Ask an Accountant: What is Net Profit?

Thanks to Mom on Dealz for sharing her series, Ask an Accountant! Sharon is married to an experienced accountant. We’re heading back into tax season so get your tax questions answered from a professional.

See more Ask an Accountant posts to see if you’re tax question has been answered.

It’s almost December so I know many of you may be scrambling to get your year end tax information organized.

Question:
I have a small business and I was wondering if I pay my taxes based on the income I earn or the income left after I have paid expenses?

Answer:

You would pay your taxes on the net profit. Net profit is calculated as follows:

Gross Revenues – Cost of Goods Sold (Direct Costs if a service business) – Operating Expenses (advertising, bank fees, rent, subcontractors, etc…) – Depreciation of Fixed Assets = Net Profit. Keep in mind that not all cash outflows are considered expenses. For example, purchase of inventory, sales tax payments, principal payments on loans, payroll withholding payments, loans or distributions to owner/member/shareholders, and personal income tax payments or estimated tax payments are not expenses.

Please keep in mind this post is for informational purposes only and answers given are very general. Do not rely on this column for definite tax answers as many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

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Ask an Accountant: Do You Claim Yard Sale Earnings?

Thanks to Mom on Dealz for sharing her series, Ask an Accountant! Sharon is married to an experienced accountant. We’re heading back into tax season so get your tax questions answered from a professional.

See more Ask an Accountant posts to see if you’re tax question has been answered.

Question:
Do I have to claim money I make in a yard sale?

Answer:

Basically, the occasional garage sale does qualify for the exclusion from income due to the fact you normally sell your personal effects at a loss, and you can’t take a loss on this sale. In the event you sold something at a profit (highly unlikely, but could happen) you would have to report the gain :)

Please keep in mind this post is for informational purposes only and answers given are very general. Do not rely on this column for definite tax answers as many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

IRS Circular 230 Notice: Any U.S. tax advice in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions

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Ask an Accountant: Mileage Rate Deductions

Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  We’re heading back into tax season so get your tax questions answered from a professional.

See more Ask an Accountant posts to see if you’re tax question has been answered.

Question:

I travel quite a bit to teach coupon classes. Can I deduct the mileage? If so, what are the rates?

Answer:
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Ask an Accountant: Meal Deduction for Bloggers

Do you have a tax question? Thanks to Mom on Dealz for sharing her series, Ask an Accountant! Sharon is married to an experienced accountant. Although tax season is over, tax questions arise year round. 

As the end of the year approaches many people start thinking of deductions to lower their tax expense.

Question:
I own a cooking blog and blog about recipes and my family meals. Can I deduct the cost of the ingredients needed for the food shown on my site?

Answer:

Here are some questions you need to ask yourself. Your answers will determine deductions.

1. Is the blog a business (profit motive) or a hobby (not profit driven)?

2. Only 50% of meals & entertainment are deductible for business purposes, so I would not deduct any more than that. This also assumes the meal is consumed by the family after being posted on the website.

3. If a business, then I would deduct 50% of the cost of the meals used on the website in the month they were cooked & eaten. If a hobby, you can only deduct expenses equal to the hobby income, so the best case scenario you would report a net 0 profit (can’t have a hobby loss). In the hobby scenario, I would still only deduct 50% of the cost of the meals.

This post is for informational purposes only and answers given are very general. Do not rely on this column for definite tax answers as many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation
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Ask an Accountant: Claiming Attorney & Accountant Fees

Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  Although tax season is over, tax questions arise year round.

Question:

I am a blogger who has recently set my site up to be a “business”. This required seeking advice from lawyers and an accountant. Can I deduct the fees I was charged for this advice?

Answer:

Yes. This would fall under legal and professional fees. As long as your meetings were business related, they are considered ordinary and necessary business expenses. However, there are certain legal expenses that are considered “start up costs”. The cost of getting started before operations have begun are considered capital costs and are recovered over time. Since many bloggers start their sites before “becoming a business”, this usually doesn’t apply.

