If you’ve always deducted your business vehicle expenses in the past, read on. With the recent changes in the tax code, not everyone can still claim the deduction. Some taxpayers can, but some cannot.
In a nutshell, only a few types of taxpayers can now qualify to deduct auto expenses from their taxes.
Business Owners and Self-Employed Taxpayers
Individuals who either own a business or are self-employed and use their vehicle for business purposes can deduct vehicle expenses on their returns. If the taxpayer uses the vehicle for both personal and business purposes, the expenses must be split. The deduction is based only on the portion of mileage used for business purposes.
There are two methods for figuring car expenses:
- Using actual expenses
- Lease payments
- Gas and oil
- Repairs and tune-ups
- Registration fees
- Using the standard mileage rate
- Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.
- Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.
- The standard mileage rate for 2018 is 54.5 cents per mile. For 2019, it‘s 58 cents.
There are recordkeeping requirements for both methods.
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2 percent floor.
However, certain taxpayers may still deduct unreimbursed employee travel expenses; this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.
For more information, check out IRS Publication 535, Business Expenses.
– Story provided by TaxingSubjects.com
The Internal Revenue Service is attempting to rein in some taxpayers who may have failed to report income and pay tax on virtual currency transactions.
Some taxpayers, the IRS says, didn’t pay tax owed; others may have reported their transactions improperly. Either way, IRS Commissioner Chuck Rettig says it’s a big deal.
“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” said Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”
The letters are being mailed out now and some 10,000 taxpayers should get one by the end of August. How did they know who should get a letter? The IRS says they got the names of the taxpayers “through various ongoing IRS compliance efforts.”
The IRS reminds that delinquent crypto taxpayers can face penalties – and worse – if their tax liabilities are ignored. Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.
Letters in Three Flavors
The IRS characterizes these letters as “educational,” and they come in three varieties: Letter 6173, Letter 6174, or Letter 6174-A. All three, the IRS says, strive to help taxpayers understand their tax and filing obligations, while instructing them how to correct past errors. All three letters also list the forms the taxpayers will need and where to send them.
Last year the IRS announced a Virtual Currency Compliance campaign aimed at tax noncompliance related to the use of virtual currency. “The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations,” an agency release says.
The IRS’ efforts are not all in education, however. Virtual currency remains an ongoing focus area for IRS Criminal Investigation.
IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS says it is continuing to solicit feedback from taxpayers and practitioners.
The IRS anticipates issuing additional legal guidance in this area in the near future.
More information on virtual currencies can be found on IRS.gov.
– Story provided by TaxingSubjects.com
The IRS recently highlighted how the Tax Cuts and Jobs Act affected whistleblowers who submit information to the IRS Whistleblower Office.
It turns out that the IRS offers award money to whistleblowers who help investigators discover and prosecute tax evasion. According to the “Whistleblower – Informant Award” page on IRS.gov, “The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty, and other amounts it collects.”
Whistleblowers will now be notified when cases that arise from their tipoffs have “been referred for audit or examination.” That said, the agency is careful to note that “notification does not necessarily indicate that an audit or examination has been or will be opened,” nor does it mean “the claim will receive an award.”
When it comes to awards, the IRS says that they will send notification “when the taxpayer the whistleblower identified has made a tax payment with respect to which the whistleblower’s information provided.” However, whistleblowers may have to wait years for cases to be resolved, and awards are not always issued when those payments are finally made.
If a whistleblower wants an update on any pending cases they referred to the agency, they will need to send a hand-written request to the IRS Whistleblower Office. The IRS closed the press release by including that contact information:
Internal Revenue Service
1973 N. Rulon White Blvd.
Ogden, UT 84404
For more information on submitting whistleblower claims, the IRS provided a link to Publication 5251, Whistleblower Claim Process and Timeline.
Sources: “Whistleblower – Informant Award”; “Whistleblower Reforms Under the Taxpayer First Act”
– Story provided by TaxingSubjects.com
tax tips | July 12, 2019 | By Susannah McQuitty
Paying taxes on the money you make from eBay, Etsy, Poshmark, and others seems like a touchy subject, doesn’t it? Part of you may want to just take your chances and figure it out as you go along, but why stress over what you don’t know?
Taxes for online sales isn’t actually that hard—and some people may not even have to pay taxes at all. It comes down to what you’re selling, how much you’re making, and why.
But why not make it even simpler? Let’s look at the three main reasons people sell online and talk straight about what you need to know for taxes.
