Does My Child Have to File a Tax Return for 2018 Tax Year?

Learn the basic rules on if your child must file a tax return because (s)he had earned and unearned income.

Your child(ren) may need to file their own tax returns even though they are still your dependents for tax purposes. If your child does not file the tax return when it is a must, the child’s parent (guardian) may be liable for the tax and any penalties.

If your child had only earned income (earned from working) in 2018, the child must file if the earned income was $12,000 (Standard Deduction).

For example: Michael, a 17-year-old dependent child, worked at a pizza shop on nights and weekends during the school and the summer. He earned $6,000 in wages. He is not required to file. However, if his twin sister Erica, earned $15,000 in wages. She must file.

If your child did not work at all but had unearned income (income from bank interest, investments, etc.) of more than $1,050, the child must file.

If your child had both earned and unearned income, (s)he must file a return if…..

  1. Unearned income was over $1,050,
  2. Earned income was over $12,000, OR
  3. Unearned income + earned income = more than the larger of $1,050 or earned income up to $11,650 + $350

IRS – Do I need to File a Tax Return?

Although your child is not required to file, you should file if you can get money back.

For example, you should file if one of the following applies.

  • You had income tax withheld from your pay.
  • You made estimated tax payments for the year or had any of your overpayment for last year applied to this year’s estimated tax.
  • You qualify for the earned income credit. See Pub. 596 for more information.
  • You qualify for the additional child tax credit. See the instructions for Form 1040 for more information.
  • You qualify for the refundable American opportunity education credit. See Form 8863.
  • You qualify for the health coverage tax credit. For information on this credit, see Form 8885.
  • You qualify for the credit

Source: https://www.irs.gov/pub/irs-pdf/p501.pdf

Turning Net Operating Loss into an opportunity for Tax Free Income

If your business suffers from Net Operating Loss (NOL) income, you should consider converting some or all of your IRAs into a Roth IRA.  When you convert an IRA into a Roth IRA, you normally add the conversion amount to your taxable income.  By doing so, you don’t ever have to pay any taxes on the Roth IRA withdrawals ever again.  Several years ago, one client ended up having $250,000 of NOL.  We converted his entire IRA (it was just under $250,000) into a Roth IRA and paid $0 in taxes.

 


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Defer Income & Accelerate Deductions

There are several steps you can take near the end of the year to put off income into the next tax year and increase your deductions in the current tax year.  In the last month of the year, you can delay billing out for services or merchandise so that payment will be received in the following year.  Make sure to factor in your tax bracket for this year and the bracket you expect to be in next year.  If you will be in a higher tax bracket next year, you may not want to use this strategy.  Similarly, one way to accelerate your deductions is to see what bills you have due in January and pay them before the end of December so that you can take that deduction during the current year.

 


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Paycheck Checkup

If you typically itemize your deductions on Schedule A of Form 1040, you may want to use the IRS Withholding Calculator to perform a “paycheck checkup.” Recent tax law changes may affect your tax rate, and the IRS Withholding Calculator will help ensure your employer is withholding the appropriate amount of tax from your paycheck.

There are two main reasons to check your withholding:

  1. It could help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
  2. With the average refund topping around $2,800, you may prefer to have less tax withheld and receive more in your paychecks.

If you need to change your withholding, give your employer a new Form W-4 (Employee’s Withholding Allowance Certificate).

 


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Five Easy Ways to Lower Tax Bill for Business Owners

If you’re like most small business owners, you’re always looking for ways to lower your taxable income. Here are five ways to do just that.

1. Deducting the Cost of a Home Computer
If you purchased a computer and use it for work-related purposes, you can take advantage of the Section 179 expense election, which allows you to write off new equipment in the year it was purchased if it is used for business more than 50 percent of the time (subject to certain rules).

2. Meal Expenses for Company Picnics and Holiday Parties
If you host a company picnic or holiday party–even if it is at your home–100 percent of your meal expenses are deductible. Prior to tax reform legislation passed in late 2017, 50 percent of your business-related entertainment expenses (with some exceptions) were generally deductible. Starting in 2018, however, entertainment-related expenses are no longer deductible. If you have any questions, please don’t hesitate to call.

3. Deduct $25 for Business Gifts to Associates
Don’t overlook the deductible benefit of business gifts during the holidays or at any other time of the year. As a self-employed individual, you can deduct the cost of gifts made to clients and other business associates as a business expense. The law limits your maximum deduction to $25 in value for each recipient for which the gift was purchased with cash.

