Are Social Security Benefits Taxable?

A portion of social security benefits are taxable if all income, including tax-exempt interest, plus one-half of your benefits are more than an amount considered your base amount. Base amount is determined by your filing status. See base amounts for the 2019 tax year below. Individuals filing a joint return have to combine their income to determine total income

BASE AMOUNT

• $25,000 if you are single, head of household, or qualifying widow(er)

• $25,000 if you are married filing separately and lived apart from your spouse for all of 2019

• $32,000 if you are married filing jointly

• $0 if you are married filing separately and lived with your spouse at any time during 2019

Where is My Refund?

Man with empty pockets

Your taxes are done and lucky you! You’re getting a refund from the IRS! So where is your refund? Well, most refunds take about 21 days to be processed by the IRS. Most refunds take about 6 weeks to be processed if you mailed a paper return.

I Didn’t Receive My Refund… What Now?

If it hasn’t been longer than the allotted time, check the IRS’s Where’s my refund tool. Check your mailbox as well to see if you’ve received any correspondence from the IRS. The IRS should contact you by mail if they need more information to process your return. You can start checking the tool as soon as 24 hours after the IRS accepts your return electronically or 4 weeks after your return was mailed.

You will need to know the following information in order to use the Where’s my refund tool.

  • Social security number or ITIN
  • Your filing status 
  • The exact refund amount

If it’s been longer than the allotted time and you haven’t received your refund or any type of notice from the IRS, contact the Tax Assistance Hotline.

Who Can be Claimed as a Dependent on Your Tax Return?

Extended Hand

In order to qualify as a dependent for purposes of filing your federal tax return, a person must be what the IRS considers as either a qualifying relative or qualifying child. They must also meet some additional criteria as well. Interestingly, a qualifying relative does not have to be a relative. Additionally, someone who qualifies as a dependent does not have to live in your household.

There are criteria that apply for someone to be considered a dependent whether they are a qualifying relative or qualifying child. In both situations, the following must be true.

Support test: you must have provided more than half of the person’s financial support during the tax year.

Citizenship: the person must have been a U.S. citizen, U.S. national, U.S. resident alien or a resident of Canada or Mexico.

Filing status: the person must not file a joint return with their spouse for the year or if they are filing a joint return with their spouse for the tax year, they must be doing so solely to receive a refund of withheld taxes or estimated tax paid.

Who is a Qualifying Child

A qualifying child must meet the following criteria:

Relationship test: they must be either the son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister or a descendant of any of relation types listed previously. For example, the descendant of your half-sister, such as your half sister’s granddaughter, would qualify.

Age test: they must be under age 19 at the end of 2018 and younger than you (or your spouse, if filing jointly) or under the age of 24 at the end of 2018, a student and younger than you (or your spouse, if filing jointly) or be any age if they are permanently and totally disabled.

A student is a child who during any part of 5 calendar months of 2018 was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. On-the-job training courses, correspondence schools and schools offering courses only through the Internet do not qualify.

To be considered permanently and totally disabled, a person, at any time in the tax year, would not have been able to engage in any substantial gainful activity because of a physical or mental condition. In addition, a doctor must have determined that this condition has lasted or can be expected to last continuously for at least a year, or can be expected to lead to death.

Household status: they must have lived in your household for more than half of the year. Temporary absences by you or the other person for special circumstances, such as school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time lived in the home. If the child died during the year, the child must have lived with you for more than half the part of the year he or she was alive.

Qualifying Relative

Relationship status: A qualifying relative can be any person, other than your spouse, who lived with you all year as a member of your household if your relationship didn’t violate local law. Temporary absences by you or the other person for circumstances, such as school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the person lived with you.

Gross income test: For the tax year of 2018, the person’s gross income has to be less than $4,150 in order to qualify as a qualifying relative. If the person receives Social Security income and the Social Security income is tax-exempt, the amounts aren’t included as part of the person’s gross income.

Is Social Security Income Taxable?

When a person’s only income source is Social Security income, the income is not taxable. If half of the Social Security income plus all additional income, including tax-exempt interest, is more than a base amount, which is established by the IRS, some of the benefits may be taxable.

The base amounts below are applicable for the tax year of 2018.

$25,000 – if the person is single, head of household, qualifying widow(er) or married filing separately and living apart from their spouse for all of 2018. Keep in mind, however, if the person is filing head of household, they would not qualify as someone’s dependent.

$32,000 – if they are married filing jointly

$0 – if they are married filing separately and lived with their spouse at any time during the year

Sources

“Publication 929 (2018), Tax Rules for Children and Dependents.” Internal Revenue Service, 6 Mar. 2019, www.irs.gov/publications/p929.

“Publication 915 (2018), Social Security and Equivalent Railroad Retirement Benefits.” Internal Revenue Service, 19 Jan. 2019, www.irs.gov/publications/p915.

Determining Which Business Tax Returns to File

Confused man

Determining what types of business tax returns you need to file can be a daunting task but once you have the tools to make the determination, you’ll be well on your way. The following general questions must be considered in order to complete your assessment:

  • What is the business structure of your company?
  • Do you have employees?
  • How much income tax do you anticipate owing?
  • What types of products or services do you sell?
  • How much in revenues did your company earn this fiscal year?

