Gift Tax Posted on March 20, 2025 - 2:39 pm by sandeep What is a Gift Tax? The gift tax is a federal tax imposed on the transfer of money or property to another person without receiving full payment or compensation in return. Cash, real estate, investments, personal property, and other assets are all subject to this tax. It also covers discounted sales and interest-free or below-market-rate loans, as the IRS may classify them as gifts. The gift tax is enforced by the IRS to prevent individuals from transferring assets before their death to avoid paying estate taxes. However, not all gifts are taxable. There are certain exclusions and exemptions. Gift Tax Limits and Exclusions for 2025 Gifts that exceed $19,000 per recipient in 2025 must be reported using Form 709 (United States Gift Tax Return). Individuals can give up to $13.99 million before gift taxes are charged due to the lifetime exemption. Gifts below these thresholds are not subject to tax but may still occasionally require reporting in some cases. What is considered a ‘Gift’? A ‘gift’ is anything of value given to another person without expecting something of equal value in return. According to the IRS, gifts include: Cash and financial assets such as stocks, bonds, mutual funds Real estate Vehicles, artwork, jewelry, and collectibles Interest-free or below-market-rate loans Sale of property or assets at a discounted rate There are certain items that are not included under the gift tax such as Educational expenses Medical expenses Gifts to a spouse Gifts and donations to political organizations Gift Tax Filing Requirements Individuals who have gifted more than $19,000 to a person (other than a spouse) in 2025 must file Form 709 with the IRS. While most gifts below this threshold are not taxed, any gifts that exceed the lifetime exclusion limit of $13.99 million may be subject to taxation. Gift Tax Rules for Married Couples Married couples cannot file a joint gift tax return. Each spouse must file separately if required. If a gift is made from community property, the IRS considers each spouse to have gifted half of the total value. If a couple wants to split a gift, both spouses must file Form 709 and indicate their consent. Who Pays the Gift Tax? In most cases, the giver or donor (the person giving the gift) is responsible for paying the gift tax. However, if the donor fails to pay, the recipient (done) may be held accountable. If the donor passes away before filing a required gift tax return, the executor of the donor’s estate must ensure the return is filed and any taxes owed are paid.
Estimated Tax Payments Posted on March 20, 2025 - 2:36 pm by sandeep What are Estimated Tax Payments? Estimated tax payments are periodic payments made to the IRS by individuals and corporations that do not have taxes automatically withheld from their income. This applies primarily to self-employed individuals, freelancers, small business owners, and independent contractors. Income from interest, dividends, alimony, capital gains, and prizes may also require estimated tax payments. These payments cover not only income tax but also self-employment and alternative minimum taxes. The IRS requires estimated taxes to be paid quarterly- April 15, June 15, September 15, and January 15. Failure to pay on time or in full may result in penalties. Who Pays Estimated Tax Payments? Estimated tax payments are required for individuals and businesses that do not have taxes automatically withheld from their income. This includes: Self-Employed Individuals & Business Owners – Sole proprietors, partners, and S corporation shareholders must make estimated tax payments if they expect to owe $1,000 or more when filing their return. Corporations – Must make estimated tax payments if they expect to owe $500 or more when filing their return. Prior-Year Tax Liability – If you owed taxes last year, you may need to make estimated tax payments for the current year. How to Calculate Estimated Tax Payments To calculate estimated taxes, you must determine their anticipated tax liability based on projected income, deductions, and credits. This can be done using IRS Form 1040-ES, which provides worksheets to help estimate tax payments accurately. A common method is to use the prior year’s tax return as a reference and adjust based on current income. For example, a freelancer who expects higher earnings this year than last should increase their estimated tax payments accordingly. Conversely, if their income decreases, they can adjust their payments for future quarters. Estimated Tax Payment Schedule Estimated taxes are paid quarterly according to the IRS schedule: April 15 – Covers income earned from Jan. 1 to March 31 June 17 – Covers income earned from April 1 to May 31 Sept. 16 – Covers income earned from June 1 to Aug. 31 Jan. 15 (following year) – Covers income earned from Sept. 1 to Dec. 31 If these deadlines are missed, you may face penalties, even if you are due a refund at year-end.
