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Tax Stuff to Know When Your Son or Daughter Takes a Summer Job

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on www.irs.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

  •  You are in the business of delivering newspapers.
  •  All your pay for these services directly relates to sales rather than to the number   of hours worked.
  •  You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

 

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Ten Tax Tips For Farmers at Tax Time

A dairy farm near Oxford, New York in the Unit...

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Farmers, does your tax preparer know these 10 important tax tips?  No?  Yes?  They should….

If you are in the business of farming, there are a number of tax issues that you should consider before filing your federal tax return. The IRS has compiled a list of 10 things that farmers may want to know before filing their federal tax return.

  1. Crop Insurance Proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
  2. Sales Caused by Weather-Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to choose to postpone reporting the gain from selling the additional animals due to the weather until the next year.
  3. Farm Income Averaging You may be able to average all or some of your current year’s farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.
  4. Deductible Farm Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
  5. Employeesand hired help You can deduct reasonable wages paid for labor hired to perform your farming operations. This would include full-time employees as well as part-time workers.
  6. Items Purchased for Resale You may be able to deduct the cost of livestock and other items purchased for resale in the year of sale. This cost includes freight charges for transporting the livestock to the farm.
  7. Net Operating Losses If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. If you have a net operating loss this year, you can carry it over to other years and deduct it. You may be able to get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
  8. Repayment of loans You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.
  9. Fuel and Road Use You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
  10. Farmers Tax Guide More information about farm income and deductions can be found in IRS Publication 225, Farmer’s Tax Guide which is available at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

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IRS Reminds Taxpayers How To Provide Earthquake Relief For Japan

By Stacie Clifford Kitts, CPA

The IRS today issued a reminder for individuals, businesses and charitable organization that wish to provide assistance to the victims of Japan’s devastating 8.9 magnitude earthquake.

Its important to remember, if you make charitable contributions to qualified U.S. charities that provide assistance to foreign country’s, your contribution is tax deductible.  Making contributions to an organization or individual that is not a qualified U.S. organization will not get you a tax deduction.

Many individuals, businesses and charitable organizations wish to provide assistance to the victims of Japan’s recent earthquake. Consult Disaster Relief Resources for Charities and Donors on IRS.gov to get information about how to provide assistance to victims through a charitable organization.

Contributions to domestic tax-exempt, charitable organizations that provide assistance to individuals in foreign lands qualify as tax-deductible contributions for federal income tax purposes, provided that the U.S. organization has control and discretion over the use of funds. Donors should ensure that they make contributions to qualified charities. Use the Search for Charities function on IRS.gov to see if the charity you intend to support is a qualified charity listed in Pub. 78.  Certain organizations, such as churches or governmental organizations, may be qualified to accept charitable contributions, even though they are not listed in Pub. 78.

Parents of Children With Disabilities Don’t Miss Out on Tax Credits and Benefits

All though the IRS tax tip series is generally good, some tips are better than others.   The following tip is one of the better ones.

 

Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits.  Listed below are seven tax credits and other benefits which are available if you or someone else listed on your federal tax return is disabled.

1.     Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.

2.     Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.

3.     Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.

4.     Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.

5.     Medical Expenses If you itemize your deductions using Form 1040, Schedule A, you may be able to deduct medical expenses.See IRS Publication 502, Medical and Dental Expenses.

6.     Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability.If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.

7.     Child or Dependent Care Credit Taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be entitled to claim this credit.There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities or Publication 907, Tax Highlights for Persons with Disabilities, available on the IRS website at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
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Picking Apart the IRS’ Top 10 Tax Time Tips

By Stacie Clifford Kitts, CPA

The IRS has started their seasonal “Tax Tip” campaign.   I do like these tips.  They cover many of the general questions that taxpayers ask.   In the interest of having a little fun, let’s pick apart Tax Tip 2011-01

