Springtime Homework — A College Student’s Guide To Filing Your Taxes

If you’re a college student, income taxes are probably pretty low on the list of things you look forward to doing. But, despite having a bad reputation for being confusing, time-consuming and frequently wrong, filing your taxes can be an easier task than you might think. The trick is to follow a few steps to success. Here is a checklist for any student facing tax season.

Check With Your Parents

Step one for most college students is to find out if your parents plan to claim you as a dependent. Being claimed as a dependent usually depends on how much you earn, your age or marital status and who is paying the majority of your living expenses. Why does it matter? Because not only does it reduce the taxes of the person claiming you, but it also means that they get to claim any education credits available. 

If you’re unsure whether you should be claiming yourself rather than letting your parents do so, you can find help at the IRS website. It may also be more advantageous for your parents to claim the tax benefits and possibly to share the money saved as a family. The important part is that you all understand who is claiming the dependency so you can move forward with your taxes and avoid amendments.

Collect Your Paperwork

As a young person, you likely don’t have a lot of paperwork to collect for taxes. If you work, you should receive a Form W-2 from each employer or a Form 1099 from anyone you did subcontract work for. If you haven’t received these forms by mid-February, you should contact the payers to get copies.

You will also need Form 1098-T from your school in order to claim education credits. A few students may have additional forms, including student loan interest statements, Forms 1099-B or similar investment documents, and miscellaneous income reported on Form 1099-MISC.

Wait until you have all the necessary documents before filing or the IRS will probably send you a letter and possibly charge interest for under-reporting. 

Start with the EZ

If your parent is claiming you as a dependent, you can likely use the simplest income tax form — Form 1099-EZ. This one page form is easy to fill out by hand and can be done in less than an hour. Grab a cup of coffee and your Forms W-2 or 1099 and follow the simple instructions. Sign it and buy a stamp. You’re done!

If you will be claiming yourself, are married or are eligible to claim education credits, you can still often use a simplified form — Form 1099A. This is a two page form with more (but still limited) options that can usually be filled out on your own. If claiming credits, you can find helpful sections in the IRS website on things like how to figure education credits and what to do if you didn’t have insurance coverage. You’re a smart college student, so don’t underestimate your ability to understand your own taxes.

Get Help When Needed

If your tax situation is complex enough that neither of these simplified forms is right for you, it’s probably time to seek out professional assistance. Some universities offer free tax preparation assistance for students, so look into these first. Because of high demand, though, you may find that there’s a long wait or limited hours. In this case, you may want to hire a professional tax preparer like Rainbow Tax Service Inc to deal with things like reconciling insurance purchased through the marketplace, handling unusual income sources, reporting investment income and dividing income between two different states. 

By following these 4 basic steps, you can tackle your income taxes with more confidence. Armed with knowledge and a plan, you’ll feel more in control of your finances and feel less stress about this annual American ritual. 

When Time Flies — When And How To File For An Income Tax Extension

While most people are able to successfully file their income taxes before the April deadline each year, there can be a variety of reasons why you find yourself unable to do so. This can be a really stressful realization. Will you be penalized? Will you owe money? Do you have any options other than just being late and hoping for the best?

The answer to that last question should reassure you. You do, indeed, have options. The most common way to handle this is to file an income tax extension by April 15.

When to File an Extension

A tax extension is an extension of time to file, which you may need for several reasons. These may include:

  • Failure to receive forms on time (including Forms W-2 or 1099)
  • Waiting to receive special forms, such as Schedule K-1 or certain Forms 1099
  • Being away from home (either inside or outside the U.S.) and unable to complete your paperwork
  • Seeking professional tax help for an unusual situation

The tax extension automatically gives you 6 extra months, expiring in October.

How to File an Extension

Filing the extension itself is not hard. You will need to complete and send in (either on paper or electronically) Form 4868. This form is very simple, and you may choose to send in a payment of tax due with the form (or you may choose not to).

