On Thursdays, CPA and President of Corporate Tax Network, Gary Milkwick and his team, answer tax questions for free on the LegalZoom Facebook Page. Did you miss the last Ask the Tax Pro. Don’t worry. We’ve got it all right here.
Brandon: Has the Child tax credit been cut. If so how much.
Corporate Tax Network: Hi Brandon,
The full $1,000 child tax credit has been extended through 2013 and beyond due to the fiscal cliff deal, signed into law on Jan 3, 2013. It was set to drop down to $500 in 2013 but with the fiscal cliff deal the $1,000 tax credit was extended for at least the next 5 years. However, in order to claim the child tax you have to meet certain criteria, please consult your tax accountant or the IRS website
Tracy: My question for the TaxPros: My son was just accepted to a college for the Fall of 2013 and we are currently working on filling out the FAFSA…. which is VERY confusing. I am a government employee with a 457 Plan and have been trying to figure out what I need to report (if anything) to FAFSA. I have tried searching the web for an answer but keep getting conflicting information. Some say I need to report the total value of the plan (as an asset) while others say I only need to report my untaxed contributions (in the untaxed income area). Ugh. Is there anyway you could clarify how to handle this situation? I would appreciate any help you can offer. Thank you.
Corporate Tax Network: Hi Tracy, FAFSA does not require you to include retirement assets such as a 457, so leave it off the assets section of the form.
Tracy: I have a follow up question to my original question about FAFSA and my 457 Plan…. Do I have to report my contributions as “untaxed income” then on the FAFSA form?
Corporate Tax Network: Tracy, you would report it if you have already started to collect your retirement benefits. If the funds are sitting in the account, untouched, it is not considered income.
Gilbert: ok tax question with all the changes this year are we still getting a 1000 child tax credit thanks =)
Corporate Tax Network: Hi Gilbert, The $1,000 child tax credit is still available. The child tax credit starts to be reduced when income reaches the following levels:
•$55,000 for married couples filing separately,
•$75,000 for single, head of household, and qualifying widow(er) filers, and
•$110,000 for married couples filing jointly
The reduction is $50 per $1,000 of earned income
Wanda: 1.Why is it a 17 year old doesnt qualify for the child tax credit?
Corporate Tax Network: Hi Wanda,
The IRS set the age limit to 17. In the year in which the child turns 17, he or she is no longer eligible for child tax credit. Here is a website where you can find more information.
Veneta: I just qualified for Socoal Security Disability this year and did not ask for with holding…I made a total of about $5,000, this year and my husband who works made about $15,000 due to missing about two months on workers compensation for a on the job injury…do we need to pay taxes on his WC and my SS? We will be filing on line through Turbo Tax most likely as that is who we have used the past few years. Thanks.
Corporate Tax Network: Hi Veneta, you Social Security Disability benefits will not be taxable if your total taxable income is less than $32,000 which is the level of income needed to tax a portion of social security benefits.
IRS Publication 17 has a section about taxation of workman’s compensation.
“Amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act.”
There is an exception if your husband also received both Social Security Disability and Workers Compensation Benefits. In that case, there would be a reduction in the social security benefits.
Cody: I want to be a professional voice actor; what kinds of forms do I have to have in order to legally charge for my services and pay the appropriate taxes?
Corporate Tax Network: Cody, it sounds like you will operate as a sole proprietor. You generally do not need to file any forms unless you want to set up a corporation or a limited liability company (LLC). You can charge for your services and if a certain person or organization pays you $600 or more during the course of the year, then they will issue you a Form 1099-Misc to make sure your income gets reported on your tax return. In either case, your self employment income is reportable whether you receive a 1099-Misc form or not. At the end of the year you will report your gross income and any related expenses for the services you perform. Whatever is left after expenses will be subject to tax.
Lance: How do i go about buying the legal rights to a name. Example what tim tebow did to tebowing?
Corporate Tax Network: Hi Lance, I would suggest to consult with a legal advisor regarding this. You can join in for “Free Joe” on tuesday’s and friday’s to ask legal questions.
LegalZoom: Here’s the info for Free Joe, Lance: http://zoo.mn/bFreeJoe. Joe will be here tomorrow at 10am PT.
IES: We belong to a barter company that sends a 1099B out every year. We “make” and “spend” thousands of trade dollars on this system. Since it’s not real cash we’re dealing with, is there any way around paying the taxes on the trade dollars? I don’t see why we’re taxed on income we’re never seeing.
Corporate Tax Network: Hi, if you are trading securities, all the realized trades are taxable. For example, if you buy and sell a security and you have a gain on it, that gain is taxable. At that point it really doesn’t matter if you withdraw the money from your account or reinvest the money into another security. Once you have a gain, that gain has to be reported as income. As an analogy let’s say that you have a job and your paycheck goes into your bank account via direct deposit. At this point, you have access to the money so you have to report it as income. It doesn’t matter if you never take the money out of your account or if you spend it on something. Similar rules apply here
Missy: Is there a set income limit that someone doesn’t have to file taxes? My father passed away last year and he did all the taxes. My mom never did the taxes and now I am helping her… Is social security taxable income- and does this apply to all levels of taxation (state
as well as federal) thank you for your time.
