May 21, 2013

Posts Comments

The Significance of Explaining Paystubs to Your Teen

February 5, 2013 By

Are your teenage kids earning some spending cash and saving for college by taking up part-time and summer jobs? If this is the case, then it is a high time you started instilling some important money management skills. As you prepare the youngsters for the working world, try to teach them the following very essential facts:

Paychecks Fundamentals

New employees are required to give their employers signed Form W-4. The employer uses the form to establish the value of state income tax and IRS withholding one would like deducted from the paycheck. If the child’s total yearly wages are estimated to be below $5,950, let him or her write “EXEMPT” on line 7 or 1 on line 5 if not.

Most people assume that working students and children are automatically tax exempted, and neither are they eligible to any special allowances and deductions. There is no special treatment accorded to working children by the IRS as they are subjected to similar payroll taxes, just as the adults but those under 18 are spared Medicare and Social Security withholdings when they are working for parents’ business.
Here are some deductions that teens should expect from their paychecks:

Federal Government or IRS Deductions

1. Medi=Medicare: Covers your Medicare when you become permanently disabled or turn 65, takes 1.45% of all earned wages.

2. SS=Social Security: Recorded in your Social Security account. You can access the benefits upon retirement or permanent disability, was 4.2% of wages in 2012.

3. FWT/FIT=Federal Income Tax Withheld: Covers federal income taxes. The amount is dependent on exemptions listed on Form W-4 and you can have some back as refunds if you file your returns.

State Deductions

SIT=State Income Tax Withheld: Depends on the exemptions listed on Form W-4 and covers state income taxes. Can get some back as refunds if you file your return.
SDI/DI-State Disability Insurance: In the event that you get hurt or rendered incapable of working, you can file a claim and get disability income.

Other Deductions

There are numerous other deductions that you should expect when working. Some are listed below;
• Union dues: For memberships to unions
• Reimbursements: If you pay for tools/supplies at work
• Health insurance: Can be ignored if the child is covered by parent’s plan
• Retirement plan contributions

Some deductions like workers compensation and FUTA-= Federal Unemployment taxes should be paid by the employer. It is important that you explain these fundamentals to your teenage daughter or son using a typical paystub. Clarify any murky areas to ensure that they do understand.

 

Filed Under: Our Blogs Tagged With: , , , , , , ,

Planning For Next Year’s Tax Return? Here Are 8 Things to Do

May 25, 2012 By

If you did meet the tax deadline this year, be proud yes, but it is time to plan for next year. Being organized and planning ahead can save you time, money and headaches, come the 2013 tax year. There are eight key things one can do to make next tax deadline easier, and they are listed below:

  1. Make an adjustment on your withholding

The best time to review your withholding and adjust it appropriately is now, especially if you would like extra cash in this year’s paychecks. In case you still owed at tax time, it is only wise if you make next year’s tax bill smaller. Use the IRS’s Withholding Calculator online for this.

  1. Keep your current return safe

At some point when filing the tax return for 2012, you may need to refer to your 2011 tax return. Therefore, you should put this return and any supporting documents somewhere secure for future reference and also to act as helpful guide for the coming tax year.

  1. Start record-keeping

It is time to be more organized and have a central place for all your tax-related records. Something as simple as a shoebox or a cabinet, can work well enough to keep your documents and receipts safer.

  1. Go through your paycheck

Review your paycheck to ascertain all the details of your withholding, retirement contributions, health benefits and charity deductions among others are accurate. Making the adjustments will not only save you a huge hassle next year, but will make a big difference as far as tax payments are concerned.

  1. Look for a tax professional

For those using tax professionals’ assistance, search for one now. This will keep you safe from anxieties and pressures of tax deadline. Be wise when choosing a tax professional since you are eventually responsible for your return’s credibility regardless of who prepares it.

  1. Plan to itemize deductions

Itemizing deductions can be quite advantageous, and with an extra mortgage payment, planned donations or strategic pre-deadline property tax payments, you could just get a boost. Plan these strategies now and they may pay off come next year.

  1. Strategize for tuition payments

It is time to take advantage of the American Opportunity Tax Credit’s services before they expire after 2012. This tax credit takes care of higher education expenses (up to $2,500) and it may be beneficial to pay 2013 tuition fees this year.

  1. Be updated

Get to know the tax law changes, learn the latest tax tips and get IRS announcements this year, just subscribe to the IRS Tax Tips.

