Tax News Blog

Self Employment Tax Filing in 7 Steps

Posted by admin on March 24, 2023
Last modified: March 25, 2023

Don’t let the thought of tax filing your self-employment tax gets you down – it’s actually easier than you think. Here are 7 simple steps to make sure your hard-earned money is going exactly where it needs to go. So, gather up your forms and keep those lips curved upwards as we walk through the process together!

Whether you’re a freelancer, gig worker, or independent contractor, understanding the correct way to calculate, pay and file your self-employment taxes is essential for anyone who has their own business. By following these steps, you’ll be able to make sure all of your IRS requirements are met with minimal stress involved!

self employment tax

Step 1. Self-Employment Tax Filing

It is important to determine when you need to pay self-employment tax. Individuals who are

– sole proprietors,

– independent contractors,

– freelancers,

– small business owners,

– gig workers or

– have a side hustle may all be liable for this type of tax.

This applies regardless of it being your primary source of income. For example, even though you are employed in a 9-to-5 role, any money earned from selling handmade jewelry on Grailed, eBay or Etsy still needs to be taxed accordingly. Ultimately, all forms of “earned income” – meaning money exchanged for goods and services – should be included in the self-employment tax payment plan.

Are you aware of the self-employment tax rate?

Self-employment taxes are necessary for those running their own businesses and include Social Security and Medicare. Normally, these payments would be withheld directly from W-2 employees’ wages. However, since freelancers don’t have employers, they need to take care of this themselves. So, unfortunately, it adds an extra 15.3% to your federal and state income taxes.

Step 2. How Much Have You Earned?

Before you can accurately calculate your taxes, having a well-recorded set of your income from the year is essential. Many customers and third-party platforms such as PayPal or Stripe will send out end-of-year tax forms that can provide helpful information.

Essential documents to review include 1099-NEC (for those who earned more than $600 from a single client) and 1099-K (for those in receipt of payments via a third-party payment processor). By January 31st, these should be sent out.

Additionally, it is prudent to thoroughly review bank statements to check for any income that may not have been reported on their end but is still taxable. This should include anything below the $600 reporting threshold.

Step 3. Gather and Add up Your Expenses

The third essential part of getting your taxes done right is to tally up all your business expenses. Again, it is highly recommended that you already have connected with a Tax Professional from PriorTax, to track your expenditures during the year. Therefore, while reviewing your banking information and credit card purchases, be sure to pick out any costs related to running your business.

Tax filing for self-employed workers may be daunting, but having a clear idea of your annual business expenses is key. In addition, knowing what to write off from your gross income simplifies the process – have no fear, though! Download our app and connect accounts for an easier tax season.

Some typical deductions are:

 – Your phone bill

 – Office Supplies

 – Computer and software

 – Continuing education costs

 – Auto expenses associated with business activities

 – Marketing and advertising charges necessary to secure new customers.

By determining how much you’ll actually be taxed on after reducing your gross income by all applicable business costs, you can ensure that everything has been calculated correctly and accurately as the end of the year draws near. So don’t feel bad about leaving things until the last minute – it’s a typical situation for freelancers and self-employed individuals!

Step 4. Calculating and Estimate your tax debt

As a freelancer, come tax season, you may be feeling the pressure, particularly because of the 15.3% self-employment tax that you are liable for. This can make your tax bill unexpectedly high compared to when you were previously employed with someone else.

W-2 employment has its advantages regarding taxes in one regard: less surprises at payment time. The IRS automatically withholds income and FICA taxes from employee earnings and remits them at the proper time. That kind of convenience is not available as easily to self-employed people, so they have to make extra effort to make sure everything is up-to-date and accurate to know how much they owe on their taxes.

Figuring the amount of your freelance tax

Do you remember taking on steps 2 and 3? You can now make use of all that work! To compute your SE tax, you must first figure out your net income. This means subtracting all your business expenditures from your total income.

For instance, you bring in gross revenue of $10,000 with $5,000 for business expenses. This would give you a net income of $5,000. Your SE tax will then be based on this amount: in this case, it would be about $765 ($5,000 x 15.3%).

Step 5. Understanding your tax schedule

It might come as a surprise to some, but taxes are not due on April 15th. Instead, the time of payment is determined by when income is earned. Employers consider this requirement by remitting their payroll taxes throughout the year.

Independent contractors and freelancers, however, need employers to process these payments for them. It is often incumbent upon them to submit estimated tax payments each quarter in order to keep up with tax requirements. These payments must be delivered no later than the fifteenth business day of the month following the end of a quarter:

Quarter 1 January-March, must be paid by April 15th;

Quarter 2 April-June – July 15th;

Quarter 3 July-September – October 15th; and

Quarter 4 October-December – January 15th.

Are you expecting to owe more than $1,000 in taxes to the IRS? Making quarterly payments is essential, or you could face underpayment penalties. It’s important to work out exactly how much should be paid by the due date. To this end, why not try our quarterly tax calculator – it can help clarify whether payment is even necessary for you.

Step 6. Which Taxes Do You Have to File?

It is important to assess whether you need to file taxes or not. Individuals with solely W-2 income and earnings of less than the standard deduction ($12,400 for 2021) do not have to worry about filing a tax return.

Those who are self-employed, however, may be less fortunate. The IRS calls for those with net earnings of $400 or more to file a tax return as a way to collect their self-employment tax – even though there may be no income tax due at this rate.

Step 7. Start Tax Filing with PriorTax 

Completing your tax forms is an important part of filing your annual return. Here are the documents to be aware of:

The 1040 Tax Document

This is a document that will be familiar to many people. The Tax Form 1040 is the structure that individual taxpayers use in order to identify all their taxable income and figure out what taxes they owe accordingly.

Schedule C

Those who report self-employment income are obligated to submit a form known as “Schedule C.” With this document, individuals must provide documentation of both their gross business earnings and expenditures.

As part of filing federal taxes, you’ll attach a Schedule C to Form 1040. This form can contain categories that can be tough to comprehend, but don’t worry! Instead, let’s look at some of these head-scratchers and consider our comprehensive guide for completing Schedule C for a step-by-step breakdown.

Schedule SE

Computing Your Self-Employment Tax. Calculating your self-employment tax is made easy with the help of a special form – the IRS’s own, Form 1040, Schedule SE.