Selling used and personal items for a couple bucks
Maybe you need to get rid of junk, or maybe you’re doing a true-blue Dave Ramsey cleanse—whatever your motivation, sorting through personal belongings and slating some for your online store can bring in a pretty penny for your efforts.
When you sell personal used belongings for an amount that’s less than you originally paid, you’re in luck: You won’t owe taxes on the money you make. If you use Poshmark to sell a pair of $50 running shoes for $15, you don’t have to pay taxes because the amount you received was less than the original price.
Sure, you won’t be raking in the dough because you’re not selling at a profit, but that amount somewhere between couch money and birthday cash is yours to keep.
Taxes to know:
- As long as you sell your items for less than they cost you, you don’t have to pay taxes on the money you make.
Making back more than you paid (once in a while)
Let’s say you’re getting rid of a painting that cost you $30. An artsy-looking chap strolls by, catches sight of it, and flings his beret into the air for joy. He offers to pay you $200 for the painting, and you take the money. Cha-ching!
You didn’t plan to sell the painting for more than it cost you, so you’re not considered a business. You did, however, have a gain of $170 since you originally paid $30. That $170 is taxable as a capital gain, so when tax time rolls around, you should use Schedule D to report your capital gains and pay taxes accordingly.
Selling for higher than you paid might come up fairly often on eBay, since it’s bidding-based. If you set up an account with the intention of flipping items and selling them for higher than you paid, skip this and go to the next section; if, however, it’s just a happy accident when you get more than you paid, simply report the difference on a Schedule D as capital gains.
Taxes to know:
- Whatever extra income you made will be taxed as a capital gain.
- You can use Schedule D to report capital gains.
Flipping or creating items as a business
Whether you’re making those thrift store finds work in your favor, creating unique pieces to sell on Etsy, or restoring memorabilia to sell on eBay, running a storefront to turn a profit means you’re in the big league now.
Even if it’s just something to do on the side of your day job, congratulations: You are what’s called a “sole proprietor,” which is a fancy way of saying “a person who owns and runs a small business.”
Since your position is a bit fancier, your taxes will be a bit more involved. The key is to keep detailed track of how much you earn (income) and how much it costs to run your business (expenses). Third-party payment sites like PayPal, Square, or Venmo may send you a tax form at the end of the year. These sites are known as Payment Settlement Entities, or PSEs, and the Form 1099-K tax form they may send will include how much money passed through the payment site. That includes personal transactions, too, so make sure to keep good records so you can account for the business-related income.
At the end of the year, you’ll use Schedule C to report your info and subtract expenses from income. You’ll either break even, make a profit (or net earnings) or suffer a loss (which can get you a tax break on your general income).
The platforms you use to sell will typically track your earnings and the cost of goods sold, but if they don’t, make sure you’re ready to fill in the blanks. Check out our blog post on getting started as a small business or freelancer for more info.
Taxes to know:
- Schedule C is going to be your best friend when you file your taxes—consider it a one-stop shop for everything related to your business.
- After listing your income and expenses on Schedule C, calculate any profit by subtracting your business expenses from your income. If you come up with a negative number, you have a loss.
- If your profit exceeds $400, self-employment taxes will be applied.
- If you have a loss, you can deduct that amount from your taxable income without having to itemize deductions.
So what about sales tax?
Okay, but hold up—you’re selling stuff, so do you have to pay sales tax?
Usually the selling platform you use will collect sales tax and show you a report at the end of the year. The sales tax goes to the state that you run your business from; since you’re operating on the internet, sales tax will go to the state where you live.
Now, sometimes the platform doesn’t handle sales taxes, and in that case, you’re responsible for collecting the tax from your customer and sending the money where it needs to go. For example, eBay will manage sales tax for 27 states by the end of 2019, but sales tax still has to be reported and delivered if your state is not included in that number.
Boiling it all down
Just remember: Taxes for online sales comes down to what you’re selling, how much you made vs. how much you had to spend, and why you’re in the market to begin with.
Sold goods aren’t taxable as income if you are selling a used personal item for less than the original value. If you flip it or sell it for more than the original cost, you have to pay taxes on the surplus as capital gains. If you bought it with the intention of restoring and turning a profit, you’ll have to file Schedule C and possibly pay self-employment taxes.
That just about wraps it up! Hit up the comments with any questions about taxes for your online storefronts, and check out our tax estimator to get a hands-on example of how they will affect your taxes.
– Story provided by 1040.com