Filed Under: Our Blogs Tagged With: , , , , , , , ,

Options for Paying IRS Taxes

March 20, 2012 By

The IRS provides a wide range of options that a taxpayer can use to pay their taxes. The option you use will depend on the amount of taxes that are due, your financial situation, and your preferences. These options are:

  • Withholding – If you are an employee, then the primary way that you pay income tax is through withholdings. Your employer withholds a portion of your pay every paycheck and remits the funds to the IRS under payroll taxes. To determine the amount of taxes to withhold, your employer uses the W-4 form that you filled when getting employed. If too much or too little taxes are being withheld, you can fill out a new Form W-4 with the updated information and submit the same to your employer.
  • Installment Tax – For those who are self employed, you will need to pay installment taxes within the year. Once you have prepared your final taxes, you can then pay the balance taxes by the tax deadline. If your installment taxes are significantly lower than the actual taxes due, you may be penalized for the underpayment.
  • Pay Taxes by Tax Deadline – By April of every year, each qualifying taxpayer is expected to prepare their returns based on their previous year financial numbers. If on preparing the returns you discover that you owe taxes, then you will need to pay these taxes by the April tax deadline. You can pay such due taxes by writing a check to the IRS and attaching it to a paper return. There are also bank transfer options available to facilitate the payment of such taxes.
  • Pay by Credit Card or Other Credit Option – If you do not have available cash and want to clear the balance before the deadline, you may pay using your credit card. The IRS has subcontracted various private institutions to facilitate the collection of taxes through credit cards. You can use any of these companies to pay by credit card. You can also seek other credit facilities such as payday loans or bank loan to raise funds to clear the due taxes.
  • Request for the 120 Day Extension – If you do not have funds by the tax deadline but you will be getting finances to pay the due taxes within 120 days from the deadline, you can call the IRS and request for an extension. The IRS is at liberty to make such an extension on case by case basis and no penalties are charged in such a case. However, the IRS will charge interest for the days delayed.
  • Online Payment Agreement (OPA) – If your tax dues are large and you want to pay them over a period of time, you can request the IRS to set up an installment payment plan. If you owe below $25,000, then you can set up an Online Payment Agreement which is guaranteed and you can set it up on the IRS website or by calling the toll free IRS number. However, installments will need to be paid off within 5 years. Interest and penalties for late payments will also be charged back to the due taxes. This installment plan does not come with any financial disclosures to the IRS and you get to determine the amount to pay monthly as long as the taxes are paid within the 5 year limit.
  • IRS Repayment Plan – If you owe over $25,000, then you will need to apply for an installment repayment plan. To do this, you will need to file Form 433F, “Collection Information Statement Form” and provide your financial details such as your assets, bank statements, and other personal details. The information makes it easy for the IRS to place a lien against your assets. Once you apply for the installment plan, the IRS determines the amount to be paid per month based on your financial situation.
  • Financial Hardship Options – If you are in a financial hardship and are not able to pay the full amount of taxes due, you can seek for relief options. An Offer in Compromise is a waiver of part of the due taxes for a taxpayer who is in a financial hardship. The offer is granted at the discretion of the IRS upon application by the taxpayer. Another option available for someone who is unable to pay the taxes is a Partial Payment Installment Agreement.
Filed Under: Our Blogs Tagged With: , , , , , , , ,

Wise Tax Moves to Make before the New Year

December 21, 2011 By

It is important for every company to embark on general housekeeping come the end of every year in order to start off the New Year with a clean slate. So, how exactly does a company go about this?

Prepare a draft return:

It is advisable that one does his/her own annual tax returns. Even though it is not mandatory for one to fill out all sections of the Form 1040, there are important sections which cannot just be brushed through. Observing keenness may lead one to discover for instance, that their investments have been recovered and that they may have qualified for an end of year distribution, a factor that could push them to a totally different tax bracket.

Double-checking possible breaks:

Personally filing a tax return will provide a taxpayer with insights into the likeliest tax deductions. One will discover if they have adequate expenses to itemize or if they’re able to make any deductible expenditures by the final day of the year.

College expenses:

As far as education is concerned, one can pay tuition for his/her upcoming semester tuition by December 31st and then record the expense as a 2011 expense; this may be in light of the fact that schools will remain closed until the following year.

There are a number of education tax breaks that may be useful; both for one’s education and tax purposes. For example, the Lifetime Learning facility can assist an individual in meeting the costs of his/her education for career advancement.

