Individual retirement accounts can help you save money for your retirement. As long as you designate a beneficiary for your IRA, when you die, the IRA passes directly to that beneficiary. If you don't name a beneficiary, your IRA goes to your estate and is subject to the claims of creditors. Not having a designated beneficiary doesn't affect how the distributions from the IRA are taxed, but it does affect when the beneficiary who ultimately inherits your IRA must take distributions.
If you receive an inheritance, you may owe certain taxes depending on what you inherit, where you live, where the deceased lived and how much the bequest is worth. Fortunately, the federal government no longer collects a direct inheritance tax. However, there are federal estate and gift taxes to consider, and some states levy inheritance taxes.
If you owe past due child support, you may have your case assigned for a tax refund intercept. This is a collection method available to child support agencies to reduce child support arrearage balances. In most cases, a child support case can be assigned when there are arrears over a certain amount, even if an obligor is currently making payments as ordered. However, some rules regarding the collection and application of your refund must be followed.
Understanding your rights as a taxpayer and navigating Internal Revenue Service systems can be overwhelming for many people. Fortunately, a number of legal assistance programs are available to those facing IRS problems, regardless of the complexity of the problem. While some programs require those seeking assistance to meet low-income requirements, some assistance options are available to everyone without income restrictions.
Form 1040A is not as simple as the 1040EZ form, but it's not as complicated as the full 1040. You can't use the 1040A if you own a business or itemize deductions, for instance: those require a Form 1040. The tax on your Social Security benefits isn't affected by your choice of tax form.
When it comes to your taxes, your income is divided into two categories: income that qualifies for the lower long-term capital gains rates and income that doesn't. Knowing how the returns on certain investments will be taxed can help you decide which will generate the highest returns after the Internal Revenue Service has taken its share.
Confusion often surrounds the question of what income is taxable, and what is not. Some think that every penny of income you receive is taxed, while others think that if you don't receive a 1099 or W-2 for the income, it's not taxable. Neither thought is entirely correct. Getting it wrong on a tax return, however, can make a big difference in your tax due and could lead to accuracy-related penalties.
Businesses frequently allow customers to pay for goods and services over time without specifically stating any interest charges. However, when you accept periodic payments, the Internal Revenue Service assumes that the contract price reflects the time value of money, meaning the price includes interest charges for the payment delays. The IRS refers to these types of transactions as installment contracts and requires you to calculate the imputed interest on them using federal interest rates and present value computations.
Gross pay is the total amount of wages and benefits a worker earns in a pay period. However, many people question the discrepancy in the figures for taxable gross income and FICA taxable gross income on their pay stubs. Taxable gross income is simply income that is subject to federal, state and local taxes. Federal Insurance Contributions Act, or FICA, taxable income is subject to taxation to go toward Social Security programs, including Medicare. To fully understand how much you pay in taxes, you must understand the differences between taxable gross and FICA taxable gross income.
When an employee leaves a company where he has a 401(k) account balance, he must decide how to handle the existing account balance. The employee has two options to roll over the 401(k) balance to an individual retirement account without tax consequences. He can request a direct trustee-to-trustee funds transfer or arrange for the trustee-to-trustee transfer using a check issued to the IRA custodian but delivered to him. In the latter instance, the payee on the draft is not the employee but rather the IRA custodian. The payee takes the form of “IRA Custodian FBO Individual,” where “FBO” means “for…
The Internal Revenue Service requires a company that buys goods or services from another party for business purposes, or hires employees or independent contractors, to obtain a Form W-9 from them. A W-9 allows the payer to prove his deductible expenses and requires him to withhold from payments backup withholding if the payee owes back federal taxes. Whether a payee will have backup withholding taken from his payment depends on his exempt or non-exempt status.
Bankruptcy often involves surrendering a significant asset such as a home in exchange for the corresponding debt being forgiven. IRS Form 1099-A details the surrender of a home in exchange for the forgiveness of a debt. This form is used to complete a personal income tax return.
