In this article, we’ll outline some of the most common tax scenarios that are covered by our premium subscription. If you're dealing with complex tax situations that aren’t fully addressed in our standard filing process, or if you have specific tax forms and credits not supported in the regular filing flow, our premium plan may be able to help.
The premium subscription offers a comprehensive range of services beyond what’s included in the Annual plan. With the premium subscription, you'll have access to the following:
- Complex Tax Returns: We provide personalized support for more intricate tax situations, such as handling Schedule K-1s, foreign income, rental income, and most complex scenarios related to sole proprietorships.
- Amendments: If you missed income or forgot to claim a credit, we can amend your return for any year from 2021 onwards. Our premium plan covers amendments to ensure your return is accurate.
- Quarterly Tax Assistance: We help you calculate and prepare for each quarterly tax deadline, making sure you stay on top of your tax obligations throughout the year.
- Prior Year Returns: In addition to your current year return, we assist with preparing and filing one return for a previous year (2021 onwards).
- Audit Protection: Should the IRS audit your return, we’ll support you every step of the way, offering full representation and helping to resolve any penalties or issues that arise.
Complex Tax Scenarios/Forms
Schedule E (Form 1040), Supplemental Income and Loss
Schedule E (Form 1040) is designed for reporting income or loss from various sources, including rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in Real Estate Mortgage Investment Conduits (REMICs).
When it comes to rental income, you can report it on either Schedule E or Schedule C, depending on the nature of your rental activity.
Use Schedule E when:
- You are renting out property without providing substantial services to your tenants.
- Common examples of substantial services include regular cleaning, changing linens, or offering concierge services. Most residential rental activities fall into this category.
Use Schedule C when:
- You provide substantial services to your tenants, similar to a hotel or bed and breakfast.
- You are actively engaged in the daily management and operations of the rental property, beyond simply maintaining it and collecting rent.
In summary, if you're renting out property without significant services, use Schedule E. If your rental business is more service-oriented, opt for Schedule C.
📝 If your rental income needs to be reported on Schedule E, we can help you with this through our premium subscription. Additionally, remember not to track expenses related to your rental income in the app if it needs to be reported on Schedule E. We only track expenses associated with your business or self-employment that are reported on Schedule C.
Schedule K-1s
A Schedule K-1 is a tax form used to report income, deductions, and credits from partnerships, S corporations, estates, and trusts to the IRS. If you're a partner in a partnership, a shareholder in an S corporation, or a beneficiary of an estate or trust, you'll receive a Schedule K-1. This form details your share of the entity's income, deductions, and credits, which you then report on your individual tax return.
Here’s a quick breakdown of the different types of Schedule K-1:
- Form 1065, Schedule K-1: For partnerships.
- Form 1120S, Schedule K-1: For S corporations.
- Form 1041, Schedule K-1: For estates and trusts.
Each type of Schedule K-1 contains important information that you need to include on your personal tax return. If you're a premium subscriber and have received this tax form, please inform us so that we can incorporate the details into your tax return.
Depreciation (Asset Depreciation and Section 179 Deduction)
Currently, our annual subscription supports depreciation only for vehicles and homes (if you have a home office). If you need to depreciate other assets, such as equipment or machinery, you'll need to upgrade to our premium plan.
The Section 179 deduction is also available under our premium plan. This deduction allows businesses to expense the cost of certain qualifying property immediately, instead of capitalizing and depreciating it over time. For tax years beginning in 2023, the maximum section 179 expense deduction is $1,160,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000.
Qualifying property typically includes tangible personal property, like machinery, equipment, and certain software used in your business. Some improvements to nonresidential real property, such as roofs, HVAC systems, and fire protection systems, may also be eligible.
For more information on applying Section 179 to your business vehicle, check out this article: https://www.keepertax.com/posts/is-buying-a-car-tax-deductible
Please note that the deduction cannot exceed your taxable income from your active trade or business. If your deduction is limited by your taxable income, you can carry forward the disallowed amount to future years.
Part II of Form 8606: Conversions to Roth IRAs
Part II of Form 8606 is used to report conversions from Traditional, SEP, or SIMPLE IRAs to Roth IRAs. This is where you detail the amount converted and calculate the taxable portion of the conversion.
Here are some scenarios where you need to complete Part II of Form 8606:
- Backdoor IRA: This is a strategy where you contribute to a Traditional IRA and then convert it to a Roth IRA. It's often used by high-income earners who exceed the income limits for direct Roth IRA contributions. The steps typically involve:
- Making a non-deductible contribution to a Traditional IRA.
- Converting that Traditional IRA to a Roth IRA.
- Rollover Conversions: If you're rolling over funds from a Traditional IRA to a Roth IRA (which is essentially a conversion), you also report this in Part 2 of Form 8606. However, if you're rolling over funds between similar types of accounts (like from one Traditional IRA to another), this is not reported on Form 8606.
