Emeryville CA Tax Accountant
When you are self-employed, your business profits are taxed to you at federal rates as high as 39.6%. Add self-employment taxes, which in 2016 will amount to 15.3% of the first $118,500 of your net self-employment earnings plus 2.9% of any earnings over that amount. Then there’s an additional 0.9% Medicare surtax on earnings in excess of $200,000 ($250,000 if married filing jointly). At tax rates like these, it pays to take steps to reduce your tax burden.
Step One: Deduct Business Expenses
Be sure you have an organized system for recording your expenses. To be deductible, a business expense must be “ordinary” (common and accepted in your trade or business) and “necessary” (helpful and appropriate for your trade or business). Since personal expenses are generally not deductible, it’s smart to have a separate business bank account and use a separate credit card for business purchases.
Step Two: Deduct Health Insurance Premiums
You may qualify to deduct premiums paid for medical, dental, and qualified long-term care insurance coverage for you, your spouse, and your dependents.* The coverage may include children who haven’t reached age 27 by the end of the year, even if you don’t claim them as dependents on your tax return.
Unlike health insurance premiums paid for employees, the self-employed health insurance deduction won’t save you self-employment taxes. However, it will lower your taxable income. You must meet certain requirements to qualify for the deduction.
Step Three: Deduct Retirement Plan Contributions
Funding a retirement plan can also save you significant tax dollars. Within limits, plan contributions will be tax deductible.** Several types of plans may be suitable for you as a self-employed taxpayer, including a simplified employee pension (SEP) plan, a savings incentive match plan (SIMPLE), or a solo (individual) 401(k) plan. Each plan has specific features and requirements that you will want to weigh carefully before making a choice.
If you are tired of overpaying taxes, simply call 510-222-5800 and ask for Navjeet. Our initial consultation is free. Lowering your taxes legally is our expertise.
Chahal & Associates services small business owners throughout the Bay area. We have convenient offices in Emeryville, San Rafael and Pinole. Chahal & Associates provides additional expertise in QuickBooks Accounting, International Taxation, Restaurant Accounting and Retail Accounting.
* Dollar limits apply to the deduction for long-term care insurance premiums.
** Although deductible for income-tax purposes, contributions to your own retirement plan account do not reduce earnings subject to self-employment taxes.
While rules and regulations for workman’s comp insurance change from state-to-state, there some general guidelines you need to know and follow no matter where your business might be located.
First, as an employer, you are required to protect employees that are killed on the job, are injured, or become ill. Most employers obtain either state sponsored or private insurance. Others will use self-insurance. Regardless of which option you select, it is the employer who foots the bill.
Secondly, workman’s comp is a state based program as opposed to a federal program. Most states require some form of workman’s comp, and as the employer, you are expected to accept the rules and regulations. For those businesses with under four employees, there is an exemption to carrying the coverage, at least in some states.
Next, workman’s comp pays four different types of benefits. These are survivor’s benefits, disability benefits, rehabilitation benefits, and medical benefits. The injured employee or their heirs receive a lump sum payment which then relieves the business of any further liability.
Also, employees are covered with a few exceptions. These exceptions include business owners, independent contractors, unpaid volunteers and domestic employees in private homes.
In addition, workers’ comp is paid on the no-fault basis. This means that regardless of who is at fault for the injury, the employee receives the benefits, and the business does not have to admit liability.
Finally, even when an employee is outside of the workplace, they may be covered. This can include traveling for business purposes, running work related errands, or attending a required business social event.
The state rules and regulations for workman’s comp insurance can be tricky, but they do protect both the employee and employer. When purchasing this insurance, it is always best to work with a professional that can ensure your business’s needs are met.
As your trusted accountant, we work with hundreds of small business owners to proactively reduce injuries, minimize leave time, and minimize your costs. It’s an extension of what we can do for your business.
Entering the property rental market is a common way to increase your net worth in the long run as well as generate some passive income in the short run. If you are new to the landlord business though, you may fall prey to some common rental property income mistakes when you file your tax return. Of course, the best way to ensure that you don’t make any of the following mistakes is to have a professional prepare, or at least review, your return; however, knowing what the most common mistakes are is a good place to start.
- Not declaring rent when it is received – any rent received by a landlord must be declared in the year it is received. It is common, for example, to require a deposit as well as first and last month’s rent when leasing a property. Even though the last month’s rent isn’t actually due yet it must be declared in the year when you receive the funds.
- Security deposits count as income if not returned – if you collected a $2,000 security deposit and find that you need to keep $1,000 of it when the tenant moves out to repair damages and/or clean the property you need to declare the $1,000 as income. Of course, you may also have corresponding expenses if the funds are used to complete repairs.
- Expenses paid by a tenant are income to the landlord — if your tenant fixes something on the property, the money spent by the tenant is actually income to the landlord if the cost of the repairs is deducted off the rent. Again, you may also have a corresponding deduction for the cost of the repairs, meaning you need to declare both income and expenses.
- Property and furnishings are depreciated differently – property is often rented “furnished”. You may deduct the cost of the furnishings but make sure you calculate the deduction properly. Residential rental property is depreciated over 27 ½ years while furniture is depreciated over just five years.
- Failing to document – if it isn’t in writing is doesn’t count! Everything from your original lease agreement to the cost of replacing a lost key should be documented in writing. Not only does this ensure that you will get credit for all your allowable deductions but is also protects you in the event of an audit by the Internal Revenue Service.
By avoiding these five common rental income tax mistakes you can dramatically reduce the chances of an error on your tax return.
If you are tired of overpaying taxes or even worrying about taxes, call 510-222-5800 and ask for Navjeet. Our goal is to lower your taxes within the letter of the law and make the process stress free.
Chahal & Associates is a Bay area tax and accounting firm. We have three convenient offices to service the Bay area, Emeryville, San Rafael and Pinole. Our firm provides small business accounting services, payroll and a variety of tax services ranging from international tax to IRS Problem Resolution to simple tax preparation. For business owners seeking to establish a business within the United States, we also provide establishing United States Operations, High Net Worth Immigration Planning, Expatriate Taxes, and Resident and Non-Resident Alien Tax Services.