As a self-employed individual or business owner, it is your responsibility to report all business earnings and pay annual taxes to the Internal Revenue Service. Instead of trying to pick through a jumbled mess of receipts when your taxes become due, initiate and maintain systematic record keeping of your business expenses throughout the year. Being prepared will help reduce stress and ensure a greater level of accuracy than trying to calculate your taxes just before the deadline or when they're past due, which could result in the IRS imposing fines or other penalties.
According to agency records, the Social Security Administration distributed approximately $747 billion in 2011 to roughly 55 million Americans, some of which were retirees and their dependents.The administration states that such benefits are a significant source of income for the majority of Americans 65 and older. In that people's finances have recently been battered by a decline in housing values, losses in savings accounts and increasing health costs, the determination of the portion of these benefits to be classified as reportable income and subject to taxes is a critical issue to retired persons.
If an act of theft results in total loss or damage to property you own, you may be eligible to deduct the value of your loss on your federal income tax return. The amount you can deduct is subject to certain factors, including the value of the property before and after the theft, and the reimbursement you receive from the insurance policy covering the stolen item. Individuals and businesses are eligible to claim losses as a result of theft.
The Internal Revenue Service does not place a minimum herd size on a farm or agricultural association when calculating eligibility for exemptions and tax deductions. A farm or other agricultural business earns exempt status or tax deductions through accurate bookkeeping and accounting practices. A business may have additional requirements, including goals of operation, to retain exempt status under the Internal Revenue Code.
When you work as an employee for a company, your employer issues a W-2 tax form at the first of the year, detailing your earnings and the taxes that were deducted from your paycheck over the past tax year. When you are self-employed, you don't receive a W-2 but instead receive an IRS Form 1099 from your clients, listing the money you earned providing goods and services. Registering your business as an S corporation allows you to transfer your 1099 earnings to your corporation.
Sponsors financially support an individual or organization in return for passive or active promotion of brands, products and services. The Internal Revenue Service considers payments received from sponsors as either qualified or nonqualified. If a payment doesn't qualify for tax-exempt status, a sponsored person will receive an IRS Form 1099 from his sponsor, which he will have to report as income on his federal tax return.
The alternative minimum tax (AMT) is a federal tax intended to ensure that high-income households pay their fair share of taxes. First introduced in 1969, the AMT is separate from the regular tax system and applies a different set of rules to high-income households. It doesn't correct for inflation, so as time goes by, more and more middle-income families are finding themselves subject to this tax.
Claims you make on Form W-4 tell your employer how much income tax to withhold from your pay. Your employer is not allowed to disagree with the allowances you claim, and in most cases, is required to withhold at the rate prescribed for the filing status and number of exemptions you claim on your W-4. If you intentionally claim more withholding allowances than you should, causing reduced income tax withholding and an underpayment of your income tax, the IRS may assess several penalties against you. If this occurs, the IRS can also instruct your employer to withhold at a different…
As incentive for Americans to save for retirement, the federal government provides a number of tax benefits on certain retirement savings plans, such as tax deferral on the funds in your pension. However, if you withdraw funds from your pension prior to retirement age and without satisfying a specific exception, the IRS will impose a tax penalty on your withdrawal.
Tax write-offs have a greater impact on your overall tax burden if they are considered tax credits rather than tax deductions. Tax deductible amounts, such as standard or itemized deductions, reduce taxable income. Tax credit write-offs are applied at the end of the tax calculation process and further reduce the tax payment.
An adjustment for federal tax occurs when a taxpayer sends an amended tax return to the Internal Revenue Service, or the IRS adjusts the taxpayer's return due to errors or fraud after the taxpayer has filed his return. Adjustments can increase or decrease a taxpayer's adjusted gross income and the tax that he owes at both the state and federal level, according to the Wisconsin Department of Revenue.
For federal income tax purposes, the IRS treats trusts as taxpayers that are separate and distinct from its beneficiaries and grantors. The general framework of the tax rules requires trustees to file annual tax returns on Form 1041 to report all income and to pay the appropriate tax. However, when the trust distributes the money to beneficiaries within the same tax year, the responsibility for paying tax can shift from the trust to the beneficiaries.
