Frequently Asked Questions

Pens and Papers

Question 1: I am considering starting a new business, what do I need to do?

There are many facets to consider when starting a new business. The first thing you should consider is the structure of the business entity. This would mean: are you setting up a sole proprietorship, a partnership, a corporation, an "S" corporation, limited liability company, non-profit, or charity. For this consideration, you should seek the advice of a professional from a liability stand point as well as tax structuring for the new business in question.

Question 2: What can I deduct in a self-employed business?

There are a number of things that can be deducted in a self-employment business, many of which you will not think of. Some of them being, home office expense, business mileage, advertising, business insurance, taxes and licenses, repairs and maintenance, and travel expenses. These are just a few things that can be deducted.

Question 3: If I am self-employed, do I need to pay self-employment taxes quarterly or annually?

If you are required to make estimated tax payments, the self-employment tax is paid by making quarterly estimated payments which include federal income tax, and Social Security and Medicare taxes. Fortunately if you choose to pay this annually by April 15 the following tax year, the I-R-S penalty for not making estimated tax payments is an inexpensive penalty equating to around a 6% loan.

Question 4: Is there an age limit on claiming my child as a dependent?

To be claimed as your dependent, your child must meet the qualifying child test or the qualifying relative test. While the child's age is a factor in the qualifying child test it is not in the qualifying relative test. A qualifying relative can be of any age.

Question 5: If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?

If you can claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return. If an individual is filing his or her own tax return, and the individual can be claimed as a dependent on someone else's return, the individual cannot claim his or her own personal exemption. In this case, your daughter should check the box on her return indicating that someone else can claim her as a dependent.

Question 6: What should I do if I made a mistake on my federal return that I have already filed?

That depends on the type of mistake you made on the return. Most mathematical mistakes are caught by the I-R-S during processing and will not need to be corrected. If you didn't attach the proper documents, the I-R-S will contact you and request the missing information. If you did not report all of your income or claim a credit, you will need to file an amended or corrected return Form 1040X.