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Miscellaneous

Being paid via W2 and 1099

Asked Sunday, September 05, 2021 by Donald P.

It sounds like you could do with some tax planning! Unfortunately, these are too many unknowns for a specific answer here.

First - setting up an LLC (or perhaps taking an S-Corp election?) would depend on a variety of factors. How high is your 1099 compensation? Would you prefer the "hands off" route and possibly ask for a W-2 instead of a 1099 from your second job (if possible, and if I understood that part of your question correctly), or would you like to set up an LLC and expense various things yourself, in addition to any other tax savings that come with having an LLC? Usually, the LLC route can offer more tax savings, but a more "hands on" approach from you - e.g. a possible additional S-Corp tax return + putting yourself on payroll (if the S-Corp route makes sense); accounting for your LLC (with or without an S-Corp election), etc.

If you'd like to schedule a (no-strings/complimentary) consultation with my firm (we work predominantly with medical service providers and specialize in tax planning), let me know. You can email my business partner, Paulina S., for more information or to set up a call - her email address is paulina (at) ratio.cpa - she handles all initial client inquiries and can help steer you through your options. We do our best to have the consultations be as transparent and informative as possible.

Apologies that I could not help more - but taxes are never straightforward, more information is needed, and making mistakes now can cost you in the future.



Answer Provided by: Eli Keren Eli Keren

Miscellaneous

Income, Taxes and Business Entities

Asked Tuesday, June 29, 2021 by Alisia R.

I can tell you put some thought into your questions. First, congratulations on the freelance work.

To set aside money for taxes on any profit, you are right that it is a good idea to have a separate account for the taxes. Keep in mind that you need to be very careful to keep your business separate from your personal life. Therefore, you shouldn’t be paying business expenses out of a personal account or depositing business income directly into a personal account. That’s called commingling. If you commingle accounts and you ever got audited by the IRS, you’d have a nightmare on your hands because an IRS agent could subpoena ALL your bank accounts and assert that any deposits to ALL bank accounts (even personal accounts) is income, subject to tax. Then, the burden of proof would shift to you. Why go through all that torture? So do it the right way from the beginning.

Consider your freelance work a business, even if it’s conducted as merely a sole proprietorship without a dba (assumed name). Each business should have its own bank account, separate from any personal account and separate from the bank account for any other business you own. That is, each different type of business must be treated separately. To illustrate, if you had one business where you did consulting and a second business where you did dog grooming, each of those businesses should have its own bank account. Why? Because on your tax return, you’re required to separately report each activity/business. So you’d have personal accounts, at least 1 business account for each activity/business, and then yet another account to set aside money for taxes. I don’t think it matters whether that “tax” account was a checking or a savings account.

If you take the business to the next level, I would recommend an LLC in the beginning. An LLC will give you (as an individual) some legal liability protection, by separating the business from you personally. If the business got to a certain level of profitability, making an S election would be wise. A C corporation might also be a good option; it depends on your specific situation. I don’t counsel my clients to do a C corporation or S corporation on day one because those entities require you to file separate federal business tax returns, which means having to pay someone (like me) to do the tax returns. It doesn’t make sense to incur those additional compliance costs if you’re not making a profit.

You are right that taxes vary from location to location. That is, state and local taxes differ. Federal taxes are the same, regardless of where you live in the 50 states. Being in New York, you’re definitely subject to state income tax.

Feel free to contact me, if you wish to engage me for assistance.

Answer Provided by: personimage Adam Dickreiter

Miscellaneous

Can I Increase My Full-Time Withholding to Offset My Freelance Income?

Asked Thursday, May 20, 2021 by Matthew M.

As a CPA, I came across this website and joined just last week, and I just came across your question.

Good question. I commend you for planning ahead so that you don’t end up owing a large balance or incurring the estimated income tax penalty (Form 2210) come tax-time next year.

Both of your suggestions are acceptable. You are right that there is still a lot of time left in the year, so increasing your federal income tax withholding is an option. Alternatively, you could start making estimated income tax payments via Form 1040-ES for 2021.

Answer Provided by: personimage Adam Dickreiter

Armed Forces Tax Information

Earned Income Credit - Combat Pay

Asked Thursday, February 07, 2013 by an anonymous user
Special Rule for Combat Pay. Combat pay received by members of the military serving in Afghanistan, Iraq and other combat zone localities is usually exempt from tax.
But under a special rule, the taxpayer can choose to count all of this as taxable income when figuring the EITC. In many cases, making this choice enables the person to claim the credit, or if already eligible, claim a larger credit.
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Identity Theft

Received a IRS Notice

Asked Thursday, February 07, 2013 by an anonymous user
If you receive a notice from IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
If you did not receive a notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 right away so we can take steps to secure your tax account and match your SSN or ITIN.
Also, fill out the IRS Identity Theft Affidavit, Form 14039. Please write legibly and follow the directions on the back of the form that relate to your specific circumstances.
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Identity Theft

IRS Identity Protection Specialized Unit

Asked Thursday, February 07, 2013 by an anonymous user
For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution to their case, they can contact the IRS Identity Protection Specialized Unit, toll-free, at 800-908-4490.
If victims can’t get their issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.
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Identity Theft

Taxpayer Advocate Service

Asked Thursday, February 07, 2013 by an anonymous user
For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution to their case, they can contact the Taxpayer Advocate Service toll-free at 877-777-4778.
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Identity Theft

Tips to protect you from becoming a victim of identity theft

Asked Thursday, February 07, 2013 by an anonymous user
Don’t carry your Social Security card or any documents with your SSN or Individual Taxpayer Identification Number (ITIN) on it.
Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
Protect your financial information. Check your credit report every 12 months.
Secure personal information in your home.
Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
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Identity Theft

Lost or stolen purse or wallet

Asked Thursday, February 07, 2013 by an anonymous user
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Mon. - Fri., 7 a.m. - 7 p.m. local time; Alaska & Hawaii follow Pacific Time).
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