Independent Contractors Posted on March 20, 2025 - 2:34 pm by sandeep An Independent Contractor is one who personally manages and conducts a business which provides services to another entity under a contract but is not an employee. Compared to employees, they have more control over their work schedule, rates, and methods of performing tasks and they handle their own taxes, benefits, and business expenses. Key Features Control and Independence : Independent workers decide on their own working hours and are able to choose the projects they work on. They are not directly supervised like employees are. Self-Employment : They are the ones who oversee their own businesses, process their own taxes, and file quarterly estimated payments, along with self-employment taxes for Social Security and Medicare. Payment Structure: Independent contractors tend to bargain their fee either on a project or hourly, as opposed to the employees who usually get a prorated salary with the benefits such as health insurance or retirement plans. Work Flexibility: Independent contractors are entitled to work with different clients and modify, scale up or scale down their days according to the need, thus, having more versatility in comparison to regular employees. Lack of Employee Benefits: They are not given benefits such as health insurance, retirement plans, or unemployment benefits and with regard to employee rights they are not entitled to the minimum wage laws either. Legal and Tax Implications for Independent Contractors Tax Responsibilities: When they earned more than $600 throughout the tax year, independent contractors must report their income using the Form 1099-NEC or 1099-MISC. They manage their own taxes and can deduct business expenses, thereby decreasing the amount that they can be taxed. Classification: The IRS uses very strict rules to identify adult care workers as self-employed. Misclassification of an employee or contract worker can result in sanctions and penalties being applied to either the employer or the worker. Contracts: Independent contractors oftentimes use written contracts that are conveying the working scope, payment terms, and deadlines. Benefits of Being an Independent Contractor Flexibility: Independent contractors are free to design and implement their own working hours and can work from any location, as a result, it is easier to maintain a balance between personal and professional life. Variety of Work: They could meet with different customers in different projects among various industries, which will expose them to a vast array of opportunities to progress both in the career ladder and diversify experiences through time. Tax Deductions: Independent contractors can reduce their taxable income by including business expenses like equipment, travel, office supplies, etc. and as a result, their tax liability could be lower than it would be otherwise. Challenges of Being an Independent Contractor Unpredictable Income: Nevertheless, independent workers are not protected by the employers’ contracts, and they are in the line of fire if the contracts are not honored by the hiring companies. The resultant pattern of employment benefits can make it hard to select and commit to new job opportunities, particularly for starters. Lack of Job Security: Independent contractors may experience time-lag between contracts or clients and thus, the continuity and predictability of the income become uncertain. Responsibility for Benefits: Workers who are not on the internal payroll of the company have to look for and pay their own health insurance, retirement savings, as well as the desired supplemental benefits which are very costly and not easy to handle by themselves. Conclusion An Independent Contractor is a picked-up way to work that is both flexible and self-employed. The worker earns freedom but faces certain challenges. Although an employee has the independence to decide their working hours and their potential for higher earnings, they must also manage their taxes, health care, and work-life balance. People that hire the freelancers have to be aware of these aspects to avoid legal and financial glitches. If you need legal help, you can get in touch with a trusted professional who can advise you on this matter.