Corporate Tax Network: Hi Missy, Below are the minimum income levels for 2012 that would require a tax filing.
Married Filing Jointly Under 65 (both spouses) $19,500
65 or older (one spouse) $20,650
65 or older (both spouses) $21,800
Most states with a state income tax have a different filing level, so you would need to check with your state as well.
Social Security can be included in your taxable income, if your total income exceeded $32,000. But then, only a portion of the social security would be taxable.
Even if the income is below the filing level, if any income taxes, either federal or state have been withheld, you should file to claim the refund.
Lacey: Tax question. (From michigan) My boyfriend is legally still married but has been seperated from his ex since april 2012. Does he file single or married filing seperatly..and can he claim me and my daughter (since i have no income) either way he files (single or maaried filing seperately)
Corporate Tax Network: Lacey, if your boyfriend is still legally married he can file as either Married Filing Separate or Married Filing Joint with his legal wife. He cannot file as Single as long as he was legally married as of December 31st of the tax year for which a return is being filed. He should be able to claim you and your daughter as his dependents if he provided both of your supports for the entire year and both of you lived under his roof for the entire year.
Maurice: If an LLC receives a monthly residual commission for say 100K, what is the maximum amount of that 100K by law that they are allowed to pay their C.E.O as a salary or commission each month?
California LLC by the way.
Corporate Tax Network: Hi Maurice,
An LLC that is taxed as a sole proprietorship or as a partnership is considered disregarded a entity by the IRS. A disregarded entity does not pay taxes on its own income. Thus, the business income and losses are passed through to the owners. The owners report their share of these amounts on their personal income tax returns and pay taxes at the individual tax rate. LLC owners/managing members are considered self- employed rather than employees of the business. Payments that the managing members receive as compensation for work done is called salary but is actually classified as guarantee payments or advance payments of profits. This said, the IRS does not have specific guidelines on how much a managing member should be paid as guarantee payments. It all depended on the agreement adopted by the LLC and the rest of the members. I hope this helps!
Margaret: Is there a tax advantage to having our company an LLC vs proprietor? Can we use it for health insurance for ourselves or what would be the tax advantages, if any?
Corporate Tax Network: Margaret, if this is a single member LLC by default it will be taxed as a sole proprietorship, so there would not be any kinds of tax ramifications on the federal level. One of the benefits of setting up an LLC for tax purposes is flexibility. If you have an LLC but do not want to be taxed as a sole proprietor, you can file an election to be taxed as either a C Corporation or an S Corporation. Regarding your question on health insurance tax advantages, if your business pays for your health insurance premiums and neither you or your spouse have access to an employer sponsored health insurance then you can get an above-the-line deduction for your health insurance premiums.
Miriam: When is it appropriate to require a W9 from a company? Some companies seem to be exempt from filing a 1099. Who’s responsibility is it to get one? The contractor or the company that contracted their services?
Corporate Tax Network: The IRS requires that form 1099Misc be filed for any contract labor paid out in the amount of $600 or more. In order to gather all necessary informaiton, form W9 would have to be filled out by the contractor and submitted to the employer. Generally the employer would not hire/pay contractors without first collecting the form W9. You can get the form on line: http://www.irs.gov/pub/irs-pdf/fw9.pdf
Rick: I own a small towing business and I forgot to file ohio sales tax for the 2nd half of 2010 and the first half of 2011. The sent me letters from the state attorney saying that I owe around 3 times more than what I really owe. What is the best way to fix this problem?
Corporate Tax Network: Rick, what Ohio normally does is they make an estimated assessment, such as how much an average towing company usually submits in sales taxes and make an assessment using that information. A lot of times you would see amounts that look to exhorbant. However, the amounts they are requesting from you are assessments and you don’t have to agree with them. I would recommend filing all those delinquent sales tax returns and pay whatever you actually owed them. The only things they can charge you on top of what you actually owe them would be late filing penalties, late payment penalties and interest. I would suggest you get those missing returns filed as soon as possible so the state can update your case before it goes into collections.
Rachel: When ur a waitress and u get tips do u have to pay them back when doing taxes
Corporate Tax Network: Hi Rachel, typically the employer would include the tips on your W2. If your employer does not ask you to report your tips to him after every shift, chances are, the tips would not be reported on the W2. It would then be your responsibility to report the income on your personal tax return and pay tax on it. If the employer does not include the tips in your W2, you would need to file form 4137 along with your Individual income tax return, form 1040
Brian: I’m starting a non profit for kids. The question I have is, can I have another business that is profitable? & can that profitable business fund my non profit?
Corporate Tax Network: A for profit business can make charitable contributions to a non profit organization. However the charitable contribution deduction would be limited depending on the type of for-profit company you have. You can set up an L3C – which is a low profit company and is set up for a social benefit purpose. However not all states accept this form of entity and you may need to speak to an attorney to get the details regarding the legal aspects of the business set up.
LegalZoom: Thanks to the experts at Corporate Tax Network for joining us! The Tax Pros will be back next Thursday; join us then for more Q&A.