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FAQ

What is the legal amount of money someone can have that runs a business without getting in trouble by IRS?
As several others have said, there is no limit on a “legal amount of money” someone can earn from a business without getting into trouble with the IRS—at least, as long as the business owner complies with the Internal Revenue Code, pays their corporate taxes or self-employment taxes, and files the appropriate returns.There is a Treasury rule that requires banks and business owners to scrutinise large amounts of cash; the purpose of this is probably more to prevent organised crime than specifically for tax collection. Form 8300 and Reporting Cash Payments of Over 10000.If you’re looking for the amount you can earn through self-employment and not have to pay Social Security tax or file a Schedule SE, it’s $ 400 per year. If you have a “regularly conducted business,” you have to file a Schedule C; the test for this is whether the activity is systematic.Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Form 1040, line 21, or Form 1040NR, line 21.2017 Instructions for Schedule C (2017)
Do I have to pay taxes if my friend gave me money?
If your friends want to deduct their payment to you as an expense of their business, they are allowed to because you performed services for the business and they paid you. This means that the money is taxable to you as self-employment income. You will need to fill out a Schedule C with your tax return to show the money you got and to deduct any expenses you had in order to perform your services. If you had to drive somewhere or buy something in order to earn the money, then those costs are deductible on your 1040, Sch C.You will also have to pay Social Security and Medicare tax on the “net income” shown on your Schedule C. Part of these taxes will also be deductible on your 1040.If you do not pay taxes on it (i.e. treat it as a gift from friends), then your friends cannot deduct it against their business income. Check with them before you decide.Your friends may also send you a 1099-Misc form, which means you must report the income or receive a letter from the IRS. 1099 forms are mailed out at the end of January the year after the money was earned. So if you worked in October of 2016, expect a 1099 form in early February 2017. The taxes on the money will vary according to your income, but you should retain about 25% to pay the taxes.
As of August 2017, I am a sole member of LLC in CA that is DBA as a salon that is run by my wife only in CA. Do I file schedule C or Form 1065 (or both) to report Profit and Loss for salon business? I am not deriving any income from salon business.
Hi there, I retrieved this information off the IRS website for you. Generally, a single-member domestic LLC is not treated as a separate entity for federal income tax purposes. If you are the sole member of a domestic LLC, file Schedule C or C-EZ (or Schedule E or F, if applicable) unless you have elected to treat the domestic LLC as a corporation. See Form 8832 for details on making this election and for information about the tax treatment of a foreign LLC.
If you barter an object, is that a taxable event?
Short answer YES. Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise.Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead.Example 1. You’re a self-employed attorney who performs legal services for a client, a small corporation. The corporation gives you shares of its stock as payment for your services. You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them.Example 2. You’re self-employed and a member of a barter club. The club uses “credit units” as a means of exchange. It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. The club subtracts credit units from your account when you receive goods or services from other members. You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year.Example 3. You own a small apartment building. In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. Form 1099­B from barter exchange. If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 15, 2017. It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2016. The IRS also will receive a copy of Form 1099-B.For additional information refer to: http://www.irs.gov/pub/irs-pdf/p... pg 90Hope this is helpful.
Would it be feasible to only tax companies (small and large) instead of a personal income tax?
