Federal Taxation

What is your determination regarding reducing the taxable amount of income for both (a) and (b) above? John would have to account for all qualified business expenses and only net income will be taxable. Annuity payments are usually equal payments made over a course of time. In some cases it may be a few years or it may be even longer. What makes annuity payments preferable over lump sums is the fact that annuity payments are tax-free. They could also defer income tax liability by making contribution to the retirement fund.

How is this lease reported on my income tax returns (either personally or for my business which is a separate law practice established as an LLC)? – LLCs are generally treated as disregarded entities for income tax purposes and all income and expenses are reported on owner’s tax return as self-employment income on the schedule C. (1) Lease expenses are deducted on the line 20. The office lease payments will be reported as a business expense on your business tax return. Do I get better tax benefits for paying the lease or for buying the building?

What are the differences? – The office lease payments will be reported as a business expense on your business tax return. If you own the building you will deduct mortgage interest, depreciation over 39 years, real estate taxes, owner’s insurance, and some other expenses related to maintain the property. Jane Smith tax issues: What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for Federal income tax purposes? If you pay off your mortgage, you’ll lose the mortgage deduction on your federal income taxes.

That lowers your overall return from repaying the mortgage. If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. If you want a bigger house you have to see what the interest rate is and with today’s housing market it is not good for sellers, you can expect longer time before you eventually will sell the house and might have to accept lower price. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John’s case?

Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange Treatment. (2) You cannot ? do a 1031 like-kind exchange on your personal residence. A 1031 exchange allows the deferral of capital gains taxes and? recapture of depreciation. With the 1031, like-kind exchange, you? can sell a piece of property that is highly appreciated and roll over ? the gain into another piece of property. The second piece must be? another piece of business or investment real estate. Does Jane have a business or hobby?

Why is this distinction important? With 20,000 of earnings I would call this a business. If your activity is carried out with the intention of making a profit or gain, then it is a business. If the activity Makes a loss, but your intention was to make a profit, and then it is still a business. According to the IRS, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.

Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry making activities? First year expense deduction. You can deduct up to $20,000 worth of equipment as a current expense during your first year of business with this deduction. Otherwise, you would have to deduct it over a period of years depending on the depreciation schedules for the assets concerned. Auto expenses. If you use your car for business purposes, you can claim mileage or depreciation.

The mileage method allows you to deduct the amount per mile the IRS allows for the particular year. The depreciation method allows you to take a depreciation deduction on the cost of your car and add to that all costs and expenses associated with running your car including maintenance. With health insurance payments (proportion), business insurance premiums, contributions to retirement plans and continuing education expenses related to your business. ? Gifts valued at up to $25 per person per year. ? Internet and email services – ISP, webhosting etc.?

Interest on business credit. ? Entertainment – 50% of ordinary and necessary business expenses for entertaining clients, employees, etc.? Advertising, marketing and promotion expenses. ? Membership dues for professional associations and subscription costs for professional and trade publications. ? Local travel expenses e. g. taxis, trains etc.? Business travel expenses – airfare, accommodation, meals, entertainment etc.? Postage. ? Furniture and equipment. ? Business cards, stationery and office supply. ? Parking fees. ? Bank fees on business accounts.