Did You Get An IRS Notice? Don’t Panic!


The IRS sends out thousands of notices each year so if you got one or get one, you are not alone. Even I got a notice this year! So don’t panic and immediately think there is a problem. However, you should never ignore your IRS notice. I’m going to give some tips on what you should do if you get a notice.

TIP: The IRS will NEVER contact you via phone. They will always send a notice. If you get a phone call from someone “from the IRS” saying that your return is incorrect and you owe more money, immediately hang up. Never give that person your information. You could also report these instances to the IRS so they are aware, and they can inform other people of these fraud scams.

The first thing you should do is read the entire notice. The IRS is not known for writing notices in “layman” terms so don’t be intimidated. If the notice makes absolutely no sense to you, you can Google the notice number that is in the upper right hand corner of your notice. Click here to see the different types of notices. Doing this can usually lead you to common questions regarding this notice that may help you decide what you need to do. You need to determine if there is action that needs to be taken or if they are simply notifying you of a situation which will cause some sort of delay with your tax return. For instance, you could get a notice saying you owe more tax than you thought which requires action (we’ll discuss below), or you could get a notice saying your return is being reviewed and you simply have to wait for their findings or your refund. For instance, the notice I received told me that my return was being “reviewed”, and I have to wait 60 more days to receive my refund. Why could this be? This is probably due to the fact that I filed my return very early. The IRS matches the information you file in your return with information they receive. The IRS receives copies of your W-2s, 1099s, etc. so if you file your return before they get their copies of your information, they may hold your return in order to verify your information. So in this situation, no action is needed and all you can do is wait. There have been many fraud issues this year of people claiming other people’s refunds so the IRS also may be taking extra precautions. You can also go on the IRS website to verify your identity to help avoid complications.

If no action is required, simply keep the notice for your files. If action is required, you should still copy the notice for your files so you have proof in case your letter is lost in the mail when sending something back to the IRS. If your notice states that you owe more tax than your tax return stated, the notice will show the income and other items you filed on your tax return, and then the numbers that the IRS has in their records. Then it will show the increase in tax and the additional amount you need to pay. If you agree with the notice, you simply sign the form and enclose your payment. ALWAYS copy the front and back of your payment before you send it to the IRS, and you should always send these payments “certified” through the post office. If you disagree with the changes they have made, you can send a copy of your notice back to the IRS with attached, signed documentation of why you do not agree with the notice. After that, you’ll receive a response from the IRS and you can go from there. Never ignore the notice even if you disagree because the IRS can add penalties and interest to your payment the longer it goes without being dealt with.

It is also possible to receive an IRS notice asking for payment when you have already made the payment in question. Sometimes it takes the IRS time to catch up so simply send a copy of the front and back of the check that you already sent (you should have made copies before you sent it the first time!) and you can send that to the IRS with a copy of the notice.

Lastly, if you have a CPA you can simply bring the notice to him or her so he or she can deal with it if you are not sure how to handle it.

If you have a notice that you don’t know how to handle, feel free to comment below so I can help you out!


Selling Your Main Home? Be Sure To Take Into Account First-Time Homebuyer Credits


First-time homebuyer credits were credits that reduced the amount of tax you owed on your tax return. You can no longer claim these credits as they could only be taken for the 2008, 2009, and 2010 tax years. However, these credits can still affect those that took the credits when it comes to selling their home in later years. The amount of the credit that could be taken differs between 2008, 2009, and 2010. In certain instances, you are required to repay all or a portion of your homebuyer credit. The circumstances for repayment differ between years. First we’ll discuss the 2008 credit.

If you took the 2008 homebuyer credit, you are obligated to repay that amount. You can think of it as an interest free loan that the government gave you when you purchased your home. You should have received a notice one year after you bought your home explaining the amount of the credit you took and how much you will be required to pay back each year. As you know if you took the 2008 homebuyer credit, the amount you are required to repay either increases your tax due or decreases the amount of your refund. The IRS no longer sends out notices, so in order to look up the amount you need to repay each year, and your remaining repayment balance, you can go to the First Time Homebuyer Credit Account Look-Up. Usually, your repayment is made up of equal payments each year until you’ve repaid the full credit you took. However, if you sell your home within 15 years after the purchase, you are required to pay the remaining balance of your credit in full. This also applies if you no longer use that home as your main home, for instance if you converted to use primarily for business or as a rental property. The rules for repayment change slightly for credits taken for the 2009 and 2010 tax years.