  1. Start gathering your records – I agree.  Waiting to the last minute can cost you deductions.  Lost receipts or forgotten documents are the bane of tax preparation. Give yourself time to get it together before the filing deadline gets here.
  2. Be on the lookout for w-2 and 1099’s – well duh IRS, this kind of falls into item number 1 don’t ya think?  If you are owed a 1099 or W2, these are delivered or mailed to you by January 31, 2011. So if it’s March and you don’t have your forms, better start making some calls because something is wrong.
  3. Use free file – This option is cool, but a bit deceiving.  Free file is a great product to prepare your federal income return if your income is less than $58,001.  Free file is sponsored by brand name – for profit- tax software companies.  So keep in mind, you still pay for the use of the software when you prepare your state tax return (only the federal part is prepared for free).
  4. IRS e-file – Personally I like efiling.  It is convenient, fast, accurate, and paperless.  Besides, here’s a heads up,  E-file is mandatory for some taxpayers.  It’s a new age, time to get on the ball and accept modern technological advances.
  5. Consider other filing options – Yes there are other options – you could prepare your return yourself (not recommended).  And, if you qualify, there are ways to get your return filed that don’t cost money.  Consider checking out your local VITA program.  The IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify.
  6. Consider direct deposit – I still get taxpayers who want to have their refund checks mailed to them.  I can’t really get my head around this one.  Generally, there isn’t  a good reason to have a check mailed versus having your refund direct deposited.
  7. Visit the IRS website again and again – okay, lots of helpful information here.  No reason not to.  I say, do it.
  8. Remember to checkout IRS publication 17. Well, yes if you want to learn all about income tax by all means here is a publication that will help.  Helpful stuff includes:  a) What’s new for 2010,  b) Reminder, c) When you should file a return, d) When to paper file vs. efile, c) Yada yada yada
  9. Review! Review! Review! – Well ya check for mistakes.  But people really, if you’re not a tax expert, you really aren’t going to know if you blew it.  Might I suggest you have a tax professional review your return before you file.
  10. Don’t panic! – Unless you want too of course – or waited until the last minute.  When all else fails, the IRS says you can give them a call at 800-829-1040.

IRS Presents:Ten Things Tax-Exempt Organizations Need to Know About the Oct. 15 Due Date (This is a how to on keeping your exempt status)

 

IRS building on Constitution Avenue in Washing...

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Stacie says: This tax tip is some particularly good information from the IRS for tax exempt organizations to help them keep their exempt status.   The time period to fix your delinquent Form 990 filings for years 2007, 2008 or 2009 will expire on October 15.  That’s just a few more days.  You are encouraged to take advantage and keep your tax exempt status.

A crucial filing deadline of Oct. 15 is looming for many tax-exempt organizations that are required by law to file their Form 990 with the Internal Revenue Service or risk having their federal tax-exempt status revoked. Nonprofit organizations that are at risk can preserve their status by filing returns by Oct. 15, 2010, under a one-time relief program.

The Pension Protection Act of 2006 mandates that most tax-exempt organizations must file an annual return or submit an electronic notice, with the IRS and it also requires that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.

Here are 10 facts to help nonprofit organizations maintain their tax-exempt status.

  1. Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15, 2010.
  2. Among the organizations that could lose their tax-exempt status are local sports associations and community support groups, volunteer fire and ambulance associations and their auxiliaries, social clubs, educational societies, veterans groups, church-affiliated groups, groups designed to assist those with special needs and a variety of others.
  3. A list of the organizations that were at-risk as of the end of July is posted at IRS.gov along with instructions on how to comply with the new law.
  4. Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice and a voluntary compliance program for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.
  5. Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N also known as the e-Postcard. To file the e-Postcard go to the IRS website and supply the eight information items called for on the form.
  6. Under the voluntary compliance program, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee.
  7. The relief is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.
  8. Organizations that have not filed the required information return by the extended Oct. 15 due date will have their tax-exempt status revoked.
  9. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status and any income received between the revocation date and renewed exemption may be taxable.
  10. Donors who contribute to at-risk organizations are protected until the final revocation list is published by the IRS.

Links:

One-Time Filing Relief for Small Organizations That Failed to File for Three Consecutive Years

Filing Relief – 990-N Filers

Filing Relief/Voluntary Compliance Program – 990-EZ Filers

IR-2010-101: Taxpayers Face Oct. 15 Deadlines: Due Dates for Extension Filers, Non-Profits Approach

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Small Tax-Exempt Orgs Revised Deadline: English

Time Is Running Out – Three Deadlines: English

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