The hard part for most taxpayers, though, is how to estimate their income tax due. Because the extension simply gives you extra time to file without an automatic penalty, you will still be expected to have paid your tax due by the normal April deadline. This will require doing an estimation of your tax liability and paying anything still outstanding in order to avoid interest and other penalties.

If you’re unable to estimate – with reasonable certainty – what your taxes will look like when completed, you may need to work with a professional tax preparer or accountant, like Capital Accounting And Tax Service Inc. If this is not possible, some taxpayers opt to overpay their liability before the April 15 deadline to avoid any nonpayment penalties.

Filing a tax extension is a simple way to reduce the stress of an approaching filing deadline. While it may not solve your problems if you can’t pay the tax due, it can help keep you in good standing and buy some time to figure out your next step. And that can be a tremendous help in difficult times.  

Important Questions To Ask When You Are Choosing A Payroll Service

When choosing a payroll service, it is important to be sure that you have chosen a trustworthy company that can adequately meet all of your needs. The increasing complexity of payroll services has led to an increase in the time and challenges associated with processing them and the related work. In order to find the right payroll company to outsource that time-consuming work to, asking following questions will be very helpful.

How Can People Get Paid?

One of the most important aspects of employment for many people will always relate to the way they are compensated for their work. However, if you choose a payroll company that only offers direct deposit or after checks, you could be making things more difficult or expensive for your employees.

That is due to the fact that 8% of American households do not have a bank account. Therefore, those individuals will be forced to pay banks or check-cashing facilities to cash their checks since standard direct deposit will not be possible. A third choice that has become more popular in recent years is a pay card, providing the benefits of direct deposit for those individuals. That is an extra perk that can help your employees and minimize the expenses associated with creating paper checks.

Is The Company Willing To Guarantee The Accuracy Of Payroll Taxes And Deductions?

The amount of money that is taken out of an employee’s pay can have a dramatic impact on them when tax time rolls around. That is particularly true if child or spousal payments are being deducted from their paychecks or if they are making advanced payments on expected tax bills. Therefore, it is crucial that there are guarantees in place to provide the accuracy of everyone’s payroll.

As part of that, it is a good idea to ask what the guarantee is. For instance, it could be hiring legal representation to speak with the Internal Revenue Service on an employee’s behalf or a commitment to pay any arrears that accrue as the result of their failures or negligence. It is important to note that simply “making it right” is not the right option in many cases, as that could involve using much of an employee’s next paycheck to pay past due deductions and taxes. That would only make things more challenging for many workers.

In conclusion, the use of payroll services will allow you to save time and money while consistently allowing for all of your employees to be accurately paid on time and in full. As a result, it is a good idea to ask the questions listed above of any candidates with whom you might consider doing business with in the future. 

Renting A Room On The Side? 3 Money Questions To Ask Before Hanging Out That Sign

If you’re looking for some extra income, renting out part or all of your home can be a great way to earn a little on the side. But if you aren’t aware of the financial implications, you could end up making less or no income. So, what should you keep in mind when deciding how often to rent your home to travelers? Here are the 3 biggest questions to answer before starting.

What’s Taxable?

Most rental income is required by the IRS to be reported and is taxable. The exception to this rule is income earned from only renting out your personal home for 14 days or less each year. So, if you only want a small supplement to your earned income and don’t want the hassle or expense of paying taxes on it, keeping things carefully under the 14 day rule is the way to go.

And if you want more money than that? Plan ahead for including the income on your personal income tax return each spring. You do this by completing and attaching IRS Schedule E. The good news, though, is that because you must declare rental income (over 14 days), you can also deduct expenses. These deductible expenses include maintenance, listing fees, cleaning and even a portion of the utilities (equal to the percentage of the home being rented out). To begin with, you may need to work with a professional tax preparation service to navigate the intricacies of how to properly deduct expenses on the Schedule E. Contact a business, such as Tri Check Inc, for more information. 

Are You Covered?

