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You are here: Home / Archives for taxes

taxes

On-Demand Workers: Be Aware of Tax Issues

May 1, 2016 By Twila VanLeer

Tax issues with on demand workers.
Uber workers are considered self-employed and have to set aside money for taxes.
If you make your living doing on-demand jobs, defined by the Internal Revenue Service as an “online marketplace or application that connects free lance providers with customers,” you need to be aware that Uncle Sam will tax your income.

About 10 percent of the U.S. workforce falls into this category – some 14.6 million people. It’s a business and is regulated by the same tax requirements that apply to more usual businesses.

Set Aside A Portion Of Your Income

The smart thing to do is set aside a portion of your income through the year so the April l5 deadline doesn’t catch you by surprise. For instance, people who drive for Uber or Airbnb or otherwise routinely do jobs that are on-demand, may be considered independent contractors. They are likely to receive a 1099 form reporting their income, rather than a W-2. And since there is no automatic withdrawal of taxes, the individual is responsible for keeping track and anticipating tax charges.

Self-Employment Tax

Not only are these self-employed persons responsible for routine taxes, they also may be required to pay a self-employment tax, which has been imposed by the IRS as payment for Social Security and Medicare.

Keep Track Of Possible Deductibles

Anticipating taxes should prompt on-demand workers to keep track of possible deductibles. Drivers, for instance, can deduct the costs of car washes, providing water or snacks for passengers, etc. Accurate records will be invaluable when you sit down to fill out the tax forms.

Schedule C

Schedule C is the form you need to report profit and loss from business income. SE is used to compute the self-employment tax.

Rental Income

Some people add to their income by renting out their home for special occasions. Think Super Bowl. They may realize big bucks for their efforts, but the income is taxable. A one-shot rental is not taxable, but two or more triggers taxes. If you rent your home out for 15 days or longer, you must start to report the rental income and the particulars associated with the rental, such as deductions for utility expenses, etc. That means you have to separate your own expenses from those associated with the rental.

Making estimated tax payments through the year will help fend off the shock you might experience when it comes time to file.

More information is available through Publication 334, the IRS Tax Guide for Small Businesses. Publication 527 focuses on rental income and expenses and Publication 463 offers guidelines on the use of your vehicle for business purposes.

Filed Under: Income, Tax Strategies, Tax Tips Tagged With: Budgeting, money management, taxes

Make The Tax Return Count: Save It

April 24, 2016 By Twila VanLeer

A higher percentage of people are choosing to put their refund into savings.
A higher percentage of people are choosing to put their refund into savings.
For a short time each spring, millions of Americans have a fleeting sensation of being rich. They have their tax return in hand and must decide how best to use it. More than ever, according to Prosper Insights, they are opting to put it in the bank.

Refunds Used To Improve Financial Health

“Americans this year see refund season as a time to improve their financial health. Money saved is spending potential down the road,” said Matthew Shay, president of the National Retail Federation, which sponsors the survey.

Plans For Return

The NRF’s annual Tax Returns Survey indicated that 65.5 percent of those contacted expected a return and some 49.2 percent of those had plans to tuck the return into their savings as a means to improve their overall financial health. That is the highest percentage who are of that mindset since the NRF began conducting the survey. Other options include paying down debt or making large necessary purchases. Some 22.4 percent said they would use the return for everyday expenses and 8.3 percent looked forward to an annual splurge that they have had to bypass for the major part of the year.

Young Adults More Likely To Save

In the 18-24-year age group, the percentage of those wanting to save the return is even higher at 57.3 percent. The percentage dips to 52.3 percent in the 25-34-year age group, but that’s still more than half. These younger workers apparently see the tax windfall as a chance to build savings without diminishing their usual income.

Plans For Filing

With the mid-April deadline fast approaching, it is evident that the majority of Americans, 66.9 percent, are filing online. Almost 40 percent are preparing their own with the help of computer software. Only 14.2 percent said they have filed manually or plan to do so. Only 21.4 percent have hired or will hire a professional to get the job done, while 16.1 percent have called on a friend or relative to help with the job.

Filed Under: Saving Money, Spending Habits, Tax Strategies Tagged With: Saving Money, taxes

Handling Tax Audits Successfully

April 27, 2015 By Sherry Tingley

Don't ignore tax audit notifications. Be prepared to face an audit.
Don’t ignore tax audit notifications. Be prepared to face an audit.

Tax Audit? Don’t Panic

Well, the annual tax mania is over once again. Now you can sit back and relax. Unless, of course, you are one of those that the IRS singles out for an audit. Less than 1 percent of the tax-paying public gets that experience, but it can be unnerving.

Audits are what have given the tax agency its ogre-ish reputation and generated visions of torture and merciless browbeating by suit-clad agents.

Here’s how to address an audit if it happens:

To begin with, an innocent looking letter from the IRS, arriving by U.S. mail, should be taken seriously. Don’t ignore it. Failure to respond almost always triggers escalating pressure from the taxing agency. Better to have your tax accountant respond, if possible. Experts in such matters suggest you never try to deal with an audit on your own. Not many run-of-the-mill taxpayers have the expertise to deal with the figures and the myriad laws that surround them.

Often, the experienced tax experts can spot the difficulty in a return at a glance and resolve it without a hassle. Simply determining which office within the IRS has initiated the audit will reveal the problem.

The experts advise that you never speak to the IRS representatives yourself.

Be prepared to provide whatever substantiating information is necessary to resolve issues. Keeping detailed records throughout the year is the starting point. Small businesses, in particular, need to be certain that personal and business finances are not intertwined.

