Archive for July, 2018

Monthly Newsletter for July 2018

by in Newsletter on Jul. 13, 2018

Taxpayers who owed tax this year should check their withholding soon

Taxpayers who owed additional tax when they filed their federal return earlier this year should do a “paycheck checkup” as soon as possible. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help these taxpayers do a checkup and avoid another possibly bigger tax bill next year.

Following the Tax Cuts and Jobs Act, which was passed last year, there are many changes to the tax law that could affect these taxpayers. Doing a checkup now will help them make sure their current tax withholding is in line with their 2018 tax situation.

Here are some things for these taxpayers to keep in mind:

  • These taxpayers may not have had enough taxes withheld from their pay throughout 2017, causing them to owe in 2018.
  • If they continue to have too little withheld from their paychecks the rest of this year, they could find themselves in the same situation again next year.
  • They might even end up with a larger tax bill when they file their 2018 return next year.
  • It’s important to remember that if a taxpayer underpays their tax too much, penalties and interest can apply.
  • The Withholding Calculator can help taxpayers apply the new law to their situation. The results from the calculator can help them make an informed decision about whether to change their withholding this year.
  • These taxpayers need to adjust their withholding as soon as possible for an even withholding amount throughout the rest of the year.
  • Waiting means there are fewer pay periods to withhold the necessary federal tax, which could have a bigger effect on each paycheck.

Taxpayers with more complex situations might find that using Publication 505 is a better option for figuring their withholding than using the Withholding Calculator. Publication 505 works better for employees who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties

Monthly Newsletter for June 2018

by in Newsletter on Jul. 13, 2018

IRS offers summer tips for temporary jobs, marriage, deductions and credits

WASHINGTON – Before starting a summer job, taking a vacation or sending the kids off to camp, the Internal Revenue Service wants taxpayers to know that some summertime activities may qualify for tax credits or deductions. The IRS also recommends that taxpayers check the amount of their withholding taxes now to help avoid surprises next filing season.

Here are some tips from the IRS that may help taxpayers lower taxes and avoid issues with their taxes:

  1. Worker classification matters.  As with other workers, business owners must correctly determine whether summer workers are employees or independent contractors. Independent contractors are not subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes. Workers can avoid higher tax bills and lost benefits if they know their proper status.
  2. Summer workers may be exempt from tax withholding. Workers may not earn enough from summer jobs to owe income tax, but employers usually must withhold Social Security and Medicare taxes from pay. If self-employed or an independent contractor, workers need to pay their own Social Security and Medicare taxes, even if they have no income tax liability. This is important because these taxes count toward coverage under the Social Security system. Normally, employees receive a Form W-2, Wage and Tax Statement, from their employer (even if they don’t work there anymore) to account for the summer’s work by Jan. 31 of the following year. The Form W-2 shows the amount of earnings. It also shows withholdings for state and federal taxes, Social Security, Medicare wages and tips. Employees use the information on this form when they file their annual tax returns.
  3. Check withholding. For those who work a seasonal or part-year job, checking withholding now can help make sure employers withhold the right amount of tax. Taxpayers who work part of the year should check early in the employment period to determine an accurate amount for their withholding. The Withholding Calculator on IRS.gov helps employees determine whether they need to submit a new Form W-4, Employee’s Withholding Allowance Certificate to their employer. It estimates income, credits, adjustments and deductions for most financial situations. Employees can use their results from the calculator to fill out the form and adjust their income tax withholding. They must give their updated forms to their employers to take effect.
  4. Getting married? Newlyweds can help make wedded bliss last longer by doing a few things now to avoid problems at tax time. First, report any name change to the Social Security Administration before filing next year’s tax return. Then, report any address change to the United States Postal Service, any employers and the IRS to ensure receipt of tax-related items. Finally, use the Withholding Calculator at IRS.gov to make sure withholding is correct now that there are two people to consider. This is especially important for families with more than one wage earner, for taxpayers who have more than one job at a time, or for those who have children. For best results, do it as soon as possible.
  5. Clean out, donate, deduct.  If they are in good condition, those long-unused items found during spring or summer cleaning and donated to a qualified charity may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions, and be sure to have proof of all donations.
  6. Help with service project, deduct mileage. While there’s no tax deduction for time donated toward a charitable cause, driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2018. Keep good records of mileage.
  7. Get tax credit for summer day camp expenses. Many working parents must arrange for care of their younger children under 13 years of age during the school vacation period. A popular solution — with favorable tax consequences — is a day camp program. Unlike overnight camps, the cost of day camp may count as an expense towards the Child and Dependent Care Credit. See IRS Publication 503, Child and Dependent Care Expenses, for more information.
  8. Refunds require a tax return. Although workers may not have earned enough money from a summer job to require filing a tax return, they may still want to file when tax time comes around. It is essential to file a return to get a refund of any income tax withheld. There is no penalty for filing a late return for those receiving refunds, however, by law, a return must be filed within three years to get its refund. Otherwise, the money becomes property of the U. S. Treasury.