PhillyTalk: Ask the Writers and Experts

APlease take a look at Topic 407 - Business Income on the IRS.gov Web site... http://www.irs.gov/taxtopics/tc407.html. In general the IRS follows GAPP. For specifics regarding how you report income and expenses you may wish to consult a tax professional.

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

******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

 

 

TAX TIP: AUDITS –

 

If you receive a notice from the IRS in the mail, do not panic. Open the letter and contact the IRS as soon as possible so you can start to address the issue. If your return is selected for examination, it does not suggest that you made an error or are dishonest. Returns are chosen by computerized screening, by random sample, or by an income document matching program. You should also know that many examinations result in a refund or acceptance of the tax return without change. ********

 

 

 

For more information visit us at IRS.gov.

 

 

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The nature of the work and the conditions under which the work was performed as an Independent Contractor would have to be significantly different from the work performed as an employee.  The correct classification of employment status would depend upon the rules for Independent Contractors versus Employees.

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.  The employer must define the working  relationship that exists between the company and the person performing the services. The person performing the services may be -

An independent contractor
A common-law employee
A statutory employee
A statutory nonemployee

It is critical that the employer correctly determines whether the individual providing service is an employee or independent contractor because the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers do not generally have to withhold or pay any taxes on payments to independent contractors.

Caution: If the employer incorrectly classify an employee as an independent contractor, the company can be held liable for employment taxes for that worker, plus a penalty.

For additional information please visit the IRS.gov Web site to review "Distinguishing Between Self-Employed Individuals and Independent Contractors" (http://www.irs.gov/businesses/small/article/0,,id=115041,00.html)

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********  

 

TAX TIP: TELEPHONE EXCISE TAX REFUND -

 

The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

A

In general, anyone who paid the telephone tax on their long-distance or bundled service during the refund period (after Feb. 28, 2003, and before Aug. 1, 2006) is eligible to request the refund on their 2006 federal income tax return. This includes individuals, businesses and nonprofit or tax exempt organizations. The 2006 return is usually filed during 2007.

Taxpayers can base their refund requests on the actual amount of tax paid. To do this, they must fill out Form 8913, Credit for Federal Telephone Excise Tax Paid. This form is then attached to their regular 2006 income-tax returns.

But many people don’t want to dig through up to 41 months of old phone bills or lack the records they need to figure the actual amount of tax paid. For that reason, the government created a standard amount, ranging from $30 to $60 that individuals can use to request their refund.

Taxpayers who request the standard amount will only need to fill out one additional line on their tax returns. The standard amount is based on actual telephone usage data and the amount applicable to a family or other household reflects the taxes paid on long-distance or bundled phone service by similarly sized families or households.

What is the standard amount?

Individual taxpayers can take a standard amount from $30 to $60 based on the number of exemptions they are eligible to claim on their 2006 tax return. For those who can claim:

One exemption, the standard refund amount is $30;

Two exemptions, the standard refund amount is $40;

Three exemptions, the standard refund amount is $50;

Four exemptions or more, the standard refund amount is $60.

******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

TAX TIP: E-FILE -

More than 50 percent of all Pennsylvania taxpayers filed electronically last year. It’s fast, easy, and accurate and is for individual taxpayers for tax professionals and for large and mid-size corporations. ********

This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

For more information visit us at IRS.gov. 

A

This is form Publication 504 (2006), Divorced or Separated Individuals... http://www.irs.gov/publications/p504/ar02.html#d0e3497

******* This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

 

TAX TIP: TELEPHONE EXCISE TAX REFUND -

 

The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

 

For more information visit us at IRS.gov. 

A

Please review the below information which includes links to other useful documentws as well as additional FAQs.

A U.S. citizen or resident alien is generally subject to U.S. tax on total worldwide income. However, if you are a United States citizen or a resident alien who lives and works abroad, you may qualify to exclude all or part of your foreign earned income. For specific information, refer to Tax Topic 853, Foreign Earned Income Exclusion - General.

If you would like more information on who qualifies for the exclusion, refer to Tax Topic 854, Foreign Earned Income Exclusion - Who Qualifies. For more information on what type of income qualifies for the exclusion, refer to Tax Topic 855, Foreign Earned Income Exclusion - What Qualifies. You may also wish to refer to chapter 4 Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for a detailed discussion.

If the information you need relating to this topic is not addressed in Publication 54, you may call the IRS International Tax Law hotline. The number is (215) 516-2000. This is not a toll-free number.

References:

• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• Tax Topic 853, Foreign Earned Income Exclusion - General
• Tax Topic 854, Foreign Earned Income Exclusion - Who Qualifies
• Tax Topic 855, Foreign Earned Income Exclusion - What Qualifies

Generally, only income taxes paid or accrued to a foreign country or a U.S. possession qualify for the foreign tax credit. You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction.