“Would it be feasible to only tax companies (small and large) instead of a personal income tax?”From the standpoint of the government, all that matters is that the government raise enough revenue to fund its operations. The manner in which it does so is not so important.From the standpoint of the economy, the reality that virtually all taxation schemes will favor some sorts of activity and disfavor others, and will have huge effects.It is not possible to simply increase corporate income tax rates so as to allow it to replace the personal income tax. The personal income tax accounts for roughly five times as much revenue as the corporate tax; thus, if we eliminated the personal income tax and increased the corporate tax rates proportionally, the top corporate tax rate would become around 110%, which is absurd. And that’s based on the new 2018 rates, which have yet to be assessed; under the old 2017 rates, the top rate would be in the vicinity of 200%. Clearly, this cannot work.In addition, it would be highly distortive to the economy, grossly disfavoring large traditionally-organized publicly-traded corporations. This is because it would only be business of this type that would be taxed at all; all other business entities would be untaxed at all, except to the extent that they might be owned by a traditionally-organized stock corporation. This is because, at present, the corporate income tax is assessed only only Subchapter C corporations. The vast bulk of businesses—by number if not by revenue or income—in the United States are not organized as Subchapter C corporations. The income of business entities that are not Subchapter C corporations is, in most cases, taxed by passing their income through to their owners (in distributive shares, when there is more than one) and taxing it there. Since most of these organizations are owned by individuals, that means that the business income of these business entities is taxed by the personal income tax code. Thus, a straightforward attempt to simply shift the tax burden from the personal income tax to the corporate income tax would grossly distort the economy by giving certain businesses tax exemption solely on the basis of the manner in which they are organized.In 2015 (the most recent year for which the data is publicly available), US taxpayers reported $7.1 trillion (1040) plus $1.10 trillion (1040A) plus $0.5 trillion (1040EZ) in taxable wages, $0.3 trillion in Schedule C income (income from a sole proprietorship) and $0.7 trillion in Schedule E income (income from Subchapter S corporations and partnerships, as well as royalties and rents). The combination of Schedule C and Schedule E income is a fairly decent first approximation of business income arising from businesses that are not organized as Subchapter C corporations. For 2015, this total was about $1.0 trillion.In 2013, the total income of all corporation that filed any variant of Form 1120, other than passthrough entities, was approximately $1.2 trillion. (Statistics are not yet available for 2015 for this component of US taxation.)What this tells us is that nearly half of all business activity in the US is not subject to the current corporate income tax. Instead, nearly half of taxable business activity is taxed via the personal income tax. Thus, if the goal is to tax businesses generally, clearly the United States would have to institute a business income tax that applies to all business entities and not merely to traditionally-organized corporations.In addition, please note that the total wages in 2015 was about $8.6 trillion. The IRS assessed $1.5 trillion (1040) plus $0.1 trillion (1040A) plus $0.0 trillion (1040EZ) in taxes in 2015 on personal tax returns. In order to get the same $1.6 trillion in revenue from $2.2 trillion in business income requires imposing an average tax rate of about 70%. This would be a ruinously high tax rate. Now, presumably if individuals were no longer taxed on wages, they would accept lower wages for the same work, which would increase pre-tax profitability and thus increase corporate incomes, but estimating this effect is more work than I can be bothered to do right now. I still doubt that it would allow an average business income tax rate below 50%.Such high business income tax rates would be distortive. It’s likely that businesses would take even more steps to minimize taxable income than they currently do, with the current tax rates (21% currently, 39.6% prior to the 2017 tax slash bill). The degree to which they are successful will reduce federal revenues that much more, forcing the federal government to adopt even higher tax rates in order to maintain revenue parity.My conclusion, which you are free to accept or reject, is that, in order to balance the budget, Congress would have no choice but to assess a business receipts tax, an excise tax on wages paid, or a general trade tax (either a sales tax or a value added tax). Business receipts taxation places excessive tax burden on businesses that have high operating or capital costs; a BRT would be the end of American manufacturing unless very carefully structured, and the structuring required to prevent this complicates administration and invites fraud. And both an excise tax on wages (which is really the same as an income tax, just applied indirectly) and general trade taxes will have a disproportionate impact on lower income earners. It’s much easier to structure personal income taxes to provide progressive taxation than it is to do so with these other forms of tax, which is why the US has a progressive income tax and not one of these other forms.Note that before the US had a progressive income tax, it raised most of its revenue from a combination of a wide range of import tariffs and a bevy of domestic excise taxes. These placed a disproportionate burden on the poor, and also made it hard for US producers to find international markets for their products because of retaliatory tariffs. The income tax was introduced to allow the US to reduce its tariff rates, in the hope that other countries would relax their retaliatory tariffs so that American producers could sell their wares internationally. Basically, the income tax (combined with “irrational exuberance”) is what allowed America to explode into the Roaring Twenties, because it made it possible to tear down the restrictive wall of past US tariff policy.