If you took a homebuyer credit in 2009 or 2010, you are not required to repay the credit UNLESS you sell your home within three years of purchase. If you sell your home, or the home is no longer your main home, within three years, you are required to repay the credit in full on your tax return in the year you sold the home. An important form to remember whether you’re repaying the 2008, 2009, or 2010 credit, is Form 5405. You will need to fill out this form and attach it to your tax return in the year you sold your home or no longer use the home as your main home. You only need to fill out this form if you sold the home within the 15 year period for the 2008 credit, or within 3 years for the 2009 and 2010 credits. By filling out this form, you are telling the IRS that you sold your home or it is no longer your main home, and the amount of the credit that you are repaying.

For the 2009 and 2010 credits, the three year period has already passed, to state the obvious. However the 2008 homebuyer credit can still affect many people who decide to sell their home this year or in the few coming years.

Feel free to spread the word below!

Estimated Payments – Keep 2015 In Mind When Filing 2014 Taxes

If you don’t already know what estimated tax payments are, they are payments you make to the government based on what you think your tax liability will be for that tax year. Estimated tax payments are normally due 4 times throughout the year. For example, for the 2015 tax year, you should submit estimated payments on April 15, 2015, June 15, 2015, September 15, 2015, and January 15, 2016. You do not have to make your January 15 estimated payment if you file your tax return by February 1, 2016 and pay the entire balance due with your tax return. While I am discussing the 2015 tax year, these rules regarding your estimated payments have been fairly consistent over the years, and have not changed significantly.


If you do not receive a W-2, for example, if you are self-employed, an S-Corp shareholder, a partner in a partnership, etc., then you may have to submit estimated tax payments throughout the year. If you receive a W-2, you may not need to make estimated payments because you can adjust the amount of withholding so it is already taken care of when you receive your paycheck.

Estimated tax payments are important to consider because if you do not pay in enough throughout the year, the IRS could charge you a penalty when you submit your tax return. A penalty can be charged for a variety of reasons. The two most common are if you fail to pay your estimated payments or if you pay them after the date they were due. It is still possible to get a penalty even if you are receiving a refund. But how do you know what your estimated payments are or should be?

When you file your tax return for the 2014 tax year, estimated payments for the 2015 tax year will be calculated based on what your tax liability was for the 2014 tax year. For 2015, you can use the estimated tax worksheet to calculate what estimated payments you should be making. If you pay a CPA to file your taxes, you should make sure to inform them if your income, withholding, or deductions could be changing in the next tax year. For instance, if you are switching jobs and will be earning a higher salary, that could bump up your income during the next year. If you are having a baby in the next year, that could bump up your exemptions which reduces your tax. All of these factors play in to the amount that will be calculated for your estimated tax liability the next year, so it is important to take all of these things into consideration.


There are instances when you do not have to pay estimated tax. Per the IRS, you do not have to make estimated tax payments if you had zero tax liability in the prior year, that prior year consisted of 12 months, and you were a U.S citizen or resident for that whole year. If you expect to owe $1,000 in taxes in the next year, generally you need to make estimated payments.  There are also a few different ways to pay your estimated payments. One way is by mailing in your check or money order with a voucher to your designated IRS location. Click here to see where you should send your payments. You can also pay via phone using a credit card or debit card. Lastly, you can use Direct Pay through the IRS and pay online.

If you need help deciding what your estimated payment should be or figuring out what your 2015 tax will be, please leave a comment below or shoot me an email at ellen.christine.carstensen@gmail.com! Thanks for reading!


Gambling Winnings and Losses . . . A New Election Potentially In Our Future

I live in Reno, Nevada, where gambling is very popular. While there are thousands of other things to do in and around Reno, gaming is still what people think of when they think “Nevada”. That is probably because there are casinos and slot machines EVERYWHERE; I’m not kidding, the slot machines are even in grocery stores. With the prevalence of gambling in this area, many people will be claiming winnings and losses on their tax returns. You didn’t think I’d lead you anywhere other than a tax subject, did you? First, we’ll go over how to record your winnings and losses on your tax return, and then I’ll tell you about a possible new election that you may want to make if you are an avid gambler.


