Frequently Asked Questions

Business Questions

Who is considered self-employed?

If you are in business for yourself, carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself as a self-employed individual. You are an independent contractor if the person for whom you perform services for has only the right to control or direct the result of your work, not what will be done, or how it will be done.

What can I deduct as a business expense?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

Should I incorporate my business?

Before deciding to incorporate, you should seek legal and tax advice on what type of ownership best suits your business. Other forms of ownership may offer your company the advantages of incorporation, but also offer more management flexibility or tax advantages. You might also want to consider how big you expect the business to grow, and the sources of financing you expect to tap. An experienced attorney and tax advisor can help you decide which form of ownership is best for your business.

Should I buy or lease assets for my business?

As a general rule of thumb, buy the asset if it will increase in value over time and you plan to keep it more than five years. If the asset will decrease in value, lease it.

If I work at home occasionally am I entitled to a home office deduction?

Depending on the nature of your work, your occasional home use is unlikely to qualify for a home office deduction. In order to qualify for a home office deduction, your home office must be your principle place of business, or be a place where you meet clients or customers in the normal course of business.

Can I change from a C corp to an S corp?

Yes. However, you must be incorporated in the U.S.; have no more than 100 shareholders; have only one class of stock; shareholders must be U.S. citizens, resident aliens, estates, other S corporations, or certain qualified trusts.

Can I change an S corp to a C corp?

Yes. A Revocation of S Corporation Status must be filed with the IRS, and a statement of consent from shareholders should be attached. It should state that as a group the shareholders own more than 50% of the issued and outstanding stock of the corporation.

Individual’s questions

Am I having enough tax withheld from my paycheck?

Two factors determine the amount of income tax your employer withholds from your regular pay: the amount you earn, and the information regarding filing status and withholding allowances that you provide your employer on Form W-4. To ensure that you have the correct amount of tax withheld, obtain a copy of IRS Publication 919. It should help you compare the total tax to be withheld for the year to the tax you anticipate owing on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you are having too much tax withheld.

Are Social Security benefits subject to income tax?

A portion of your benefits may be subject to income tax if your modified adjusted gross income (MAGI), plus one-half of your Social Security benefits, exceeds specific limits. Up to 50 percent of your Social Security benefits may be subject to income tax if your combined income (MAGI plus one-half of your Social Security benefits) exceeds $25,000 for an individual filing single, unmarried head of household, or qualified widow(er) with dependent ($32,000 if married and filing jointly). If your combined income exceeds $33,000 ($44,000 if married and filing jointly), up to 85 percent of your benefits is taxable. If you are married and filing separately, up to 85 percent of your benefits will be taxed unless you and your spouse live apart for the entire year, in which case 100% of your benefits are taxable.

How can I protect myself against identity theft?

Make a list of all of your credit cards, even those you don’t carry in your wallet. Don’t let your credit card out of your sight when you use it to pay for a store or restaurant purchase. Don’t carry your birth certificate or Social Security card in your wallet. Shred preapproved credit card or loan applications, and those checks your credit card company mails you, before you throw them in the trash. Order a copy of your credit report at least once a year. Don’t give out your Social Security, credit card, or bank account number to anyone who calls you. Give them out only when you have initiated the call.

How long does it take after you've filed to receive a refund?

If you e-file opting for direct deposit and have not received your refund within 3 weeks after filing your return (eight weeks if you filed a paper return opting for a paper check), you can check your refund status by calling the Refund Hotline at (800) 829-1954. Be sure to have available a copy of your current tax return because you will need to know your social security number shown on your return, the filing status and the exact whole dollar amount of your refund. If you have requested direct deposit, the refund should take one week less time to be issued as opposed to getting a paper check. You can also check the status of you refund by visiting www.irs.gov and clicking on “Where’s My Refund?”

How long should I keep copies of my tax returns?

You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
You file a fraudulent income tax return; keep records indefinitely.
You do not file a return; keep records indefinitely.
You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
Your claim is due to a bad debt deduction; keep records for 7 years.
Your claim is due to a loss from worthless securities; keep records for 7 years.
Keep information on an asset for the life of the asset, even when you dispose of the asset; keep records indefinitely.
Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

For more record retention information, click here.

I don't have the cash to pay my taxes. What can I do?

You have a few options. You can pay by credit card, propose an installment payment agreement or an offer in compromise to the IRS, or declare bankruptcy if you qualify. If you ignore your tax bill entirely, not only will interest and penalties accrue, but the IRS’s tax enforcement and collection powers include the ability to record liens on your property and levy to secure or satisfy such liens.

Business FAQ