A Week in Perspective
EXPLAINING THE “METHODS” OF MY “MADNESS” – A look into the world of my blogging friend. (RDF- Looking forward to meeting up with you in St. Louis on August 15 – 18, 2011)
November’s Important IRS Dates – A new month is upon us, along with a new set of IRS Deadlines. We’re entering the IRS’s fourth and final quarter. Here’s the important IRS dates you need to know:
IRS Makes Few Changes to Retirement Rules – For the second year in a row, the Internal Revenue Service has announced that there will be no change to the maximum allowable contributions to pension plans or to individual retirement accounts in 2011. Here are the limits that will remain the same in 2011:
Expensing of Business Assets – New Treasury Report – Economic stimulus provisions of the past few years have included bonus depreciation and higher expensing amounts under IRC Section 179.
What Non-profits should know about Tax Form 990 – Form 990 or Return of Organization Exempt from Income Tax form is due to be submitted to the IRS by non-profits. Ever since 2008, this Form has been substantially revised to include several reporting requirements by the IRS. There are a few pertinent changes to the form and its requirements that non-profit organizations should know.
My favorite post this week.
A must read.
Being an Entrepreneur / Your Business – The topic of working on your own, or, even if you don’t the importance of the entrepreneur “in you” wherever you do work. Do you consult, do you have your own clients or are you striving to? There are some principals I think are necessary to make it “on your own” or excel where you are working. While I am a younger CPA and take a lot of pride in what I have accomplished so far, I keep working hard knowing that I have hardly touched the tip of the iceberg of what I can accomplish in my life.
Like my bloging mentor said about The Missouri Taxguy, Do I really need to keep reminding you to check out BlogRoll Beans from Joe Arsenault over at CafeTax? Thanks Joe.
Suggested first Republican budget cut: Congressional salaries – Watch out for the pigs as they pass over Kay.
What if you are donating it to an arson awareness organization?
Another must read –
Commercials, Kids, and Materialism – If you’ve been reading The Simple Dollar for long, you’ll know that this ad takes a swing directly at a lot of different ideas I’ve shared over the years about parenting, money, materialism, and other things. I thought I’d run through them again in light of this ad.
Tax moves to make in November – we have to get through the lame-duck session. In the next few weeks, Congress has vowed to deal with the expiring expiring Bush tax cuts, stimulus tax breaks that are only good for a couple more months, the already ended extenders and even the estate tax that’s scheduled to come back to life on Jan 1. 2011.
Tax Carnival #76: Election Day 2010
Pension Plan Limits for 2011 – The IRS has announced the 2011 cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items.
3 Tips for Launching a New Business – Starting a business may not be one of the easiest things to do, but it could be one of the most rewarding, as well as one of the most financially freeing decisions you could make for yourself. Seeing that most, if not all of us, need some hand-holding whenever we’re starting a new venture, here is some advice on three routine yet absolutely crucial areas of a business.
How to Fund a Startup – Deciding to start a business is exciting. You are in charge of making decisions large and small, and you have the opportunity to change your life, and possibly other lives as well. But starting a business also brings challenges. Almost all businesses will require some form of capital to start. If you don’t have cash reserves in a savings account or other liquid investment available to use, you’ll have to find other ways to fund your startup. Here are some common methods for getting the money you need to start your business:
Did Obama Really Cut Small-Business Taxes 16 Times? – The assertion that the Obama administration has cut taxes for small business 16 times might surprise some entrepreneurs —But the White House backed the claim with a fact sheet. Here, for the record, are the taxes the administration says it has cut, in its words:
Bill Gates Loses on Election Night
Could Tax Law Professors Be More “Tax Return Hands-On” Than Tax Practitioners? – Mike Foster, who practices with Venable LLP, said, “I don’t even do my tax returns anymore. I don’t know any tax lawyer who does their own tax returns. The forms are Greek even to us.” Hopefully someone does a survey to determine how many tax lawyers do their own returns.
