Question

What are the Amortization rules and what assets are subject to amortization?

What are the Tax consequences of being self-employed v employed v. statutory employee?

What are The rules for deducting moving expenses. What can you deduct, what are the requirements?

How do you calculate transportation expenses?

Answer 1

Ques 1)  

Amortization is paying off an amount owed over time by making planned, incremental payments of principal and interest. To amortize a loan means "to kill it off". In accounting, amortization refers to charging or writing off an intangible asset's cost as an operational expense over its estimated useful life to reduce a company's taxable income.

Rules for Amortization

• When used in the context of a home purchase, amortization is the process by which loan principal decreases over the life of a loan, typically an amortizing loan. As each mortgage payment is made, part of the payment is applied as interest on the loan, and the remainder of the payment is applied towards reducing the principal. An amortization schedule, a table detailing each periodic payment on a loan, shows the amounts of principal and interest and demonstrates how a loan's principal amount decreases over time. An amortization schedule can be generated by an amortization calculator. Negative amortization is an amortization schedule where the loan amount actually increases through not paying the full interest.
• In business, amortization allocates a lump sum amount to different time periods, particularly for loans and other forms of finance, including related interest or other finance charges. Amortization is also applied to capital expenditures of certain assets under accounting rules, particularly intangible assets, in a manner analogous to depreciation.
• In tax law in the United States, amortization refers to the cost recovery system for intangible property.
• In computer science, amortized analysis is a method of analyzing the execution cost of algorithms over a sequence of operations.
• In the context of zoning regulations, amortization refers to the time period a non-conforming property has to conform to a new zoning classification before the non-conforming use becomes prohibited. For example, if the city rezones property from industrial to residential and sets an amortization period of one year, all property within the rezoned boundary must move from industrial use to residential use within one year.
• In the context of Securitization the Joshua Curve relates to a unique amortization profile that results in the innovative "horseshoe Shape" or "J Shape" weighted average life ("WAL") distribution. In other words, if the base case results in a WAL of 10.0 years, the stress case and performance case would both result in reduced WALs that are both less than 10.0 years due to accelerated amortization.

Intangible Assests are subject to be Amortized.The value of intangible assets diminishes over time; this decrease in value is the amortization recorded in every accounting period throughout the asset’s economic life. For intangible assets with definite lives, the amortization is calculated by taking the capitalized cost and dividing by the asset’s economic life. Patents have the option of amortization over their economic life or their remaining legal life. Assets with indefinite lives and goodwill are not amortized but are tested for impairment.

Ques 2)

As a self-employed person, you have to pay your costs and expenses yourself. You are also responsible for the advance payments of your taxes. On the other hand, your professional expenses are tax deductible. The purchase of a car, rent for an office space, a computer, the social security contributions paid, et cetera., can be deducted as professional expenses. A self-employed person pays social security contributions and taxes on his net taxable income, or in other words, the income after the expenses have been deducted

Costs and expenses are mainly borne by the employer. Your employer also takes care of your advance tax payments, so as an employee, you only receive your net wages. This makes the amount you pay to the government as an income tax less conspicuous. An employee can deduct almost no professional costs.

Except for federal unemployment benefits, both self-employed individuals and employees pay the same taxes - federal income taxes and taxes for Social Security and Medicare. These are essentially the same taxes, just with different names

A Statutory employee is an independent contractor under IRS common law that is treated as an employee, by statute, for tax withholdings. For a standard independent contractor, an employer cannot withhold taxes, as this would change the independent contractor relationship into an employer-employee relationship. Statutory employees are also permitted to deduct work-related expenses on Schedule C instead of Schedule A in the United States tax system. As a result, they are allowed a greater tax deduction for business expenses than standard employees,

Ques 3)

It used to be that if you relocated to start a new job or to seek work in another city, you could deduct some of your costs of moving. But that was then and this is now.

The Tax Cuts and Jobs Act that was passed in December 2017 eliminated this deduction. If there's any silver lining, it's that many of the provisions of the TCJA are not permanent. The moving expense deduction disappears from tax year 2018 through tax year 2025, but it's scheduled to come back at that time unless Congress intervenes to eliminate it permanently.

This time frame means that if you moved in 2017 and you qualify, you might still be able to claim the expenses on the tax return you'd file in April 2018. And, of course, if you move in 2026, you might be able to claim it then, too, if Congress allows the TCJA provision that eliminates it to sunset and expire.

Deductions

If you qualify for this deduction, this is what you can deduct:  

• Travel. You can deduct certain transportation and lodging expenses while moving. This applies to costs for yourself and other household members while moving from your old home to your new home. You may not deduct your travel meal costs.
  
• Household goods and utilities. You can deduct the cost of packing, crating and shipping your property. This may include the cost to store or insure the items while in transit. You can deduct the cost to disconnect or connect utilities at your old and new homes.
  
• Expenses you can’t deduct. You may not deduct:
    o Any part of the purchase price of your new home.
    o The cost of selling your home.
    o The cost of breaking or entering into a lease.

Requirments :

In order to deduct your moving expenses, your move must meet three requirements:

1. Your move must closely relate to the start of work. In most cases, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
   
2. Your move must meet the distance test. Your new main job location must be at least 50 miles farther from your old home than your prior job location. For example, let’s say that your old job was three miles from your old home. To meet this test, your new job must be at least 53 miles from your old home.
   
3. You must meet the time test.  You must work full-time at your new job for at least 39 weeks the first year after the move. If you’re self-employed, you must also meet this test. In addition you must work full-time for a total of at least 78 weeks during the first two years at the new job site. If your tax return is due before you meet the time test, you can still claim the deduction if you expect to meet it.

Ques 4)

How to calculate transportation expenses :

Transportation expenses are costs incurred by an employee or self-employed taxpayer while away from home in a travel status for business. Transportation expenses are a subset of travel expenses, which are all costs associated with business travel, such as taxi fare, fuel, parking fees, lodging, meals, tips, and cleaning, shipping and telephone charges that employees may incur and claim for reimbursement. Transportation expenses are narrower in that they refer only to the use of or cost of maintaining a car used for business, or transport by rail, air, bus, taxi or any other means of conveyance for business purposes. They also refer to business expense deductionsfor businesses and self-employed individuals when filing tax returns. Commuting expenses (traveling from home to a workplace) are not considered a deductible transportation expense.

Transportation expenses may only be claimed if they are directly related to the primary business in which an individual works. For example, claiming transportation costs when you have not actually done any traveling for the business is not allowed and can be viewed as a form of tax fraud. Transportation expenses may also include the costs associated with traveling to a temporary workplace from home under some circumstances (in such a case a claimant's travel area is not limited to their tax home). For example, if a traveler works in the same business or trade at one or more regular work locations that is away from home (such as a construction worker), it is considered a transportation expense. Similarly, if a traveler has no set workplace but mostly works in the same metropolitan they live in, they may claim a travel expense if they travel to a work site outside of their metro area.

The IRS defines travel (transportation) expenses as such: "For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job." And it defines "traveling away from home" as "your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work, and you need to sleep or rest to meet the demands of your work while away from home.