If you are an independent contractor or run your own business, there are a few basic things to know when it comes to your federal tax return. Here are six tips you should know about income from self-employment:

• Self-employment income can include income you received for part-time work. This is in addition to income from your regular job.
• You must file a Schedule C, Profit or Loss from Business, orSchedule C-EZ, Net Profit from Business, with your Form 1040.
• You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. Make sure to file the schedule with your tax return.
• You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You may be charged a penalty if you do not pay enough taxes throughout the year.
• You can deduct some expenses you paid to run your trade or business. You can deduct most business expenses in full, but some must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.
• You can deduct business costs only if they are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.

When you file your tax return, you usually have a choice whether to itemize deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit.

The IRS offers these six tips to help you choose.

1. Figure your itemized deductions.  Add up deductible expenses you paid during the year. These may include expenses such as:

• Home mortgage interest
• State and local income taxes or sales taxes (but not both)
• Real estate and personal property taxes
• Gifts to charities
• Casualty or theft losses
• Unreimbursed medical expenses
• Unreimbursed employee business expenses

Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax for more details.

2. Know your standard deduction.  If you don’t itemize, your basic standard deduction for 2013 depends on your filing status:

• Single $6,100
• Married Filing Jointly $12,200
• Head of Household $8,950
• Married Filing Separately $6,100
• Qualifying Widow(er) $12,200

Your standard deduction is higher if you’re 65 or older or blind. If someone can claim you as a dependent, that can limit the amount of your deduction.

3. Check the exceptions.  Some people don’t qualify for the standard deduction and therefore should itemize. This includes married couples who file separate returns and one spouse itemizes.

4. Use the IRS’s ITA tool.  Visit IRS.gov and use the Interactive Tax Assistant tool to help determine your standard deduction.

5. File the right forms.  To itemize your deductions, use Form 1040 andSchedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

6. File Electronically.  You may be eligible for free, brand-name software to prepare and e-file your tax return. IRS Free File will do the work for you. Free File software will help you determine if you should itemize and file the right tax forms. It will do the math and e-file your return – all for free. Otherwise, you may file electronically with commercial software, or through a paid preparer.

There are a few basic tips to keep in mind about the new health care law. Health insurance choices you make now may affect the income tax return you file in 2015.

1. Most people already have qualified health insurance coverage and will not need to do anything more than maintain qualified coverage throughout 2014.

2. If you do not have health insurance through your job or a government plan, you may be able to buy it through the Health Insurance Marketplace.

3. If you buy your insurance through the Marketplace, you may be eligible for an advance premium tax credit to lower your out-of-pocket monthly premiums.

4. Your 2014 tax return will ask if you had insurance coverage or qualified for an exemption.  If not, you may owe a shared responsibility payment when you file in 2015.

What should you do now?

If you or your family does not have health insurance, find out more now. Talk to your employer about the coverage they offer, or visit the Marketplace online.

Find out more about the health care law and the Marketplace atwww.HealthCare.gov.

The Internal Revenue Service today reminded people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

The new option is available starting with the 2013 return taxpayers are filing now.  Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return. Self-employed individuals claim the home office deduction on Schedule C Line 30, farmers claim it on Schedule F  Line 32 and eligible employees claim it on Schedule A Line 21.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.

Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

Further details on the home office deduction and the new option can be found in Publication 587, posted on IRS.gov

Bartering is the trading of one product or service for another. Often there is no exchange of cash. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services.

If you barter, you should know that the value of products or services from bartering is taxable income.

Here are four facts about bartering:

1. Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income.  Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules.  How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040,Schedule C, Profit or Loss from Business.

The health care law has provisions that may affect your personal income taxes. How the law may affect you may depend on your employment status, whether you participate in a tax favored health plan and your age.

Here are three tips about how the law may affect you:

1. Employment Status

• If you are employed your employer may report the value of the health insurance provided to you on your W-2 in Box 12 with Code DD.  However, it is not taxable.
• If you are self-employed, you can deduct the cost of health insurance premiums, within limits, on your income tax return.