Please Ask Me Before… – …you make decisions that might affect your taxes. . . .
In short, please see me (or your tax professional) before you do something that will affect your taxes. If you’re not sure if there will be an effect, please call and ask.
5 ways to save on heating costs – We are always on the lookout for ways to save a few extra dollars and heating costs are a good place to start, especially in the fall and winter.
FAIR Tax isn’t just a bad tactic; it’s a bad idea. – The Wall Street Journal and the Cato Institute’s Daniel Mitchell have branded the “FAIR Tax” sales tax proposal a loser issue for political candidates. In a more-in-sorrow-than-anger tone, the Journal notes the difficulties of candidates who embrace this national sales tax:
5 Do-It-Yourself Services You Should Leave to the Professionals – Many people are tightening their belts in these uncertain economic times.One of the first places we often look to save money is finding projects around the home that we can do ourselves rather than calling the professionals. All do-it yourself projects are not created equal, though, and there are times when you are better off calling in the professionals rather than potentially causing more problems by doing it on your own.
What is QE2, and What Does it Mean for You? – The big news on the economic front is that the Federal Reserve has decided to launch a second round of “quantitative easing” – dubbed QE2. If you’re not familiar with the concept of quantitative easing
Don’t pay the seller’s income tax – The Foreign Investment in Real Property Tax Act of 1980 requires buyers to withhold 10 percent federal income tax when buying real estate from those diabolical foreign sellers. The IRS can force a buyer who fails to withhold the 10 percent from the purchase payment to come up with the 10 percent withholding out of his own assets.
Saving Money at Christmas – Christmas spending over the last 2 or 3 years has been relatively low in comparison with other years, but that’s all set to change this Christmas. According to the National Retail Federation (NRF), shoppers are ready to part with their cash this holiday season for the first time since the recession hit. The NRF has forecast total retail sales growth of 2.3% for November and December this year, which means that consumers plan to spend an average of $688.87 on holiday shopping this year, an incredible figure. So if that’s the sort of money the average person on the street is willing to spend this Christmas, how many of you are actually trying to save?
Jason Blumer CPA, He’s a Funny Guy
Carnival of Wealth #10 – Halloween Edition
Website 101: How to Build a Site and Get It Online – Building and putting a website online doesn’t have to be difficult or complicated, though. If you are willing to do a little mental gymnastics and learn a few tricks, you can build a simple website on your own and publish it to your server yourself. Here are a few simple tips for do-it-yourselfers.
How Much Will You Spend in Retirement? – When people share their retirement plans with me, they often assume that they’ll be able to reduce their spending once they retire. At first glance, this seems reasonable. After all (they tell themselves) they won’t have to support the kids anymore and the house will be paid for. And the media encourages people to think this way too. They make the argument that once folks retire, they usually spend 80% of what they spend while they are working. This kind of thinking is wrong and dangerous… Unless you are very mindful and really understand how much money you will need to retire.
Five Ways to Save Money on Food – The number one way to save money is by learning how to cook. You might have a hectic schedule and be exhausted at the end of the day but push yourself to prepare a nice meal. You’ll get to enjoy it, expand your knowledge about cooking, and eat better than ordering it from some fast food place. You won’t be good at it in the beginning but over time your skills will improve and you’ll enjoy it even more.
A Week in Perspective
Recently, I read a tweet asking why we don’t comment on blogs any more. My thought. No need to. Everyone is in too big of a hurry. In response to this, here is what I ask of you: Most bloggers including myself have some sort of way for you to share the post. The post is full of great information. You liked it to the end, and you may have found it informational and or useful. So why not share it. Use the buttons, share it on your Facebook page or your twitter or Digg this or whatever you happen to be on. We are all out here providing information not for fame but to help you the American taxpayer find out what could save you money. Send it on to your friends and followers.
IRS Taxing Your Pumpkin Stands? Good Grief!
