TaxTalk

National Mom and Pop Business Day is the day set aside in the U.S. to celebrate family owned small businesses. In honor of these folks, let’s look at some of the special tax considerations for small business owners.

Married couples who own a small business can file on Schedule C and get Social Security credits for each taxpayer. The IRS allows taxpayers who jointly own a business to elect to file two Schedule C’s for the business by splitting the income and expenses based on each taxpayer’s investment. Both taxpayers must be actively involved in the business to qualify for this option called a qualified joint venture (QJV) election. Using the QJV election allows married taxpayers who own a business together to avoid the more complex and costly filing of a partnership return. Business owners who meet all the of the following qualify: 

  - A husband and wife team are the only owners of the business
  - Taxpayers must be recognized as married for federal income tax filing 
  - Taxpayers must file a joint tax return 
  - Both taxpayers must be active participants in the business 
  - If not a new business, the spouses filed a partnership return in previous years 

What are the benefits? Each spouse pays into Social Security for future benefit protection, Schedule C is a less complex form to complete than the partnership return and the taxpayer completes the portion of the return for the business and their individual return all at one time, and a QJV filed on a Schedule C generally does not require an employer identification number (EIN) unless there are employees.    

Some of the other rules governing small business for this year include:  Taxpayers are still eligible for 100 percent bonus depreciation on tangible assets placed in service during 2012; Up to $250,000 of Leasehold Improvements are eligible for section 179 deduction. Leasehold improvements are often the remodeling a business does to the space rented for their business; Business owners that accept credit cards and debit cards will receive a Form 1099-K reporting all credit and debit card payments they received last year. Each payments settlement entity (PSE) that collected funds for the merchant will send a Form 1099-K. This income should be included on the Schedule C only once since it is possible to have it reported on a 1099-MISC also; Taxpayers may deduct 100 percent of theirs and their family’s health insurance cost as a direct deduction from income on Form 1040; Common required tax and state mandated employer costs: Unemployment insurance (FUTA and SUTA), Worker’s Compensation insurance, Medicare and Social Security taxes.  

If you’re a small business owner, don’t forget to review your tax situation throughout the year and complete estimated tax payments each quarter.   

Graduating from college leads to important life changes that can trigger significant tax benefits. The United States National Center for Education Statistics estimated that 3.4 million college degrees were awarded in the 2011-12 school year. Many of these recent college graduates took on new and exciting responsibilities in the real world, like starting their first job this past tax year. And many of these graduates may not be aware of the tax benefits available to them.

Mark Steber, Chief Tax Officer, recommends new graduates check out these tax tips: 

Deduct student loan interest – Taxpayers can claim up to $2,500 in student loan interest paid during the year as long as they are legally obligated to repay the loan, were at least a half-time student in a degree or certificate program when the loan was awarded and attended an eligible institution.

Know how being claimed as a dependent by someone else can impact their taxes – Many college students are claimed as a dependent on their parent’s or guardian’s tax returns. This affects eligibility for certain deductions and credits, like student loan interest paid. Taxpayers should verify their dependent status before filing their taxes.

Be aware that scholarships, fellowships and apprenticeships can affect their taxes – Scholarships and fellowships are taxable if they are not paid directly to the institution or were awarded to a non-degree candidate. Any part of the scholarship that is used for room, board or travel is also taxable. Generally, any payments from apprenticeships are taxed the same way as wages.

Choose withholdings – It is easy to owe taxes when taxpayers start their first ‘real job’ because they are accustomed to having a small amount of withholding. Any time income increases, it is important to make sure to have enough withholding to cover the new tax liability. The IRS Withholding Calculator helps taxpayers determine the best way to determine withholdings.

Claim moving expenses from relocating for a new job – Taxpayers must work full-time for 39 out of the next 52 weeks to be eligible. Keep track of mileage, lodging expenses and tolls when relocating, as well as the cost of moving any household goods and pets. All these relocation expenses can be tax deductible.

What happens if you filed a tax return and later realize that you omitted income or overlooked some deductions? You can amend your return by filing Form 1040X, Amended U.S. Individual Income Tax Return. Generally, you must file your amended return within three years after the date you filed your original return. You cannot change your filing status from Married Filing Jointly to Married Filing Separately after the due date of the original return. 

Wondering if you can claim someone as a dependent on your 2012 tax return? To qualify as a dependent on your tax return an individual must meet the following three tests:   

• Cannot be a dependent of another taxpayer
• Cannot file a married filing jointly tax return
• Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico during the year

Dependents fall into two specific categories: they are either a qualifying child or a qualifying relative. While both types of dependents are eligible for a $3,800 exemption, the qualifying child dependent is the only one eligible for the Child Tax Credit, Additional Child Tax Credit and Earned Income Tax Credit.