The Federal Insurance Contributions Act mandates the Internal Revenue Service to collect Social Security and Medicare taxes; both taxes are usually called FICA taxes. As an employee, your employer is supposed to withhold both taxes from your paychecks and pay them to the IRS. As of the time of publication, your employer withholds each tax at separate amounts. If your employer withheld too much FICA taxes from your paychecks, try to resolve the situation with him before reporting the matter to the IRS.
The Internal Revenue Service provides a federal income tax deduction for depreciation on certain types of property. This deduction can apply to tangible items such as homes, trucks or machinery and also to intangibles, such as intellectual property. However, the IRS sets strict limits on what property a taxpayer can depreciate. Although depreciation on a primary residence is not normally deductible, in some instances you can deduct a portion of it.
Winning at gambling is more than a windfall for you. Since your gambling winnings are taxable, they also provide extra gains for the Internal Revenue Service. In fact, if you win enough, your winnings will not only get reported to the IRS, but they may even be subject to tax withholding on the spot.
In the United States, most home sellers will not owe tax on the sale of their primary residences, due to tax exclusions and mortgage debt forgiveness relief, according to the State of California Franchise Tax Board. Those who do owe tax penalties when they sell their properties must pay off their tax debts to local, state and federal governments on time, or they may face additional interest penalties.
The Internal Revenue Service imposes an estate tax against the estate of some deceased people. The federal estate tax is commonly referred to as inheritance tax. In an irrevocable trust, the donor makes a contribution that cannot be reversed or altered at a later date. Irrevocable trusts are exempt from estate tax. In a revocable trust, the donor can later decide to withdraw or revoke the trust. Since you still technically own the contributed property, revocable trusts are subject to federal estate tax.
According to IRS guidelines, a tax lien on the income of one spouse will affect the tax return of the other spouse when filing income taxes jointly. This encompasses overall tax liability including refunds or taxes owed. Because a tax lien imposes claims on all property of the taxpayer, this can also affect homeowners, where property is owned jointly. Furthermore, should a married couple own a business together, the lien extends to business property including accounts receivable. However, the IRS does offer options for the spouse that doesn't have the lien.
Residential rental property in the process of foreclosure is still legally yours until the foreclosure process is complete and the bank acquires the property. During the time the property still belongs to you, you may be required to continue claiming depreciation depending on the status of the asset’s rental activity. Once the property is taken over by the bank, your gain or loss on the foreclosure is partially based on the depreciation you claim during the life of the asset.
During tax season, taxpayers often wonder if there are ways to reduce tax debt or maximize refunds. Married taxpayers actually have two options for filing a tax return -- married filing separately or married filing jointly. Both filing statuses create different tax scenarios, and contrary to popular belief, filing a joint return is not always the best option. Once all income tax documents have been received by you and your spouse, you can calculate your taxes under each status to see which method is best for you before you file.
The IRS uses your modified adjusted gross income (MAGI) as a threshold amount, to determine whether you are eligible for a specific deduction or credit. Unlike your adjusted gross income, which is a fixed amount that you calculate on your tax return, the calculation of MAGI is different depending on the tax benefit you are evaluating. As a result, MAGI for purposes of claiming a tax credit may be different for purposes of claiming a deduction.
When you hire a live-in aid to care for an elderly family member, you must consider whether an employment relationship exists between you and the aid. This is because the IRS imposes some additional tax obligations on you when you are an employer. If the IRS considers you an employer, you need to pay employment taxes, possibly withhold taxes from the salary you pay the aid and prepare a Schedule H with your personal tax return.
When you abandon property that secures a loan, such as a mortgaged home, the lender sends you Form 1099-A to report the information you need to calculate your gain or loss on the abandonment. The 1099-A doesn’t report the amount of debt your lender has forgiven. However, your lender has an obligation to report the forgiven debt on a 1099-C after sending you the 1099-A.
A revocable trust is classified by the Internal Revenue Service as a grantor or settlor trust. This means the maker of the trust has control of the assets during his lifetime. In a revocable trust, the grantor names a trustee, who will take custodianship of the trust upon the grantor's death, and one or more beneficiaries who will receive the income from the trust after the grantor's death. Whether the IRS can levy taxes on the assets of a revocable trust depends on who owes the taxes.