An Investor Nightmare Waiting to Happen – In order to claw our way out of a scary recession, we’ve dropped interest rates to artificially low levels to stimulate the economy. What happens to our financial institutions and our pocketbooks when interest rates go back up?
How the battle over credit card swipe fees hits consumers – The feud over the so-called swipe fees merchants pay banks when customers use plastic is reaching a crescendo and will likely hit registers in coming months. Both sides — merchants and card issuers — insist they’re fighting for the best interests of the consumer. At stake are billions of dollars in swipe fees, otherwise known as interchange fees.
IRS paid more than $111 million in erroneous stimulus-related tax benefits
If you missed it yesterday. Please go back and read this week’s rendition of WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’
I just finished up some work for the auto company (shame it didn’t last long) and find it in the news more than I seemed to think it was before. Michigan Gets Ford Tough on Tax Credits – The Michigan Economic Growth Authority (MEGA) is seeking tax cuts for the auto giant, as well as its counterparts, GM and Chrysler. Michigan Governor Jennifer Granholm announced the tax cuts, noting the intent of the cuts was to create and retain jobs in the state.
My favorite post this week – Recognize and Eliminate Distractions – One of the things that’s critical when it comes to achieving goals is just plain sticking to the goal until it is complete. It can be super-easy to become sidetracked without even realizing it.
A great book review – Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back – Personal finance is a broad topic and can be difficult to understand when you don’t know where to start. That’s where the book, Generation Earn, by Kimberly Palmer comes into play. Generation Earn is geared toward young professionals, (it is subtitled The Young Professional’s Guide to Spending, Investing, and Giving Back), but I also think it is a great book for anyone starting off on their own, including high school and college students, recent college grads, someone separating from the military or making another similar career change, or anyone else dealing with a major life change that affects their financial situation.
You Can Request an IRS Appeal- Here’s How: - Don’t like the IRS’s rulings? Don’t think you owe? Believe it or not, if you have a conflict with a notice sent to you by the IRS, you have the right to appeal.
IRS Patrol: IRS Announces Pension Plan Limitations for 2011
Off the rails – The federal government has decided to spend $218 million that it doesn’t have on railroad track repairs between Chicago and Iowa City. The State of Iowa will throw in $20 million it doesn’t have, all to enable Amtrak to start losing money forever at $42 per ticket to run trains that will take five hours to make the trip, on the occasional day that Amtrak is on time.
NZ Approves Tax Break for The Hobbit
Is the Mortgage Interest Deduction on the Table? – The Wall Street Journal reported Monday that President Obama’s deficit commission is mulling the idea of reforming the mortgage interest deduction as a way to help solve the nation’s budget problem. You can expect the typical reaction from those in the housing industry (Realtors® and homebuilders) who will claim this is the end of the world as we know it, as well as the anti-tax caucus who won’t accept any tax increase ever.
Still waiting for my confirmation, my friend posted I GOT IT! Cash Basis Balance Sheet balance for A/R or A/P – What can you do if you do have an Accounts Receivable balance on your Cash Basis Balance Sheet?
Five Steps to Starting a Business – Starting a business can be a rewarding experience, but it can also be very time consuming and difficult. Many resources are available to assist you, but information overload can cause you from moving forward.
5 IRA Moves to Make Before the New Year – it’s time to start thinking about holiday shopping—and some year-end money moves. When it comes to your IRA, there are five moves you ought to consider before the ball drops in Times Square.
4 Ways to Blast Away Your Debt – Debt can be as blinding as a blizzard in Buffalo during February. If you are in debt, chances are you have never taken the time to add up the exact amount you owe. Figuring out your net worth is simple and must be done if you ever expect to get out of debt.
This is a number one must read for the small business crowd – New Sec. 179 Rules Have Pleasant Surprise - Many small businesses placing assets in service in 2010 will get a big additional break if they are above the normal $250k.