4. Food Offered to the Public at a Trade Show
If you are a frequent trade show exhibitor (or you are in the business of “food”), you know that offering free food is a sure way to get people to visit your booth. Did you know it’s also a tax write off? Typically associated with a promotional campaign, food offered to the public free of charge is 100 percent deductible.

5. Minimize your Tax Bill by Funding a Retirement Plan
As a self-employed small business owner, there are several retirement plan options available to you, but understanding which option is most advantageous to you can be confusing. The “best” option for you may depend on whether you have employees and how much you want to save each year.

There are four basic types of plans:

  1. Traditional and Roth IRAS
  2. Simplified Employee Pension (SEP) Plan and Savings Incentive Match Plan for Employees (SIMPLE)
  3. Self-employed 401(k)
  4. Qualified and Defined Benefit Plans

To make sure you are getting the most out of your financial future, contact us to determine your eligibility and to figure out which plan is best for your tax situation.


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What to do when your Tax Return is late?

If you haven’t filed a tax return yet, it’s not too late, and it may be easier than you think.

First, gather any information related to income and deductions for the tax years for which a return is required to be filed, then call the office.

If you’re owed money, then the sooner you file, the sooner you’ll get your refund. If you owe taxes, you should file and pay as soon as you can, which will stop the interest and penalties that you will owe.

If you owe money but can’t pay the IRS in full, you should pay as much as you can when you file your tax return to minimize penalties and interest. The IRS will work with taxpayers suffering financial hardship. If you continue to ignore your tax bill, the IRS may take collection action.

How to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash. If you pay your federal taxes using a major credit card or debit card, there is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. It is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code.

What to do if you Can’t Pay in Full

Taxpayers unable to pay all of the amount owed on a tax bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be less than if you do not pay anything at all. Based on individual circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise. Please call if you have questions about any of these options.

For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.

A short-term extension gives a taxpayer an additional 60 to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply. Generally, taxpayers will pay less in penalties and interest than if the debt were repaid through an installment agreement over a longer period of time.

Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov. A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. You should pay as much as possible before entering into an installment agreement.

Taxpayers who owe $50,000 or less in combined tax, penalties and interest can apply for and receive immediate notification of approval through an online, IRS web-based application. Balances over $50,000 require taxpayers to complete a financial statement to determine the monthly payment amount for an installment plan.

A user fee will also be charged if the installment agreement is approved. The fee (effective January 1, 2017) is normally $225 but is reduced to $107 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.

Individual taxpayers who do not have a bank account or credit card and need to pay their tax bill using cash, are now able to make a payment at one or more than 7,000 7-Eleven stores nationwide. Individuals wishing to take advantage of this payment option should visit the IRS.gov payments page, select the cash option in the other ways you can pay section and follow the instructions.

What Happens If You Don’t File a Past Due Return

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions–including substantial penalties and fees.

Need Help Filing your Tax Return?

If you haven’t filed a tax return yet, don’t delay.


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Tax Brackets for 2018

Tax Rate Married Filing Jointly Single or Married Filing Separately Head of Household
10% $0 $19,050 $0 $9,525 $0 $13,600
12% $19,050 $77,400 $9,525 $38,700 $13,600 $51,800
22% $77,400 $165,000 $38,700 $82,500 $51,800 $82,500
24% $165,000 $315,000 $82,500 $157,500 $82,500 $157,500
32% $315,000 $400,000 $157,500 $200,000 $157,500 $200,000
35% $400,000 $600,000 $200,000 $500,000 $200,000 $500,000
37% $600,000 and over $500,000 and over $500,000 and over

 


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Confused? That’s ok, with us, you’ve got this!

With thousands of pages in the federal tax code, and over 70,000 pages in tax laws, regulations, and resources, it’s no wonder taxpayers get confused.  Then every year, the tax laws change, adding to the burden of keeping up with it all!

But you’re a smart business owner who wants to be proactive and take advantage of exemptions, deductions, credits—whatever is out there to help you save.  Just, how do you manage to make it through all that mess?

Don’t worry—you’ve got this!  With Proactive Accounting as your tax coach, you can relax and stick to the important stuff, running your small business, while we wade through the complexities of the federal tax code and all those regulations.

