Tax Tips:
What to Do If You Are Missing a W-2
If you haven’t received your W-2, follow these four steps:
1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.
2. Contact the IRS If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:
• Employer’s name, address and phone number
• Dates of employment
• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Tax Tips for the Self-employed
There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed.
Here are six key points the IRS would like you to know about self-employment and self- employment taxes:
1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
2. If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
3. You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.
4. If you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.
5. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
6. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
For more information see the Self-employment Tax Center, IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
Eight Facts to Help Determine Your Correct Filing Status
Determining your filing status is one of the first steps to filing your federal income tax return. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax.
Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.
1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.
There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Medicare - Turning 65
Do you know everything you need to know about turning age 65 and becoming eligible for Medicare. You can begin the process three months before your birthday, and with decisions to make about parts a,b,c, & d - you need to start early. Call us if we can help in an advisory capacity, and we can share what we've learned about the process. Two valuable websites are: www.ssa.gov and www.medicare.gov .
What Happens after you file your Income Tax Return? Refund Information
You can go online to check the status of your 2010 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2010 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:
- Go to http://irs.gov and click on “Where’s My Refund”
- Call 800-829-4477~24 hours a day, seven days a week, for automated refund information
- Call 800-829-1954 during the hours shown in your tax form instructions
- Use IRS2Go. If you have an Apple iPhone or iTouch or an Android device you can download an application to check the status of your refund.
What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer. You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.
Employee Business Expenses.
If you itemized deductions and are an employee, you may be able to deduct certain work-related expenses. Expenses that qualify for an itemized deduction include:
- Business travel away from home
- Business use of car
- Business meals and entertainment
- Travel
- Use of your home
- Education
- Supplies
- Tools
- Miscellaneous expenses
You must keep records to prove the business expenses you deduct. If your employer reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.
An accountable plan must meet three requirements:
1. You must have paid or incurred expenses that are deductible while performing services as an employee.
2. You must adequately account to your employer for these expenses within a reasonable time period, and
3. You must return any excess reimbursement or allowance within a reasonable time period.
If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.
Are your Social Security Benefits Taxable?
How much - if any - of your Social Security Benefits are taxable depends on your total income and marital status. Generally, if Social Security benefits were your only income for 2010, your benefits are not taxable, and your probably do not need to file a federal income tax return.
I you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. To determine whether some of your benefits may be taxable:
First: add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
Then: compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
The 2010 base amounts are:
$32,000 for married couples filing jointly.
$25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year.
Two tax tips about Self-Employed Individuals
Work you do in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job, is considered self-employment.
1. Taxes — You generally have to pay self-employment tax (which is social security and medicare) - you can deduct half of self-employment tax when you calculate your adjusted gross income. You'll also have to make estimated tax payments on the income that was not subject to withholding. If you don't make quarterly payments you may be penalized for underpayment at the end of the year.
2. Business Expenses — you can deduct the costs of running your business. The business expenses must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business.
To Be a Taxpayer's qualifying child, a person must satisfy four tests:
1. Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
2. Residence — has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
3. Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
4. Support — did not provide more than one-half of his/her own support for the year.
Four Facts about Capital Gains and Losses
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amount you sell it for and your basis - which is usually what you paid for it - is a capital gain or a capital loss. You must report all capital gains:
1. You may deduct capital losses only on investement property, not on property held for personal use.
2. Captial gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more that one year, your capital gain/loss is long-term. If you hold it for one year or less, your capital gain/loss is short-term.
3. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent that your net long term gain is more than your net short-term capital loss, if any.
4. The tax rates that apply to net capital gain are generally lower than the tax rates tha apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gains can be taxed at 25-28%.
Taxable or Non-Taxable Income?
Generally, most income you receive is considered taxable but there are situations when certain types of income are partially taxed or not taxed at all. Hare are some common examples of items not included as taxable income:
- Adoption Expense Reimbursements for qualifying expenses
- Child support payments
- Gifts, bequests and inheritances
- Workers' compensation benefits
- Meals and Lodging for the convenience of your employer
- Compensatory Damages awarded for physical injury or physical sickness
- Welfare Benefits
- Cash Rebates from a dealer or manufacturer
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:
- Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
- Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
- Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.
Want Your Tax Refund Fast – Choose Direct Deposit
Direct Deposit is the fastest, safest way to receive your tax refund. An e-filed tax return means a fast refund. Taxpayers who combine e-file and Direct Deposit can get their refunds in as few as 10 days.
2010-2013 Small Business New Health Care Credit is one of the first health care provisions to go into effect under the new "Patient Protection and Affordable Care Act" signed by President Obama in March 2010. The credit is available to small businesses that pay at least half the cost of single health care coverage for their employees starting in 2010. Eligible businesses can claim the credit on their 2010 income tax return.
If you receive an IRS Notice - Don't Panic! There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. My best advice is to send me a copy of the letter - I can then advise you as to how to respond.
College can be expensive. To help students and their parents, the IRS offers Five Ways to Offset Education Expenses... scroll down to the bottom of this page for more information.
• What records should you keep for at least 3 years? Any and all documents that have an impact on your tax return, including: W2, 1099's, 1098, bills, credit card and other receipts, invoices, mileage logs, canceled checks, any other records to support deductions or credits you claim on your return. Some documents - such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property - should be kept longer.
• According to the IRS, the average time required to complete and file a Form 1040 is 26 hours. Let us help you save time (and money) by having a professional CPA prepare your tax return. Our goal is to make your life less taxing.
• Will you be susceptible to the AMT (alternative minimum tax) this year? Come in for a fall tax planning session or give me a call to review your situation.
• Other deductible items that you should keep track of include: child care expenses, alimony payments, non-reimbursed business expenses (such as union dues and subscriptions), and your safe deposit box fee.
• Ideas for helping to keep track of your income tax deductions: 1) Keep a separate folder or envelope for tax deductible receipts, and drop items in it throughout the year. 2) In your checkbook, mark checks with a code for deductible items, such as MD for medical, CH for charitable, TU for tuition.
• Do you qualify for a home office deduction? Yes, if your home office is the principal place of business. The IRS also considers the nature and extent of activities, and time spent at other locations.
• Review your income taxes withheld on your year-to-date pay stub. If you made any major tax-related changes this year- such as marital status, mortgage, dependents or capital gain/loss - you may want to change your withholding deductions for the rest of the year.
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