Almost every American takes interest in reward programs of credit card companies. These rewards are either in the form of points or in the form of cash rebates. Are you supposed to report such rewards on your tax return?
Usually, you go on accumulating points on your credit card with the hope that you will get something lucrative on redemption. In addition, credit card companies offer cash rebates. You claim such rewards and rebates almost every year. This routine goes on year after year. Are you required to pay tax on such rewards?
Well, IRS has not provided definite guidance on this issue. However, once IRS has given a private ruling indicating that such rewards or rebates need not be included on your federal tax return. It is obvious that the private letter ruling only applies to be concerned taxpayer. Only case specific facts are considered while giving such a ruling. But this ruling helps us to know the approach of IRS on this tax issue.
Tax consultants have generally accepted the view that rebates and rewards on your credit cards are not part of your taxable income, and need not be reported on your federal tax return. They are considered as a reduction in the original purchase price.
IRS Publication 17 indicates that when you receive a cash rebate from any dealer or manufacturer for buying an item, that is not your income. However, you are supposed to reduce the basis of your purchase by that amount of rebate.
Let us take an example. If you purchase of a printer for your business costing $400 and used a cash reward from your credit card of $100 for this purchase, then you should deduct only $300 as your business expense.
IRS explains in publications 17 that rewards are taxable if you provided some information in exchange for getting such reward. The rewards and rebates from credit card companies are not available for providing any information and so they need not be reported on your federal tax return.
IRS views such rebates as a way of offering reduction in the price to induce a customer to buy a product. The same rule applies to all the cash rebates which you may receive from your credit card company for using its card. So even if you use personal card or business card for claiming such reward, there is no taxable income to be reported.
Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.
In the United States it’s possible to donate a vehicle (usually a car, but it can be a boat or any other form of transportation) to certain charities, and in return be able to claim a tax deduction on your personal income tax return. A car donation may be accepted on the condition that the vehicle doesn’t have to run but should be in towing condition. A charitable car donation may be worth more than a trade-in.
The new rules allow the donor to deduct only the amount the charity receives for the vehicle. Charities usually provide you with a release of liability when they take your vehicle, and after the car sells, they send you a tax-deduction form that explains how much they received for your car. There have been car donors who needed a new vehicle and they ended up buying donated and repaired vehicles.
You may have an old vehicle sitting on your property or on the street that you don’t use very often. Make sure you have the title in hand if you call in your donation.
You can usually donate a sad-looking car that’s not running, depending on the charity. The donor benefits from the donation by receiving a tax receipt for the highest possible value of the vehicle. It’s good to know that when you donate a car, you’ll get it off your property within just a couple of days, freeing up space in the garage, in the driveway or even your yard.
Your vehicle has to have all four of the tires inflated in order to be accepted. By donating a car it can eliminate spending money on repairs, advertising fees and the problems or liabilities associated with selling a vehicle. In some cases charitable car donors can still claim fair market value for their used vehicle.
If your automobile, truck, boat, motorcycle, RV or aircraft is no longer of use to you, it can still go a long way toward supporting the charity of your choice. Make sure to fill out the forms the charity representative gives you and have them ready for the driver when he comes to pick up the car. No need to pay for advertising, no loss of privacy and possible security risk, and no need to pay for vehicle registration, insurance, and repairs to keep your car in running condition while you wait for a buyer.
Also, if your car is running, consider dropping it off with the charity yourself to save the organization from paying for towing costs. For states that require smog certificates or safety inspection certificates, you can donate your vehicle without these documents. And some cars may not qualify for the tax exemption because of the condition they’re in.
There are a few exceptions in the new tax law regarding the fair market value section, for example, you may base your deduction on the vehicle’s fair market value if the charity sells it to a needy individual at a discounted price or if the charity uses the car as part of its mission instead of selling it. Some charities have the capability to repair or perform maintenance and get a donated vehicle ready for sale. A vehicle donation is allowed if you itemize your income tax return.
Whether it’s the law in your state or not it’s a good idea to protect yourself by having proper insurance coverage on your vehicle until it’s donated. One of the exceptions to the new IRS regulations allows donors to still deduct the fair market value of their vehicle, provided the charity materially improves the vehicle.
If you donate a car you can get a tax break and help your community at the same time. Major charity car donation programs include: Kidney Foundation Car Donation Program, Target and Goodwill Industries. Whatever the case, your car donation, like any charitable donation, will get you a good tax deduction, will go to help someone in need and it’ll make you feel good that you were able to help in some way.
For more information on choosing the best charity car donation, car donation program, used car donation or charitable car donation online and offline go to http://www.Car-Donation-Info.com for charity and tax deduction tips, help, facts, reviews, including information on all types of car donation
A self employed business enters the income and expenses on page SE1 of the self assessment tax return form if the total sales of the business for the financial year were less than 15,000 pounds. Only the totals of turnover, expenses and net profit are required.
Businesses whose turnover has exceeded 15,000 pounds are required to show greater analysis of the income and expenditure. From a practical point of view even those businesses who expect the turnover to be less than 15,000 pounds should also maintain financial accounts which show the increased analysis to both maintain financial control and be prepared to enter the increase3d analysis should turnover exceed the 15,000 turnover threshold.
When turnover exceeds 15,000 pounds totals are required of the sales and business income and then deducted from that total the cost of sales which is split into three categories of expense. Cost of sales is the direct costs of purchases which are resold, these purchases usually being physical materials but should also include any services which are bought for resale.