Understanding Financial Statements Fundamentals
Reading the Story of a Financial Statement
Tracking Stats For Your Business
A LOAD OF CRAP! – My fellow tax bloggers and I are constantly reporting on emails allegedly from the IRS that are in reality “phishing” scams, and reminding you that the IRS will NEVER initiate contact with a taxpayer via email. But those are not the only emails you need to worry about. I am often forwarded tax-related emails that clients have themselves been forwarded, often from friends or family, with the question, “Is this true?”.
Tax Day Gets 2011 Change – Procrastinators rejoice! Next year you will be able to wait three days longer to queue up at your local post office and send in your taxes.
13 Things Your Auditor Will Need For An Initial Audit – We often are engaged to do initial audits of companies preparing to go public. Many have limited operating histories and have never been through an audit. Your auditors are going to need a lot of information to complete the audit and I can tell you we appreciate it when our clients have everything together. What should you have ready? Here is the list we give to our new clients:
How the HIRE Act Incentives Work
2011 IRA contribution limits: 3 ways to maximize your retirement tax advantages – . . . find it useful to think of saving money like distance running. If you obsess over the total distance, then each step seems hopelessly insignificant in covering the necessary ground. If instead you just start making those steps, and concentrate on finding a comfortable and consistent pace, you’ll find that before you know it, the distance will take care of itself.
Music Video – Los Bank Auditors- I’m on an Audit – Fantastic
BusinessWeek Publishes Misleading Article on Federal Withholding Changes in 2011 – All taxpayers should be concerned about the impending expiration of tax cuts (from both the Bush and Obama years) but no one should have a heart attack reading BusinessWeek’s latest estimates of how much higher the taxes will be. They’re way too high.
Even tax lawyers need tax filing help
Best, worst state tax climates for business – Most folks are obsessing over how the expiring Bush tax cuts might affect individual taxpayers, but when it comes to businesses, a lot of other factors come into play. So the Tax Foundation analyzes each year the tax climates of the 50 states to determine which states, from a tax standpoint, are the most business-friendly and which tend to cause companies to flee their borders.
7 Costs to Eliminate Before You Retire – You will be able to get by in retirement with a smaller nest egg if you eliminate as many expenses as possible before you leave the workforce, such as mortgage and credit card debt. While you’re still working, you can also take care of many other expenses that are likely to crop up in retirement, including home repairs, and even taxes in some cases. Here are some expenses you should try to tackle before you retire.
Small Business Payroll Tax Management – When it comes to payroll tax filing, perfection is essential. For small business owners who lack the luxury of having an accounting staff at their disposal, staying on top of filing deadlines and keeping abreast of changing regulatory requirements can be a time-consuming ordeal.
In addition to freeing you up to focus on revenue-producing tasks, full-service payroll companies offer a range of additional benefits:
Renting Vs. Buying A Home: Which Is The Best Choice?
Tax plan now for year end – With just a little over 2 months left until the end of 2010, it is looking more like we will not get an extension of the Bush era tax cuts. The impact of not extending the current tax cuts will be a tax increase for just about everyone, but especially hard hit will be families with over $250,000 of income.
Sadly several of the links do not take you anywhere. Also I noticed that several of the listed blogs actually haven’t contributed to their sites for a very long time.64 Tax Blogs for Geeks and Wonks – Although taxguy not listed you need this list – There’s something for everybody in this list — one of the best we’ve seen — of blogs for tax geeks and wonks. This list includes four kinds of tax blogs: Tax Policy Blogs by American Professors, “Think Tank” Tax Policy Blogs, State and Local Tax Policy Blogs, Helping American Taxpayers Make Sense Of Policy.
Colbert: Tax Shelter Skelter – Comedy Central’s Stephen Colbert explains why we need to keep George W. Bush’s tax cuts alive.
A few weeks ago I received several letters (can you call them letters if they come to you via e-mail?) asking if I had room in my practice for newly accredited CPA’s. I responded equally to them all asking for résumé like information stating classes or experience above and beyond the call of what is taught to get by.