Hybrid Tax Accounting Methods Posted on March 20, 2025 - 2:29 pm by sandeep Hybrid Tax Accounting Methods is a strategy based on combined usage of different accounting methods like cash and accrual, where tax purposes are concerned. The fact that businesses and individuals can use both methods, thus, they are allowed to choose which way they want the income and expenses to be recognized for the tax reporting. The hybrid approach is of help to companies allowing them to devise the most optimal tax strategy, thus, they manage their cash flow more efficiently and attain extraordinary flexibility in general. Purpose of Hybrid Tax Accounting Methods A hybrid tax accounting was formulated not only for accuracy nursing, but also to allow the flexibility of income and expenses reporting. The entities are faced with the possibility of combining the cash and accrual methods depending on the frequency of their transactions. This adaptability is key for businesses as it helps them handle cash flow, minimize tax deductions, and abide by tax rules. Types of Hybrid Tax Accounting Methods Cash for Income, Accrual for Expenses Income is recognized only if cash is received, and the expenses are recognized no matter when the payment becomes due. Accrual for Income, Cash for Expenses In this case, income is booked as soon as it is earned and expenses as cash is paid. Modified Accrual Method The revenue earned is recognized only when such is measurable and available, while expenses are recognized either when the goods and services are received. Long-Term Contracts (Percentage of Completion) Recognize revenue, as the contract progresses, whereas certain expenses are recognized under the cash method when paid. Key Benefits Improved Cash Flow Management: Income recognition can be delayed via the cash method, which consequently can improve short-term cash flow. Flexibility in Tax Reporting: Corporations may benefit from tax reporting by choosing the most favorable accounting method for each transaction. Tax Deferral Opportunities: Businesses that attribute the income and expense to different periods can postpone taxes to a later date and save themselves from immediate tax liabilities. Important Considerations IRS Approval: Businesses must seek IRS approval before adopting the hybrid method. Consistency and Recordkeeping: Proper documentation and consistent application of the hybrid method are essential to avoid penalties.
Form 1040 Posted on March 20, 2025 - 2:26 pm by sandeep Form 1040 (U.S. Individual Income Tax Return) Form 1040 is the document used by individual U.S. taxpayers to make their tax return, calculate their tax liability, and see if the state can collect more in taxes or grants them a refund. It is the key paper to be filed for complying with IRS rules and regulations. Purpose of Form 1040 By means of form 1040, the taxpayers can report the amount of money earned, take off the amount of the deductions, use the tax credit, and all of these things lead to the calculation of their tax liability or the fortune of a refund. It is also used by employees and self-employed people to return their year to the government. Key Components of Form 1040 Adjusted Gross Income (AGI): Total income minus the total deductions, for example, those for loans and retirement funds. Allowances: Which means the number of dependents or the amount of an exemption, the taxpaying caller reports, being the decisive consideration as for the amount of taxes withheld. Filing Status: The category that an individual falls under to qualify for advantages such as a decrease in taxes is the single or married, etc. Income: The average of the actual salaries earned, interest as well as dividends, and the like earned on the form 1040 is as follows: “Income.” Deductions: Taxpayers can select from the standard deduction or can itemize their deductions, such as mortgage interest and medical expenses Taxable Income: Income that comes as a result of the deductions being subtracted from the gross income. Tax Credits: Credits other than just Earned Income Tax Credit (EITC) are available by the federal government to help out families in reducing their tax father such as Child Tax Credit where a certain amount of tax liability is reduced by the amount or the amount is increased by the amount of the credit granted for a child. Withholding: The employer is mandated to withhold monies from an employee’s wages and submit it to the IRS as advance payment of taxes. Refund: In case the employer has withheld more taxes than the taxpayer had to pay, the taxpayer can get a refund. Schedules and Attachments Schedule A: This particular form is used to itemize tax deductions rather than selecting the standard one. Schedule C: Self-employed individuals who receive income from business must use Schedule C in order to report business income. Schedule D: Schedule D is the form that is used to report capital gains and losses. Schedule E & F: Used for income from a rental property and farming, respectively. Importance of Form 1040 Moreover, Form 1040 is an essential part of an exact income report and benefits and makes it possible for someone to legally operate as before and get protection in case of a tax dispute.
Excise Tax Posted on March 20, 2025 - 2:21 pm by sandeep What is Excise Tax? Excise tax is the tax imposed on the sale or production of specific goods and services which have an impact on the economy and how the society functions. Usually, these taxes are collected at the time of manufacturing, sale, or import. Excise taxes are often placed on products like tobacco, alcohol, gasoline in order to prevent and deter excessive use or to address environmental pollution. These type of taxes are then used to finance public initiatives and also fund vital services such as healthcare, education, and infrastructure. In the United States, excise taxes are implemented at three different levels- federal, state, and local. The federal government collects excise tax on goods like gasoline, firearms, and medical services. State and local governments can impose their own taxes in addition to the federal taxes. Types of Excise Taxes Excise taxes are categorized into two main types: 1. Ad Valorem Tax (Tax Based on Value) Ad Valorem taxes are levied as a percentage of the retail price of a product or service. The amount taxed can fluctuate based on the product’s price. Examples: 10% excise tax is levied on indoor tanning services,10% federal excise tax is levied on firearms, 7.5% excise tax on airfare, etc. 2. Specific Tax (Tax Based on Unit) In this type, regardless of its price, certain excise taxes are imposed as a set dollar amount per unit. This type of tax is calculated based on measurable quantities like weight, volume, or size. Examples: Cigarettes are taxed at $1.01 per pack of 20, beer costs $3.50 for the first 60,000 barrels if its produced by small brewers, etc.