In particular reference to taxi drivers and haulage contractors the vehicle costs would be included in this cost of sales category as the items being resold are transportation costs. Other types of business who principal business is not the resale of transport would enter vehicle running costs in the motor expenses expense category. Another example would be an IT consultant who purchased and installed software for clients and would enter his software costs as a cost of sale as that is the service they are reselling while other businesses would enter software costs in general administration charges.
Subcontractors costs is the second category while other direct costs makes up the third area of the cost of sales. Other direct costs is a useful category in which to include all costs of the business not analysed elsewhere which are basically the costs of operating the business other than items being purchased for resale. The difference between the turnover and the sum of the three costs of sales categories is the gross profit.
Other income and profits is where the business would enter such items as rental income or for start ups taxable new deal payments. Bank interest would not go in this box as nit can be entered elsewhere on the tax return. Also business start up grants and enterprise allowances would not be entered in this box as there is a separate box in which to enter these receipts.
The remaining and main body of the inland revenue self assessment tax return form concerns an analysis of the expenses. The majority of the expense categories are self explanatory in the title. Additional expense analysis other than the prescribed headings on the self assessment tax return is unnecessary for the vast majority of self employed business.
Employee costs include the wages, salary, pension and employers national insurance contributions for all employees. Also include in this section any costs associated with employees such as recruitment fees and staff benefits. Excluded are the self employed own wages and taxes as these are not included in the inland revenue self assessment tax return form at all being a distribution of net profit after tax not a tax deductible expense.
Premises costs would include rent, rates, gas, electricity, power costs and items associated with the business premises such as property insurance. Also included in this section would be the portion of home costs being claimed as business expenses. Household expenses can be claimed as business expenses to the extent that the costs represent the proportion of the home that is used exclusively for business purposes.
Repairs include the repair, maintenance and renewal of plant and machinery. Vehicle repairs would not be entered in this category but in the motor vehicle category.
General administrative costs telephone, postage, stationery and general office expenses. Also in this section would be included all other general operating costs of the business not entered elsewhere.
Motor expenses include the running costs of the vehicles being fuel and oil, repairs and maintenance, tax and insurance, parking charges and membership of breakdown services. Parking fines should not be included as these are legal fines and not deductible expenses.
Travel and subsistence includes all travel costs excluding those included in motor expenses. Typically these items would be air and train fares, toll fees, hotel costs and subsistence costs incurred on business journeys. Receipts should be presented for all subsistence costs claimed where possible.
Advertising, promotion and entertainment expenses include all types of expenditure related to the promotion of the businesses products. Entertainment of clients to obtain business is allowed while the entertainment of staff is not and is a disallowed expense on the self assessment tax return.
Legal and professional costs include all professional fees and bills. These would include accountants, solicitors, surveyors, architects and other professional bodies. Also included in this section would be indemnity insurance.
Bad debts are sales made and included in turnover where a decision has been taken that the outstanding unpaid sales invoice will not be paid. A general percentage of sales is not acceptable and if included in the accounts is disallowed on the inland revenue self assessment tax return. The items entered being specific debts. Normally any debt that is 6 months overdue would reasonably be considered as a bad debt.
Interest and finance payments includes bank interest paid on loans and overdrafts, credit card interest and any payments made to raise finance to fund the business operations.
Other finance charges are entered in a separate category. Other finance charges would include bank and credit card charges, hire purchase and lease charges other than property leases.
Depreciation charges include the cost of writing down the value of the asset in the business accounts. As depreciation of fixed assets is a management decision and has no foundation in tax law then the value of depreciation charged against profits is disallowed for tax purposes and replaced in the calculation of tax payable by capital allowances.
The final expense category is other expenses. Enter in this category any other business expenses not entered in the other categories. As the other categories are reasonably comprehensive and sufficiently general for the vast majority of expenditure to be entered it would be regarded as unusual if any significant sums of money were to be shown in this category.
A significant level of expenditure unusual for that category may give rise to an inland revenue enquiry into the self assessment tax return and this is particularly the case of significant expenditure being shown as other expense items.
Tax adjustments to the net profit and loss are where disallowed expenses are entered. Disallowed expenses being items such as the business expenses already entered of which there was personal use, and generally all expenses which have been included that were not wholly business expenses. These would include for example meals paid by the business not classified as client entertainment except where incurred on overnight trips.
Also disallowed is the depreciation charge on fixed assets which as stated is replaced in the tax calculation by capital allowances. Balancing charges being capital allowances on assets sold where the price obtained exceeded the written down value of the asset and entered in the capital allowance section of the self assessment tax return.
Added back to net profit are capital allowances that are claimed by the business. The capital allowances in effect being the tax allowance that replaces the depreciation charge.
A number of potential adjustments can also be entered in the next section which is the adjustments to arrive at the net taxable profit or loss. These adjustments are variable in nature and very much dependent on the adjustments required when the basis year has been changed or past losses are claimed to offset the net taxable profit.
The final section of the self assessment tax return is a list of the business assets and liabilities at the end of the financial year. Completion of this section is optional and should only be completed by those businesses that have produced a balance sheet as part of the accounts. In effect this section is the totals of assets and liabilities taken from the balance sheet and should represent the increase or decrease indicated by the net profit being declared by the business.
Terry Cartwright, qualified accountant, designs Small Business Accounting Software that automates the Self Assessment Tax Return for self employed in the UK producing an excel copy of the Tax Return from simple lists of income and expenditure.
