Self-Employment Income this year? Here's how to report it.

Schedule C is the form to use when reporting Self-Employment and business income.

All income pertaining to the business is reported. Expenses are subtracted from income to determine if there is a gain (profit) or loss. The net profit or loss is entered on line 12 of Form 1040. If a taxpayer owns and operates more than one business activity, file a separate Schedule C for each business. Combine the profits and losses on Form 1040 line 12 if there is more than one Schedule C.

If net earnings from self-employment are $400 or more, the taxpayer must file an income tax return. If net earnings from are less than $400, the taxpayer may still have to file a return and would still report the net earnings.

Are you really self-employed?

Many businesses mislabel their employees as "self-employed independent contractors" to get Social Security, Medicare, Unemployment, and income tax relief. Generally:

• an employee is anyone who performs services if the employer can control what will be done and how it will be done.
• a person is an independent contractor if the employer/supervisor has the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

If you think your employer should treat you as an employee instead of a contractor, file a Form SS-8. If the IRS agrees, they will send to you a determination letter stating you are an employee of that organization. You can then report your wages on Form 8919 and you will only be responsible for your share of Social Security and Medicare taxes. The wages are carried over to line 7 of Form 1040 and the Social Security and Medicare taxes are reported on line 57 of Form 1040.

The IRS has general guidelines for more information.

Is social security taxable income?

A portion of your social security benefits may be taxable if your total income plus one-half of your net social security benefits exceeds a base amount for your filing status. Net benefits are reported on box 5 of Form SSA-1099. If the only source of income is Social Security, then none of the benefits are taxable and the taxpayer does not have to file a federal income tax return.

The base amount is

• $25,000 if your filing status is single, head of household, or qualifying widower
• $25,000 if MFS if you lived apart from your spouse the entire year
• $32,000 if MFJ
• $0 if MFS if you lived with your spouse at any time during the year *
  

Use the Social Security Benefits Worksheet to determine the taxable amount. Total social security benefits are reported on Form 1040 line 20a while the taxable amount is reported on line 20b.

Can I deduct my medicare premiums?

Generally, medical insurance premiums including certain Medicare premiums are deductible on your Federal Income Tax if you are itemizing your deductions using Schedule A, Form 1040.

There is a limitation placed on deductible medical expenses. You can only deduct the amount of your qualified medical expenses that exceeds 7.5% of your adjusted gross income for the year.

Here is an example. You have an adjusted gross income for the year of $47,000, 7.5% of that is $3525. If you have $4000 of qualified medical expenses, $475 of that amount would be the medical expense deduction.

IRS Publication 502 is the publication that covers the rules about medical and dental expense deductions.

Here is what it has to say about Medicare Premiums:

Got married in 2010, here's how to file your taxes

Filing status determines your standard deduction and tax rate. It depends on your marital status.

The IRS defines marriage as a legal union between a man and a woman as husband and wife. You are considered married for the whole year if you are married on the last day of the tax year.

State law governs whether you are married or legally separated under a divorce or separate maintenance decree. If you are divorced by the last day of the year, you are considered unmarried for the whole year.

If your spouse died during the year, you are considered married for the whole year.

Married couples can either file jointly (MFJ) or separately (MFS). You should figure your tax liability both ways and choose the filing status that has the lowest tax. Filing together or separately on the Form 1040 means you need to use the same filing status on the Ohio return (does not matter on a local tax return). Many tax benefits on the Form 1040 are not available for MFS.

You can change your filing status between MFJ and MFS from year to year. On Form 1040X, you can also amend your tax return and change your filing status from MFS to MFJ within three years of the original due date of the returns. If you file MFJ, once the original due date of the return passes, you can not amend and change to MFS.

Are you a tax cheat?

Take the quiz to find out if you are a cheat or not. Video courtesy of the CBS morning show.