When you first started your own business, you began your journey of being a proactive business owner who saves money.  Small businesses are the largest tax shelter—so congrats on making that initial leap.

Now it’s time to move to the next level, and save on your taxes!

At Proactive Accounting, we know taxes—specifically tax laws, regulations, loopholes, and codes.  We also love what we do, and want to help you stay proactive, like us.  We’re here to help you navigate those thousands of pages, so that you’re not shocked at the end of the year with a huge tax bill.

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How long should you keep tax return records?

Think again if you think your tax work is done once you file your return. Now you need to file your tax records.

What tax-related records should you hang on to and for how long? Let’s look at what the IRS recommends based on how long it has to come back at you with questions.

If you’re ever audited, keeping your tax returns and the documents you used to complete them obviously is critical. The statute of limitations on IRS audits is a key factor in deciding what to keep and for how long. Because you discovered a mistake or learned of a tax break you should have claimed, good record-keeping also could help if you need to file an amended return.

3 Years

In normal tax-filing scenarios, the Internal Revenue Service has 3 years to choose whether to examine– or, as the firm favors to call it, check out– your return. That implies you need to maintain your documents for 3 years from the day you submitted the initial return.

This readies method, as well, due to the fact that you usually have 3 years from when you submitted your return– or more years from the day the tax obligation was paid, whichever is later on– to declare a refund or credit from the IRS.

You additionally need to hold on to tax documents for 3 years if you file a claim for a credit or refund after you submitted your initial return. The limit right here could be changed to 2 years from the day you paid any type of due tax obligation if that day is behind the three-year limitation.

6 Years

The three-year audit duration and also linked record-keeping standards use in typical declaring conditions. If nonetheless, you do not consist of all your incomes on your 1040, the IRS obtains a much longer home window to pick a prospective audit, so you should maintain your tax obligation documents much longer, as well.

Especially, tax obligation legislation claims that if you under-report your earnings by greater than 25%, the law of constraints is increased: The IRS after that has 6 years to make a decision whether to examine your return. To handle any kind of inquiries, you would certainly should have those 6 years worth of tax obligation records handy.

7 Years

Occasionally an equity betting does not profit. In such situations, you could cross out the loss from the “worthless security.” If you do, hold those documents for 7 years. That’s how much time the IRS has to return with concerns regarding your poor financial investment. The exact same period relates to deductions for an uncollectable loan.

Forever

There are some circumstances where to maintain tax obligation documents probably for life.

Claim somebody– not you, naturally– dedicates tax obligation scams. There is no statute of limitations on tax obligation scams audits. When the IRS presumes a person went into unlawful details on a return, it could examine any time, not simply within the conventional three-year window.

You likewise have to maintain paperwork of why you really did not file an income tax return. Yes, that seems like attempting to verify an adverse, however, if, for instance, you took a year off to look after an ill family member and also really did not gain adequate revenue to need that you submit, evidence of that will certainly short-circuit an in-depth IRS exam of your missing tax year.

Records To Keep

You must maintain every income tax return as well as supporting documents. This consists of W-2s, 1099s, cost monitoring, mileage logs if you itemize and also various other papers.

After the law of constraint passes as well as you eliminate sustaining paperwork, maintain a duplicate of every year’s income tax return that you submit. This consists of not simply the form 1040 itself, yet likewise any kind of linked routines that you sent out to the IRS that year. These typically are required when you get a financing or various other monetary support, such as a loan for a university.

Best Way To Keep Your Records

If you’re most likely asking yourself simply where you’ll keep all that paper, that’s not an issue.

The law does not need any kind of unique record-keeping system for all taxpayers. You could maintain your documents in any manner that functions finest for you, as long as it permits you to generate the product if the IRS asks. For many taxpayers nowadays, that indicates accessing documents in electronic kind.

Transforming your tax obligation as well as various other crucial economic documents to a digital style could conserve you a great deal of room. All the IRS calls for is that your digital document storage space fulfills the exact same criteria that put on paper copies. That implies when you change the paper variations, you need to preserve the digital storage space systems for as long as they may be required under the tax obligation laws of constraint.

If you intend on maintaining your documents digitally, you could think about scanning your records and also maintaining a back-up of the data on a cloud solution like Dropbox, One Drive, etc.. This technique occupies much less room and also is simpler to arrange compared to a pile of documents or consuming your file drawers.


 

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