Liz Smith, CPA, MSTFP

IRS Form 1125-A is used by corporations, partnerships, and multimember limited liability companies (LLCs)―filers of Forms 1120, 1120-C, 1120-F, 1120-S, or 1065―to calculate their cost of goods sold (COGS) for the year. It applies to businesses that sell products while businesses that sell services generally don’t need it—unless they also sell parts and supplies. Example…

In general, the IRS allows operators of daycare centers to take ordinary and necessary deductions needed to generate income. Aside from traditional business deductions, home daycare operators can take advantage of an expanded deduction for business use of homes—even if no rooms are used exclusively for the daycare. Here is the home daycare tax deductions…

IRS Schedule SE (Form 1040) is used by freelancers, sole proprietors, and independent contractors to calculate their Social Security and Medicare tax on self-employment income of $400 or more for the year. The form calculates what is similarly withheld on a W-2 as FICA tax for employees. A self-employed individual would generally be classified as…

The Commercial Clean Vehicle credit, also known as the IRC §45W credit, is a reduction in tax of up to $40,000 for qualified vehicles placed in service before Jan. 1, 2033. A clean vehicle is more energy efficient than vehicles without the “clean vehicle” classification. The specific criteria for clean vehicles are established by the…

Form 4797 is used to report sales of business property commonly referred to as section 1231 property. Section 1231 property includes assets used in your business, such as buildings, machinery, and equipment, but excludes assets held as investments or inventory. Determining the gain or loss on section 1231 property is straightforward. However, determining whether that…

Form 2220, used by corporations, calculates the underpayment penalty (if any) at a predetermined interest rate from the time at which a quarterly payment was due until it was paid or the due date of the return, if earlier. Corporations are expected to pay the IRS any income tax due throughout the year if the…

IRS Form 7205 is used to claim a deduction for energy-efficient commercial buildings placed in service during the current tax year. This deduction, also known as the section 179D deduction, is available to property owners and designers who add energy-efficient property to commercial buildings. To take the deduction, property owners must verify that property modifications…

Recourse and nonrecourse liabilities differ in terms of responsibility for the loss if the borrower defaults on the loan. With recourse debt, the lender can sue the borrower to be made whole for the loss. Any debt that is not recourse is nonrecourse. This difference between recourse vs nonrecourse debt matters for taxes because losses…

IRS Form 1125-E is used to report compensation for corporate officers, and state law determines who is considered an officer for the purposes of Form 1125-E reporting. The form is required for S corporations (S-corps) or C corporations (C-corps) with gross receipts of $500,000 or more for the year. Example – Completing Form 1125-E Joe…

A sole proprietorship is the default IRS entity structure for freelancers and contractors who don’t form a corporation. It is also the default for single owners of limited liability companies (LLCs), but they can choose to be treated as a corporation if they prefer. Business income and expenses are reported on Schedule C of Form…

Bartering income is the value of goods or services received in exchange for goods or services you provide. The value of the property or services received is treated like cash and is subject to tax. An example of bartered services would be rent reduction in exchange for repairs or improvements to the rental property performed…

Marijuana dispensaries must file federal income tax returns and pay income tax the same as any other business—except that dispensaries are not allowed to deduct their operating expenses because they are considered drug traffickers under federal law. Marijuana dispensaries must pay federal income taxes by filing one of the following tax returns: Schedule C: For…