Do you feel overwhelmed with tax forms and categorizing expenses? 

PriorTax can offer relief. Our Tax Professionals will do the work for you so that filing your tax return doesn’t have to add to the stress of owing self-employment taxes. Reach out to us and allow us to take care of everything from filing to preparing your returns.

Tags: ,
Category: Tax Deductions and Credits, Tax for Business, Tax Tips and Tricks, Tax Year 2022
No Comments »

How Truck Driver can File Taxes 2023

Posted by admin on March 16, 2023
Last modified: March 17, 2023

How to write off meals away from home when Truck drivers file taxes

Tax season can be stressful for truck drivers filing tax, especially when figuring out the best way to write off meals away from home. Here are two options that you should consider.

The actual expenses method for meals allows you to deduct up to 80% of the cost of each meal, with the 2021 and 2022 tax years providing an increased deduction rate of 100% for restaurant meals.

For self-employed individuals, typically only 50% of business meals can be deducted on taxes. However, transportation workers like truckers are eligible for more generous tax break regulations due to their obligations under federal hours-of-service limits. It is unnecessary to drive a certain number of consecutive hours before taking a meal break to receive the 80% deduction; being subject to the rules is enough for eligibility. To use the actual expenses method, an accurate record must be kept that tracks all costs related to each meal, including taxes and tips.

Truck Driver Tax

The per diem allowance for Commercial Truck Drivers

In addition to actual meal expenses, truckers may also opt for a standard per diem allowance. Again, 80% of this can be used as a tax write-off.

When deciding which rate to go with, there are two options available; one is slightly more generous than another.

When it comes to per diem allowances, travelers have two options. First, the general federal set of rates can be looked up on the General Services Administration website.

Additionally, those in the transportation industry have access to special per diem rates that simplify their journey as they no longer need to search for specific rates each time they make a stop.

Unfortunately, travelers cannot switch between these two options, thus requiring them to choose between either the general federal rate or the transportation rate.

Do you want to know the special transportation per diem rate for 2022?

When considering travel expenses in 2022, you may ask whether to use actual expenses or a per diem rate. Regarding transportation for full days on-site away from home, a per diem rate is available in the Continental US, which grants an allowance of $69 and tax write off amount of $55.20 per day. However, for partial days away working, it drops to 75% of that full-day rate with a corresponding 80% tax deduction write off – allowing for a daily allowance at $51.75 and tax write off amount per day at $41.40.

Rather than using the easier per diem method, you should focus on the one that saves you the most money. Therefore, it is advisable always to be mindful of how much you are spending on meals. With this in mind, you can easily compare your write-off amount with each method and determine which offers more cost savings.

Calculating these savings with some help may seem tedious and time-consuming. Fortunately, PriorTax simplifies the process by tracking all meal transactions for ease of comparison. This takes away the need to rely solely on convenience when opting for the per diem approach – allowing for more efficient decision-making based on accurate figures.

Can you use a per diem rate for anything other than meals?

Do you know that you are allowed to write off more than just meal expenses through per diem rates? It’s true – a so-called per diem for “incidental expenses” allows travelers to deduct $5 in travel-related service fees and tips. This fee is not restricted by the 80% cap imposed on meals, it stands at a flat rate of $5 per day.

It might seem insignificant, but this allowance allows individuals to pack their own food from home without needing to search for specific amounts on hotel invoices. In addition, the amount of paperwork involved with self-employment tax filing is already time-consuming; services like PriorTax and its Tax Professionals offer help sorting out the details.

On What Taxes can PriorTax Help Independent Truck Drivers with?

PriorTax can help independent truckers understand the taxes they are responsible for. There are typically three or four types of taxes truckers must pay: Federal income tax, state income tax (depending on where you live), self-employment taxes (Social Security and Medicare taxes), and/or International Fuel Tax Agreement, or “mileage” taxes. In addition, truckers usually need to make payments to the IRS on a quarterly basis, with deadlines falling on April 15th, June 15th, September 15th, and January 15th of the next year. To get an idea of how much in quarterly taxes may be owed, our free calculator is always available for your convenience.

Federal Income Tax for Commercial Truck Drivers

When it comes to paying your taxes, one of the most important things you need to know is the current rate for your bracket. Depending on how much you make annually, this could range from 10% all the way up to 37%.

State income tax for Commercial Truck Drivers

The individual’s residing location determines income tax. Certain states do not implement this type of taxation at all, while others offer two strategies: progressive and flat tax rates. The former levies a percentage of an individual’s annual income, ranging from 0-11%, whereas the latter imposes one fixed rate that applies to all inhabitants in the area.

Progressive tax: Rates based on your income level, with typical ranges from 0% to 11%
Flat tax: The same rate for everyone in the state

Self-Employment Tax for Commercial Truck Drivers

As an owner-operator, you are uniquely positioned to cover the full 15.3% obligation for FICA taxes (used to fund Medicare and Social Security). On the other hand, traditional employees only pay 7.65%, with their employers covering the remaining half. This is why it’s referred to as “the hardworking taxpayer’s tax”, or simply “the friendly ‘you have to do it all by yourself’ tax”.

Fortunately, when you file your taxes at the end of year, this amount will be accounted for in adjustments to your taxable income – ultimately lowering your income taxes! With PriorTax makes this process much easier and stress free. Our dedicated Tax Professionals will calculate these deductions for you from start to finish.

IFTA tax

The International Fuel Tax Agreement (or more commonly known as “IFTTA”) tax is a form of taxation applicable to individuals operating motor vehicles for the purpose of transporting cargo and/or people between different states or Canadian provinces. Specifically, those who drive trucks with three or more axles, two axles weighing at least 26,000 pounds, or with a trailer with a combined weight of more than 26,000 pounds must comply.

This tax on motor fuel applies to drivers who do any of the following:

Drive cargo (or people) between different states or Canadian provinces
Drive a commercial truck with three or more axles
Drive a commercial truck with two axles that weigh at least 26,000 pounds
Drive a commercial truck with a trailer, where their combined weight is over 26,000 pounds
How to pay your IFTA taxes

When filing your International Fuel Tax Agreement (IFTAs) taxes, many states make it easy for you by providing an online portal. Just do a quick Google search for “[state] file IFA taxes online,” and you can get started right away. To use this hassle-free method, you must gather the total miles traveled and gallons of gas purchased in each state – the portal will take care of the rest!