If you utilized the backdoor IRA strategy or have rolled over funds from a Traditional IRA to a Roth IRA, we can assist you with this under our premium subscription.
Form 8283, Noncash Charitable Contributions
This form is necessary if you've donated something other than cash (like a car, a piece of furniture, or a stock) to a charity and the value is more than $500. The IRS uses this form to verify the details of your noncash donation and the deduction you're claiming on your taxes. If you have any noncash charitable contributions to report, you'll need to be on the premium plan to include them in your tax return.
Schedule R, Credit for the Elderly or the Disabled
Schedule R is used to calculate the Credit for the Elderly or the Disabled. This credit is designed to help individuals who are either aged 65 or older or who are permanently and totally disabled. If you qualify to claim this credit, you'll need to be on our premium plan for it to be included in your tax return.
Form 8379, Injured Spouse Allocation
Form 8379, known as the "Injured Spouse Allocation," is utilized by married couples who file a joint tax return but seek to safeguard one spouse's share of the refund from being diverted to cover the other spouse's outstanding debts. These debts may include child support, federal debts, state taxes, or other obligations. Essentially, the form allows the couple to ensure that the portion of the refund attributable to the "injured spouse" is protected.
If you're the "injured spouse" (the one not responsible for the debt), you can file Form 8379 through our premium subscription to request your portion of the joint refund.
Form 1099-C, Cancellation of Debt
Form 1099-C, known as the Cancellation of Debt, is an important document that lenders use to report any canceled debt of $600 or more to both the IRS and the borrower. When a lender forgives or cancels a debt, the amount forgiven is typically treated as taxable income for the borrower and must be reported on their tax return. With our premium subscription, we can assist you in including the details from this form on your tax return.
Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit
Form 8936 allows you to claim the Qualified Plug-in Electric Drive Motor Vehicle Credit, commonly referred to as the Clean Vehicle Credit or EV Credit. This credit is available for certain electric vehicles (EVs) that you purchase or lease.
Here’s a quick overview:
- Eligibility: To qualify, the vehicle must be a new plug-in electric drive motor vehicle. It should have at least four wheels, be primarily used on public streets, roads, and highways, and have a battery capacity of at least 4 kilowatt-hours.
- Credit Amount: The credit amount varies based on the vehicle's battery capacity, starting at $2,500 and potentially reaching up to $7,500.
Keep in mind that this credit is non-refundable. This means it can reduce your tax liability to zero, but you won’t receive a refund for any excess credit. Additionally, the credit may be phased out based on the manufacturer’s sales, so it's wise to verify the current status of the specific vehicle you’re considering.
If you qualify for this credit, we can help you include it on your tax return through our premium plan.
Form 2555, Foreign Earned Income
Form 2555 is designed to help U.S. citizens and resident aliens claim the Foreign Earned Income Exclusion, allowing them to exclude a portion of their foreign earned income from U.S. taxation.
Here’s a brief overview:
Who Can Use Form 2555?
- U.S. citizens or resident aliens who live and work outside the United States.
- To qualify, you must meet either the Bona Fide Residence Test or the Physical Presence Test.
Exclusion Amount
- For 2023: You can exclude up to $120,000 of foreign earned income.
Housing Exclusion/Deduction
- In addition to the income exclusion, you may also qualify to exclude or deduct specific housing costs.
If you’re eligible for the Foreign Earned Income Exclusion, we can assist you in including this form on your tax return through our premium plan.
Schedule F (Form 1040), Profit or Loss From Farming
Schedule F (Form 1040) is used to report profit or loss from farming activities. If you are engaged in farming as a trade or business, this form allows you to detail your income and expenses related to your farming operations.
Here’s a quick overview:
Income
You will report various types of farm income, including:
- Sales from livestock, produce, grains, and other products you have raised.
- Distributions from cooperatives.
- Payments from agricultural programs.
- Commodity Credit Corporation (CCC) loans.
- Proceeds from crop insurance and federal crop disaster payments.
Expenses
You will also report your farming expenses, which may include:
- Costs for feed, seed, and fertilizer.
- Labor expenses for hired help.
- Repairs and maintenance costs.
- Interest paid on farm-related loans.
- Depreciation of farm equipment and buildings.
- Utilities and other farming-related expenses.
If you’re involved in farming as a trade or business, we can assist you in reporting your income and expenses on your tax return through our premium subscription.
📝 Please remember not to enter your farming expenses as deductions in the app. We only track expenses related to your business or self-employment that are included in Schedule C (Form 1040).
Form 1099-S, Proceeds from Real Estate Transactions
Form 1099-S is utilized to report the sale or exchange of real estate. If you have sold a house, land, or any other type of real estate, you will likely receive this form. With our premium subscription, we can help you incorporate the details from this form into your tax return.