Income and losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Why does this matter? Passive income may be subject to the 3.8% net investment income tax (NIIT), and passive losses generally are deductible only against passive income, with the excess being carried forward.
Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.
Because of a weekend and a Washington, D.C., holiday, the 2016 tax return filing deadline for individual taxpayers is Tuesday, April 18. The IRS considers a paper return that’s due April 18 to be timely filed if it’s postmarked by midnight. But dropping your return in a mailbox on the 18th may not be sufficient.
In addition to income tax, you must pay Social Security and Medicare taxes on earned income, such as salary and self-employment income. The 12.4% Social Security tax applies only up to the Social Security wage base of $118,500 for 2016. All earned income is subject to the 2.9% Medicare tax.
Corporations can’t deduct dividend payments, but they can deduct executive compensation. To prevent abuse of this rule, the IRS requires exec comp to be “reasonable” – something even tax authorities have trouble defining.
Now that Donald Trump has been elected President of the United States and Republicans have retained control of both chambers of Congress, an overhaul of the U.S. tax code next year is likely. President-elect Trump’s tax reform plan, released earlier this year, includes the following changes that would affect individuals.
If you run your business as an S corporation, you’re probably both a shareholder and an employee. As such, the corporation pays you a salary that reflects the work you do for the business — and you (and your company) must remit payroll tax on some or all of your wages.
This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business went down. The reason? Compared with last year, the cost of driving is less because gas prices are lower.
If you answer “yes” to the questions below, it’s likely you’re eligible to claim a federal income tax deduction.
You might be able to claim a deduction for the business use of a home office. If you qualify, you can deduct a portion of expenses, including rent or mortgage interest, depreciation, utilities, insurance, and repairs. The exact amount that can be deducted depends on how much of your home is used for business.