Winnings are claimed as “Other Income” on the face of your 1040, the front page of your tax return. Generally, if you win over $1,200 on one game or machine, you will receive a W-2G from the casino at which you won the money. This form simply shows how much you won, the date you won, and the type of game you were playing. These forms are given to you and are also sent to the IRS so they have this information. Therefore, if you don’t report this income, the IRS will know and you will be required to file an amended return in many cases. However, if you win a couple hundred bucks, the casino is not required to file a W-2G for you. Even though you don’t receive a form, it is your responsibility to keep track of all those winnings throughout the year and claim them on your tax return. Hiding this information from the IRS could get you in deep trouble so I’d advise just claiming the income and getting it over with. Also, if you have a lot of winnings, it is likely that you may have high losses as well which are also deductible on your return.

Your losses are claimed on Schedule A. This means, you can only claim your gambling losses if you itemize. If you use the standard deduction, you cannot claim your losses. If you don’t already know what the Schedule A is, click here, here, or here to read my other posts describing all aspects of Schedule A. Currently, there is no “lumping” allowed. This means if you win $5,000 and casino X, but lost $6,000 also at casino X, you cannot net the two together. You must report the income and deductions, in full. You cannot net them to a loss of $1,000 and report nothing on your tax return. However, this could possibly change.

The IRS has proposed a new safe harbor election related to gambling winnings and losses. This procedure only applies to electronically tracked slot machines which means you use a player’s card or another method for tracking your activity. This proposed procedure also specifically defines a “session of play” which has not been done previously. A session of play is defined as a full calendar day from 12 am to 11:59 pm. For example, if you walk into a casino at 1 pm and start playing a slot machine, leave at 4 pm, and come back at 6 pm to continue playing slots until 8 pm, that is all considered one session. If you play through the night until 2 am, 12 am to 2 am is considered a new session. Additionally, if you leave and go to another casino to gamble, that is considered a new session of play; one session of play cannot overlap between gambling establishments. This new procedure allows the taxpayer to net together gambling gains and losses in one session of play. For example, if you won $5,000 during one session of play as defined above, but spent $3,000 during that time, you would be permitted to net the two together and claim $2,000 in winnings on your return. Without using this election, you would be required to claim $5,000 in winnings and $3,000 in losses. The taxpayer still must keep very good records in order to substantiate their winnings and losses. As you can see, this election does not affect other types of gambling such as lottery, horse races, etc. If this proposed election is approved, it will go into effect for the tax year beginning January 1, 2016. Click here to see the full, official proposal

Leaves any questions you may have below, and stay tuned to The Tax Bleep for more important updates!

Roll Out of Bed and Into Your Office: Business Use of Home Deductions


If you run your own business or are an employee of a business, you may be able to deduct certain expenses associated with an office you use in your home. This includes mortgage interest, utilities, cleaning services, or a variety of other expenses associated with your home. You may qualify for the home office deduction whether or not you own the house or rent it. The home office must be associated with a trade or business; if you have a home office that you use for hobbies or other not-for-profit endeavors, then you do not qualify for the deduction. This deduction will be a line item on your Schedule C. There are two requirements that your office must meet in order to qualify for a deduction.

The two requirements are: the part of your home used as an office must be used exclusively for that business, and it must be used regularly as part of your business. Those are the two most fundamental words to remember when deciding whether or not you can take this deduction. Is it regularly used and exclusively used for business purposes. There are two exceptions to the exclusivity rule. One is if you run a daycare out of your home, you can deduct the portion of your home used for the day care, even if you use it for personal reasons as well. You must be licensed daycare or exempt from needing a license to qualify. The other exception is the storage of inventory or product samples. If you store either of these items in your house, you may be exempt from the exclusivity rule.  To qualify, you must be able to answer “yes” to all five of these questions: “You sell products at wholesale or retail as your trade or business, you keep the inventory or product samples in your home for use in your trade or business, your home is the only fixed location of your trade or business, you use the storage space on a regular basis, the space you use is a separately identifiable space suitable for storage.” (IRS Website)

If you do not run your own business, but are an employee for another business and have a home office, you may still be able to get a deduction. The exclusive and regular requirements still apply, but there are two additional rules in order to qualify. First, the home office must be for the convenience of your employer. If you have a home office because you felt you needed it, and your employer is not aware, then you do not qualify for a home office deduction. Second, you cannot rent out a portion of your home to your employer and then use that portion to perform employee services for that business.

Click here to see a helpful map by the IRS to determine whether or not your home office qualifies.