Those who cannot take advantage of the convenience of an online filing option in their state must take two additional steps to complete the process. Firstly, they must calculate the fuel mileage across all states that have been driven during the quarter. This can be easily done by dividing the total miles traveled in all states by the number of gallons purchased in each state-information which can be obtained from completing steps one and two. Secondly, they need to determine how many gallons were burned while traveling through each individual state in that same time frame; this is achieved by dividing the total miles driven through that particular place by their overall fuel mileage.

How IFTA taxes work for Commercial Truck Drivers

Since 1983, the International Fuel Tax Agreement (known as “TFA”) has allowed truckers to only pay fuel taxes in their home state. Before this, drivers were required to file separate returns and pay taxes in each jurisdiction where they operated. With TFA, all that hassle is gone!

Truck drivers who need to pay fuel taxes can benefit from the International Fuel Tax Agreement (EITA). This tax applies in all 48 states across the continental US, plus all 10 Canadian provinces. Luckily, drivers can write off EIRA payments as a business expense on their Schedule C – list it under box 23.

Conveniently, truckers have access to automated accounting software that helps manage the full range of responsibilities associated with independent driving. Not only will this software simplify your taxes, but it also has the potential to help you save money.

Tags: ,
Category: Tax Deductions and Credits, Tax for Business, Tax Tips and Tricks, Tax Year 2022
No Comments »

Business Computer Tax Deduction

Posted by admin on March 8, 2023
Last modified: March 8, 2023

When it comes to technology, we are often torn in deciding on a device. Computers grace our homes, offices, and classrooms, but can you deduct them from your taxes? The answer is yes! If the computer is used for business purposes, it is classified as a legitimate tax deduction on your return.

The Tax Cuts and Jobs Act (TCJA) states that W-2 employees can no longer claim tax deductions for business expenses – including computers for work. However, self-employed individuals and freelancers still can! Before committing to a purchase, take a closer look at the details. For those employed by an organization, make sure to ask your employer to reimburse you instead.

When running a business from home, laptop expenses can be tax-deductible – but there’s one condition. You are allowed to write off the portion of the laptop pertinent to your business activities. Remember, this doesn’t need to be pinpoint and accurate; reasonable estimations work too.

Computers are no longer “listed property.” by the IRS

It is worth noting that the Internal Revenue Service (IRS) has decided to cease classifying computer systems as ‘listed property’. Items such as cars, which have a dual purpose for personal and professional use, previously came under this designation. The IRS currently has special protocols in place when it comes to dealing with these types of items.

By taking computers out of the equation, two outcomes have been created:

Gone is the need for taxpayers to monitor their use for tax deduction purposes: This crucial record-keeping requirement has been abolished.

Furthermore, it conforms with typical depreciation regulations: With these rules offering more flexibility, let’s delve into the meaning fully.

business computer tax deduction

Computer Depreciation for Tax Deduction

Now that you’re familiar with how to figure out what your business owes let’s dive into the details.

Generally, computers are classified as capital assets, and their value is reduced over a period of time dictated by the IRS – in this particular instance, it’s five years. Therefore, depreciation is an effective way to recognize the depreciating worth of a specific asset.

When you purchase something, like a car or a computer, its value and performance are expected to decline over time. This concept is known as depreciation. Why does this happen? Simply put, with more use comes more wear and tear on the item, thus rendering it less able to compete with newer models.

To better reflect this decline in quality, depreciation divides the item’s original cost by its estimated “useful life” to give us an idea of how much it has depreciated over time.

When to tax deduct the entire cost of your computer

Do you know the right time to deduct the whole cost of your computer? You may be surprised that you can actually claim it on your taxes. Let me explain why this is beneficial.

The IRS has come up with a few procedures to help people obtain depreciation tax deductions more quickly, making it simpler and faster to get the write-offs they are entitled to. As long as certain requirements are fulfilled, these procedures mean that there is no need for calculating depreciation when it comes to purchases of computers.

Deducting computers costing less than $2,500 

Taxpayers who purchase computers that cost less than $2,500 can benefit from the de minimis safe harbor election. When taking advantage of this IRS rule, note that it applies only to the business-use share of the computer’s cost. So, for example, a $2,500 machine used for work 80% of the time would qualify for a write-off of $2,000.

There is no need to classify it as a depreciable or fixed asset. It should simply be treated like any other business expense. However, the selection must be included in your yearly return without fail; since it isn’t transferrable from year to year, you have to make the election every 12 months.

Making the most of Section 179 for computer purchases

Under Section 179, business owners have the ability to deduct qualified machinery and equipment – including computers – from their taxes in an advantageous way. This enticing tax benefit offers lots of flexibility, allowing up to $1,040,000 to be written off in a single year. It also provides strategic planning benefits since you can choose whether or not to depreciate your purchase depending on what best suits your circumstances.

There are two major caveats for taking 179:

When it comes to taking 179, it’s important to know that a loss disqualifies you from claiming, and the tax deduction is only available for computers used 50% or more for business purposes. However, de minimis or bonus depreciation are still viable options should your computer be used for work less than half the time. We will explore these alternatives further in the following section.

Various computer costs you can subtract from your taxes

Tax deductions don’t stop with the cost of a computer. You should also be aware of additional related expenses which are eligible to claim, such as:

Your internet bill, any anti-virus and firewall software, business programs, fixes or upkeep on the machine, input devices like keyboards and mice and mousepads, monitors, cables (like power and HDMI), printers/scanners, external microphones & cameras, ports for laptops & tablets – all these items can be deducted from your taxes.

Fortunately, with PriorTax, it’s easy to keep track of deductible costs like these. In addition, the app will instantly detect any write-offs when you make purchases at places like Apple stores – so that you’ll have accounted for every possible tax deduction during tax time.

Tags: , ,
Category: Tax Deductions and Credits, Tax for Business, Tax Tips and Tricks, Tax Year 2022
No Comments »

Business Meal Tax Deduction for Freelancers and Small Business Owners

Posted by admin on March 1, 2023
Last modified: February 28, 2023

A Quick Overview of Business Meal Tax Deduction for Freelancers and Small Business Owners

For many freelancers and small business owners, there is a common misconception that lunch must include fancy things like white tablecloths and French waitpersons in order to be eligible for a meal tax deduction. This is simply not true.