1. You win $100 in the office pool and you don't claim your winnings when file your tax return.
2. Your friend gives you season tickets to a local theater in exchange you give her your vintage 8-track collection. You don't claim the $500 the tickets would have cost.
3. You hire a college student to watch your children during the summer while you work. You paid her a total of $2,000. You don't pay Social Security or Medicare taxes.
4. I work for XYZ company and one day a week my employer allows me to work out of my home office. I used that home office exclusively for that purpose. I declare that as a deduction.
5. You run a Day Care business out of your home primarily in the family room. You claim the family room as part of the home office deduction.

2010 IRA and Tax Planning Reference Guide

Excellent resource document courtesy of OppenheimerFunds Retirement Services.

Among the topics include:
Page 1

• IRA Deductibility, Contribution and Eligibility Limits
• IRA Contribution Limits
• Roth IRA Eligibility for 2009–2010

Page 2

• Federal Income Tax Rate Schedules

Page 3

• Retirement Plan Limits and Distribution Rules
• Long-term Capital Gains and Dividends Tax Rates

Page 4

• Federal Estate and Gift Tax Schedules
• Retirement Saver’s Credit
• Health Savings Accounts (HSAs)
• Eligible Long-term Care Deductions

Page 5

• Common IRA-related Tax Forms

Page 6

• Education Savings Tax Incentives
• Social Security Schedules

Did you receive an Economic Recovery Payment?

Don't forget the $250 when you prepare your income taxes or the IRS will reject your return.

As part of the 2009 American Recovery and Reinvestment Act (ARRA), taxpayers who receive social security benefits, SSI benefits, railroad retirement benefits, veterans' disability, or pension benefits received a $250 economic recovery payment sometime in late spring/early summer.

In addition, taxpayers who did not work in 2009 but received a pension or annuity in 2009 for services performed as a government employee were eligible for the new $250 Government retiree credit. The credit cannot be taken if the taxpayer received a $250 economic recovery payment.

For working taxpayers, the Making Work Pay Credit has been added to the tax code under ARRA. It's a refundable credit of 6.2 percent of earned income with a maximum of $400 per individual and up to $800 for married filing joint tax returns.

To take advantage of the Making Work Pay credit, complete Schedule M and report the total on Form 1040, line 63.

Caution:
When completing the Schedule M, you need to indicate the amount received under the economic recovery payment on line 10 or the Government retiree credit line 11. Failure to report the correct amount will result in your tax return getting rejected by the IRS.

You may not have realized you received the $250. If you typically received your monthly Social Security via direct deposit, the Economic Recovery Payment would have been deposited into the same bank account. The payment itself isn't taxable income and is not listed on Form SSA-1099 the annual benefits statement Social Security recipients are sent for tax purposes.

For additional information, review Schedule M instructions.

2009 tax law changes

Plenty of changes to deductions and limits for this year's Form 1040. Here are some to make note of:

Increased personal exemption is $3,650 (up from $3,500 in 2008, will remain $3,650 in 2010).

Increased Standard Deduction:

• Married filing Joint / Qualifying Widower: $11,400
• Head of Household: $8,350
  
• Single / Married filing Separate: $5,700

Note: Head of Household increases to $8,400 in 2010.

Additional Child Tax Credit
Earned Income amount used to figure the additional child tax credit is 15% of the income that exceeds $3,000 (down from $8,500). To take advantage of this credit, complete Form 8812 and report the total on Form 1040, line 65.

Maximum amount of wages subject to social security tax is $106,800 (up from $102,000)

Standard Mileage Rates: Business purposes is 55 cents per mile; medical reasons and moving expenses is 24 cents per mile; charitable purposes is still 14 cents per mile

IRA contribution limits remain unchanged.

Health Savings Accounts (HSAs)
Maximum deduction is now $3,000 ($5,950 for family coverage). Minimum annual deductible of a high deductible plan is $1,150 ($2,300 for family coverage). Complete Form 8889 and report the deduction on Form 1040, line 25.

"Kiddie Tax"

• Investment income over $1,900 of a child age 18 or younger will be taxed at the parent's rate on Form 8615.
• Parents may be able to include on their own return the child's gross income in excess of $1,900 on Form 8814.

New Tax Forms

• Schedule L – Standard Deduction for Certain Filers
• Schedule M – Making Work Pay and Government Retiree Credits