Earned Income Credit (EIC) Posted on March 20, 2025 - 2:05 pm by sandeep What is Earned Income Credit (EIC)? The Earned Income Credit (EIC), also known as the Earned Income Tax Credit (EITC), is a tax benefit designed to support workers and families with low to moderate-income. It is a refundable tax credit that helps reduce the tax burden on low- and moderate-income of working people and families. Unlike a deduction that lowers taxable income, a refundable credit like the EIC can result in a refund if the credit exceeds the amount of taxes due. This means that a refund may be received even if there is little to no tax liability Who qualifies for Earned Income Credit (EIC)? To qualify for the EIC, individuals must meet the following criteria: General Eligibility Requirements Applicants must earn income through wages, salaries, self-employment, or disability benefits. The total investment income must be below the IRS-specified threshold. Valid Social Security number (SSN) Individuals must be U.S. citizens or resident aliens for the entire tax year. Those filing Form 2555 (Foreign Earned Income) are ineligible. Special rules apply for individuals who are married but not filing jointly due to separation. Special Eligibility Rules The EIC includes special considerations for: Military personnel Clergy members Taxpayers and their relatives with disabilities Special Eligibility Rules Certain groups may have additional considerations for EIC eligibility: Social Security Number (SSN) Requirements To claim the EIC, the taxpayer, spouse (if filing jointly), and any qualifying children must have a valid SSN: Must be valid for employment (may state “Valid for work with DHS authorization”). Must have been issued on or before the tax return due date (including extensions). Eligible Filing Statuses for EIC The following filing statuses may qualify for the EIC: Married Filing Jointly Head of Household Qualifying Surviving Spouse Single Married Filing Separately (with restrictions) Special Considerations for Certain Filing Statuses Claiming the EIC Without a Qualifying Child Individuals without qualifying children may still be eligible for the EIC if they meet all of the following conditions: Satisfy the general EIC eligibility requirements. Maintain their primary residence in the U.S. for more than half the year. Cannot be claimed as dependent on another taxpayer’s return. Are between 25 and 65 years old (at least one spouse must meet the age rule if filing jointly). Exceptions and Special Situations Temporary absences: A qualifying child is still considered to have lived with you if they were away for school, military service, or medical care. Children born or deceased during the tax year: Special rules apply to children who were born or passed away within the tax year. Kidnapped children: IRS guidelines may allow continued eligibility in cases where a child has been kidnapped. EIC Rates for 2024 The maximum amount of credit EIC offers are: No qualifying children: $632 1 qualifying child: $4,213 2 qualifying children: $6,960 3 or more qualifying children: $7,830 Children or Relatives Claimed Filing as Single, Head of Household, Married Filing Separately, or Widowed Filing as Married Filing Jointly 0 $18,591 $25,511 1 $49,084 $56,004 2 $55,768 $62,688 3 $59,899 $66,819
Retrieve EIN Posted on March 20, 2025 - 2:00 pm by sandeep In the US, business entities must have an employer identification number (EIN). This unique nine-digit number is used for tax filing, business banking, and other official transactions. If you’ve lost or misplaced your Employer Identification Number (EIN), don’t worry! There are ways you can retrieve the existing EIN. What If You Lose Your EIN? Losing the EIN is a concern among business professionals, and it can lead to delays such as business credit or completing official paperwork. Instead of applying for a new EIN, businesses must know how to retrieve the existing EIN. It applies to both lost and forgotten EINs. How to Retrieve Your EIN? Check the Previous Business Records & Documents: Business records always contain EIN. You can find the EIN at the top right of the federal income tax return or 941 Form. Another way to find EIN is on the notice of the IRS. You can also look for it on business credit card reports, bank account statements, and business loans. Search in Your Inbox: When you applied for an EIN, a soft copy might be sent to your registered email ID. Go through the EIN Confirmation Letter: IRS must send you an EIN confirmation letter after you apply for an EIN by filling out the SS-4 form. You will find the EIN on the confirmation letter. Call Your Bank: Another effective way to retrieve the EIN is by requesting a bank. They will provide you with an employer identification number. Contact the IRS: You can reach out to the IRS for the EIN. You can call 1-800-829-4933 from 7:00 am to 7:00 pm local time on weekdays. Request Tax1099: As you applied through Tax1099, they stored your EIN. If you request them, they can send your EIN.