Consultants and salespeople are just some of the self-employed folks who can claim business lunches. Understanding what is and isn’t acceptable to tax deduct will help you get the most out of meal tax deductions from your expenses. To that end, this guide offers a comprehensive look at what’s allowed when it comes to meals and how to document them properly.

What meal is eligible as a “Business Meal”?

Are you unsure about the definition of a “business meal” regarding tax deductions? Since the Tax Cuts and Jobs Act was passed in 2017, many have been left questioning this topic. Fortunately, there have been no alterations to business meals when deducting them from taxes. The only thing that has changed is that client entertainment expenses, such as concert tickets or golf games, cannot be tax deducted anymore. You can locate your dedicated tax professional to guide you through step by step.

Having discussed the tax deduction process, let’s delve into what exactly constitutes a valid business meal for a tax deduction. According to IRS instruction, “the food and beverages” must be “provided to a current or potential business customer, client, consultant, or similar business contact.” This leaves room for interpretation regarding the term “similar business contact.” To clear up any confusion, let’s review who falls under that category and who does not.

meal tax

Treating your Clients to Business Meal Luncheon

Lunching with a client can be an excellent opportunity to chat about work topics. While it is polite to pay for the meal, that isn’t strictly necessary. Instead, grab the chance to have a meaningful and productive conversation.

Engaging your Prospective Clients Over a Business Meal

In order to sustain your business, cultivating and preserving your connections is important. For example, alumni from previous jobs and colleagues in relevant industries could all eventually turn into possible buyers – or point you toward one.

When it comes to enticing a prospective client, there is no need for the lunch meeting to be concluded with paperwork or a signed agreement.

Business Meals with Colleagues and Coworkers

Getting together for a bite to eat with someone in your field can benefit entrepreneurs. Not only is it an opportunity to network with business prospects, but you can also discuss industry updates and learn about the newest trends in your business. Plus, it’s all tax deductible.

Business Meal Over a Meeting with a Potential Referral

Networking for referrals can be rewarding in many ways. Freelance work platforms such as Upwork, Uber, and others may offer up to $500 per referral, a great financial incentive.

Moreover, grabbing lunch or coffee with someone who could be interested in your referral program can be considered a tax deduction.

Business Meal for a Networking Opportunity with Anyone

Networking with the right individuals is essential for your business’s success. With that in mind, it’s important to ensure that you stay informed about the latest industry news and developments. In addition, connecting with other professionals to gain insight or exchange advice can greatly expand your reach. Remember, many people get referrals from those they have existing relationships with – so take advantage of this opportunity! This could be someone you know personally, such as friends, family members, or even neighbors.

Which Meals are not Considered Business Expenses and Meal Tax Deduction?

It’s important to be aware of the types of food that cannot be claimed as a tax deduction. Here are some examples that may come as a surprise. Unfortunately, these purchases are not allowed deductions even though they seem like they should be.

Nibbling on Snacks During Work

Generally speaking, any food consumed while employed that is not required for your job is not tax-deductible. For example, imagine you are a security guard contracted on a 1099 and unable to move from your post for the full day – those snacks would be eligible for a deduction. However, with the average busy professional just trying to save time between meetings, these items should be considered personal expenses.

Buying Up Groceries for your Home Office

Outfitting a home office does not necessarily mean you can write off the groceries on your tax return. Unfortunately, the chances of deducting grocery expenses from your taxes are slim to none.

Eating Alone During Business Hours

Even though you may be taking a break from the office to grab a bite to eat, eating alone doesn’t necessarily qualify as an expense that can be deducted. This goes for any solo purchase, even buying coffee while working away from the office at a cafe.

Temporary 100% Tax Deduction for Business Meals at Restaurants

Ready to wine and dine with your clients? Here’s one special consideration to remember: In the 2022 tax year, any business meals you get at restaurants are 100% tax-deductible.

Everyone’s calling this the “three-martini lunch” tax break. It’s actually part of the Consolidated Appropriations Act of 2021, which bundled together a number of COVID relief measures. The thinking was this tax break would help restaurants gutted by the pandemic. Before, business meal deductions were capped at 50%.

Tags: ,
Category: Tax for Business, Tax Tips and Tricks, Tax Year 2022
No Comments »

Tips for Keeping Receipts for Tax in 2023

Posted by admin on February 23, 2023
Last modified: February 22, 2023

Say Goodbye to Paper Receipts for Tax

Instead of stuffing their wallets and glove compartments with paper receipts for tax, 1099 contractors and freelancers we can now experience a sense of liberation. Keeping track of these paper receipts is no longer necessary. We all know how easy it is to misplace them, tear, or smudge them. And by tax time, much of what was once written on those pieces of paper has likely faded away anyway.

But dealing with this problem isn’t just about convenience – it’s about accuracy too.

receipts tax

There is an enormous focus on receipts when dealing with taxes, as they are one of the only documents the IRS considers to be a good supporting record. 

Knowing which deductions you are eligible to claim on your tax returns, even when you do not have any associated receipts, is crucial if you want the largest tax refund. Knowing what receipts to keep and what ones to throw away can help you maximize your tax refund while also minimizing the amount of paperwork you need to save for tax time every year. 

But you do not need to submit your receipts when filing a tax return, and you only sometimes need them for calculating deductions. In addition, at the time of filing your taxes, you do not need any documentation or receipts to show evidence of tax deductions. 

In fact, saving tax filings and receipts for tax at least three years is recommended. Three years is a long time to store your tax records, so scanning the documents can make them easier for you to access in the future. You could store tax records in that location for 3 years, as the IRS recommends, or you can share directly with your accountant if needed. 

IRS stances on paper receipts

When it comes to paper receipts and tax deductions, freelancers often believe that retaining them is a must. However, the IRS has clarified its stance on this. To get the facts straight, we’re taking a closer look at the IRS regulations.

According to the IRS, you should keep records of business-related expenditures that specify the following:

-The item purchased

-The date of purchase

-How much was spent in total

Surprisingly enough, there’s no requirement for physical receipts. Instead, they encourage people to switch to electronic information management as it has become more standard in today’s tech-infused world rather than continuing with traditional paper methods. This directive from an organization not typically known for its progressive nature makes its message clearer to keep digital records instead of paper.