To get to the CPA exam in Missouri one must have 150 Semester Hours and a Minimum Degree (Baccalaureate) is required. Unfortunately to get there, tax education is very minimal in my opinion. Then, the CPA exam covers/test not so-much in the way of tax.
Other MO requirements:
- minimum of 33 semester hours in accounting (at least 1 course in Auditing and at least 18 semester hours of the accounting courses must be upper division accounting)
- 27 semester hours in general business
Of those that sent out the request, only one responded and he was/is very honest. The short version, he knew he didn’t have adequate experience and only during the CPA testing did he realize what he wanted to do. He contacted me looking to join me in an effort to learn. If I can swing it, he’ll be working for me in the upcoming season.
One of the others (just past the CPA exam), tweeted that she had $40.00 and a few days later it was gone and she had no clue where she had spent any of it. I am glad she didn’t respond to my inquiry, as after that, she’d been looking elsewhere.
My point with all of this? Tax season is fast approaching. Make sure you find a tax pro to help you with your preparation. Know and visit with the person handling and preparing your information.
Social Security and Medicare (FICA) Taxes
Social Security and Medicare (FICA) Taxes
The Federal Insurance Contributions Act (FICA) is a federal law that requires you to withhold two separate taxes from the wages you pay your employees: a social security tax and a Medicare tax. The law also requires you to pay the employer’s portion of these taxes. Unless you have employees who receive tips, the employer’s portion will be the same as the amount that you’re required to withhold from your employees’ wages.
Each of the FICA taxes is imposed at a single flat rate. Currently, the social security tax rate for employees is 6.2 percent and the Medicare tax rate is 1.45 percent. The taxes are unaffected by the number of withholding exemptions an employee may have claimed for income tax withholding purposes. You simply multiply an employee’s gross wage payment by the applicable tax rate to determine how much you must withhold and how much you must pay.
Let’s assume you have one employee, to whom you pay gross wages of $500 every two weeks. You must withhold from each paycheck $31.00 in social security taxes ($500 x 6.2%) and $7.25 in Medicare taxes ($500 x. 1.45%). You will also owe equal amounts ($31.00 in social security and $7.25 in Medicare) as the employer’s portion of the taxes. In other words, each $500 wage payment will create a combined FICA tax liability of $76.50.
The social security tax is subject to a dollar limit, which is adjusted annually for inflation. For 2010, your obligation to withhold and to pay the social security tax for an employee ends once you’ve paid that employee total wages of $106,800.
However, there is no ceiling on the Medicare tax. You must continue to withhold and to pay the Medicare tax regardless of how much you pay an employee.
For 2010 only, you may be exempt from the employer’s 6.2 percent portion of the social security tax with respect to any employee hired after February 3, 2010 if that new employee was unemployed (or was not employed for more than 40 hours) during the 60-day period leading up to the date you hire him or her. This exemption is provided by the provisions of the HIRE Act enacted by Congress on March 17, 2010. Check the IRS website for information on this special tax exemption.
If you have more questions feel free to contact me.
If you feel you need payroll services please see my web page Payroll or Online Payroll. if you have payroll questions please contact us here: payroll@lrtaxprep.com.
Making Work Pay tax credit
April 1st was implementation day for the Making Work Pay tax credit, and it wasn’t an April Fool’s joke. The American Recovery and Reinvestment Act of 2009 (ARRA), Congress’ most recent effort to “stimulate” our economy, contains this new tax credit, which will affect everyone when filing your individual return. You may be able to take advantage of an income tax credit of as much as $400 ($800 for a married couple) on your personal tax return for the next two years.
The Making Work Pay tax credit served as centerpiece of the tax reduction provisions of the ARRA. President Obama strongly pursued its inclusion in the legislation because it would put money back into the pockets of working people. The annual tax credit (available in 2009 and 2010) is equal to 6.2% of earned income, to a maximum credit of $400 for an individual ($800 for a married couple filing jointly). The Key is “a maximum credit of $400 per working individual”. Dependants have no bearing on this.