If you care for and financially support a disabled adult, you may be entitled to claim the person as a dependent on your federal income tax return. The Internal Revenue Service (IRS) requires that several tests be met to be eligible to claim the dependent. If you meet the tests, you may deduct an exemption for the person from your taxable income. In addition, if you pay for dependent care services for the disabled adult so that you can work, you may be eligible to claim a credit for a portion of your cost for the services.
A dependent, for IRS tax purposes, must be a child or an adult relative. An adult nonrelative, may not be claimed as a dependent on your income tax return. The only two instances in which you can claim someone as a dependent is if they are a qualifying child or a qualifying relative. The IRS is very specific as to who qualifies under their guidelines as a dependent.
A W-9 form is an information form that is sent by businesses to individuals or entities that perform work or services for the business. The purpose of the form is to gather information regarding the service provider so that the business making the payment has the proper name, address, and taxpayer identification of the entity receiving the payments. The W-9 form is unique in that it isn’t filed with the Internal Revenue Service. It is kept with the records of the business making the payments for services, so that a form 1099 can be issued at the end of the…
Your divorce or separation agreement may provide you with payments for child support or alimony, and in some cases, both. You must include all alimony payments in your gross income, but child support payments are never taxable. If the payments are unallocated in your divorce or separation agreement, meaning you are unable to determine how much is for alimony versus child support, the IRS provides a number of factors you must evaluate.
Everyone likes to dream about winning the lottery or hitting it big in the stock market and being able to help out friends and family members who are just barely getting by. It is a wonderful dream, and you can give away as much money to friends and family members as you like. But as of 2011, the gift tax will be applied to all amounts you give that are greater then the $5 million individual gift tax/estate exclusion provided by law.
You filed your tax return and are eagerly awaiting your refund -- but when it arrives, it's more money than you expected. You might not want to look a gift-horse in the mouth, but where your taxes are concerned, it is best for you to find out why the amount is higher than you intended.
The Internal Revenue Service allows tax credits if you have qualifying dependents and qualifying income that reduce your tax liability. In some cases, these credits are refundable even if you have no tax liability. An unqualified dependent is a person you cannot claim to receive these credits. Because of abuse in claiming some of these credits, the IRS has launched an aggressive campaign to verify qualifying dependents and deny credits for unqualified dependents.
If you plan to cash in on energy-efficiency tax credits for the installation of a green energy barrier, now is the time to act. Green energy barrier is a reflective foil insulation designed for attic installation. As such, it qualifies for energy-efficiency tax credits set to expire on Dec. 31, 2011, unless Congress takes measures to extend the credits. Several high-value, whole-home tax credits run through Dec. 31, 2016. The 2016 credits do not include energy-efficiency tax credits for any type of insulation products.
Married taxpayers in community property states generally do not need to think about community property laws when filing their federal tax returns. However, the issue can complicate tax filings for married taxpayers who file separate returns. The basic tax forms are the same ones used by joint filers, but they do need to be filled out differently.
When you prepare your tax return as a taxi driver, the Internal Revenue Service (IRS) considers you a self-employed taxpayer. The IRS classifies you as the owner of a sole proprietorship, even if you lease your cab from a fleet owner. Your completed tax return must include a 1040 listing your total income, a Schedule C listing your net business income and a Schedule SE for your self-employment tax. If you own your own cab, you must also file Form 4562 to claim the depreciation deduction on your cab.
Many nonprofit organizations that operate for the sole purpose of promoting a charitable or other eligible activity can apply for tax-exempt status with the Internal Revenue Service. If you operate a sole proprietorship, the IRS doesn’t treat your business as a separate entity, which renders you ineligible to apply for tax-exempt status. Before you can apply, you must create an eligible entity with your state government.
Being out of work with bills to pay is no fun, especially if you have a family to support. If you are laid off or otherwise unemployed through no fault of your own, you may be entitled to unemployment compensation. The Internal Revenue Service does consider unemployment benefits to be taxable income and requires you to report them on your tax return.