You will need receipts if you are audited (which can occur as long as 6 years after your taxes are filed). You should save your receipts as long as it takes an auditing body, such as the IRS or your state’s Department of Revenue, to review them. In addition, you should save receipts for tax anything that you plan to write off when filing taxes for your business. 

Remember, with PriorTax’s Dedicated Tax Professionals. You can keep track of receipts for tax and expenses in one place to be more prepared come tax time. 

Tips for keeping purchase records and receipts for tax deduction

When it comes to taxes, record-keeping is essential. You can provide the IRS with all the necessary documentation in a couple of ways: by using your credit card statements and bank statements. These two resources will give you crucial data such as what was purchased, when it was bought, and at what cost. Additionally, Keeper automatically scans accounts for tax deductions and creates records for users accordingly.

Depending on the transaction, IRS has several types of records considered valid evidence or receipts for tax. Only if there is an Internal Revenue Service (IRS) tax audit would you need proof for expenses reported on a tax return. 

Suppose those receipts are for business expenses, and you wish to claim those receipts as deductions when filing a tax return. In that case, those are considered business records and must always be available to be examined by the Internal Revenue Service (IRS). 

Your bank statements and voided checks are a great place to start, provided you can still access those documents. If you do not have the original receipts, other acceptable records include cancelled checks, credit card statements, written notes that you made, calendar notes, and photographs. 

The IRS is required by law to accept digital forms of evidence of your write-offs, including bank statements and credit card statements. The IRS accepts credit card statements as evidence for tax write-offs (here’s the best app for tracking taxi receipts).

What about cash purchase records for tax deduction

Interestingly, regarding cash purchases, it is not necessary to have a receipt as long as the amount purchased is “reasonable and ordinary.” This principle is called the “Cohan Rule” and derives its name from a famous court case. However, as a general guideline, keeping your receipt when spending more than $75 in cash is advisable. This would be particularly prudent in expense cases, such as taking multiple clients out for lunch at an upscale restaurant.

Recommendations in preparing for audits

In the event of an audit, don’t be alarmed. Even though you may have gone paperless, the IRS legally must accept digital forms of proof for your deductions, such as bank and credit card statements. So even when you neglect to record a cash expenditure over $75, digital sources, including emails and calendar entries, are alternative verification methods.

Tags: ,
Category: Tax Deductions and Credits, Tax for Business, Tax Tips and Tricks, Tax Year 2022
No Comments »

The Mortgage Interest Deduction – What You Need to Know?

Posted by admin on February 14, 2023
Last modified: February 15, 2023

The tax year 2022, which applies to returns filed in 2023, brings with it up-to-date information regarding the Mortgage Interest Deduction. This deduction allows homeowners to significantly reduce their taxable income by considering the amount of interest paid on a qualified residence loan. Before 2019, mortgage interest deduction rule was revised due to the Jobs Act and Tax Cuts.

What are the conditions to deduct mortgage interest from your taxes?

So, can I take mortgage interest deduction on my taxes? The Internal Revenue Service stipulates that it is possible to take a deduction on the loan interest for either a primary or secondary residence, providing it has been used for purchasing, building, or making considerable improvements. The debt must also be backed by the house and not exceed its worth.

Criteria for the mortgage interest deduction?

The mortgage interest deduction has certain requirements that must be met in order to qualify. To begin with, to get mortgage interest deduction you need to have an ownership stake in the property you are taking out a loan on. That loan needs to be used to buy, build, or significantly improve your primary residence or secondary home. Additionally, it would help if you listed the deductions separately rather than taking the standard deduction when filing taxes. Lastly, ensure the loan amount isn’t higher than the value of the house itself.

– First, you need secured debt on a qualified home with an ownership interest.

– You have to diligently itemize your deductions when filing your taxes with mortgage interest deduction.

– The loan you’ve made should not be greater than the value of the home.

– The loan is used to make improvement, purchase, construct made to your primary home or secondary homes.

mortgage interest deduction

How much is the tax deduction can be applied for mortgage interest?

When it comes to tax deductions for mortgage interest since the 2018 Tax Cuts and Jobs Act, single filers and those married filing jointly can deduct the interest on up to $750,000 of qualified residence loans. On the other hand, those who are married and filing separately are allowed a deduction on up to $375,000 of eligible debt. Although this is a decrease from the previous limit of $1 million ($500,000 for the aforementioned group), any loan secured prior to December 15th, 2017, still qualifies under these former rules.

How the Mortgage Interest Deduction works in practice?

Let’s discuss the Mortgage Interest Deduction and how it works. Suppose a couple takes out a $400,000 loan to purchase a house valued at $500,000. They use the house as security for their loan. In addition, they take out a $200,000 loan to renovate their summer cabin, which is worth $300,000; this loan too, is secured by the second house. The total amount of loans taken out amounts to $600,000 – less than the limit of $750,000. As these funds are being used for primary and second homes, you can deduct interest paid on such loans from your taxable income.

What form do I need to report my mortgage interest?

To accurately report your mortgage interest, you must use Form 1098, given to you by your lender or servicer. This document contains all the details regarding the amount of interest paid over a year.

Do I have the ability to claim a deduction for interest on my home equity loan?

So, can I take mortgage interest dedution made from my home equity loan? The Internal Revenue Service (IRS) determines whether or not you may deduct the interest from your home equity loan based on how it is used. Like any mortgage, a home equity loan is considered by the IRS as a qualified residence loan; therefore, should you use it for improvements to your residence, the interest could be deductible. However, when utilized for personal costs – such as credit cards and student loans – then no deduction may be claimed.

Do co-owners have the ability to deduct mortgage interest payments?

Can I deduct mortgage interest if I share a property with others? When multiple people invest in a home together, each individual can deduct their portion of the interest payments on their taxes as long as they itemize their deductions. Mortgage lenders usually send out a statement at tax season showing the total interest paid that year.

Individuals are responsible for accurately reporting how much of this interest they actually paid, regardless of whose name or Social Security number may be listed on the statement. For further information on shared ownership properties, reach out to our dedicated tax professionals now.