Assistance from home:

During winter, there are various energy-efficient improvements that one can make in order to considerably reduce tax and heating bills. A taxpayer may boost his/her itemized deductions for a year by paying January’s mortgage and property tax bills for the year by December 31st.

Spending FSA Cash:

If one happens to have some money left in his/her medical Flexible Spending Account (FSA) at the workplace, the IRS recommends for its use before year end so as to avoid forfeiture. Some firms give FSA owners a grace period of up to March 15th of the following year to spend the cash in the account.

Adjusting one’s Withholding:

Whenever one’s draft tax return shows that he/she is going to owe a little more than they initially thought they would, chances of interest and penalties being levied are high. One can forestall such an eventuality by adding extra withholding to the final pay slip of the year.

Filed Under: Our Blogs Tagged With: , , , , , , , ,

Americans Getting More in IRS Tax Refunds

August 10, 2011 By

About 75% of people who submitted their tax returns for 2010 are expecting to get a, IRS tax refund. The statistics of the percentage is no different from previous years. However, the average amount of tax refunds that the taxpayer gets has been growing steadily over the years. This has grown from the average in 1999 of $1,698.00 to that in 2009 of $3,003.00. This means that the IRS refunds have grown about 100% in only 10 years. There are several explanations for this growth in refund averages, which are listed below:

Changing Perceptions on Refunds

In the past, the idea of overpaying your taxes and waiting for a tax refund was seen as a bad deal, as it meant that you had basically advanced Uncle Sam with an interest-free loan. People worked to match their withholdings to ensure that they got the least possible tax refund. In fact, a survey carried out on the perception of tax refunds on taxpayers revealed that the older taxpayers, aged 50 years and above, still hold this notion and will always work to adjust their withholding to match actual taxes. However, the younger taxpayers seem to have a different attitude towards their tax refunds. Many of them will intentionally overpay their taxes so as to have a larger tax refund. The refund comes more like a bonus and the funds can be used for a specific thing such as set up an emergency fund, make an asset down-payment, or simply saved up for a vacation. Many young tax payers feel that the burdens of bills are high and saving up within the year turns out to be hard work. However, the IRS does the job in piling the overpayment of withholdings and refunding this in one paycheck, which can feel like a lump bonus to the taxpayer. The receiving of a healthy paycheck from the IRS seems preferable over receiving small funds distributed throughout a given tax year. This new trend of viewing tax refunds may have contributed to the increase in amount of tax refunds made.

Poorer Performing Markets

The stock exchange market and interest rates on various investments have performed dismally between 1999 and 2009. In fact, the stock market dipped in 3 of these 10 years and stagnated for the most part of the remaining years. These reduced returns on investments has worked to defer taxpayers from seeking to manage their tax withholdings better since there is nothing much you lose in terms of investment returns by waiting for a tax refund. Therefore, less people are keen to make withholding adjustments.

Job and Investment Losses

During the same period of 1999 to 2009, there have been more people who have lost returns on investments and lost jobs, especially in the 2001 and 2007 economic recessions. Therefore, the growth in refund averages may reflect the deductions on losses, unemployment benefits, and adjustments on reduced incomes.

New Tax Breaks

During the same period, there have been many tax breaks that have been introduced, such as the Bush tax cuts, among other tax credits (some of which were created in efforts to revamp the economy). These breaks include the home-buyer credits, American Opportunity Education credit, and larger child credits. Many people choose to apply these new tax credits in their returns, which leads to higher refund checks.

Cost of Withholding Adjustments

Another reason that could explain the raise in tax refunds is the complex process of calculating and making withholding tax adjustments. You will need to work with 3 worksheets and 2 tax tables on the W-4 to make the correct adjustments on your withholdings. You will then need to forward your W-4 to your employer so as to have them update the changes. Many people find this process a challenge and would rather do nothing about their tax withholdings. However, on the flip side, most tax preparers provide free help in preparing the W-4 to make tax withholding adjustments. You can therefore request the assistance of your tax preparer with your W-4.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , ,