*Please keep in mind this post is for informational purposes only and answers given are very general. Do not rely on this column for definite tax answers as many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

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Ask an Accountant: IRS Audit Selections

Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  Although tax season is over, tax questions arise year round.

Question:
My sister and law, brother in law and my husband all recently got letters from the IRS asking for all of this documentation from previous tax years. For my sister in law they are requesting information for 3 years, for my brother in law 2 years and for my family one year. We all get your taxes done by the same person. They are asking for copies of children’s birth certificates, marriage licenses, etc. How and why does the IRS determine to audit individuals?

Answer:

There are many circumstances surrounding the IRS audit selections. The IRS enters all tax return information into a software shortly after they receive the return and the software performs some calculations to determine reasonableness of the return compared to prior years and other tax returns similar. The returns are allowed a certain “variance” from the norm. If the return falls outside of this variance, it is “flagged for audit”. Another circumstance would be if there are several partner/member/shareholders of a business considered a”pass-through” entity that business return is amended or audited, then partner/member/shareholders may also be audited to reflect the changes on the business return.

Another instance, if you were to prepare your return with whole, round numbers (i.e. expenses listed as Auto Expense 4,000; Professional Fees 8,000 etc..this is an immediate “red flag” (I have seen this more than once). There may be a blatant error on the return, or an error not so obvious at first glance.

It is a little reassuring that you only received a letter, and not a personal visit from the IRS. If you provide copies of the documentation requested, and cooperate fully, you should have no problem other than if the return was prepared incorrectly.

*Please keep in mind this post is for informational purposes only and answers given are very general. Do not rely on this column for definite tax answers as many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation
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photo credit: austinpost.org

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Ask an Accountant: Blogging as a Business or Hobby

Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  Although tax season is over, tax questions arise year round.

Question:

When should a blogger start considering themselves a business for tax purposes? Is there certain criteria that, once hit, a blogger must start to consider their blog a business instead of a hobby?

Answer:

The blog is considered a business when there becomes a profit motive. Either way, business or hobby, the income needs to be reported. With this in mind, the hobby expenses are limited to the hobby income, meaning you can never take a hobby “loss”. A business can show a loss that may offset other income sources based on the way the business is structured.

*Please keep in mind this post is for informational purposes only and answers given are very general. Do not rely on this column for definite tax answers as many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

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Ask an Accountant: Early Withdrawal from a Rollover IRA

Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  Although tax season is over, tax questions arise year round.

Question:

I am considering taking an early withdrawal from the Rollover IRA account ($13k out). I recently had surgery and this is needed to clear bills, debt and get the budget back. I know I am looking at a 10% hit on the taxes next year for a penalty ($1,300), but what else am I looking at? How much else should I expect ?

Answer:

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Ask an Accountant: Claiming Day Care & Moving Expenses


Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  Although tax season is over, tax questions arise year round.

Question:

I have two questions:

1. Can I claim the after school program my son is in? He is in Kindergarten and instead of paying for an after school sitter we are paying for an after school program at the school. Is that deductible?

2. Can we claim/deduct our moving expenses?

Answer
:

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Ask an Accountant: Reporting Affiliate Income Under $600

Thanks to Mom on Dealz for sharing her series, Ask an Accountant!  Sharon is married to an experienced accountant.  Although tax season is over, tax questions arise year round.

Question:
I am a blogger who works with various affiliate companies and vendors. Is it true that if one of them pays me less than $600 a year then I don’t have to claim that income?

Answer:
No, that is not true. You have to claim everything you make. However, if you earn less than $600 from a company, they do not have to send you a 1099.  Basically the company is not required to report it but you still should.

*Please keep in mind this post is for informational purposes only and answers given are very general. Many things depend on individual circumstances. Please contact your personal accountant or financial advisor for your particular situation.

photo credit: austinpost.org

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