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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Self-employment’

6 Tax Facts for Self-Employed Taxpayers

Posted by William Byrnes on April 23, 2014

In Tax Tip 2014-34, the IRS provided 6 tax tips for self employed taxpayers.

  1. Self-employment income includes income received for part-time work.  This is in addition to income from a regular job.
  2. A self employed taxpayer must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040.
  3. A self employed taxpayer may have to pay self-employment tax as well as income tax if a profit was earned.  Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to calculate whether any self employment tax is due.
  4. A self employed taxpayer may need to make estimated tax payments. Taxpayers typically make these payments on income that is not subject to withholding.  A taxpayer may be charged a penalty if not paying enough estimated taxes throughout the entire year.
  5. A self employed taxpayer can deduct some expenses paid to run your trade or business. A self employed taxpayer can deduct most business expenses in full, but some must be ’capitalized.’  Capitalization means that the deduction will be limited to just a portion of the expense each year over a period of years.  By example, only the first $5,000 of the “start-up” expenses for a new business of the taxpayer is potentially deductible, and not until the year in which the active trade or business begins.  All other start up expenses must be amortized over a 180-month period, beginning with the month the business starts.  Thus, start up expenses in general are only deductible over this 180 month period, and not in the year actually incurred.
  6. A self employed taxpayer can deduct business expenses only if the expenses are both ordinary and necessary.  An ordinary expense is one that is common and accepted in an industry.  A necessary expense is one that is helpful and proper for the trade or business.


Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Battle Brewing Over Employments Status of Financial Advisors

Posted by William Byrnes on February 7, 2012

Are you an employee or independent contractor of your firm? If you’re doing business in California and get the classification wrong, you could be in for criminal charges and up to a $25,000 fine.

California State Bill 459—which would impose strict recordkeeping requirements and severe penalties on firms that misclassify employees as independent contractors—passed the state senate on June 2. The bill moved to the Assembly and went on to a hearing at the Assembly Committee on Labor and Employment two weeks later. The bill is expected to come to a vote in the Assembly later this summer.

Under the bill, firms that mischaracterize employees as independent contractors can be subject to fines of up to $25,000. They also will be required to keep records verifying independent contractor status for at least two years or face a fine of $500 per employee and misdemeanor criminal charges.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of income taxation, see Advisor’s Main Library: Income Taxes.

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Tax Court Revives Partnership Self Employment Tax Debate

Posted by William Byrnes on July 21, 2011

The Tax Court has reopened the question of whether status as a limited partner entitles them to an exemption from self-employment taxes—an issue that’s been idle for over 13 years.  The Tax Court recently declared that status as a limited partner does not necessarily exempt a partner from self-employment taxes. Instead, the exemption is derivative on how substantial of a role the partner played in the partnership business. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of small businesses in Advisor’s Journal, see IRS Announces Lenient Lien Program for Small Business (CC 11-48)

For in-depth analysis of partnership taxation, see Advisor’s Main Library: H–Partnership Taxation

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“Wage” War: Round One

Posted by William Byrnes on February 24, 2011

The topic Self-Employment Tax on wages versus distributions has reared its head again – as shown by the recent Federal District Court case involving David E. Watson.

The C.P.A. recently disputed and lost to the Government’s position which recharacterized dividend and loan payments from David E. Watson, P.C. (a Subchapter S corporation) to its sole shareholder and employee, David E. Watson.  The IRS assessed additional employment taxes, interest and penalties against Watson for each of tax years in which Watson’s salary was significantly lower than his total distributions.

Read the analysis at AdvisorFYI (sign up for a 2 week online free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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Obama’s Christmas Gift to the American Public: Social Security Tax Reduction

Posted by William Byrnes on December 24, 2010

Section 601 of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR. 4853) provides for employee tax and self-employment tax rate reductions.

The Social Security tax is divided by the employee and employer share. [1] For self-employed individuals, a separate but comparable tax applies to covered wages.  [2]

For employees, generally, the term covered wages in this context means, all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash. [3]

Social Security is generally taxed at 6.20% and Medicare (Hospital Insurance) 1.45%. [4] Social Security taxes are composed of (1) the old age & survivors insurance (5.30%) and (2) disability insurance (0.90%) (together known as “OASDI”) tax equal to 6.2 percent of covered wages up to the taxable wage base ($106,800 in 2010 and again in 2011); and (2) the Medicare hospital insurance (“HI”) tax amount equal to 1.45 percent of covered wages. [5]

See the full article at AdvisorFYI


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