After you have decided if your home office qualifies for deductions, there are two methods you can choose for taking a deduction: actual expense method or simplified method.  The simplified method was first introduced for the 2013 tax year. This is a method you would want to use if you do not keep good records of expenses associated with your home, or if you simply do not want to keep those records. First, you determine your gross income and all your business expenses not associated with your home office for the year. You subtract the expenses from the income and if this number is $0 or less, you cannot take a home office deduction. If it is greater than $0, you take the square footage of your home office (not to exceed 300 square feet) and you multiply it by $5. You can deduct the smaller of the $5 times the square footage, or your gross income minus expenses. If you used a portion of your home for daycare and it was not exclusively used for daycare purposes, the simplified method will be slightly different. Click here, and follow links to “Instructions for the Daycare Facility Worksheet”.

You can choose the simplified method year by year. You are not stuck using it forever if you choose to use it one year. However, if you use the simplified method in a tax year, you cannot switch methods in the same year (for instance, if you must file an amended return, you cannot switch your method). Additionally, if you choose the simplified method, you cannot deduct actual expenses. You simply get the deduction as it is calculated, and that is it.


The other option is the actual expense method. For this method, there are three categories of expenses. The first is direct expenses which are expenses directly related to your business such as painting a the walls of your home office, or repairs only within your home office. These are fully deductible. Indirect expenses are things that partially apply to your home office such as property taxes, utilities, and mortgage interest. These are only partially deductible. Unrelated expenses are things that have nothing to do with your business such as lawn care in front of your house or painting a room in your house that is not your home office. These expenses are not deductible.

First, you’ll need to determine the percentage of business use for your home. You do this by dividing the square footage of your home office by the square footage of your entire home. For example, say your home is 2,000 square feet and your home office is 200 square feet. This means 10% of your home qualifies as business use of home. Then you can take all of your indirect expenses and multiply them by 10%. Once you have this total, you add it to the total amount of direct business expenses to come to your total deduction. When using the actual expense method, you can also depreciate a portion of your home as well which you cannot do using the simplified method.

As you can see, the actual method takes a bit more effort and record keeping to come to the deduction. You will have to evaluate the trade-off in order to see which method works best for your situation. Leave comments and questions below, and spread the word!


Miscellaneous Transportation Deductions and Business Auto Deductions: Standard Mileage

If you use a vehicle for business use, you can deduct certain expenses associated with that vehicle. Last week we discussed one method for deducting auto expenses, the actual expense method. The other method which we’ll discuss now is the standard mileage method. We’ll also go over different types of commuting expenses and what is and is not deductible.


The standard mileage rate for 2014 is $.056 per mile. The rate for 2015 will be $0.575 per mile. During the year, you need to keep track of the number of miles your drove for business purposes, and you multiply those miles by the standard mileage rate. In order to use the standard mileage rate, you must elect it in the first year that you record expenses for your vehicle. After the first year you can choose between the standard mileage rate or the actual expenses. However, if you lease the car for which you are claiming the deduction and you choose the standard mileage rate in the first year, you must use the standard mileage rate for the entire length of the lease. If you choose to use the standard mileage rate, you cannot expense costs for other things such as repairs, oil changes, insurance, registration fees, etc. You simply get the deduction as calculated by mileage times $0.56. However, you can still deduct parking fees and tolls paid for business purposes when using the standard mileage method. After your first year using the standard mileage rate, you should keep track of your total miles and all other expenses associated with your vehicle in order to decide which method will give you the biggest deduction at the end of the year.

There are a few instances in which you are not allowed to use the standard mileage rate. You cannot use standard mileage if any of the following apply to you and your business: you simultaneously use five or more vehicles, you claimed a 179 depreciation expense for your vehicle, you used the special depreciation allowance, you claimed depreciation using any other method besides straight line, or you used the actual expense method after 1997 for a leased vehicle.

Other costs associated with commuting for business purposes are treated differently. You are not allowed to take a deduction for any expenses incurred travelling from your home to your place of work such as taxis, buses, or gas for your personal vehicle. Even if you are working during your commute, you still cannot take a deduction. Parking fees at your place of work are also considered commuting expenses and are not deductible. However, parking fees when travelling to meet clients are a deductible expense. If you have multiple places of work, you can deduct expenses for travelling from one place directly to the other. Additionally, if you have no set place of work, but you usually work within a certain metropolitan area, you can deduct travel expenses from your home to a work site that is outside of that normal metropolitan area. If the work site is in the metropolitan area, you cannot take a deduction. If an office in your home is considered your main place of business, you can deduct transportation costs to get to other locations associated with the same business.

