Tax

If you are a self-employed, you normally carry on a trade or business. Sole proprietors and independent contractors are two types of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. If you’re self-employed, here are six important tax tips you should know about:

• Self-Employment Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
• Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. Please call if you are not sure whether you can use this form.
• Self-Employment Tax. If you made a profit, you may have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE,Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.
• Estimated Tax. You may need to make estimated tax payments. These payments are typically made on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty. See, Estimated Tax Payments – Q & A, above, for more information about estimated tax payments.
• Allowable Deductions. You can deduct expenses that you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
• When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

Questions about self-employment taxes? Help is just a phone call away.

• By Leon Clinton
• April 25, 2016

Did you know that it’s possible to trim your tax bill and save on your energy bills with certain home improvements? Here are some key facts you should know about home energy tax credits:

Non-Business Energy Property Credit

• Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
• The other part of the credit is not a percentage of the cost. It is for the actual cost of certain property. This may include items like water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
• This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
• Your main home must be located in the U.S. to qualify for the credit.
• Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. It is usually posted on the manufacturer’s website or included with the product’s packaging. You can use this information to claim the credit, but do not attach it to your return. Keep it with your tax records.
• You may claim the credit on your 2015 tax return as long as you haven’t exceeded the lifetime limit in past years. Under current law, this credit is available through Dec. 31, 2016.

Residential Energy Efficient Property Credit

• This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
• Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
• There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
• The home must be in the U.S. It does not have to be your main home unless the alternative energy equipment is qualified fuel cell property.
• This credit is available through 2016.

To claim these credits use Form 5695, Residential Energy Credits. If you would like more information on this topic, don’t hesitate to contact the office.

• By Leon Clinton
• April 22, 2016

If you have children, you may be able to reduce the amount of taxes owed for the year using tax credits and deductions. Here are several tax benefits you might be able to take advantage of when you file your federal tax return:

• Dependents. In most cases, you can claim your child as a dependent. You can deduct $4,000 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits.
• Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit.
• Child and Dependent Care Credit. You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or look for work.
• Earned Income Tax Credit. You may qualify for EITC if you worked but earned less than $53,267 last year. You can get up to $6,242 in EITC. You may qualify for the EITC with or without children.
• Adoption Credit. You may be able to claim a tax credit for certain costs you paid to adopt a child.
• Education Tax Credits. An education credit can help you with the cost of higher education. Two credits are available–The American Opportunity Tax Credit and the Lifetime Learning Credit–and they may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim these credits.
• Student Loan Interest. You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions.
• Self-employed Health Insurance Deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. Please call the office for additional details.

Do not hesitate to contact the office if you have any questions about these and any other tax credits and deductions that you are entitled to under federal and state tax codes.

• By Leon Clinton
• April 20, 2016