Income - Business

Income - Business

Income - BusinessForm 1040, Line 12Pub 4012, Tab 2

4491-09 Income - Business v11.0 VO.pptx12/29/20111Tax Law Training (NJ) TY2011 v11.0

Notes/Handouts1/6/2012NJ Training TY 20081BUSINESS INCOMESELF-EMPLOYEDIn business for self as a sole proprietor or independent contractorTrade or business carried on with expectation of making a profitA self-employed person performs a service and controls at least one the following:Who, What, Where, When and How12/29/20112Tax Law Training (NJ) TY2011 v11.0

DEFINITIONSBusiness: Continuous and regular activity with income as primary purpose.Employee: Employer controls when, where, and how the employee works.Independent Contractor: Performs services for others.Self-Employed for Tax Purposes

Note: Household employees (baby sitters, cleaning help, home health aides etc) income is taxable to employee Out Of Scope To Payer

12/29/20113Tax Law Training (NJ) TY2011 v11.0

SCHEDULE C/C-EZSchedule C/C-EZ: NEW RULES APPLYWe recommend using Sch C in all casesExpenses must be $10,000 or lessAll other limitations follow C-EZ guidelinesF1 (TaxWise Help) for deductible expenses and 1040 Instructions for Business Codes On Schedule C, the mileage amount (entered in Part IV) carries to the expenses12/29/20114Tax Law Training (NJ) TY2011 v11.0

LIMITATIONSBusiness expenses of $10,000 or lessCash method of accountingNo inventoryNo net loss from businessOnly sole proprietor, no employeesNo Depreciation/AmortizationNo deduction for business use of homeNo prior year unallowed passive activity loss

12/29/20115Tax Law Training (NJ) TY2011 v11.0

Schedule C InformationBusiness Code SourceLookup table available in Tax Wise HelporRefer to 1040 Instruction BookletEmployer ID Number (EIN)If TP does not have an EIN, leave space blank. Do not enter SSNIf TP has 1099-Misc, use TaxWise Link from C, Line 1 Gross Receipts, to enter 1099 data12/29/20116Tax Law Training (NJ) TY2011 v11.0

Notes/Handouts1/6/2012NJ Training TY 200866Allowable Business ExpensesAdvertisingVehicle expensesMileage or actual expenses see belowCommissionsInsuranceInterestOffice & rent expenseRepairs and maintenanceSuppliesTaxesTravelUtilities50% of business meals/entertainmentProfessional fees12/29/20117Tax Law Training (NJ) TY2011 v11.0

Notes/Handouts1/6/2012NJ Training TY 200877SELF-EMPLOYMENT TAXESComputed on Schedule SE15.3% (reduced to 13.3% for 2011) of net self-employment income for Social Security and Medicare taxesTaxpayer claims adjustment for half of self-employment tax (1/2 of 15.3%) on 1040 Line 27TaxWise computes all automatically12/29/20118Tax Law Training (NJ) TY2011 v11.0

Schedule C/C-EZ QUIZWhich set of expenses qualifies for C/C-EZ under AARP Tax-Aide rules?Mileage, advertising, home office deduction and utilities.Mileage, advertising, insurance and utilities. Mileage, insurance, depreciation, and supplies.

212/29/20119Tax Law Training (NJ) TY2011 v11.0