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IRS urges travelers requiring passports to pay their back taxes or enter into payment agreements; people owing $51,000 or more coveredIRS urges travelers requiring passports to pay their back taxes or enter into payment agreements; people owing $51,000 or more coveredThis month, the IRS will begin implementation of new procedures affecting individuals with delinquent tax debts. New sharing economy opportunities like Airbnb and Uber, and even self employment gigs let people become their own boss. Some side hustlers or gig economy workers may not realize they are small business owners. While owning a small business offers many positives like freedom from having a boss and the ability to set their own schedule there are unintended tax consequences with small business taxes. A year round tax advisor can help taxpayers understand and anticipate these surprises.Paying income tax alone isn enough as small business owners owe self employment taxSmall business owners may be surprised when filing their tax return for the first time, that in addition to income taxes, they owe another 15.3 percent in self employment tax on their net self employment income. While employees and employers share the burden of Social Security and Medicare taxes equally by paying 7.65 percent each, a self employed individual must pay the full amount.Paying the IRS becomes a quarterly event with estimated tax paymentsAnother difficulty is that small business owners don have taxes withheld from a paycheck like traditional employees. Generally, if they expect to have a tax liability of at least $1,000, they must send tax payments each quarter to the IRS. Not knowing or forgetting about quarterly estimated tax payments may result in a significant tax balance and penalties.Home office use matters on the tax returnThe area designated as a home office must be used only for the taxpayer trade or business. This means that if they do their work on the kitchen table that their family also eats at every night, they won qualify for the home office deduction. Although the office doesn need to be separated by a permanent partition, like a wall, it does need to be an area separate from personal use.Tax reform impacts everyone and gives a 20 percent deduction to small business ownersThe new tax reform law is like a life event. It not just a tax rate change or a bigger child tax benefit. It going to change the way taxpayers think about and plan their income taxes. They need to take a fresh look at their individual situations to know their outcome and new strategies to use to get the best tax outcome.Eligible businesses will get a 20 percent deduction off their net income as long as they meet certain rules around their income and type of business. They don’t have to spend money to get this deduction. Most deductions are 1:1 for what a small business owner spends, but this this deduction is an extra 20 percent off their profit even after deducting all their business expenses.Taxpayers who have questions or need help can get matched with a tax advisor online. Always seek the advice of your accountant or other qualified personal finance advisor for answers to any related questions you may have. Use of this site and any information contained on or provided through this site is at your own risk and any information contained on or provided through this site is provided on an “as is” basis without any representations or warranties.
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