A sole proprietorship is the simplest business structure. You don't have to file with the state to set it up, and tax law treats your business income like your personal income. The IRS treats your business assets differently from personal property, however. You can claim deductions or depreciation on business property that you can't claim on personal property. It can be a good idea to have a separate business account so the IRS can see that your business assets are all bought out of business funds.
Tax credits for energy-efficient product installation and use are limited in the type of eligible products and the dollar amounts available. Some credits apply to heating and cooling products, and many of them expire in December 2011. The dollar amounts for the 2011 credits have been reduced by two-thirds from the 2010 limit of $1,500. Some credits extend through the end of 2016. The 2016 credits apply primarily to green energy sources such as wind and solar power.
In observance of the biblical tradition of offering a tithe, or tenth, to one's place of worship, many taxpayers faithfully donate 10 percent of their income to churches and religious organizations. The Internal Revenue Service allows you to write off the money you tithe to religious organizations that meet the requirements of the 501(c)(3) nonprofit status. Tithes donated to most churches, synagogues, temples and mosques in the U.S. would qualify for a 100 percent tax write off, but it is important to maintain records if you intend to itemize the deductions on your federal tax return.
When you start your own business as a sole proprietor you will need to file a Schedule C with the Internal Revenue Service (IRS). This form is used to report business profit or loss that is then used to calculate taxes as reported on your Form 1040. It is important to keep receipts documenting all the expenses you claim for maintaining your office as well as travel and other deductible costs. If you are audited, enlist the services of a tax attorney who will assist you with the process, which can be complicated.
The IRS imposes different tax rates for single and married taxpayers. In certain cases, analyzing the difference in tax rates is necessary to determine which status yields the lower result. For couples who live in a common law state and can file as married or single because a legal union hasn't been established, determining the tax rates for each status is useful. The IRS provides tax tables for each tax year to make tax calculations easier to compute.
Commission and bonuses differ not only in definition, but also in the tax treatment by the Internal Revenue Service. You should understand these differences so that you pay the appropriate amount of taxes in the year they are due and you do not incur any penalties from the IRS. In some cases, it is not simply the difference between commissions and bonuses that affects taxes, but the type of bonus given.
A limited liability company (LLC) is eligible to accept tax-exempt donations that are also tax deductible to the donor if the organization’s operations qualify for one of the tax-exempt purposes that the government requires. An LLC is not tax-exempt until the Internal Revenue Service officially recognizes it as such. Obtaining this recognition requires a formal application and familiarity with the tax laws governing tax-exempt organizations.
There is no guarantee that your tax return will not be audited, but the items on your tax return and the manner in which you complete the return can significantly change the likelihood. The Internal Revenue Service keeps secret the specifics of what triggers an audit, according to CBS MoneyWatch.com, but the agency offers taxpayers some information about why certain returns are chosen for audit and others are not. Lower your chance of audit by filing a complete and accurate return, supported by your records, and taking only those deductions and credits allowed by law.
When you give a vehicle away, you only get a tax deduction for donating the vehicle to charity. The amount of your tax deduction depends on the fair market value of your vehicle and the type of charity receiving it. To claim the charitable tax deduction, you must itemize your tax deductions.
As an employer, your share of FICA refers to the amount of Social Security and Medicare taxes that the federal government requires you to pay. Most employers in the United States are subject to these taxes. The Federal Insurance Contributions Act mandates the collection of both taxes.
If you have credit card debt, the credit card company will first try to collect from you. After several years, however, the credit company might write off your debt. This is also known as cancellation of debt. The Mortgage Debt Relief Act of 2007 protects you from tax implications on forgiven debts on a principal residence. But canceled debt in most other situations means earned income if it’s a certain amount and you haven't filed for bankruptcy protection.
Renting to family can be headache, but it can also have several negative effects on your personal tax liability. If you rent to a family member, you cannot claim expenses and deductions that would otherwise be yours if you rented to a third party. Also, depending on whether you charge market rent, you may have to pay gift tax.