2. Tax Favored Health Plans

• If you have a health flexible spending arrangement (FSA) at work, money you put into it normally reduces your taxable income.
• If you have a health savings account (HSA) at work, money your employer puts into it for you, within limits, is not taxable.
• Money you put into an HSA usually counts as a deduction and can lower your taxes.
• Money you take from an HSA to use for qualified medical expenses is not taxable income; however, withdrawals for other purposes are taxable and can even be subject to an additional tax.
• If you have a health reimbursement arrangement (HRA) at work, money you receive from it is generally not taxable.

3. Age

If you are age 65 or older, the threshold for itemized medical deductions remains at 7.5 percent of your Adjusted Gross Income (AGI) until 2017; for others the threshold increased to 10 percent of AGI in 2013. Your AGI is shown on your Form 1040 tax form.

Some people must pay taxes on part of their Social Security benefits. Others find that their benefits aren’t taxable. If you get Social Security, the IRS can help you determine if some of your benefits are taxable.

Here are seven tips about how Social Security affects your taxes:

1. If you received these benefits in 2013, you should have received a Form SSA-1099, Social Security Benefit Statement, showing the amount.

2. If Social Security was your only source of income in 2013, your benefits may not be taxable. You also may not need to file a federal income tax return.

3. If you get income from other sources, then you may have to pay taxes on some of your benefits.

4. Your income and filing status affect whether you must pay taxes on your Social Security.

5. The best, and free, way to find out if your benefits are taxable is to use IRS Free File to prepare and e-file your tax return. If you made $58,000 or less, you can use Free File tax software. The software will figure the taxable benefits for you. If your income was more than $58,000 and you feel comfortable doing your own taxes, use Free File Fillable Forms. Free File is available only at IRS.gov/freefile.

6. If you file a paper return, visit IRS.gov and use the Interactive Tax Assistant tool to see if any of your benefits are taxable.

7. A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:

• $25,000 – for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
• $32,000 -for married couples filing jointly
• $0 – for married persons filing separately who lived together at any time during the year

When most people think of financial planning, they think in terms of dollars and cents. They think of their weekly or monthly paycheck, and work with a financial advisor or tax professional to set long-term goals for retirement or education planning, creating a yellow-pad list of financial “to-dos.”

I believe that’s a limited definition that does not translate the full power one can derive from a comprehensive financial plan. It lacks an outline for implementation and often results in a perpetual state of procrastination — “I’ll get a handle on my finances once I get past this tough patch.”

To me, personal financial planning is the process of preparing for the inevitable tragedies of life that will affect each of us both financially and emotionally. It is a philosophy for intentional living, a framework for creating happiness, and offers joy in the face of life’s natural tendencies toward chaos and entropy.

A fully implemented, complete financial plan frees people to focus all of their mental, physical and spiritual energy toward their highest goals and survive life’s toughest obstacles.

Financial Planning is a Philosophy for Living

There are many axioms and premises inherent in the statement, “Financial planning is a philosophy for living.” Here are a few:

Making Promises to the Ones We Love

The essence of happiness is captured by the positive feelings of joy, significance, meaning, dignity, certainty, security and confidence. Happiness is a desirable, sustainable and favorable state of being.

For many, financial planning is a path to happiness because it allows us to make and honor life’s important promises and obligations. These promises are the duty of being a husband or wife, a father or mother, a brother or sister, and even an employee.

Think of the important promise a husband makes to his wife that she will retire with dignity whether or not he is there to provide for her. Another is a promise to our children or grandchildren that they will have financial assistance with obtaining a college education, whether or not the parents or grandparents are living and present in their lives at that time.

Life’s Tragedies Befall Us All

Two kinds of tragedies cause emotional and financial trauma: “That’s life” tragedies and “failure to prepare” tragedies. The French often use the phrase “c’est la vie” to refer to instances that can only be described as “that’s life.” “That’s life” tragedies are those forgivable events such as a sudden major illness, the loss of a job, the death of a spouse, a divorce or the stress of remarriage. Even retirement can be viewed as a forgivable tragedy because it occurs due to the fault of no one. That’s just life.

