Newsletters

Terminating a Business

You have decided to close your business. What you really want to do is just pick up your box of personal belongings, shut the door, and walk away. But unfortunately, it is not quite that simple.

Most of us cannot afford to write a check for the full cost of a home. We usually go to a bank or another lender for a loan, which is called a mortgage, and we make monthly payments consisting of both principal and interest. Usually, you are entitled to deduct the entire portion of the yearly payments that is interest if you itemize deductions. If it is more advantageous for you to take a standard deduction, you will not get any additional benefit from the mortgage interest paid during the year.

Excess Social Security and RRTA Tax Withheld

Under the Federal Insurance Contributions Act (FICA), an employer must withhold Social Security taxes from wages paid to an employee during the year and must also match the tax withheld from the employee's wages. The tax consists of a portion for old age, survivors, and disability insurance (OASDI), and another portion for hospital insurance (Medicare). If the employer is a railroad company, it must withhold taxes under the Railroad Retirement Tax Act (RRTA).

Tax on Unrelated Business Income of Exempt Organizations

Even if a nonprofit organization is granted tax-exempt status by the Internal Revenue Service, it may still be subject to taxation on any unrelated business income. Unrelated business taxable income (UBTI) is defined as income from a trade or business regularly carried on by an exempt organization if the trade or business is not substantially related to the exempt purpose of the organization. In determining whether an activity is "regularly carried on," the Internal Revenue Service looks at the frequency and continuity with which it is pursued, and it is compared to the commercial activities of non-exempt organizations.

Property Exempt from State and Local Taxation

When a state or local governing body decides to impose a tax, all property coming within the scope and purpose of the statute is subject to taxation unless the legislature has created an express exemption for reasons of public policy. The fact that the owner of certain property is exempt from taxation under the Internal Revenue Code does not determine whether or not that property is exempt from state or local taxation. It is the legislating state or local government, not the Internal Revenue Service, that is the final word on whether certain property is exempt from its taxing authority.