IRS Tax Qualification Guidelines for the EITC

August 8, 2011 By

The Earned Income Tax Credit (EITC) is a tax credit that is available for most low income earning taxpayers. It was introduced into the tax code to promote and encourage people to work and earn income. The credit is refundable in that if a taxpayer has no outstanding taxes or if the taxes due are less than the qualifying credit, the taxpayer receives a refund check from the IRS. This is unlike traditional tax credits, which do not warrant a tax refund check, even if an outstanding credit remains. Though it is one of the most accessible tax credits for taxpayers who earn low incomes, the guidelines of qualifications and the amounts that one is entitled to is not straightforward for the regular taxpayer. However, given that many of the qualifying taxpayers are low income earners and may not be able to afford professional tax help, many are unable to properly claim this credit. For this reason, the IRS has placed on its website, software that assists taxpayers to determine if they qualify for the credit and how much they qualify for. Some of the qualifying guidelines for this tax credit are discussed below:

Income Caps

To qualify for the EITC, there are various income maximums and they are higher for taxpayers with more qualifying children. For taxpayers with no qualifying child, the income cap is $13,460.00 for singles and $18,470.00 for married couples filing jointly. Taxpayers with one qualifying child have an income cap of $35,535.00 and $40,545.00 for those that file jointly. For taxpayers with two qualifying children, the caps are $40,363.00 for singles and $45,373.00 for married couples filing jointly. Finally, for taxpayers with three or more children, the income cap is $43,350.00 for singles and $48,362.00 for couples filing jointly.

Tax Credit Amounts

For the 2010 and 2011 tax years, the qualifying tax credit is a maximum of $457.00 for taxpayers with qualifying no children, $3,050.00 for taxpayers with one qualifying child, a maximum of $5,036.00 for those who have two qualifying children, and a maximum of $5,666.00 for those with three children and above.

Qualifying Children

For children to qualify for consideration under The Earned Income Tax Credit, they have to be 19 years and below. However, taxpayers with full-time-student children can claim the credit against them up to the age of 23. Permanently disabled children qualify, irrespective of their age. The children have to be dependents of the taxpayer who live together with the taxpayer at least for 6 months within the tax year. This especially applies for divorced couples with shared child custody. The children may be natural children, adopted children, foster children, grandchildren, or step-children. Siblings may also qualify under special circumstances.

Applying for the Credit

If you qualify for the EITC, you can claim the credit on your tax returns with Form 1040EZ, 1040A, or 1040, in the tax credits section. There are special rules that affect military personnel who apply for this credit. Further details on the qualification and application of the EITC can be found in IRS Publication 596 – Earned Income Credit. Besides the IRS, 23 U.S. states also provide the EITC to their residents and you will need to check if your particular state provides this tax credit.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , , ,

The Making Work Pay Credit and Your IRS Debt

May 13, 2011 By

Most people saw the effects of the Making Work Pay tax credit in their paychecks in 2010. The credit was designed to reduce federal withholding so that people had more cash during the year. Single taxpayers brought home up to $400, while married taxpayers brought home up to $800.

However, even if you got the full credit already, you will still feel the effects of it when you file your income tax return this year and calculate your taxes. You do not have to pay it back, but you do have to claim it on Schedule M and use a long Form 1040 or 1040A. Taxpayers who are able to use Form 1040EZ can claim the credit on the back. These calculations are worth the extra effort, though, because they may prove that you are due more money if you have not already received the full benefit of the credit. When you file, the credit is added as if it were additional withholding that you added to your paychecks and may increase your return amount or at least reduce your IRS debt.

Some people will not be able to claim some or all of the credit. Retirees do not have to include it. Nonresident alien workers and those who can be claimed as dependents are not eligible for the credit. High income taxpayers may have some issues when filing because the credit amount changes. Joint filers whose modified adjusted gross income (MAGI) is between $150,000 and $190,000 and single filers whose MAGI is between $75,000 and $95,000 will not receive the full credit. Those with income higher than the maximum amounts receive none of the credit. When taxpayers fill out Schedule M, it will be clear how much or how little of the credit applies.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , ,

Don’t Understand IRS Tax Terms?

April 27, 2011 By

It can be a really daunting task when it comes to learning tax “lingo;” one of the hardest things about taxes is understanding the jargon used. There is no need to be stressed about it though. You can manage to learn and grasp the tax language.

1. Credits: These are much similar to the credits you get at a local store. Once you have computed your tax bill, you can use the credit to reduce the total amount on the check you will write to Uncle Sam. Credits are generally better than deductions because they directly subtract the amount of tax you are required to pay as opposed to reducing the total some of taxed income.

2. Progressive Taxation: This is a method whereby as earning levels increase, so do the rates of taxes.

3. Adjusted Gross Income (AGI): This refers to all earnings that you receive during one whole year. It includes wages, dividends, and interest.