Retirement distributions from your employer’s pension program generally are included in your taxable income. Pension distributions may be fully taxable or only partially taxable, depending on how the employer set up the pension plan. Benefits from Railroad Retirement or Social Security don't count as pension distributions and are separately taxed.
The Federal Insurance Contributions Act (FICA) constitutes a piece of legislation outlining how Americans pay into government retirement plans through wages earned. FICA taxes come directly from paychecks provided by jobs – your employer also pays into the FICA program on your behalf. These taxes fund the Social Security and Medicaid programs, both of which provide benefits to retired Americans or those of retirement age.
A 501(c)3 corporation or entity may provide you with a way to further some charitable cause you believe in. These entities are exempt from certain provisions of the tax code and receive favorable tax treatment on all earnings received during the tax year. However, the entity has restrictions placed on it when engaging in certain transactions involving the sale of property.
A flexible spending arrangement, or FSA, is a benefit provided by many employers. An FSA is usually funded through salary deductions, although some employers may also make contributions. The FSA can be used for reimbursement of qualified medical expenses.
If you are an independent contractor, you are generally responsible for paying your own income taxes. Because your payer doesn't withhold income taxes from your pay, it's important to determine how much of your income is taxable. Self-employed taxpayers must pay an additional tax to cover what an employer would pay for Social Security and Medicare taxes. Although the Internal Revenue Service taxes your self-employment income differently, you can use both amounts to estimate how much tax you will owe at the end of the year.
While some deductions and credits determine your eligibility based on your adjusted gross income, a uniform formula, many use the modified adjusted gross income as the determinant of eligibility. Knowing how these tax benefits determine your eligibility helps you to make the most of your credits and deductions without incurring the wrath of an IRS audit.
One of the major benefits of an S corporation is that it minimizes the taxes that are applied to shareholders. Unlike C corporations, S corporations are not subject to double taxation. Also, because individuals pay taxes on business income as it is earned, most dividends are not taxed when paid to investors. However, these normal protections do not apply to tax liens and levies. With one narrow exception, any S-Corp dividend can be garnished.
When you win the lottery or cash out a retirement plan, you typically have the option to receive a lump sum distribution rather than have the money paid out over a number of years. Though a large lump sum can be tempting, you should consider the additional taxes you will have to pay. When you take a lump sum distribution, you will likely end up in a higher income tax break, which can further increase your tax liability.
The Internal Revenue Service (IRS) allows you to deduct moving expenses if you move due to a change in job or business location. Your move must pass two tests before you can claim the deduction: the distance test and the time test. In addition, the IRS specifies and limits the types of expenses that may be deducted.
The Internal Revenue Service encourages reporting of income and payment of federal income taxes with free forms and schedules. IRS Form 1040 is the standard form for single taxpayers or married couples filing jointly. You can attach all IRS schedules to the Form 1040 although attachment restrictions apply to the simpler individual tax return forms, IRS Form 1040A and IRS 1040EZ. Schedules attached to a Form 1040 may apply to your individual income, even if you file your taxes jointly.
As a general guideline, the more you increase your taxable income without increasing your estimated or withholding tax payments, the higher your income tax bill will be, which effectively reduces your refund. Therefore, when assessing whether a Pell Grant or student loan will hurt your tax refund this year, the decisive factor is whether you must include those funds in your gross income.
Through the use of a trust fund, you can control the distribution of your assets after your death. There are a variety of ways to modify your trust to best suit your goals. Two types of trust funds are the marital trust and the beneficiary trust. These funds differ in their taxation, their beneficiaries and their timing of creation.
Mortgage lenders, credit card companies and other creditors use Form 1099-C to report forgiven debt to the Internal Revenue Service. In most cases, the IRS considers the amount of forgiven debt as taxable income to the debtor. However, there are some exceptions to forgiven debt counting as income. If you receive a Form 1099-C, understanding how to report the forgiven debt on your tax return can help you avoid improperly filing your taxes and possibly incurring tax penalties.
Your tax liability is directly proportional to your income. When you pay more tax to the Internal Revenue Service than you owe, the IRS returns the over-payment to you via a tax refund. In certain situations, the IRS applies your tax refund to debt you owe via a “tax refund offset.” Depending on your financial circumstances, you may be able to prevent an offset from occurring.