To choose the foreign tax credit you must generally complete Form 1116 (PDF), Foreign Tax Credit, and attach it to your Form 1040 (PDF). You may claim credit without attaching Form 1116 if all of your foreign source income is passive income (such as interest and dividends) reported to you on a payee statement and the total amount of qualifying foreign taxes you paid or accrued is not more than $300 ($600 in the case of a joint return) and is also reported to you on a payee statement. To choose the deduction, you must itemize deductions on Form 1040, Schedule A (PDF).

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. There is no double taxation in this situation because the income is not subject to U.S. tax.

References:

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

 

TAX TIP: SCAMS -

 

This year the “Dirty Dozen” highlights five new scams that IRS auditors and criminal investigators have uncovered. Topping off the list are fraudulent refunds being claimed in connection with the special Telephone Excise Tax Refund. *******

 

For more information visit us at IRS.gov.

A

The information you provided is incomplete (and I suggest you do NOT provide such disclosure on a public site) as I cannot speak to all the possibilities of deductions, filing status, exemptions, credits, taxes paid, taxes withheld, etc. If you are concerned about the calculations given the information you provided while using electronic software you may wish to consult the vendor of the software or a tax professional for additional guidance.

******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

 

TAX TIP: AUDITS –

 

If you receive a notice from the IRS in the mail, do not panic. Open the letter and contact the IRS as soon as possible so you can start to address the issue. If your return is selected for examination, it does not suggest that you made an error or are dishonest. Returns are chosen by computerized screening, by random sample, or by an income document matching program. You should also know that many examinations result in a refund or acceptance of the tax return without change. ********

 

For more information visit us at IRS.gov.

A

Itemizers Can Deduct Certain Taxes (http://www.irs.gov/newsroom/article/0,,id=108146,00.html)

 

IRS TAX TIP 2007-51

 

Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.

 

There are several types of deductible non-business taxes:

 

State and local income taxes: You can choose to claim a state and local tax deduction for either income or sales taxes on your return. You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual

Itemizers Can Deduct Certain Taxes (http://www.irs.gov/newsroom/article/0,,id=108146,00.html) 

 

Real estate taxes: Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

 

Personal property taxes: Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.

 

Foreign income taxes:  Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from tax.

 

For detailed information about the sales tax deduction, consult IRS Publication 600, State and Local General Sales Taxes, and the interactive State and Local Sales Tax Calculator found on IRS.gov. More information about each of these topics is available at IRS.gov.  IRS forms and publications can be downloaded from the Web site or obtained by calling 800-TAX-FORM (800-829-3676).

 

Schedules A&B, Itemized Deductions and Interest & Dividend Income (PDF 116K)

 

Publication 17, Your Federal Income Tax (PDF 2074K)

 

IRS Publication 600, State and Local General Sales Taxes

 

State and Local Sales Tax Calculator

 

******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

 

TAX TIP: SCAMS -

 

This year the “Dirty Dozen” highlights five new scams that IRS auditors and criminal investigators have uncovered. Topping off the list are fraudulent refunds being claimed in connection with the special Telephone Excise Tax Refund. ********

 

For more information visit us at IRS.gov.

APlease review Topic 511 - Business Travel Expenses on the IRS.gov Web site. Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals, or lodging in Milwaukee because that is your tax home. Your travel on weekends to your family home in Chicago is not for your work, so these expenses are also not deductible. ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ******** TAX TIP: EITC - It’s easier than ever to find out if you qualify for EITC EITC is a tax credit for people who work(ed) and didn't make much money. If you meet the requirements for EITC, and the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. ******** For more information visit us at IRS.gov.

A

A citizen or resident alien is generally subject to tax on total worldwide income. However, if you are a citizen or a resident alien who lives and works abroad, you may qualify to exclude all or part of your foreign earned income. For specific information, refer to Tax Topic 853, Foreign Earned Income Exclusion - General.

If you would like more information on who qualifies for the exclusion, refer to Tax Topic 854, Foreign Earned Income Exclusion - Who Qualifies. For more information on what type of income qualifies for the exclusion, refer to Tax Topic 855, Foreign Earned Income Exclusion - What Qualifies. You may also wish to refer to chapter 4 Publication 54, Tax Guide for Citizens and Resident Aliens Abroad, for a detailed discussion.

If the information you need relating to this topic is not addressed in Publication 54, you may call the IRS International ax Law hotline. The number is (215) 516-2000. This is not a toll-free number. 

References:

 

Publication 54, Tax Guide for Citizens and Resident Aliens Abroad

Tax Topic 853, Foreign Earned Income Exclusion - General

Tax Topic 854, Foreign Earned Income Exclusion - Who Qualifies

Tax Topic 855, Foreign Earned Income Exclusion - What Qualifies

I am a citizen working for a firm in a foreign country. Is any part of my wages or expenses tax deductible?

