Personal Taxes

Amy, You will need to take a look at the Hobby Law Rules 1st.  If you reported losses for 3 out of the last 5 years for your businesses, the IRS will consider this a hobby and disallow any deductions.  They may send you correspondence regarding this as well.

Given the above information, you could report both of your incomes on a Schedule C and show a profit with each of your Schedule C's. 

I hope this helps,

Jeanne Adams CPA

Firestone, CO 80504

Kiara, both of you will file Single for 2023 since you did not get married until January 4, 2024.

Jeanne M Adams, CPA

Firestone, CO 80504

Congratulations on your new business venture.

I will give you some general thoughts to help you.

First and foremost, you should open a separate bank account where you deposit all the income and from which pay your expenses. You absolutely do not want to use a personal account. Why? If you ever got audited, if any business activity went through a personal account (meaning you commingled funds), IRS can and will force banks to surrender all your bank accounts, and IRS will treat any deposits to your personal account as income (even if it’s not truly income). IRS is correct that taxpayers should never commingle funds. Taxpayers do it all the time, but it’s to their detriment because they hand the IRS the right to audit all their personal accounts. Why make it harder on yourself?

To answer your question, you should keep any records pertaining to your business. That means copies of invoices you give to customers, copies of deposit slips when you make deposits to the bank account, copies of bank statements, copies of check stubs, copies of receipts when you make purchases for parts, etc.

As far as expenses are concerned, you can deduct any legitimate business expense you pay on behalf of the business. That includes the parts you mention. You cannot deduct things like meals, entertainment, clothing (unless you pay to have a logo added to the clothing), haircuts, etc. You can deduct business mileage. That’s going to be a big deduction for you, so you need to keep a complete and accurate mileage log.

It’s best to keep all your records for seven years, in case you’re audited. If you don’t have records, IRS has the right to deny deductions.

If you need a CPA now or in the future, I am available. I’m here in Texas, but I service clients across state, across the country, and even internationally.

Finally, if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

Seeing that there was no paperwork to document the loan, I assume no interest was ever paid. While the intention may have been for it to be treated as a loan, neither party behaved like it was a loan (by having a written promissory note, periodic payments, interest to be paid, etc.).

If your father every got audited and this issue arose in audit, he would first have to prove that the receipt of the $30,000 was not income to him. Again, it’s difficult for your father to assert it was a loan when it was never treated as such. Assuming that you could prove it was not income, then the IRS might argue that it was a loan (if that was in the IRS’ best interest). If the IRS could win on that front, they’d go after your father’s friend for imputed interest income, as you can’t have a loan with no interest. However, if it ended up being treated as a gift, I recommend the following.

To keep things simple, your father should repay the $30,000 in two pieces, making sure not to exceed the annual exclusion (presently $15,000) by giving no more than $15,000 each calendar year. So it would take two payments – one for $15,000 this year (2021) and the second for $15,000 next year (2022). By doing it this way, your father would not need to file a gift tax return for the total transfer of $30,000 back to his friend. Also, your father would not need to pay any tax.

To summarize, I would assume it was a gift all along and take the aforementioned steps to do damage control. Of course, it would have been better to simply have done things right from the beginning, rather than try to find a legal way out of the mess later.

I don’t think this is a reason to panic. On the other hand, I do think this is a reason to take proactive steps, which you have already been doing.

If you have not already done so, I recommend you prepare and file your return showing just the one Form W-2. You should not show the duplicate Form W-2. Hopefully, you’ve been documenting (writing down dates, times, names, phone numbers called, etc.) for all your contacts (with your employer, Social Security Administration, and Internal Revenue Service). Because you’re in a panic and quite motivated now (and the details are fresh in your mind), you should compose a letter to the Internal Revenue Service right now, to explain why you reported just one Form W-2 and to document all your efforts (even though unfruitful) to make things right.

Once you file your return, the Internal Revenue Service will process it. You can expect that they will send you a notice for what they perceive is unreported income. Don’t be surprised if they also assess penalties and interest. However, if you write your letter now, you will have most of the details on hand for when you get the IRS notice. Then, you’ll just need to tweak your letter to directly address the points raised in the IRS notice. If you choose, you could even include a copy of your letter when you file the return (if you paper file it). However, I don’t recommend it. The letter will probably be ignored. Also, if you paper file, the processing of the return will definitely be delayed.

So, I wouldn’t panic. You haven’t done anything wrong. Unfortunately, know that you have a long road ahead of you. There is light at the end of the tunnel, but it’s a long tunnel ahead of you.

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

You use Form 1040-ES to make estimated income tax payments. You can download the form (with instructions on where to mail, etc.) on the website for the Internal Revenue Service (irs.gov). On the home page, click on Search Forms & Instructions. Then, in the Search box, you can type 1040-ES.

Estimated income tax payments are normally due April 15, June 15, September 15, and January 15.

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

If you received a corrected composite Form 1099 with Line 1a (ordinary dividends) and Line 3 (nondividend distributions) switched, it would definitely make a difference. Why? Because ordinary dividends are income that must be reported, subject to either the long-term capital gains rate applicable to you or the marginal tax rate on ordinary income for you. The extent to which each rate applies to you depends on how much is reported in Line 1b (qualified dividends). So whether line 1a (ordinary dividends) went up or down with the corrected composite Form 1099, it would have an impact on your taxes.

Having said that, I feel that whether or not you should do an amended tax return depends on the amount of the change from the corrected composite Form 1099. If it was material, I would do an amended return. If it was de minimis (very small), I wouldn’t bother. Just know that if you do not amend, you should not be surprised to eventually receive a notice from the Internal Revenue Service, potentially assessing more tax plus some penalty and interest. That’s why I recommend you make your judgment based on the dollar amount involved. If the amount involved is very small, the time (and potential expense to pay someone to amend) doesn’t make sense.

I hope that helps. I wish you the very best!