Are you entitled to deduct mortgage interest payments made on behalf of another?

Can I deduct the interest for someone else’s mortgage that I pay? When it comes to claiming the mortgage interest deduction, eligibility is restricted when the payments are made for someone else’s debt. Unless you have legal ownership of the property in question, you cannot take this deduction when assisting a family member or friend with their mortgage while unemployed.

Tags: , ,
Category: Tax Deductions and Credits, Tax Tips and Tricks, Tax Year 2022
No Comments »

Small Business Tax Filing Tips for 2023

Posted by admin on February 10, 2023
Last modified: February 13, 2023

Small business tax deductions can reduce business income, which lowers the amount of tax owed. One advantage that the self-employed and small businesses have are various tax deductions and credits. Using PriorTax for your small business would also qualify as a tax deduction. For example, if you own a business property, you can claim the associated mortgage interest as a business expense and tax deduction. Sole proprietorships, LLCs, and partnerships can not deduct charitable contributions as a business expense. Still, the small business owner may be able to claim the deduction on the business owner’s personal tax return. Our dedicated tax professionals will know how to record these expenses in your books so they can be accurately reflected on your tax return as a business expense. In a nutshell, small business owners can maximize their tax refund by decreasing their business income and increasing their business deductions. Lowering your net business income will reduce the amount of income taxes due, thus improving your chances of getting a tax refund. It is vital to keep your business income as low as possible so that you can take advantage of all possible deductions.

small business tax

As a small business owner, it is vital to ensure you take every measure available to reduce your small business taxation. While much of your capital may be taken away each year, here are 10 deductions you should be aware of as you look back at your previous tax year and plan for the future. Keeping these tips in mind can help keep more money in the bank while still maintaining compliance with small business tax regulations.

To maximize your tax refund as a small business owner, you should familiarize yourself with the various tax deductions available to your business. Business owners who are employed and self-employed can qualify to use these deductions and credits to lower their taxable income. Here are our top 10 pieces of advice for maximizing your small business tax refund.

1. Record all service fees from legal, consulting, and professional services for small business taxes

Entrepreneurs need to ensure their legal and professional costs are properly documented. Although consulting with experts on tax issues and regulations is an essential part of running a successful business, the fees paid to these professionals can generally be deducted in the same year incurred. Furthermore, business owners may also be able to claim expenses incurred from purchasing books related to driving their company or practicing law.

2 Take advantage of upstarting costs and expenses when filing small business tax returns.

When launching a new business, one should use the deductions available for start-up costs and other expenditures. In the initial years of operations, many start-up costs can be written off when filing taxes. Furthermore, items such as office equipment and supplies, shipping fees, and utility bills may also be deducted from taxable income.

3. Keep track of new equipment or software purchases.

Keep tabs on the acquisitions of new tools or programs. Several small businesses are eligible for a deduction on the cost of certain assets in the same year it is bought. Meanwhile, software usually has to be subtracted gradually over an extended period.

4. Use your car for business purposes.

When running a business, it pays to consider using your car as a means of saving money. Whether you are utilizing your own vehicle or one owned by the enterprise, various costs associated with it can be deducted from taxes. This includes expenses such as the standard mileage rate, parking fees, tolls, and specific amounts of depreciation.

5. Deduct advertising expenses effectively from filing your small business tax.

One should pay attention to the potential deductions for marketing or advertising expenses. This could include spending on business cards, electronic and paper advertisements, and trade show participation costs. All of these can be claimed under current business expenses.

6. Include membership and educational expenses.

When it comes to business expenses, remember to factor in membership fees and educational costs. This includes the cost of joining a professional association related to your business or even fees associated with attending seminars such as CLEs (Continuing Legal Education).

7. Don’t forget to make interest payments be part of tax filing.

Maximize the value of your interest. When buying items for business purposes, it is beneficial to use credit as this allows you to deduct the interest from your taxes. All expenses must be documented thoroughly in order to ensure eligibility for said deductions.

8. Keep receipts for entertainment expenses.

Make sure you hang onto your receipts when it comes to entertainment expenses. By taking meticulous records of coffee runs, dining out, and any other company-related outings, you can deduct such costs from your taxes.

9. See if charitable contributions and donations can be included.

Donating to charity can be beneficial in more ways than one. Unless the business is a corporation, most charitable contributions to suitable institutions are tax deductible. It is essential that individuals keep proof of their donations, such as receipts, canceled checks, or written acknowledgment from the organization. This will ensure they have records of their generous contributions.

10. Save your tax documents for at least 5 years.

Organizing your record is critical when it comes to tax records, and it’s important to hang on to them for at least 5 years. Not only will good record-keeping save you time, but it could also save you money. Maintain copies of your tax returns, receipts from expenses, mileage logs, licenses, and incorporation papers to verify deductions.

Tags: ,
Category: Tax Deductions and Credits, Tax for Business, Tax News, Tax Tips and Tricks, Tax Year 2022
No Comments »

Highlights of Tax Changes for 2023

Posted by admin on February 2, 2023
Last modified: February 13, 2023

This tax season brings several tax changes for 2023 to the standard deductions and tax breaks available. Most notably, many of the pandemic-era credits have expired. However, in a turn of events, the Inflation Reduction Act offers two eco-friendly incentives for taxpayers. Additionally, previous homeowner deductions are now gone, and remote workers may face double taxation – both of which should be kept in mind before filing federal returns by the deadline.

Instead of stressing over all the alterations in taxation, those filing taxes should concentrate on how the tax changes for 2023 will apply to their returns and entrust PriorTax Tax Professionals with any other details. This way, they can avoid feeling overwhelmed by the changes.

As it is challenging to stay current with all updates in tax regulations, taxpayers familiarize themselves with their particular set of laws. When preparing for 2022 taxes, review your 2021 return to see which data and documents you need. Additionally, consider any occurrences from 2022 that may have a bearing on your taxes.

tax changes for 2023

These are the Highlight to Tax Changes for 2023 that Could Affect You

Tax credits specific to the pandemic will not be available in 2022.

During the economic crisis caused by COVID-19, certain modifications were made to the tax code as a response. Unfortunately, these temporary measures will soon come to an end; most of them will no longer be applicable in the upcoming fiscal year.

For 2022, the IRS did not issue any new Economic Impact Payments. 

