Liz Smith, CPA, MSTFP

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…

The primary difference between the completed contract method (CCM) and the percentage of completion method (PCM) is the timing of income recognition. With PCM, income is recognized in phases as the work is completed while, with CCM, income is recognized upon completion of the contract. Quick Comparison of Completed Contract vs Percentage of Completion Method…

The percentage of completion method (PCM), a means of recognizing income and expenses, is the required income tax method for long-term contracts—unless the small contractor or home construction contract exceptions apply. Under PCM, only a portion of total contract income is recognized annually. When you “recognize” income, you are recording it for tax or other…

The completed contract method (CCM) is a way to recognize income and expenses for construction contracts. With this method, no income or deductions are recognized until the contract is complete. When you “recognize” income, you are recording it for tax or other reporting purposes. Long-term contracts require special rules to determine when the income and…

Completing Form 1065 starts with document assembly — you’ll need the company’s balance sheet and income statement. If you don’t have those, you can use informal reports or spreadsheets that show totals for the company’s income, expenses, and asset and liability categories. Once you’ve gathered your documents, fill out the form’s sections for general information…