your income. For more information contact us today for no obligation free consultation.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Offer-in-Compromise Help Taxpayers Make a Fresh Start

Tax Problems – The IRS has expanded its “Fresh Start” initiative by offering more flexible terms to its Offer-in-Compromise Program. These newest rules enable some financially distressed taxpayers to clear up their tax problems even quicker. 

An offer-in-compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to determine the reasonable collection potential. 

This expansion of the “Fresh Start” initiative focuses on the financial analysis used to determine which taxpayers qualify for an OIC. For more information on the “Fresh Start” initiative contact us today to get a free consultation!

ABA Tax Accounting

Amare Berhie, Tax Advisor

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://abataxaccounting.com

www.abatax81.blogspot.com

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Why Outsource?

Low Cost U.S. Based Outsourcing Solutions – Business process outsourcing (BPO) should be an indispensable strategy for any type of business or government seeking new ways to achieve better results by controlling costs, reducing risk, fostering collaboration and increasing transparency. For more info or to explore possibilities please contact us today.

ABA Tax Accounting

Amare Berhie, Managing Member

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Reduction in expenditures

Low Cost U.S. Based Outsourcing Solutions – Do you want to build up your revenue, reduce your expenses and expand your capabilities at the same time? One of the biggest reasons why businesses seek an outsourcing partner is in order to lower overhead costs and expenses. Immediate savings to the client are derived from the vendor’s lower cost in wages, benefits, and operational expenses. For more info or to explore possibilities please contact us today.

ABA Tax Accounting

Amare Berhie, Managing Member

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

http://www.abataxaccounting.com

Tips to Reduce Big Refunds and Prevent Tax Bills

Federal, State, Local and International Taxes – The Internal Revenue Service reminds taxpayers that it’s not too late to adjust their 2012 tax withholding to avoid big tax refunds or tax bills when they file their tax return next year. 

Taxpayers should act soon to adjust their tax withholding to bring the taxes they must pay closer to what they actually owe and put more money in their pocket right now. 

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. Each year millions of American workers have far more taxes withheld from their pay than is required. Many people anxiously wait for their tax refunds to make major purchases or pay their financial obligations. The IRS encourages taxpayers not to tie major financial decisions to the receipt of their tax refund – especially if they need their tax refund to arrive by a certain date. 

Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return. 

Employees

  • New Job – When you start a new job your employer will ask you to complete Form    W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
  • Life Event You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event. 

Self-Employed

  • Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Correctly reporting rental real estate

Federal, State, Local and International Taxes – Individuals who are not real estate professionals are generally subject to passive activity loss limitations even if they materially participate in the rental.

Real estate professionals report rental real estate activities in which they materially participated as non-passive. But, real estate professionals who do not materially participate in the rental activity are generally subject to passive activity loss limitations.

For more information contact us today for no obligation free consultation!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

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