Tax Forms: The 'Miscellaneous' Strategy

Monday, October 20, 2014 Print Email

Schedule A of tax form no. 1040 is for claiming the reliefs against various expenses. These type of expenses include fees paid for tax advice, payments made to prepare tax returns and the employee business expenses which were not reimbursed. A main issue here in claiming tax relief against these expenses, which most clients don’t understand, is that these expenses are allowable for tax purposes only to the extent that these expenses exceed 2% of total gross income minus some specific deductions. But this is not the only rule, instead the firms have some other ways to assist their clients. Firms focus on hurrying up making payments or delaying, when they predict that the expenses would exceed 2% threshold.

Prepaid Expenses: Now this is all relates to getting relief against advance expenses intending to prolong the period in which relief could be claimed.

Statutory Employees:If workers are independent contractors under the common law rules, such workers may be treated as employees by statute. Some of the examples of statutory employees are as follows:

Ø A driver who distributes the meat, fruits, vegetables and bakery items, or picks up and delivers laundry and is paid on commission basis.

Ø A life insurance sales agent whose main business is to sell life insurances or annuity contracts.

Ø A salesperson who works primarily for your firm and wins orders for you from retailers, contractors, restaurants etc.

These statutory employees have been provided with the relief of exempting from the 2% threshold rule for business expenses;rather they are being treated by the tax authorities as self-employed. They do not have to show their expenses on Schedule A, rather they have to minus their all expenses from Schedule C (Profit or Loss from Business).

Exception for fees for Schedule C,E,F preparation or tax advice:Revenue rule 92-39 approves the 2% relief. It also permits relief for return-preparation fee allocable to Schedule C, E (rental income) and F (Profit or Loss from Farming). Tax advice fees can also be subtracted.

Alternative Minimum Tax allows the payments to be deferred until next year.

Source: ReadyRatios

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