As you can see, transportation costs associated with your business can be a tricky subject to sift through. If you ever have a question, leave a comment so I can help you out! See you next time!

Schedule C Auto Deductions: Actual Expenses

Since we went over the basics of the income you should record and expenses you can deduct on your Schedule C, now we get to discuss an important and prevalent topic among business owners. You can expense certain costs associated with using your vehicle for business purposes and there are two methods for recording these expenses. The method we will go over now is the Actual Expense method.

The Actual Expense method means that you can deduct the actual expenses you incurred for your vehicle. If you used your vehicle solely for business and never for personal reasons, you can use 100% of expenses such as oil, registration, repairs, etc. on your Schedule C. However, it is often the case that people use their vehicle for personal and business purposes. In this situation, you should keep track of the miles you drove solely for business and the total miles you drove during the year. Then you can calculate the percentage of business use for your car. You would then multiply this percentage by those oil, registration, and other expenses to get the amount that you are allowed to expense.

You can also deduct depreciation expense on your Schedule C using a variety of methods. They consist of the following:


Section 179 deduction: When you place a vehicle in service, you can deduct a large portion of the basis of that vehicle as depreciation in the year you place it in service. You also must use the vehicle for at least 50% business use to claim the 179 deduction. You must calculate the basis of your vehicle which is usually the purchase price for most people. (If you need help calculating your basis, leave a comment below, and I can help you out!) If you have a sport or utility vehicle, your basis is limited to $25,000. This means that $90,000 sports car you just bought can’t give you as big of a deduction as you think. Additionally, if you use your vehicle for a percentage of the time for business use, say 80%, then you must multiply your basis by 80% to figure the amount of basis you can actually use for your business depreciation deduction.

Once you’ve figured your basis, then you can determine your deduction. If your vehicle is qualified property and you are taking the Special Deprecation Allowance (see below), then your limit for a depreciation deduction during 2014 is $11,160. If you don’t plan on taking the Special Depreciation Allowance, then your deduction limit drops to $3,160. Here is an example from the IRS website to simplify things:

“On September 4, 2014, Jack bought a used car for $10,000 and placed it in service. He used it 80% for his business, and he chooses to take a section 179 deduction for the car. The car is not qualified property for purposes of the special depreciation allowance.

Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%).

Jack then figures that his section 179 deduction for 2014 is limited to $2,528 (80% of $3,160). He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Jack has reached his maximum depreciation deduction for 2014. For 2015, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction.”


Special Depreciation Allowance: The Special Depreciation Allowance means that you can deduct an additional 50% of the vehicle’s depreciable basis. The first thing to determine is whether or not your vehicle is qualified property for the purposes of this allowance. To be qualified property, it must meet the following three criteria: be purchased on or after January 1, 2008, it must be used at least 50% for business purposes, and it must have been placed in service before January 1, 2008. You would take this allowance after claiming any Section 179 Expense, but before taking any depreciation deduction (see below). You can elect not to use this allowance by attaching a statement to your tax return stating the type of property and the fact that you are electing not to take it. However, if you do not elect out of the allowance, you still must decrease the basis of your vehicle by the amount of the deduction that you would have gotten, even if you did not use the allowance.

Depreciation Deduction: Lastly, after you’ve taken into account your Section 179 Deduction and your Special Depreciation Allowance, you can calculate your remaining depreciation expense. Remember that if you take Section 179 and Special Depreciation Allowance, your depreciation for that year is limited to $11, 160 or $3,160 if you choose not to take the Special Depreciation Allowance. There are a few options you can use to calculate your annual depreciation deduction. While you may only be able to take the other two deductions in the year the vehicle was placed in service, you can still get a depreciation deduction every year until the basis of the vehicle has been fully depreciated. Most people will use MACRS depreciation which stands for Modified Accelerated Cost Recovery System. Under this system, cars are given a useful life of 5 years. MACRS depreciation offers a variety of different ways in itself to depreciate your vehicle so click here to check out the IRS website and go more in-depth to makers. Generally, you will get larger deductions in the earlier years of your vehicles life using MACRS depreciation.

You cannot use MACRS if you were first using Standard Mileage Method, which we’ll discuss later, instead of Actual Expense Method. In this case, you would be required to use straight line depreciation which means you get an equal amount of depreciation expense over the 5 years of the vehicles useful life. Straight line is a much simpler depreciation concept, but is not as beneficial in the earlier years as MACRS is.