Therefore, taxpayers can avoid having to deal with notifications from the IRS confirming their stimulus check amount when filing taxes, nor can they take advantage of a Recovery Rebate Credit.

Key Pandemic Era Tax credits return back to Pre-Pandemic 2019 levels.

The impacts of the Coronavirus pandemic on 2020 tax credits will be reversed in 2021, as CTC, EITC, and the Child and Dependent Care Credit all return to their pre-pandemic levels.

For tax changes for 2023, there is a steep decline in terms of Child Tax Credit (CTC), and it will go back to $2,000 per child dependent. Another noteworthy alteration of CTC is that it’s no longer refundable. Consequently, this implies that taxpayers won’t acquire their full credit even when it surpasses their own tax obligation.

Though they were temporarily increased last year, single filers with no children are now entitled to only $500 from their Earned Income Tax Credit (EITC), a decrease from its previous maximum of $1,500.

For the 2022 tax year, the Child and Dependent Care Credit will decrease substantially from its 2021 value of $8,000 to a maximum of $2,100. This credit takes into account expenses for child care and day camps incurred out-of-pocket.

Charitable deductions must be itemized.

When taxpayers file their 2022 tax returns, any donations to charities must be listed on the Schedule A form in order to qualify for a deduction. This is a significant tax changes for 2023 from the two previous years when an above-the-line deduction was available for those who donated.

This year, single filers and married couples filing jointly have the opportunity to take advantage of a generous deduction on charitable donations. In addition, the 2021 revision to the CARES Act has allowed an increase up to $300 for single tax filers and those married joint tax filing separately, as well as $600 for joint filers. This marks a substantial growth from 2020, where only single filers and those filing jointly could deduct up to $300, with married filing separately taxpayers able to deduct up to $150.

Are you aware of the tax breaks offered by the Inflation Reduction Act?

Since its signing into law in August 2020, it has provided a handful of beneficial options that can be taken advantage of when filing taxes in 2022.

The Residential Clean Energy Credit has been improved. 

Homeowners can now benefit from a 30% reduction of the costs for solar panel installation, in addition to solar heating products and other related items – an increase from its original 26%. Additionally, there is no limit on how much money can be used for credit or income restriction.

The act’s passage also provided a great incentive to those who own second and vacation homes. By removing the principal residence restriction, homeowners installing solar products on these alternative residences are qualified to receive the tax credit.

Eligibility for electric vehicle (EV) Tax Credit

The Qualified and Eligible Plug-in Electric Drive Motor Vehicle Credit, with a maximum of $7,500 depending on the battery capacity, is accessible to consumers who bought an EV. Those who purchased their car between August 17, 2022 and December 31, 2022 must display that the vehicle was finally assembled in North America to be eligible for this credit; however, those who purchased before August 17 do not need to meet these requirements. The Qualified Eligible Plug-in Electric Drive Motor Vehicle Credit, with a maximum of $7,500 depending on the battery capacity, is accessible to consumers who bought an EV. Those who purchased their car between August 17, 2022 and December 31, 2022 must display that the vehicle was finally assembled in North America to be eligible for this credit; however, those who purchased before August 17 do not need to meet these requirements.

The EV credits in 2022 have already been finalized. Taxpayers must double-check to ensure the purchased vehicle meets all requirements and that the correct credit amount was taken. When bought at a dealership, they cannot claim this credit on their tax return.

Mortgage insurance premium deduction expired.

For homeowners who could deduct their private or mortgaged insurance premium on their taxes, the Tax Relief and Health Care Act of 2006 — which annually extended the deduction — was not renewed for 2022. This means that individuals with a loan balance higher than 80% of the value of their home will no longer be able to itemize this payment. Typically, lenders require borrowers to pay into a mortgaged insurance policy when they put less than 20% down when purchasing a house as an extra protection against default.

Remote workers could face double taxation.

Employers who have decided to maintain part-time or hybrid schedules for their workers into 2022 should be aware of potential double taxation. In addition, depending on the state where the employer is located and where the employee is working remotely, there may be associated tax implications.

In recent years, some states have enacted temporary provisions to prevent double taxation of incomes generated in two separate states; however, these protections come to an end with 2021’s tax year. Therefore, it is important to ensure you are informed about any extra taxes that could arise as a result of continuing work remotely in 2022.

Tax day

As opposed to the customary April 15 tax deadline, individuals have until Tuesday, April 18, to file their federal returns in 2017. The reason for the shift from normal is due to the proximity of a Saturday, April 15, and a local holiday in D.C., which the IRS will observe. In addition, those struck by severe storms in California, Georgia, and Alabama can take advantage of an extended filing period; they have until May 15 to submit their paperwork.

Tags: , , ,
Category: Tax Deductions and Credits, Tax News, Tax Tips and Tricks, Tax Year 2022
No Comments »

Crypto Tax Filing in 2023

Posted by admin on January 26, 2023
Last modified: February 13, 2023

How to Prepare and Report your Crypto Gains and Losses when filing Crypto Tax

Want to know the best way to compute crypto tax for profits and losses? It all depends on what country you reside in. In America, digital currencies are classified as a form of property, with both short-term and long-term capital gains regulations that apply. For those in the United States, understanding your tax liability when it comes to crypto can be a complex process. Crypto is treated as property for taxation purposes, which means gains and losses must be calculated according to long-term and short-term capital gain rules.

When filing taxes, it is fundamental to accurately calculate crypto gains or losses. Two elements play a major role in this: the holding period and realized profits or losses. It is, therefore, essential to understand these two components when computing your crypto tax.

When it comes to taxation, what are the rules regarding cryptocurrency?

In the United States, the taxation of crypto is similar to that of other forms of property. Therefore, both short-term and long-term capital gains regulations are applicable. Regarding taxes on crypto earnings, the rate is equal to that imposed on profits made from investments in stocks.

When determining one’s crypto taxes, both gains and losses must be taken into account. To help with this process, a specialized tax calculator can be utilized. Our tax calculator is perfect for this purpose.

Again, when filing taxes, it’s important to consider your crypto gains or losses carefully. This requires a thorough understanding of two primary components: realized gains/losses and the holding period. Calculating these accurately will ensure that you have precise figures when completing your tax return.