Determining the Business Structure of Your Company

Sole Proprietorships

A sole proprietorship is generally an unincorporated business that has one owner. You are probably wondering why generally is italicized. Well, a limited liability company, which is an incorporated business, can also be treated as a sole proprietorship for tax purposes under certain circumstances. We’ll cover more about the circumstances in the Limited Liability Company section. Assuming your business is, in fact, considered a sole proprietorship for tax reporting purposes, your business will generally need to file the following income tax returns:

  • 1040, U.S. Individual Income Tax Return

  • Schedule C (Form 1040), Profit or Loss from Business

  • Schedule SE (Form 1040), Self-Employment Tax

In addition, farming income is reported on Schedule F, profit or loss from farming. Rental property income and expense is reported on either Schedule E or Schedule C. Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. 

With the induction of the 2018 Tax Cuts and Jobs Act, more nuances were introduced into the US tax code that are beyond the scope of this article, but KES Design Group is a phone call or email away should you need guidance.

Finally, the forms below are reported to the IRS as well, if applicable:

  • Form 4562 – reports information about company assets, including any automobile expenses and depreciation and amortization deductions
  • Form 8829 – reports home office expenses

Limited Liability Company (LLC)

Limited Liability Companies (LLC’s) are incorporated on a state level and can be single-member or multi-member organizations. Single member LLC’s are treated as sole proprietorships by default and would file applicable tax forms for sole proprietorships. Multi-member LLC’s are treated as partnerships by default. We’ll cover partnerships below. Additionally, an LLC can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. You may have heard business owners or tax professionals reference corporation election as a “check the box” election because the classification is done simply by checking a box on a form. In conclusion, LLC’s can be taxed every which way, so this may explain why you may have gotten the answer “it depends” when asking how LLC’s are taxed.

Partnerships

A partnership exists when two or more people or organizations join in a trade or business. A partnership is responsible for filing an annual information return to report the results of operations and does not pay income tax. Partnerships are considered “pass-through” entities because they pass their income and expenses to their partners. Partnerships are required to file Schedule K-1, Form 1065. In turn, each partner will receive a Schedule K-1 from the partnership, which reports their share of profit or loss to report on their individual tax return.

Corporations

C-Corporations

A C-corporation is recognized as a separate taxpaying entity for federal income tax purposes. C-corporations are subject to double taxation; once when filing taxes on net profits or losses and again when the corporation’s shareholders are taxed on distributions or dividends they receive from the corporation. C-corporations are responsible for filing Form 1120, U.S. Corporation Income Tax Return.

S-Corporations

S corporations are corporations that elect to become pass-through entities and pass the results of operations to their shareholders for federal tax purposes. Shareholders of S corporations are taxed at their individual income tax rates. This allows S corporations to avoid double taxation on income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet specific requirements, which are beyond the scope of this article. The corporation must submit Form 2553 Election by a Small Business Corporation in order to become an S corporation and must file Form 1120-S, U.S. Income Tax Return for an S Corporation with the IRS annually.

Payroll Taxes

If your organization has employees, payroll taxes must be filed with the IRS  and federal income tax must be withheld for both the employer’s and employee’s share of social security and Medicare taxes. There are two deposit schedules: monthly and semi-weekly. A determination of which deposit schedule is appropriate must be made before the beginning of each calendar year.

The forms below will be required to be filed with the IRS depending on your tax situation:

  • 940, Employer’s Annual Federal Unemployment (FUTA) Tax return
  • 941, Employer’s Quarterly Federal Tax Return
  • 943, Employer’s Annual Federal Tax Return for Agricultural Employees (for farm employees)
  • 944, Employer’s Annual Federal Tax Return

Federal Tax Court is Closed For Business

US Tax Court

The United States Tax Court shut down operations on Friday, December 28, 2018, at 11:59 p.m. and will remain closed until further notice.  If someone is representing you in your case, you should contact your representative for more information. Visit the Tax Court’s website for updates. 

The Tax Court website indicates that mail sent to the court through the U.S.  Postal Service or through designated private delivery services may have been returned undelivered.  If a document you sent to the Tax Court was returned to you, contact your representative or visit the Tax Court’s website for instruction.

Certain trial sessions were canceled and some were not. For more information, be certain to visit the Tax Court’s website for more information. Taxes will continue to accrue on taxes being disputed in any pending Tax Court Cases, however, the IRS is continuing to process payments during the shutdown. 

IRS Will Accept 2018 Tax Returns On-time Despite Government Shutdown

It’s business as usual at the Internal Revenue Service. The government shutdown will not affect 2018 income tax return filing. The IRS confirmed that income tax returns will begin to be processed beginning January 28, 2019 and will provide refunds as scheduled.

The IRS received a permanent indefinite appropriation from Congress to pay all tax refunds (31 U.S.C. 1324) so no worries about receiving any refunds. A significant portion of the IRS’ workforce is being recalled that are currently furloughed to support taxpayers customer service needs.

Need help? Contact KES Design Group and let us help.

Money & Power

Money & Power
Money and Power Header

KES Design Group, an accounting firm located in Cleveland, OH has officially launched their blog, Money & Power! Enjoy your visit and browse through articles written to provide entrepreneurs and business owners information about starting and running a successful business.

This blog was born out of the idea that knowledge is power and hopefully, we can pass on some of our knowledge to you and help to cultivate a powerful world!

Sort through the business topics and read insightful business articles that touch on subjects like business financing, acquiring business grants, resources for minority owned businesses and more.

Share your experiences and expertise with us or just join the discussion.

Kelli Owens

President & CFO