Depreciation can be a very confusing issue, especially when trying to apply it to your business assets. If you have any questions or comments, please leave them below, and I will do my best to help you out! Stay tuned to The Tax Bleep to learn about the alternative method, Standard Mileage Method, for expensing costs associated with your business vehicle!

So . . . You’ve Decided You Need to File a Schedule C. Now What?

Still not sure whether or not the Schedule C is for you? Take a look at my previous blog post to get some clarity. If you have decided you need to file a Schedule C for your business, continue reading to learn the basics of what information you’ll need and how to record it.

The first half of the Schedule C describes the business you are in, and asks you a variety of questions. One important question is if you are cash basis or accrual basis in your bookkeeping methods. In my experience, most people who file a Schedule C are cash basis. This means that you record income when you physically receive the money, and you record expenses when you physically pay for something. Accrual basis is the other method and this means you record income when it is earned, and you record expenses when they are incurred. If you are an accrual based business, you will have “accounts receivable” which means you have earned the money, but the person or business has not paid you yet. You would record this money as income on your return. The same thing goes for “accounts payable”.

Another important question asked at the top of the Schedule C is if you made payments that would require you to file a 1099. For example, if you subcontracted a job to a person and paid them, you could give them a 1099 showing the income they received from you. The IRS would also get a copy and that person would be liable for reporting that income on his or her tax return. If you aren’t sure whether or not you need to file 1099’s, leave your questions below, or you can check online!


Now, once you are done with the basics at the top of the form, you can begin to fill in your income and expenses. If you are in business, you should know by now that you need to keep detailed records of all income and expenses you receive through the year. There are many ways to do this. You can keep written records; however, I wouldn’t recommend this because they are difficult to keep track of and it is much easier to make and miss mistakes in your bookkeeping. There are a variety of other programs available nowadays that there is really no need to record your books by hand. A very popular one is Quickbooks which most people know about, but it seems that not many people use it to its full potential. Quickbooks is beneficial no matter what size business you have. I would recommend using the desktop version, not the online version, because the online version can be slightly more confusing and difficult to use, but it is really your preference.

You should report all income you received through your business during the year, even if you did not receive 1099’s from anyone. This will go on Line 1. You also need to keep track of any returns or discounts you gave because those can be deducted from your income. Then comes all of your expenses. You can generally deduct any expenses you incurred that were associated with the functioning of your business. This includes: advertising, car expenses (the car/truck must be used for business only or you can only deduct a percentage of expenses based on your personal to business use ratio), supplies, legal fees, etc. You can even deduct $0.56 per mile that you drive in your business vehicle. They all must be directly related to your business or you cannot deduct them. If you use a portion of your home or you use your car for work and personal use, you will need to file alternate forms in order to claim a percentage of expenses for


those items (we’ll go over that later). However there are certain expenses that cannot be deducted and must be capitalized. If you buy large assets for your business such as a building or a large piece of equipment, you could have to capitalize these. This means you do not get to take a huge expense in the current year, but instead the cost of the item is expensed over a number of years so you get to expense a small portion of the cost of that item each year. You keep track of these items on a depreciation schedule.

The IRS has new rules out that may affect how you determine which repair and maintenance costs to expense or capitalize. This regulation could affect what deductions you get to take on your Schedule C. Stayed tuned in to The Tax Bleep and we will discuss that too since it will be affecting many taxpayers!

Click the following links to view the following forms we just discussed: 2014 Schedule C and its instructions! Please leave any question or comments you may have!

Entrepreneur? Find Out If You Should File a Schedule C!


If you’re a driven, self employed individual, you will have to decide which tax form you are required to file. A Schedule C reports income from business you conduct as a sole proprietor. Income and expenses you report on a Schedule C flow to the front page of your 1040 (your individual tax return) so you do not have to file a whole other business return. You may be able to file a Schedule C, but there a certain circumstances that could alter this decision.

If you are engaged in a business alone, then you do not have much to consider. You will most likely be filing a Schedule C for all of your business activities. However if you are married and you run the business with your spouse, there are a few things to consider.

If you and your spouse own a business together and have not incorporated, you are technically considered a partnership. Partnerships must file Form 1065 which are more in depth than a Schedule C, and the income flows through to your 1040. There are ways around this filing requirement though. One way is by electing to treat the business as a Qualified Joint Venture and the other is to treat your business as Community Property.