Citizens are taxed on their worldwide income, no matter where they work. Some taxpayers may qualify for the foreign earned income exclusion, foreign housing exclusion, or foreign housing deduction, if their tax home is in a foreign country and they are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. If the taxpayer is temporarily away from his or her tax home in the on business (less than a year), the taxpayer may qualify to deduct away from home expenses (for travel, meals, and lodging ) but would not qualify for the foreign earned income exclusion.

References:

Publication 54, Tax Guide for Citizens and Resident Aliens Abroad

Publication 514, Foreign Tax Credit for Individuals

Publication 463, Travel, Entertainment, Gift and Car Expenses

Form 2555 (PDF), Foreign Earned Income

Form 2555EZ (PDF), Foreign Earned Income Exclusion

Form 1116 (PDF), Foreign Tax Credit

Tax Topic 514, Employee Business Expenses

I am a citizen living and working overseas. Can I have a tax credit on my taxes for the taxes I pay to the foreign country?

The foreign tax credit is intended to relieve taxpayers of the double tax burden when their foreign source income is taxed by both the and the foreign country from which the income is derived.

Generally, only income taxes paid or accrued to a foreign country or a possession qualify for the foreign tax credit. You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction.

To choose the foreign tax credit you must generally complete Form 1116 (PDF), Foreign Tax Credit, and attach it to your Form 1040 (PDF). You may claim credit without attaching Form 1116 if all of your foreign source income is passive income (such as interest and dividends) reported to you on a payee statement and the total amount of qualifying foreign taxes you paid or accrued is not more than $300 ($600 in the case of a joint return) and is also reported to you on a payee statement. To choose the deduction, you must itemize deductions on Form 1040, Schedule A (PDF).

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. There is no double taxation in this situation because the income is not subject to tax.

References:

Publication 54, Tax Guide for Citizens and Resident Aliens Abroad

Publication 514, Foreign Tax Credit for Individuals

Form 1116 (PDF), Foreign Tax Credit

Tax Topic 856, Foreign Tax Credit

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

 

TAX TIP: TELEPHONE EXCISE TAX REFUND -

 

The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

 

For more information visit us at IRS.gov.

A

Publication 1779 (PDF), Employee Independent Contractor Brochure What is the difference between a Form W-2 and a Form 1099-MISC?

Both of these forms are called information returns. The Form W-2 is used by employers to report wages, tips and other compensation paid to an employee. The form also reports the employee's income tax and Social Security taxes withheld and any advanced earned income credit payments. The Form W-2 is provided by the employer to the employee and the Social Security Administration. A Form 1099-MISC is used to report payments made in the course of a trade or business to another person or business who is not an employee. The form is required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or compensation are paid. The form is provided by the payor to the IRS and the person or business that received the payment.

References:

Tax Topic 752, Form W-2 - Where, When, and How to File

Form W-2 and W-3 Instructions

Form 1099-MISC Instructions

How do you determine if a person is an employee or an independent contractor?

The determination is complex, but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time. There are three basic areas which determine employment status:

behavioral control

financial control and

relationship of the parties

For more information on employer-employee relationships, refer to Chapter 2 of Publication 15, Circular E, Employer's Tax Guide and Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide. If you would like the IRS to determine whether services are performed as an employee or independent contractor, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Unless you think you were an employee, you should report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit From Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment tax on your net earnings from self-employment, if you had net earnings from self-employment of $400 or more. This is the method by which self-employed persons pay into the social security and Medicare trust funds.

Generally, there are no tax withholdings on this income. Thus, you may have been subject to the requirement to make quarterly estimated tax payments. If you did not make timely estimated tax payments, you may be assessed a penalty for an underpayment of estimated tax. Employees pay into the social security and Medicare trust funds, as well as income tax withholding, through payroll deductions.

If you are not sure whether you are an independent contractor or an employee, complete Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. For more information on employer-employee relationships, refer to Chapter 2 of Publication 15, Circular E, Employer's Tax Guide, and Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide, and Publication 1779 (PDF), Employee Independent Contractor Brochure. For information on the tax responsibilities of self-employed persons, refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.

References:

Publication 15 Circular E, Employer's Tax Guide

Publication 15-A (PDF), Employer's Supplemental Tax Guide

Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding

Publication 505, Tax Withholding and Estimated Tax

Tax Topic 762, Independent Contractor vs. Employee

Tax Topic 407, Business Income

Tax Topic 355, Estimated Tax

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********  TAX TIP: TELEPHONE EXCISE TAX REFUND -

 The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********  For more information visit us at IRS.gov.