Legally, you are free to do as you please with a house that was given to you as long as the previous owner transferred the title and all rights to the property to you upon making the gift. Therefore, you can make a gift to another person if that is what you wish to do. Prior to giving away the property to another party, you should understand the tax consequences of your gift, however.
Real estate salespersons should only take the standard deduction when filing their tax returns if they are employees and receive pay from their employers based on the number of hours worked, not commission. As of 2010, the mean annual wage for real estate salespersons was $52,490, according to the U.S. Bureau of Labor Statistics, much of which came from commissions. The Internal Revenue Service considers most real estate sales persons to be self-employed. Self-employed persons must include Schedule C with their return to show business income and itemized expenses.
Expenses associated with being married are generally not deductible. However, certain expenses associated with a marriage, such as property taxes on your personal residence, may be deductible. In addition, a married couple is allowed to file as Married Filing Jointly and can claim two personal exemptions instead of one. Finally, being married might provide a benefit when calculating the deduction for certain contributions such as retirement contributions.
Sometimes your employer will take more out of your check that is required to cover your tax obligation. That money could stay in your pocket. You can calculate a reduced withholding, which will get you more take-home pay, but you need to make sure you still have enough to pay your taxes. Once you know the amount you want reduced, consult with your company's human resources administrator, who can tell you whether you are eligible for further withholdings, how many you can claim and how to file a new W-4 to put the reduction into effect on your paycheck.
The Social Security tax only applies to earned income, such as your employment wages or self-employment income. If your earned income comes from self-employment earnings, you have to pay the employer portion and the employee portion. As an employee, your employer withholds the required amount from your paycheck for Social Security, but if you are self-employed, you have to figure the tax for yourself. The rates can change yearly and the amount the tax applies to adjusts with inflation. As of 2011, it only applies to $106,800 of your earned income.
When tax season arrives, people want to make sure they don't overpay and certain people will go to great lengths to identify any tax deduction they can find. There are documented cases of taxpayers receiving writeoffs for cat food, breast augmentation and even the cost of their entire wardrobe. Unfortunately, tax law isn't so generous to parents who pay child support. The Internal Revenue Service won't allow parents to claim any deductions on their federal tax return for the child support they pay.
The Internal Revenue Code contains several federal tax deductions that might benefit young adults. These deductions include the cost of finding a job, traveling to jobs, enrolling in college classes and buying a home.
The rules for claiming a child or other relative as a dependent for the purposes of calculating your income tax liability change once the individual reaches age 19. To qualify as a dependent for tax purposes, any person age 19 or older must be a full-time student and below the age of 24 at the end of the year. In addition, the individual must meet a number of other tests. In practice, it is difficult for full-time missionaries over the age 19 to meet these criteria.
An advanced degree at the master's or doctorate level may translate into greater employment opportunities and higher wages within your career field, but graduate school can be expensive. There are a number of ways students can finance their graduate level studies, including student loans, grants, scholarships and stipends. The Internal Revenue Service considers some of these funds to be reportable and taxable as income.
Individual taxpayers cannot obtain tax-exempt status from the IRS, but this doesn’t mean you can’t be exempt from paying income tax. However, you must evaluate your eligibility for tax exemption on an annual basis.
Turning one of your homes into a rental property can certainly provide you with some extra income each year, but some tax consequences exist as well. You must pay income tax on the rental income you earn and file additional tax forms with your personal return. However, you can deduct rental expenses that will reduce the amount of your income tax bill for the rental property.
Mortgage interest you pay for your home is deductible in the year you pay it, regardless of whether your home is in foreclosure. You may continue to deduct mortgage interest you pay for the property until the foreclosure process is complete and you no longer own the home. The amount of mortgage interest you pay is reported to you and the IRS on Form 1098 each year you make payments toward the loan balance.