4. Deductions: These refer to the costs that the IRS allows you to subtract from your AGI so that you may calculate your total taxable income. Generally, the lower your income, the lower the amount of tax bills you have to pay.

5. Standard Deduction: This refers to a fixed amount that the tax payer can subtract from his/her earnings. It is determined by the status of the individual’s filing position. Due to fluctuation in inflation, the rates change each year. This method eradicates the necessity to itemize specific deductions.

6. Exemption: This is the total sum from which you subtract your earnings to reveal everyone who counts (or depends) on your income such as your spouse, children, or relatives (such as parents).

7. Withholding: This is a system whereby taxes are deducted from earnings before you receive your paycheck.

8. Taxable Income: This refers to your total income, trimmed down by all permissible deductions and exemptions. It is what you use to determine how much tax you need to pay.

9. Voluntary Compliance: This is a system where individuals report their income, file their tax return, and pay their tax debt on time.

10. Itemized Deductions: These are costs that can be subtracted from your AGI to assist you in getting a lesser amount of your income on which you must in calculating your tax bill. They include mortgage interest, medical expenses, casualty, theft loss, gambling losses, and charitable contributions. Some of these deductions must meet the IRS regulations before they are claimed, so check to make sure they fall under their guidelines.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , ,

The Tax Relief Act: Can it Affect your Withholdings?

March 9, 2011 By

Enacted on December 17, 2010, the Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010 included several changes that affect many taxpayers for 2011 IRS filing. This includes the worker’s take home net pay and retirees’ pension checks. The Tax Relief Act extended the income tax rates that were supposed to end last year in 2010, which had prevented a large increase in income tax withholdings. Unfortunately, this extension did not save the Making Work Pay Credit as this credit will only pertain to this year. Pension recipients were not included in the MWP credit unless they worked part time and had a taxable income.

Due to the Tax Relief Act which made income tax rates lower than before, taxpayers will see an increase in their net pay (take-home pay amount) on each of their checks earned.

However, the same does not apply for pension checks. Once the pension plan administrators implement the new changes for 2011, pension retirees will see a decrease in their pension checks by as much as $7-$50 per pension pay check. Unfortunately, this hurts the retiree but the option to change withholding can deflect some of this. Check into what changes the withholding can affect for you.

Without the Making Work Pay Credit, we, the working people, are not benefiting from these new changes. Nevertheless, there are still other changes out there that were made to enable more tax relief; it is a matter of balance and checking out all options for each taxpayer as each taxpayer is different than others. The IRS encourages all taxpayers to review withholdings information every year with the use of a withholding calculator that is available on the www.irs.gov. If any necessary changes are needed, use the W-4 form to make adjustments to withholding to help along the way for taxes.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , ,

Refunds for those who did Not File a 2007 Federal Income Tax Return

March 2, 2011 By

The IRS has announced that nearly 1.1 million people who did not file Federal Income Taxes in 2007 could be entitled to refunds adding up to $1.1 billion! There is a catch: in order to collect this refund, you must file a return for 2007 no later than Monday, April 18, 2011 so do not delay in filing!

Some who did not file in 2007 may have done so because their income was too small to require filing even though they had withholdings from their wages. IRS tax law allows most taxpayers with a 3-year period where they can claim a refund in cases like these, where returns are not filed. However, once these 3 years pass, the money goes back to the U.S. Treasury, so do not miss out on this opportunity! There is no penalty to file a late return which qualifies for a refund, so do not fear filing for 2007. However, if you have not filed returns for 2008 and 2009, the IRS may hold your refund check and it will be applied to any debt owed to them. Furthermore, it may also be used to pay other debts, such as unpaid child support or past-due student loans.

Additionally, by failing to file in 2007, many low-income workers may not have claimed the Earned Income Tax Credit (EITC), which could help them get some more money from the IRS.

You can find prior year tax forms and instructions on the Forms and Publications page of IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). Also, if you are missing your Forms W-2, 1098, 1099, or 5498 for 2007, 2008, or 2009, you should request copies from your employer, bank, or other payer. If you have difficulty finding these documents, you can request free transcripts by ordering online or calling 1-800-908-9946 or by filing Form 4506-T.

Refer to the chart below (from IRS Publications) for the potential refunds for 2007:

Do not delay! Get your refund now if this applies to you!

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , ,
« Older Posts