The statute of limitations on an audit is three years, although the IRS can request an audit up to six years if there is reason to believe there have been substantial misrepresentations on the return. That means you must keep the relevant materials for at least that long. Receipts, pay stubs and other items used in preparing your return should be safely filed away until there is no longer reason to believe you might be audited. Most experts suggest a seven-year period before you toss the information.

The information you provide in response to an audit is filed via Form 4564. It can be delivered to a tax agency in person or mailed. Ask for a face-to-face meeting between your representative and an agent if you feel it is necessary to explain particular items in your return. Mail audits can be time-consuming.

How long an audit takes depends on the complexity of your tax situation – and how many other taxpayers the auditor is dealing with. Generally, a taxpayer has 30 days in which to respond after receipt of an audit notice, and the process then proceeds depending on the particulars. If the conclusion is that you did not pay enough taxes, payment plans can be set up, if necessary. If you don’t feel satisfied with the result of your audit, you can ask for a review.

And there is always the possibility that the audit will find that the government has overcharged you. A little sweetening of the return is ample payment for the consternation you may feel when the word “audit” pops up.

Filed Under: Tax Strategies Tagged With: taxes

Be Aware Of Changes In Tax Laws For 2015

March 6, 2015 By Twila VanLeer

Standard deductions  have risen to $6,300 for individuals and $12,600 for married taxpayers filing jointly.
Standard deductions have risen to $6,300 for individuals and $12,600 for married taxpayers filing jointly.
Hundreds of thousands of Americans are well into the annual tax frenzy, though the deadline is a month away. There are some changes in tax law for 2014 and 2015 that you need to consider as you prepare a return.

Health Insurance

You may be subject to a penalty if you have not conformed to the mandates imposed by the Affordable Health Care Act. In 2014, the penalty is 1 percent of your household income or $95 per person if you have not obtained health insurance as required by the act. The penalty will rise to 2 percent of income or $325 per person in 2015. Get health insurance quickly to avoid this penalty.

Contributions

The limit an employee can contribute to a 401(k) will increase to $18,000, up $500 from last year’s cap. You needed to contact your payroll department at the first of this year to take advantage of the higher allowable. The “catch-up” allowance for those over 50 also has been increase, allowing for an additional $6,000 in contributions, $500 more than was allowed a year ago. The flexible spending cap for qualified health expenditures now is $2,500, $50 increase over the previous year.

Standard Deductions

Standard deductions also have risen, to $6,300 for individuals and $12,600 for married taxpayers filing jointly. Those figures are up $100 and $200 respectively. The standard deduction is important especially if you cannot itemize.

Changes In Tax Rates

For the tax year beginning in January, income tax thresholds have again been adjusted for inflation. The highest tax rate of 39.6 percent will apply now to single filers who earn over $413,200 and to married couples whose earnings are $464,k850 or above. The increase is about 1.6 percent over tax year 2014.

IRA Rollovers

IRA rollovers starting in 2015 are limited to a single event in a 12-month period. But you can still make as many “trustee to trustee” transfers as you like, moving your money from one provider to another. The new IRA rule is aimed at preventing the practice of withdrawing all the funds and then re-depositing them in a new account, a tactic some were using to create, in effect, a short-term, interest-free loan. Limit all rollovers to direct transfers in 2015 if you plan on moving money more than once.

Alternative Minimum Tax

The Alternative Minimum Tax exemption for 2015 is increased by 1.5 percent from 2014. Caps now are $53,600 for individuals or $83,400 for joint filers.

Filed Under: Tax Strategies Tagged With: taxes

What Would $40 Do For You?

February 26, 2015 By Twila VanLeer

A $40 increase in income means a lot.
A $40 increase in income means a lot.
If Congress doesn’t extend the payroll tax cut, it will mean a typical family earning $50,000 annually will lose about $40 per pay period to Uncle Sam. In this day and age, is $40 even worth quibbling about?

A White House open survey of American households indicates that $40 can, in fact, mean a lot in some households. Responders to the White House site offered these perspectives on what the loss would mean to them:

To an individual in Oregon, “Forty dollars means the difference to me in buying gas or paying my electric bill. I am disabled and so I am on a very extremely tight monthly income.”

“The $40 means that my kinds can continue to wear decent clothes and I can afford to give them opportunity to participate in school programs that are not funded through the state and federal funding,” said a Minnesota parent.

A Massachusetts response indicated that the individual would be unable to help a brother in serious need. “The $40 I would lose is money I send to help my brother. He has had a myriad of health problems over the past two years and has only been able to work intermittently. He recently was diagnosed with inoperable cancer and has no health insurance. Some say it isn’t a lot of money, but my brother wouldn’t have food in his refrigerator without it.”

”Forty dollars less per pay check means I will have to pick between my insulin and the water bill. It means never being able to see my doctor, even though I have insurance,” wrote a New Mexico resident.

From Texas came a similar response: “Forty dollars per paycheck allows me to continue to pay co-pays to doctors for necessary medical treatment needed to control debilitating disease.”

For her family of five, the $40 means a home-cooked meal or new clothing for two of her children, explained a writer from Alaska.

The amount is HUGE, according to a California resident. “I am supporting my adult daughter and her four children.”

“This is nearly what a typical electric bill costs me each month,” wrote a Floridian. “Mine usually runs $40-$50, even though I can’t afford heat or air.

The forty dollars per paycheck is what “allows my son to have hot lunches at school,” said a responder in Hawaii.

For many many Americans just a small amount makes a difference to the quality of their lives.

Filed Under: Money Management Tagged With: budget, taxes

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