Renters can damage property, suffer losses and have accidents. You should ensure that your insurance coverage will care for claims that could come up. Homeowner’s insurance may not cover situations in which you are not personally living in the home or if the home is left vacant for any stretch of time. In this case, you may need to purchase landlord insurance or a rider for your current policy. It’s best to talk with your insurance agent once you’ve decided what type of rental you want to pursue. 

Do You Have Savings?

While you might be considering renting out a room or a vacation home in order to increase your monthly income, it’s important to have some money put aside before starting. Why? As mentioned, renters can damage your property. They also have expectations about the condition of the property that you must adhere to (such as a working hot tub or pool or good quality appliances) no matter what. There are often costs associated with renting, including listing fees, website maintenance and cleaning expenses. And, finally, you may need to cover slow months when you’re not able to rent the space as expected. For these and other surprise expenses, it’s best to have a healthy emergency or rental fund available for use. 

Once you’ve determined how you want to handle the taxes, the insurance coverage and the emergency costs of renting out your home, you’ll be in a good position to begin this new adventure. And whether you do it just a few days or for the whole year, you can make the best decisions and reap the most benefits.   

4 Things To Know About Taxes As A Senior Citizen

If you felt like your tax bill was a little higher than you would have liked this year, now is a great time to starting planning for next year’s taxes. As a senior citizen, you can take certain steps to reduce your taxes for the upcoming tax year. Here are four great tax deductions that you can take advantage of as a senior citizen. 

Standard Deduction

If you are over the age of 65, you actually qualify for a larger standard deduction than individuals who are under the age of 65. For example, during this past tax season, as a married couple filing joint taxes, you could get a standard deduction of between $13,850 – $17,600 depending on the age of you and your spouse and whether you are visually impaired or not. In comparison, a married couple filing jointly who is under the age of 65 only qualify for a standard deduction of $12,600. 

If you and your spouse are over the age of 65, make sure that you are claiming the correct standard deduction. If either of you is visually impaired, your standard deduction could be even larger. 

Selling Your Home

If you want to sell your home, you may not have to pay a lot of taxes on the profit from your home. If you have lived in your home for two years in the past five years, you may be able to avoid paying capital gains taxes on the profit from your sale.

As a married couple, up to $500,000 in gains can be excluded from your taxes. It is important to note that your gain is not just the profit on your sale from your original purchase price. What is considered your capital gain is based on a combination of your original purchase price, purchasing expenses, capital improvements, selling costs and closing costs. 

It is best to work with an experienced tax lawyer or tax professional if you sell your home to make sure that you calculate your gains correctly. 

Property Taxes

You can keep a little extra money in your pockets depending on where you live by paying reduced property taxes. Many state and local governments offer tax deferrals or tax exemptions for senior citizens, based on your age and income level. 

A local tax professional should be able to assist you and let you know if this option is available in your area. 

Medical Expenses

Once you are over 65, it is easier to deduct medical expenses from your taxes. Generally, you can only deduct medical expenses if they are greater than 10% of your adjusted gross income. However, once you are over 65, your medical expenses only have to be greater than 7.5% of your income for you to deduct them from your taxes. As long as either you or your spouse is over 65, you can take advantage of this lower deduction rate for medical expenses. 

If you or your spouse is over 65, a tax professional can help you with your new tax responsibilities, including trust tax returns and deductions. There may be multiple ways that you can save on your taxes in the upcoming year. 

Four Things You Should Know About Property Taxes Before You Buy Your First House

Buying your first house can be a confusing process. You often need to deal not only with the mortgage company, but also homeowner’s associations, property taxes, and potential liens on the property itself. Though property taxes are usually fairly low, there are still a few things you should know about them in advance.

You Can Get Them Adjusted If You Live in the House

If you’re an occupant owner — someone who lives in their house full-time — you can usually get a very sizable deduction on the amount of property taxes you pay. This deduction isn’t automatic, however; you need to file with your state so that they know you are living in the property rather than renting it. You also need to consider the fact that property taxes will go up if you start renting out your place.