Apply for an EIN Online Posted on March 20, 2025 - 1:53 pm by sandeep Apply for an EIN Organizations starting businesses in US territory must have an EIN (employer identification number). If you apply for an EIN, a nine-digit unique identification number, you can get it from the IRS. The EIN is used for tax administration purposes for businesses that are required to file business tax returns. Any business can apply for an employer identification number online, by mail, fax, and phone. Online: The fastest and easiest way to apply for the EIN is online. You must check whether you are eligible to apply for the EIN or not. Your business location must be within the United States territory. You have to go to the official website of the IRS and click ‘apply online’. After entering your business details, you can hit the submit button. Therefore, the EIN will be generated immediately. Any business owner should download and take the hard copy for future reference. Fax: All those business owners who are comfortable applying by conventional method can apply by fax. First, you have to download and print out the IRS form SS-4. If you are one of those business entities located within 50 US states or the District of Columbia, you must fax your paper EIN application to 855-641-6935. On the other hand, 855-215-1627 is the fax number for those who aren’t located in a US state but are faxing documents within the country. Entities outside the US can send the fax to 304-707-9471. Mail: Another traditional way is to send by mail. The mail address is the Internal Revenue Service Attn: EIN Operation, Cincinnati, OH 45999 for the entities located within US states. Outside the US states, entities must send it to the Internal Revenue Service, Attn: EIN International Operation, Cincinnati, OH 45999. Telephone: To apply the EIN over the telephone, the overseas entities must dial the number +1 (267) 941-1099 from Monday through Friday, 6:00 AM to 11:00 PM EST.
Employer Identification Number (EIN) Posted on March 20, 2025 - 1:52 pm by sandeep What is EIN? EIN, or employer identification number is a unique 9-digit number assigned by the IRS. It works like an SSN (social security number), by which individual resident identities are verified. The IRS issues the EIN to business entities. EIN is also popularly known as a Federal Tax Identification Number. The IRS gets information about the state where the business is registered through the employer identification number. To identify the taxpayers who are needed to file various tax returns, the agency uses the EINs. The IRS provides the EIN with a nine-digit number in the format of XX-XXXXXXX. Businesses that have employees and pay taxes or withhold taxes from income must have EINs. Businesses need EIN for multiple purposes, such as contracts, state accounts, and banking. EIN is required during federal tax reporting. Who Needs an EIN? Business entities that have a federal tax ID in their organization must have EINs. These businesses include corporations, partnerships, multiple-member LLCs (limited liability companies), S-corps, and C-corps. However, tax-filing corporations or partnerships must have EINs, regardless of whether they have employees. Some other business entities are also required to have EINs, and those businesses are: NPOs (nonprofit organizations) Businesses that have a Keogh plan Estates Businesses that withhold taxes Business entities that file excise or alcohol, tobacco, and firearms tax returns Government entities Personal service corporations Military entities How to Get an EIN? Getting the EIN from the IRS is completely free of cost. If you apply online, you will get the employer identification number immediately. Although foreign businesses have to file it by phone or email, as they are not allowed to apply online. For mail or fax, the businesses must fill out the SS-4 form. The information you have to put during the application of EIN is as follows: Businesses’ legal name Trade name of the business Business entities’ mailing address Number of owners of the business Start date or acquisition date of the business The name and personal taxpayer identification number Business type Principal industry of the business