Technically, taxpayers will receive the tax credit when they prepare and file their tax returns a year from now for 2009 (and then for 2010 the next year). However, practically speaking, taxpayers that receive wages from employment in 2009 will receive the tax credit in small increments throughout the year. How? The IRS in late February issued a new set of withholding tables structured to informally pay the amount of the tax credit over the course of the year by reducing required withholding amounts on payroll.
The Issue
The new withholding are designed to save employees roughly $10 per week for the rest of the year (40 weeks x $10 = a $400 tax credit). This isn’t working out for a lot of people. Several of my clients have called me because they are having more taken out then the ten dollars, some are even getting as much as forty-three dollars more a week.
This is a problem and will affect refunds and or amount due/s. Why, because you aren’t having as much withheld, and tax tables on your income haven’t changed. Withholdings went down, not income tax on your earnings.
The IRS produced new withholding tables in February and asked employers to implement them by April 1. But, withholding tables are a blunt instrument, unable to precisely assess taxes for everyone’s unique situations. Employers who use the tables don’t know workers’ complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they’re eligible for under the new credit.
Adjustments may have to be made by individuals to make sure they’re not over- or under-withheld.
Again, the lower withholding may cause some unwanted results for taxpayers with more than one job, two-earner married couples, and high-income taxpayers.
The Fix
The IRS is aware of this issue and warns taxpayers that they (individual taxpayers) are responsible for making sure their withholdings are correct. This means that you are ultimately responsible for making sure you have enough withheld from your checks using your form W-4.
The first thing you can do is make sure your employer has these new tables. The new tables and instructions are found in IRS Publication 15-T. The next thing to do would be to Contact your tax professional and discuss this with them.
If that isn’t a viable option you can contact me I will be glad to help.
Beware, though, because the credit is phased out as your adjusted gross income exceeds $75,000 for individuals ($150,000 for married couples filing jointly). If your income exceeds $95,000 ($190,000 for married couples filing jointly), then you will not be able to receive any benefit from the Making Work Pay tax credit.
Timing is everything, especially with taxes … and tax information.
The IRS has an online calculator that reflects the new stimulus act withholding tables to help you get your amount just right. Armed with your most recent tax return and paycheck stub, you can in 10 minutes or so fill in the required information and get instructions on filling out a new W-4. You should use the calculator now. Then again, later in the year to ensure your assumptions are on track (around the end of October). You can always make a tweak or adjustment with your very final paychecks for the year so you don’t have any penalty or big surprise.
If you don’t have the time to run through the calculator — it involves entering various tax-related figures, including expected credits and the like — there’s another way: Submit a new W-4 filled out the same way as your old form but with one exception: On line 6, add the extra dollar amount to be withheld from each paycheck. See Form W-4 on IRS site (PDF).
The easiest way might be to leave the number of allowances alone, see how much they’re reducing your withholding by and then on line 6 write in that you want them to withhold an extra amount.
But remember: That W-4 stays in effect until you file a new one. If you don’t want the same additional amount to be withheld starting in January, file a new W-4.
There’s a third option: Don’t worry about the credit now, and just wait until you file in 2010 to pay the bill. Not recommended by me unless your checks are exactly $10.00 more per week.
What to Do If You Are Missing a W-2
What to Do If You Are Missing a W-2
Okay I can’t take credit for below in red, but figured it needed to be out for all to see. This is IRS TT-2009-28. Word for word. I am putting it here because not everyone will use the IRS for info.
I could have just wrote this little bit but did the copy paste so readers wouldn’t have to go to IRS site.
“taxguys” first book giveaway,
Win a copy of Kay Bells The Truth About Paying Fewer Taxes.
I’ll be posting my review and contest entry info on February 28th.
