Exam 2 Questions Flashcards
Having the knowledge to help clients like Lisa make informed decisions and save money on taxes makes you a Tax Expert they can rely on.
IRAs are tax-advantaged retirement savings accounts that individuals set up on their own at financial services institutions.
Traditional IRA contributions that are deducted on the taxpayer’s tax return are treated similarly to tax-deferred contributions to a qualified retirement plans [like a 401(k)].
The contributions and earnings on those contributions are tax-deferred. This means they grow tax-free until they are distributed.
The deducted contributions to traditional IRAs and their tax-deferred earnings are taxable income when they’re distributed. When the money is taken out it’s treated as ordinary income.
Only Traditional IRA are deducted from income (line 10).
A contribution to a Roth IRA can never be deducted.
If an individual chooses to withdraw contributions from their Roth IRA, they can do so anytime without being subject to tax or penalty.
A Traditional IRA has restrictions and penalties associated with withdrawing funds too early. If an individual chooses to withdraw funds from their traditional IRA before age 59 and a half, they will likely pay income tax and a 10% penalty on the amount withdrawn unless they have a qualifying exception.
There is no minimum no maximum age to contribute for Traditional IRA.
There is a penalty for contributing more than allowable to an IRA. What is the penalty if the excess contribution is not withdrawn?
6% of the excess amount
Form 1040-ES to calculate the amount owed manually
Quarterly tax payments are due on April 15th, June 15th, September 15th, and January 15th.
A sole proprietor can end up owing the IRS an underpayment penalty in addition to the taxes that they owe. The penalty amount will depend on how much they owe and how long they have owed it to the IRS.
Previous Year’s Tax Return: Taxpayer will avoid penalty if owe less than $1,000 after subtracting their witholdings and credits or if they pay 90% of tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
Record of any estimated tax payment already made during the year: taxpayers need to include payments already made when they determine how much tax is owed.
Form 1040-ES, can be used as a tool to assist with calculating estimated income and self-employment taxes for each quarter and annually.
Tax Credit for Self Employed:
1- Tax Premium: Health Insurance thought the MarketPlace
2- Work Opportunity Tax Credits (Form 5884): hire employees who have face significant challenges such as Veterans and felons.
3- Reseach Tax Credits (form 6765)
4- New market tax credit (Form 8874):
Tax credits should be reviewed by self-employed individuals for opportunities to reduce their tax bill.
A tax credit is a dollar for dollar reduction of the taxpayer’s total tax liability.
There are many general business tax credits that should be reviewed.
Self-employment tax rate is 15.3% , where 12.4% is for Social Security and 2.9% is for Medicare.