Qualified Joint Venture: You can elect to be treated as a qualified joint venture if you meet certain requirements. You and your spouse must both materially participate in the business. If your business is your sole source of income, this shouldn’t be problem. Material participation, put simply, means that you participated in the business on a regular, continuous, and substantial basis. For many people this isn’t an issue, but if you believe it is, contact your tax professional, leave me a question in the comments below, or read the instructions for Schedule C. You and your spouse must also be the only owners of the business, and you both must be filing a joint tax return for the year. By making this election, you and your spouse “still give each of you credit for social security earnings on which retirement benefits, disability benefits, survivor benefits, and insurance (Medicare) benefits are based” (Schedule C Instructions). In order to make this election, you and your spouse must each file your own Schedule C on your jointly filed return. You may also be required to file your own Schedule SE for self employment tax as well.

Community Property: The other option you have is to treat your business as community property. Currently there are only 9 states with community property laws. Community property is property that is owned 50/50 between husband and wife no matter who acquired the property. If only one spouse participates in the business, that spouse claims all of the self-employment income for him or herself. If they both participate, the income is split between the two spouses based on their share of the business.

If you have any questions, feel free to leave me a message and I can help you out. Comments and suggestions are also welcome!

Keep Your Face Always Toward the Sunshine – And Taxes Will Fall Behind You

Okay, so maybe Walt Whitman didn’t write it exactly like that. It went more along the lines of “and shadows will fall behind you.” I slightly adapted Whitman’s famous quote in order to demonstrate the power of energy credits! (I bet you didn’t see that one coming) Purchasing energy-efficient household items is a great way to earn credits on your tax return. My parents installed a huge (and expensive) amount of solar on their property in 2014. The main reason behind this was to drop their energy bill to virtually $0 per month during summer months when they must irrigate their property. So I called my mom the other day and asked her how much they spent. The first thing I thought when hearing that was, “wow, that is going to be an awesome tax credit!”


There are two different energy credits you can take. The first one we’ll discuss is the Non-Business Energy Property Credit. This credit was supposed to expire on December 31, 2013, but it has been extended so you may still be able to use this credit. Some examples of energy-efficient property are windows, water heaters, certain roofing, insulation, and a number of other items. As always with tax credits, there are a list of ifs and buts.

Main Home: This credit can be taken for energy-efficient property installed in you main home. You cannot take this credit if you did not install the energy-efficient improvements in what you  consider to be your main home. The credit can also only be taken for property installed in or on existing homes, not homes being constructed.

Qualified Energy Improvements: The property must be qualified energy-efficient property to be eligible for the credit. To see if your purchases qualify, your statement from the supplier should tell you, or you can find the information in the product details.

Lifetime Limitation: If you have taken a non-business energy property credit in any year(s) after 2005, and that credit you received totals $500, you cannot take the energy credit. For example, if you received a $200 credit in 2007 and a $300 credit in 2010, then you would not be eligible to take the credit in the current year. Also, this limitation applies specifically to windows. If you received a credit of $200 for installing energy-efficient windows in a year(s) after 2005, you cannot take a credit for windows again.

Percent Limitation: If, after reviewing your prior credits, you are eligible to take a credit, your credit will be limited to 10% of the cost of your energy-efficient property. You cannot include installation costs.

The second energy credit you can take is the Residential Energy Efficient Property Credit. This property includes larger ticket items such as solar electric, solar water heating, small wind energy, geothermal heat pump, and fuel cell.  Unlike the first credit we discussed, this credit can be taken even if the energy-efficient property you installed was not installed for your main home.


Limitation: You can receive a credit of up to 30% of the cost of your energy-efficient property. This credit can also be limited due to the amount of other credits you are taking that year. If your credit is limited in the current year, you can carry the credit over to 2015.

Cost: For this credit, the labor included in prepping, assembling, and installing the energy-efficient property can be added into the cost. You must also reduce the cost basis for which you can take a credit by any subsidies you received from a public utility for the purchase and installation of you energy-efficient property.

Basis Adjustment: When you take this credit, you must reduce the basis of your property by the amount of the credit you receive. This will generally not affect you until you sell your home. Just be sure to keep records of your basis and any credits taken.

The form you file with your tax return to claim either of these credits is Form 5695. You should also read the instructions for this form if you have any questions.

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