Frequently Asked Questions

Don't panic! The first thing to do is carefully read the notice to determine why it was sent, what the IRS is requesting, and what they want you to do. It may be nothing of importance; it may even be a notice in your favor. After reading it, you should bring it to our attention.

A C Corporation and an S Corporation are the same regarding liability protection. The difference is in how you are taxed. A C Corporation has what is referred to as double taxation. First, the corporation is taxed; second, the dividends are taxed on the shareholders' tax returns. An S Corporation is not taxed at the corporate level, only at the shareholder level. Most small businesses are eligible to file as S corporations. But the appropriate election must be made.

Suppose you withdraw money from a 401(k) or an IRA before age 59 ½. In that case, the distribution is taxable, and there is a 10% penalty for the taxable amount. The main exceptions that let you withdraw money early without penalty are as follows:

• Qualified retirement plan distributions are available if you are separated from service in or after the year you reach age 55 (does not apply to IRAs).
• Distributions made as a part of a series of substantially equal periodic payments (made at least annually) for your life or the joint lives of you and your designated beneficiary.
• Distributions due to total and permanent disability.
• Distributions due to death (does not apply to modified endowment contracts)
• Qualified retirement plan distributions up to (1) the amount you paid for unreimbursed medical expenses during the year minus (2) 7.5% of your adjusted gross income for the year.
• IRA distributions are made to unemployed individuals for health insurance premiums.
• IRA distributions are made for higher education expenses.
• IRA distributions made for the purchase of a first home (up to $10,000. Limits apply).
• Distributions due to an IRS levy on the qualified retirement plan.
• Qualified distributions to reservists while serving on active duty for at least 180 days.

The main plans for saving for college are the 529 plans and the Coverdell plan.

First, is your contribution cash or noncash?

• If you make a cash donation, you must have a bank record or written communication from the charity showing the charity's name and the donation amount. A bank record can be a canceled check or a statement from a bank or credit union—so long as it lists the charity's name, the date, and the contribution amount. Personal records such as bank registers, diaries, and notes are no longer considered acceptable proof of contributions.
• Any used items (such as clothing, linens, appliances, etc.) must be in good condition and may only be deducted at the price you could reasonably ask for the item in used condition. For contributions worth $250 or more, you must have a written receipt or letter from the organization. For contributions worth $500 or more, you must file Form 8283 (Noncash Charitable Contributions) and attach it to your Form 1040.

All contributions must be made to qualified charitable organizations.

Generally, for any tax year, you can contribute to your IRA up until the return's original due date (usually April 15). Thus, for tax year 2024, you can make contributions from January 1, 2025, through April 15, 2025.

A traditional IRA lets you deduct contributions in the year you make them, and the distributions are included as income on your return when you withdraw from the IRA after reaching age 59½. A Roth IRA does not let you deduct the contributions. Still, you do not report the distributions as income, no matter how much the Roth account has appreciated. With a Roth, you can exclude the income earned in the account from being taxed.

Keep a log in your vehicle and record the purpose and mileage of each trip. You must also record the odometer readings at the beginning and end of each year, as the IRS will ask you for the total miles driven during the year. Keep your repair bills, as these typically record odometer readings when the car is serviced.

When you receive a 1099, you are considered an independent contractor. You will not have any withholding or payroll taxes deducted from your pay. You should keep track of all business expenses and a journal of your mileage driven for work. If the amount you expect to receive is substantial, you should probably be making estimated tax payments. Please get in touch with us if you have any questions about this.

For tax purposes, depreciation is the expensing of the cost of an item over its estimated useful life. Suppose the property you acquire to use in your business is expected to last more than one year. In that case, you generally cannot deduct the entire cost as a business expense in the year you acquire it. You must spread the cost over more than one tax year and deduct part each year. This method of deducting the cost of business property is called depreciation. Many different depreciation methods and other rules allow you to claim the expense in one year.