If you do not depreciate your rental property, you will pay more income taxes than you should. Although residential property typically increases in value over time, the Internal Revenue Service treats it as if it loses value yearly. To qualify for depreciation, you must use the house to produce income, and the house must have a useful life of more than one year. You cannot depreciate land because it does not wear out. If you purchase a rental property for $400,000 and the home on it appraises for $300,000, you can depreciate the appraised value of the home over 27.5…
Upon the death of any taxpayer, the Internal Revenue Service has an automatic lien on all assets in the estate. The value of those assets at the time of death is the tax basis, and the person inheriting the estate must satisfy the lien to have it removed. If the person inheriting does not pay the estate tax, many issues arise.
Elderly parents can give a certain amount of money to their children -- or to anyone else -- each year without having to pay tax on the gift. Even if they go over the limit, they still may not have to pay taxes because they can exclude a certain amount of their total estate from tax, including gifts made during their lifetime.
In addition to being subject to federal and state income taxes, your royalty income may also be subject to Social Security taxes. Whether or not you must also pay into the Social Security system depends on both the source of the royalties and the amount (if any) of your self-employment income. Royalty income generated by your trade or business that nets more than $400 a year does require payment into Social Security.
The Internal Revenue Service requires taxpayers to report all income, including income earned from a hobby. A hobby is an activity not for profit. If you make a profit in three of the last five years, the IRS presumes that your hobby is a business. Section 183 of the Internal Revenue Code allows deductions for expenses incurred in pursuit of a hobby. Unlike a for-profit business, you cannot use hobby expenses to offset other income.
Depreciation is a vital tax deduction available to businesses that have expensive long-term assets. Arguably the most important element in depreciation is the depreciable asset’s basis since it sets the effective limit regarding how many deductions can be claimed in relation to that asset. Therefore, it is important to maximize the carrying value of the asset while remaining within the standards set by the tax code.
If you're filing a petition for bankruptcy, you'll have to take the Internal Revenue Service into consideration. The federal tax agency has strict rules about handling tax debts, and in most cases bankruptcy filers find they must continue paying these liabilities in full. There are also limited deductions available when you file for bankruptcy.
The Internal Revenue Service taxes the transfer of property at death with the inheritance tax. This can be a problem to an unmarried couple, as they're unable to use the inheritance tax deduction available to married couples. Titling assets as joint property may reduce probate costs but doesn't prevent the inheritance tax.
When you wish to file jointly but your spouse has no Social Security number, you have two options for handling the situation. Your spouse may need an individual ID number to file the tax return or you could get your spouse a SSN under some circumstances. The way you file your income tax form depends on which option you choose.
In general, any income from employment or self-employment requires the earner to pay income taxes to the federal government and to those states that require it. Commission income is typically considered taxable, the same as wages. Employers withhold taxes on wages and commissions during every pay period, but if you receive commissions as an independent contractor, you are responsible for paying estimated quarterly taxes on your own.
Unless Congress extends them, tax credits for energy-efficient upgrades are disappearing fast. Many credits that have been in existence since 2006 will end on Dec. 31, 2011. Credit amounts have been reduced for the 2011 tax year. In 2009 and 2010 most energy credits were capped at $1,500. For 2011, that same cap is limited to $500. A few unrestricted credits aimed at whole-house alternative energy systems survive until the end of 2016.
The Internal Revenue Service considers all income to be taxable income unless it is specifically exempted from taxation by law, which includes income in the form of bonuses. Your bonus income is taxable regardless of whether it comes in the form of cash, merchandise, services or prizes such as trips and vacations. Bonus income is taxable as it is paid, regardless of whether it is paid on a regular or irregular basis.
If you are a student pursuing a degree or a wage earner taking courses to improve your job skills, you may be eligible for federal tax credits. Two federal tax credits -- the American Opportunity Credit and the Lifetime Learning Credit -- allow you to offset post-secondary education costs for you and your dependents. The Internal Revenue Service imposes limits on the amount you can claim and restrictions on who and how often you can access the tax credits.
If you forgot to report income on your federal income tax return, don’t panic. The Internal Revenue Service has a form for almost everything, including one that allows you to amend your previously filed return. Not every error requires an amended return. The IRS has specific criteria concerning what requires an amended income tax return and what does not. If you failed to report income, you should file an amended return as soon as you discover the oversight.