If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The fourth-quarter due date is now here.
Normal due date: Tuesday, January 16, 2018
Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s federal tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:
*If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty.
The IRS recently announced mileage rates to be used for travel in 2018. The business mileage rate increases by one cent. The medical and moving mileage rates are also raised by one cent. Charitable mileage rates are unchanged.
New Mileage Rates for 2018
Remember to properly document your mileage to receive full credit for your miles driven.
Recording and reporting business expenses is a missed opportunity for many business owners and employees. Much of what you spend for business purposes is tax-deductible. Knowing whether you can or can't expense a purchase for business purposes can be difficult. Nevertheless, here are a few general guidelines to help.
According to the IRS, business expenses must be ordinary and necessary to be deductible. That means they are normal and recognized in your business, as well as helpful and appropriate. You'll need to keep records (such as statements and ledgers) and supporting documents (receipts and invoices) to verify your deductions. Some expenses are subject to extra requirements, as described below.
Travel expenses pertain to business trips and can include transportation to and from airports, your hotel and business meeting places. They also generally include lodging, meals, tips and other related incidentals.
Entertainment expenses need to be either directly connected to or related to the conduct of your business. That means that business is the foremost purpose of the activities and it's very probable you'll get income or future business benefits as a result. Expenses from entertainment that aren't considered directly related may still be deductible if they are associated with your business and occur just before or after a significant business conversation.
Business use of your personal car is calculated according to your actual business-related expenses, or by multiplying your business mileage by the prescribed IRS rate (53.5 cents per mile in 2017).
If you operate a business out of your home, you may be able to deduct a wide variety of expenses. These may include part of your rent or mortgage costs, insurance, utilities, repairs, maintenance, and cleaning costs related to the space you use.
It is a tricky area of the tax code that's full of pitfalls for the unwary. Here are some of the top mistakes people make:
Simplified Home Office Deduction
There's a simple "safe harbor" home office deduction. You take the square footage of your office, up to 300 square feet, and multiply it by $5. This gives you a potential $1,500 deduction under the simplified option. However, your savings could be much greater than $1,500, so it's often worth getting help to calculate your full deduction using the standard rules.
Most new businesses start with no thought about legal structure. In the eyes of the IRS, the default structure is a "sole proprietor," in which your business profits are taxed on your personal tax return. This can serve you well to start, but there are several reasons you may want to consider incorporating as your business grows.
Of course, there are other business structures other than sole proprietorships and corporations. The right structure for your business depends on your unique situation.
The EITC or Earned Income Tax Credit, is a benefit for working people who have low to moderate income. Millions of taxpayers who earned $53,505 or less last year may qualify for EITC for the first time in 2017.
If you are self-employed, a farmer, or another type of worker and earned $53,505 or less last year, you could receive a larger refund if you qualify for the EITC. If you have three or more qualifying children, you could get a maximum credit of up to $6,269. Unlike most deductions and credits, the EITC is refundable. In other words, if you are eligible you may get a refund from the IRS even if you owe no tax. Last year, more than 27 million eligible workers and families received almost $67 billion in EITC; with an average EITC amount of more than $2,455.
The IRS recommends that all workers who earned around $54,000 or less learn about EITC eligibility and use the EITC Assistant to find out if they qualify. The tool will help you to determine if you qualify to receive the EITC and estimate the amount of the credit you could get. Remember, to get the EITC, you must file a tax return and specifically claim the credit.
A new law approved by Congress requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until Feb. 15. By law, the IRS must hold the entire refund — even the portion not associated with EITC or ACTC. This change helps ensure taxpayers receive the refund they are owed by giving the agency more time to help detect and prevent fraud.
The IRS has announced the 2017 standard mileage rates. These rates can be (but are not required to be) used to calculate the deductible expenses of using a vehicle for business, charitable, medical or moving purposes.
The standard mileage rates for the use of a vehicle in 2017 will be:
The business mileage rate was reduced half a cent per mile and the medical and moving expense rates each fell 2 cents per mile from 2016. The charitable rate is designated by law and will not change.
The standard mileage rate for business is based on a yearly study of the fixed and variable expenses of operating a vehicle, unlike the rate for medical and moving purposes, which is based solely on the variable expenses.
Using these rates is optional. You can always calculate the actual cost of using your car instead.