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
ü Employer’s name, address, city, and state, including zip code;
ü Your name, address, city and state, including zip code, and Social Security number; and
ü An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
ü Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
ü Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
ü Instructions for Form 1040X (PDF 43K)
If you find you need to use 4852 please read the instructions carefully or
have your tax preparer do this for you.
Are You sure you are Having Enough Withheld?
How are you supposed to know? This is a re-post for your tax planning needs. A few easy steps and some light planning can help you figure this out.
What you need to know:
If you fail to estimate your federal income tax withholding properly, it may cost you in a variety of ways. If you receive an income tax refund, it essentially means that you provided the IRS with an interest-free loan during the year. By comparison, if you owe taxes when you file your return, you may have to scramble for cash at tax time–and possibly owe interest and penalties to the IRS as well.
When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn’t be much.) You can accomplish this by reading and understanding IRS Publication 505 and IRS Publication 919, properly completing Form W-4 (and accompanying worksheets), and providing an updated Form W-4 to your employer when your circumstances change significantly.
Form W-4 helps you determine the proper withholding amount
Two factors determine the amount of income tax that your employer withholds from your regular pay:
1) the amount you earn
2) the information you provide on Form W-4.
This form asks you for three pieces of information:
1) The number of withholding allowances you want to claim: You can claim up to the maximum number you’re entitled to, claim less than you’re entitled to, or claim zero.
2) Whether you want taxes to be withheld at the single or married rate: The married status, which is associated with a lower withholding rate, should generally be selected only by those taxpayers who are married and file a joint return. Other people (including those who are married and file separately) should generally have taxes withheld at the higher, single rate.
3) The additional amount (if any) you want withheld from your paycheck: This is optional; you can specify any additional amount of money you want withheld.
When both spouses work and have taxes withheld at the married rate, they sometimes end up with insufficient taxes withheld. If this happens to you, remember that you can always choose to withhold at the single rate. In addition, you can determine the proper withholding amount by completing Form W-4’s two-earner/two-job worksheet.
Complete the worksheets to claim the correct number of allowances
To understand Form W-4, you must understand allowances.
Think of allowances as cash in your pocket at the time that you receive your paycheck. The more allowances you claim, the less taxes are taken from your paycheck (and the more cash ends up in your pocket on payday).
The following factors determine your number of allowances:
1. The number of personal and dependency exemptions that you claim on your federal income tax return
2. The number of jobs that you work
3. The deductions, adjustments to income, and credits that you expect to take during the year
4. Your filing status
5. Whether your spouse works
To claim the correct number of allowances, you should complete Form W-4’s worksheets. These include a personal allowances worksheet, a deductions and adjustments worksheet, and a two-earner/two-job worksheet. IRS Publication 505 (Tax Withholding and Estimated Tax) explains these worksheets.
Check your withholding
To avoid surprises at tax time, it’s a good idea to periodically check your withholding. If you accurately complete all Form W-4 worksheets and don’t have significant non-wage income (e.g., interest and dividends), it’s likely that your employer will withhold an amount close to the tax you’ll owe on your return. But in the following cases, accurate completion of the Form W-4 worksheets alone won’t guarantee that you’ll have the correct amount of tax withheld:
1) When you’re married and both spouses work,
2) If either of you start or stop working
3) When you or your spouse are working more than one job
4) When you have significant non-wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income, or the amount of your non-wage income changes
5) When you’ll owe other taxes on your return, such as self-employment tax or household employment tax
6) When you have a lifestyle change (e.g., marriage, divorce, birth or adoption of a child, new home, retirement) that affects the tax deductions or credits you may claim
7) When there are tax law changes that affect the amount of tax you’ll owe
In these cases, IRS Publication 919 (How Do I Adjust My Tax Withholding?) can help you compare the total tax that you’ll withhold for the year with the tax that you expect to owe on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you’re having too much tax withheld. If you find that you need to make changes to your withholding, you can do so at any time simply by submitting a new Form W-4 to your employer.
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