Much worse are type-two tragedies, which are the result of being unprepared for those “that’s life” events. This is an unforgivable tragedy because it means you were unprepared for life’s inevitability. We all grow older. We are all susceptible to losing our jobs.

It is sad that many of us carry the audacity and arrogance that serves as a false cloak of invincibility to “that’s life” tragedies. It is utter foolishness to believe that a major illness, the loss of a job or the death of a spouse would not cause severe emotional and financial trauma. Too much of this foolishness resides in America today. Nearly 1.3 million Americans die from heart disease, cancer or stroke each year. If it doesn’t happen to you, it can certainly happen to someone you know or care deeply about.

The only way to inoculate your life from the foolishness of being unprepared is to develop and implement a financial plan that accounts for these tragedies.

Battling Life’s Chaos

Love is the energy we use to battle back this chaos. When you observe a prosperous and happy nation, a growing business, a functioning family, or a life of joy, significance and meaning, you can be assured that love has been exerted very forcefully against the laws of chaos and entropy.

Unfortunately, the idea of “love” has been watered down by Western culture and the pursuit of materialistic happiness. Love is much more than a desire that can be captured on a Hallmark card or illustrated with grand gestures such as expensive gifts or tropical getaways. Love is an action verb; a conscious vow to whom or what one’s energy will be intentionally directed; a conscious devotion to improve one’s self for the betterment of another without regard to personal cost.

In a chaotic world, love generates the spiritual energy to create and commit to a financial plan when tragedies occur. When chaos disrupts, financial planning provides the antidote that allows us to honor the important promises we make to ourselves and others.

Who Carries the Torch?

Last month I challenged you to rediscover the “why” of your business. Now that you know “why,” it’s time to take action. The financial planning profession can be the great torchbearer that guides us toward a culture of personal responsibility. To achieve this, financial planners and wealth managers must believe in the monumental value they deliver to clients. They must eliminate any personal hypocrisy, stop their own tendencies toward procrastination, take this craft seriously for themselves and implement every aspect of their own personal financial plan in order to unify their walk and talk of life as quickly as possible.

My hope is that financial planners boldly engage themselves to make people’s lives better, happier and more liberated. I am ready to carry the torch. Are you?

http://www.cpawealthenterprise.com/guide-the-future/

Important Reminders about Tip Income

If you get tips on the job from customers, the IRS has a few important reminders:

• Tips are taxable.  You must pay federal income tax on any tips you receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.
• Include all tips on your return.  You must include the total of all tips you received during the year on your income tax return. This includes tips directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.
• Report tips to your employer.  If you receive $20 or more in tips in any one month, from any one job, you must report your tips for that month to your employer. The report should only include cash, check, debit and credit card tips you receive. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips. Do not report the value of any noncash tips to your employer.
• Keep a daily log of tips.  Use Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tips.

For more information, see Publication 1244 or Publication 531, Reporting Tip Income. You can get them on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Beware of Fake IRS Emails and Phone Calls

Tax scams that use email and phone calls that appear to come from the IRS are common these days. These scams often use the IRS name and logo or fake websites that look real.

Scammers often send an email or call to lure victims to give up their personal and financial information. The crooks then use this information to commit identity theft or steal your money. Some call their victims to demand payment on a pre-paid debit card or by wire transfer. But the IRS will not initiate contact with you to ask for this information by phone or email.

If you get this type of ‘phishing’ email, the IRS offers this advice:

• Don’t reply to the message.
• Don’t open any attachments or click on any links. They may have malicious code that will infect your computer.
• Don’t give out your personal or financial information.
• Forward the email to phishing@irs.gov. Then delete it.

If you get an unexpected phone call from someone claiming to be from the IRS:

• Ask for a call back number and an employee badge number.
• If you think you may owe taxes, call the IRS at 800-829-1040. IRS employees can help you.
• If you don’t owe taxes or have no reason to think that you do, call the Treasury Inspector General for Tax Administration at 800-366-4484 to report the incident.
• You should also report it to the Federal Trade Commission by using their “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Be alert to scams that use the IRS as a lure. The IRS will not initiate contact with you through social media or text to ask for your personal or financial information.

More information on how to report phishing or phone scams is available on IRS.gov.