How much does a simple tax return preparation service typically cost in the US?
Prices can vary greatly for tax preparation services.  The cheapest option is usually going to be a seasonal tax preparation outfit which will typically charge from $25 up for a 1040EZ. If you qualify to file a 1040EZ or even a 1040A, you likely will not have any problem using one of those services.  If you use an EA or CPA, then you will probably pay more, because you are paying for the expertise of someone who actually knows what the numbers that are getting keyed into the computer mean.  You also pay for the fact that the same service provider is more likely to still be around during the year when you have questions or next year when you need to get your return prepared again.TurboTax ran an online service this year where you could have your return prepared by a CPA.  It was $89.95 for a 1040 with no state return and no additional schedules with the 1040.  Personally, I have a few clients that are in the $80-$150 range, mostly because I have a long term relationship with them, but for most people it makes more sense to use me if they own a business or investments or have some level of complexity to their tax situation.  My average fee for a tax return is about $300, my prices are probably towards the mid to low end of CPA firms as there are still a lot of what I call old school accounting firms out there who have to charge for you to come to their nice office and be greeted by a pretty receptionist.I don't necessarily mean that as a dig to CPA firms that still follow the brick and mortar business model either, because that still appeals to a lot of people.  The thing is all tax preparation service is not the same and a seasonal tax prep shot or my model of a virtual CPA firm does not work for some people, I know because I have had to fire a few clients over the past several years who needed to be able to go to the nice office, be greeted by the receptionist and sit across the desk from their accountant, but you do pay for that.  I have a good friend who runs just such a firm and a return that I charge $350 for he charges $650 for.In summary I guess the answer to what does a simple tax preparation service cost is there is no typical cost, because it is not a commodity service.  The price depends on what services you really need or want to pay for.
What's the best/affordable way to file 2016 taxes (late) as a W2 employee with a minor 1099 work on the side? I live in CA, I used TurboTax to file 2017 but you have to purchase their software for prior years.
Some of the forms on the IRS website are fillable. The key is the 1099 work. If you actually did work for the money, then you will have to add a Schedule C and Schedule SE to the other forms. If you have no expenses related to the 1099, then you can use the C-EZ. If it is less than $400, then you can just add it as other income on Line 21 (1040), as it would not be subject to SE tax.
How do I declare extra income I make to the IRS?
Assumptions: 1. The taxpayer is an individual. 2. “Extra income” means non-wage income.The method of reporting depends on the type of income. If you receive a From 1099 for the income, the form will generally include instructions on how to report the income.Form 1040, page 1, includes line items for specific types of income. Form 1040 instructions (see link below) also include instructions on how to report most specific types of income.If you receive income for which no Form 1099 is issued and no separate line item is provided, you generally report the income as “Other Income” on Form 1040, line 21. If you incur expenses related to the income, you generally report the income and expenses on Form 1040, Schedule C.A link to the 2017 Form 1040 instructions is provided below.https://www.irs.gov/pub/irs-pdf/...
How will the 2018 tax bill in the US affect my small business? I just finished my 2017 taxes, and deductions almost totaled my gross income on my schedule C.
Beats me.I think this will be a favorite topic among tax lawyers and CPAs during their annual compliance training. I am neither a CPA nor do I play one on television. Even if I were, I would be cautious until I completed my training.I suspect they will have an answer on the basics by July. Some of the fine print will need to be resolved by follow up legislation (threatened but nothing definite has moved) or tax court cases.In the meantime, proceed with a caution. Withhold a little generously, keep a paper trail on everything. Show that you are making a good faith effort to comply with the Feds. In the next to worse case scenario, you get a generous refund and learned you gave 0 interest loan to the government. You ensue the worst case scenario is straight p[ayment and skip any penalties.Me? I do not worry. I play with TurboTax every year. I end up learning that my best course is standard deductions and exemptions. Chances are Trump’s tax bill will cost me a few bucks, but less than I would in a state like New York. The President seems determined to stick it to his old neighbors.Thanks for the a2A Lance Berg