Tax Fact for Solopreneurs Part II
Wednesday, February 3, 2016
Tax Fact #7: You do not have to file jointly if you’re married.
If you’re married, you and your spouse have the OPTION of filing taxes jointly. It’s not a requirement, however, and you can also file separately. Neither option is “more right” than the other, and whether or not you file jointly or separately depends upon the circumstances of you and your partner.
With that said, filing jointly usually nets married couples a few tax breaks that filing separately doesn’t. It’s usually a good idea to file jointly for this reason – but if you’re not sold, that’s fine too. Talk to a tax professional to help you explore your options before filing.
Tax Fact #8: Poochie pooch and kitty witty are not tax deductible.
Pets can be expensive – especially if you have to deal with medical conditions and veterinary visits. I quite often get questions about whether or not you can write your pets and/or their related expenses off in your taxes. In general, the answer is no.
If your animal is a guide or service animal, the answer might be different. It really depends upon whether or not they’re a registered service/guide animal or just being used in that fashion, for example. For everyday pets – regardless of how much you pay in medical bills or how much you think your pet is worth – you cannot claim them on your taxes.
Tax Fact #9: Your bank statements are not sufficient enough records of your business’ income and expenses.
We’ve talked about the need to file taxes and keep your finances separate when it comes to personal versus business… but how do you know what kind of records you should be keeping?
First of all, don’t write this off as being as simple as printing off bank statements and submitting them should you wind up in an audit. Bank statements alone are not sufficient records of your business expenses and income, although they are one good kind of record to keep. You should also be keeping hard copies of things like cash register receipts, deposit information, invoices, credit card statements and receipts, and checks. The idea is to document all of your transactions as well as you can.
Tax Fact #10: Your tax professional is not a miracle worker.
I know you want to believe that a tax professional can just make everything roses, but that’s not the case. If you walk into a tax professional’s office with an audit notification, and all you have to document your expenses for the past five years is perhaps a few bank statements, you’re going to have a hard time. While very, very good at what they do, your tax professional cannot wave a magic wand and create a world where there are no consequences for your actions.
If you end up in a bind with IRS, you should absolutely seek out a tax professional’s help. What you SHOULDN’T do is expect them to make everything better and get you off without fines or back payments.
Tax Fact #11. “I didn’t know,” is NOT a sufficient excuse to an IRS auditor.
As reasonable as it might seem to you, telling an IRS auditor that you simply didn’t know about a tax or a filing requirement will not result with you winning that audit. What do you think the most common excuse is that the IRS hears? I’m betting the old “I’m sorry, I didn’t know” line is right up there. It’s the easiest excuse to use – and whether it’s true or not, using it won’t get you out of trouble.
Whether or not you knew about a tax when you failed to file, you’ll be paying the penalties the IRS assesses. Be careful when filing your taxes, and always speak with a tax professional for help if possible.
Tax Fact #12: You DO have to pay income taxes on monies earned online.
If you earn all of your money online, you’re home free when it comes to taxes, right? No! That is NOT correct. Regardless of whether or not you earn money in person or on the internet, you are going to have to pay income taxes. Even if you think that you’ve got your online stuff squared away and “hidden”, I assure you that the IRS will figure it out. This is especially true if you’re being paid through a service like PayPal.
Don’t risk it. You have to claim money earned online when you file your taxes.
photo credit: taxreceipts.com