Factors to consider when calculating your crypto tax?

crypto tax

When it comes to filing crypto taxes, there are two key components that must be taken into account. Specifically, the calculation of crypto tax requires an awareness of how cryptocurrency is taxed as either short- or long-term capital gains.

When engaging in crypto trading or sales within the U.S., the rate of tax is determined by two key factors

– your realized gains (or losses) and 

– length of time you held a certain cryptocurrency prior to trading or selling it (the holding period).

Beginning one day after a purchase or transaction of cryptocurrency, and completing when you trade or sell it, constitutes what is known as a ‘holding period.’ Additionally, making purchases with crypto sets in motion a taxable event.

Crypto Tax Filing Example

In this case, after buying $10,000 worth of ETH, it was exchanged for $20,000 in BTC a month later. This created a taxable gain of $10,000. The taxable gain is $20,000 − $10,000 = $10,000. After just two months, this amount had increased by another $30,000 when the value of your BTC rose to $50,000. From that point, it could be used to purchase GameStop (GME) stocks with a total taxable short-term capital gain for the year being recorded as $30,000. Here the taxable gain is $50,000 − $20,000 = $30,000.

Best ways to calculate crypto tax with PriorTax and our Tax Professionals

Figuring out your crypto taxes can seem daunting at first, but here at PriorTax, we make it easy! We provide an account you can use to calculate your crypto gains and taxes. Alternatively, you can leave all those calculations to our experienced team of professionals. Either way, you can file your crypto taxes with us.

Maintaining accurate records is essential for those who own cryptocurrency. A crypto tax calculator can help calculate realized gains or losses and their respective tax implications to make the job easier. In addition, such calculators can provide a great deal of insight into how much one’s finances are affected by trading cryptocurrency.

Tags: , , ,
Category: Tax News, Tax Tips and Tricks, Tax Year 2022
No Comments »

W2 Tax Form for 2022

Posted by admin on January 20, 2023
Last modified: February 13, 2023

It’s almost time for 2023 tax season to begin, and with it comes an important date – Jan. 23, 2023 – which marks when taxpayers can start filing their 2022 taxes. Those who work full-time can begin this process once they receive their W2 Form for 2022 from their employer. This document is critical as it provides the information needed to submit your taxes correctly and calculate any potential tax refund.

What is W2 Form for 2022?

Are you familiar with Form W2 Form for 2022? This official tax document, also known as the Wage and Tax Statement, is provided to employees at their employer’s conclusion of each tax year. The information it contains is incredibly valuable, displaying your annual wages and any taxes paid on those earnings.

It is important to note that the W2 Form for 2022 contains various components you should pay attention to. From Social Security and Medicare taxes to compensation data required for certain credits or deductions – all are included on the form. In addition, the lower section of the document outlines state-specific income and tax information.

At tax time this year, when utilizing our dedicated tax professionals, you’ll need to reference several of the boxes in the W2 Form for 2022 when completing and submitting a 2022 income tax return.

w2 form 2022

What information can I find on my W2 Form for 2022?

The W2 Form for 2022 document contains all the necessary information to file taxes for American taxpayers. To give an overview, here is a breakdown of each box and the data found about you and your employer.

Boxes A-F: The boxes located in the top left corner of the W-2 are designated with letters from A to F and hold pertinent information that is used to accurately identify both yourself and your employer; this includes legal name, address, Social Security Number, tax identification number as well as a control number which is exclusively used by your employer’s system to single out your W2 Tax Form for 2022.

In Boxes 1 and 2, you’ll find the necessary information most taxpayers need for 2022 – total wages, tips, other compensation, and federal income tax that was withheld. Then, moving on to Boxes 3 through 6, you can see what part of your income has been subject to Social Security and Medicare taxes, along with any taxes paid for both in 2022.

In Boxes 7 and 8, the amount of tip income reported by both you and your employer will be reflected. Meanwhile, Box 9 may appear grayed out but it is nothing to worry about; this was used in the past for reporting advance payments for Earned Income Credit which ended in 2010 yet remains on tax forms.

Boxes 10 and 11 provide insight into any dependent care benefits or deferred compensation you may have received in 2022.

Box 12 includes a variety of additional income or reductions to taxable income, marked by a code with either one or two letters. For these items to be included when filing your taxes, you must consist of certain codes from the 28 available options.

Located in the 13th slot is the section to show income that doesn’t require federal tax payment. For example, it includes contributions made to a sponsored retirement plan such as 401k account, third-party absence pay such as private insurance, or money earned as a statutory employee. The 14th field is an additional space for employers to include other applicable taxes information, such as tuition help or union dues.

A critical part of your W2 Form for 2022  can be found in Boxes 15 through 20. This section provides information about your income and withholdings relevant to state taxes and the ID number that belongs to your employer.

Usually how long does it take to get my W2 Tax Form for 2022?

As mandated by legal requirements, you must receive your Form W2 by Jan. 31, 2023 at the latest. This is usually done via postal mail; however, certain companies offer employees W-2 forms through online portals. It may also come from an external payroll service like ADP or Gusto, so be aware of that as well.

Jan. 31 has come and gone, but you still need to receive your W2 Form for 2022. 

Don’t worry yet – you can do a few things in this situation. First, check around for any emails your employer might have sent with instructions for accessing the electronic version of the form. IRS Publication 15A does allow employers to provide electronic versions, so it’s worth double-checking your spam or junk mail folders in case something got filtered out by mistake.

To obtain your W2 Form for 2022, begin by reaching out to the human resources or payroll department. Ask them whether they sent it and, if it didn’t arrive, request that they send another one.

Should the employer fail to assist, you may contact the IRS directly for more information about your W2 Form for 2022.

When the April. 15 (or the 18 for 2023) deadline has passed, and you still need to receive your W2 Form; there are a few steps to take. 

As April 18 approaches – the day taxes are due this year – and you still need to receive or access your W-2 form, there are a few choices for filing your 2022 tax return.

One solution is to fill out Form 4852 as an alternative so that you can guess your income and withholding tax. But be mindful that any discrepancies between the information on your return and your W2 Form will necessitate an amended return submission.

Tags: , ,
Category: Tax and Life Changes, Tax Deadlines, Tax Tips and Tricks, Tax Year 2022
No Comments »

« Older Entries
Newer Entries »