Archive for November, 2015

Monthly Newsletter for November 2015

by in Newsletter on Nov. 2, 2015

Time to Check Your Withholding

WASHINGTON — The Internal Revenue Service reminds taxpayers that the earlier in the year they check their withholding, the easier it will be to get the right amount of tax withheld.

Besides wages, income tax is often withheld from other types of income, such as pensions, bonuses, commissions and gambling winnings. Ideally, taxpayers should try to match their withholding with their actual tax liability. If not enough tax is withheld, they will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, they will lose the use of that money until they get their refund.

 

When Should Taxpayers Check their Withholding?

  • When a taxpayer gets a big refund, or finds that they have an unexpected balance due.
  • Any time there are personal or financial changes that might affect their tax liability, such as getting married, getting divorced, having a child or buying a home.
  • When there are changes in federal tax law that might affect their tax liability.

How to Check the Amount being withheld

Use the IRS Withholding Calculator on IRS.gov. This easy-to-use tool can help figure the taxpayer’s federal income tax withholding so their employer can withhold the correct amount from their pay. This is particularly helpful if they’ve had too much or too little withheld in the past, their situation has changed, or they started a new job.

Taxpayers may also use the worksheets and tables in Publication 505, Tax Withholding and Estimated Tax, to see if they are having the right amount of tax withheld.

How to Change the Amount Being Withheld

Events during the year may change a taxpayer’s marital status or the exemptions, adjustments, deductions, or credits they expect to claim on their return. When this happens, taxpayers may need to give their employer a new Form W-4, Employee’s Withholding Allowance Certificate, to change their withholding status or number of allowances.

Generally, taxpayers should give their employer a new Form W–4 within 10 days after either:

  • A divorce, if they have been claiming married status, or
  • Any event that decreases the number of withholding allowances they can claim.

Other Considerations

  • Taxpayers, who bought 2015 insurance coverage through the Health Insurance Marketplace, shouldreport changes in circumstances to the Marketplace when they happen. Reporting changes in income or family size will help taxpayers avoid getting too much or too little advance payment of the premium tax credit. Receiving too much or too little in advance can affect the amount of their refund or how much they may owe when they file their tax return. For help getting it right, see this change in the circumstances estimator.
  • Taxpayers may need to includeAdditional Medicare Tax and Net Investment Income Tax  when figuring withholding and estimated tax. Taxpayers may request that employers deduct and withhold an additional amount of income tax withholding from wages on Form W-4 if they are affected by these taxes.

Four Basic Tax Tips for New Businesses

If you start a business, one key to success is to know about your federal tax obligations. You may need to know not only about income taxes but also about payroll taxes. Here are five basic tax tips that can help get your business off to a good start.

  1. Business Structure.  As you start out, you’ll need to choose the structure of your business. Some common types include sole proprietorship, partnership and corporation. You may also choose to be an S corporation or Limited Liability Company. You’ll report your business activity using the IRS forms which are right for your business type.
  2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The type of taxes your business pays usually depends on which type of business you choose to set up. You may need to pay your taxes by making estimated tax payments.
  3. Employer Identification Number.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.
  4. Accounting Method.  An accounting method is a set of rules that determine when to report income and expenses. Your business must use a consistent method. The two that are most common are the cash method and the accrual method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Under the accrual method, you generally report income in the year that you earn it and deduct expenses in the year that you inc ur them. This is true even if you receive the income or pay the expenses in a future year.