You Need to Pay Your Property Taxes Before You Sell Your House

If you have failed to pay your property taxes, it’s likely that a lien will be placed on your home. Once a lien is placed on your home, you can’t transfer the title to another person — in other words, you can’t sell your property until those taxes are paid. This is one reason why making sure you’re current is so vital. 

You Can Potentially Settle Your Property Taxes

It is possible to settle your property taxes, though property tax settlements aren’t easy to get. In order to get one, you should go through an accountant or a debt attorney. A property tax settlement will settle your taxes for a portion of the amount due, but you’ll need to pay it immediately in cash. Contact a company like Tax Assessment Xperts Inc to learn more.

Your Mortgage Company May or May Not Pay Your Property Taxes

Many homeowners get confused when paying their property taxes because they assume their mortgage company will handle it. Some mortgage companies take money into an escrow account and pay property taxes for you. If your mortgage company does this, you do not need to pay taxes separately. You need to call your mortgage company and make sure.

Property taxes may seem fairly trivial but not paying them can have widespread ramifications. Not only could your credit be hurt, but a lien could be filed against your property. If the situation becomes dire, the government may even try to foreclose upon your property. It’s in your best interest to make sure you know who your property tax needs to be paid to and how much it is.

Why A Growing Business Should Hire Tax Recruiters

Are you starting to expand your company from a small business to a medium or large sized one? Do you now need more advice than your part-time tax preparation agent can help you with? If you need a full time tax expert working for your company, you may be considering putting an ad in your local help wanted section, the same way that you did with your other employees. While that may work for some companies, here are some reasons why you should hire tax recruiters to find your new employee:

Difficult to determine experience: If you’re like many people, the most you know about business tax law is that it’s complicated. If you hire a tax professional yourself, it can be difficult to gauge whether or not they’re knowledgeable enough in the areas that you need the most. The tax professional may have experience with small businesses, but not with growing businesses like yours. Fortunately, tax recruiters are experienced enough to be able to find just the right employee for you. They’ll provide you with a list of candidates that will meet the needs of your company, along with information to help you make a decision. 

Local talent may not be enough: If you put up a job ad, you may get responses only from your local area. While this may be sufficient, it may not be. Tax recruiters will widen the search, looking at nearby states and even the whole country for the perfect employee for you. If the best candidate turns out to not be local, the relocation cost should be more than made up for by his or her experience. You may even be able to write off the relocation costs on your taxes, saving you money in the long run.

Searching is time consuming: Because each company is unique, it can take a long time to find an employee who fits your criteria exactly. Even if you know exactly what you’re looking for, you’ll have to spend a lot of time wading through resumes and looking through online portfolios. Tax recruiters can do all of that for you, allowing you to focus on important daily tasks. They’ll keep you informed as to what they’ve done and what their next steps are going to be. Depending on your exact needs, they might try to recruit someone who is just about to graduate from university at the top of their class, or they might spend time contacting professionals who have years of experience. Sometimes, this means going after people who are already employed, something you may not want to personally deal with. 

Contact a company like Tax Recruiting Specialists for more information.

Avoiding The Penalty On Early 401(K) Withdrawals At Age 55 And Up

Despite the tax penalty, it is not unusual for individuals to withdraw money from their retirement accounts before age 59 1/2. The tax code provides exceptions to the penalty for several qualifying  reasons. Persons age 55 or older who have left their jobs and withdrawn funds from a 401(k) account may qualify for an exception to the penalty.

Age 59 1/2 is generally the age at which retirement account funds may be withdrawn without penalty. At a younger age, a 10 percent penalty is typically assessed on the withdrawal. Although not available to owners of individual retirement accounts, employees with a 401(k) account may avoid the penalty if they leave their employer at age 55 or over.

The age 55 exception

The 401(k) penalty exception becomes effective the year in which the account holder reaches age 55. Regardless of how the employment relationship ends, the final day of work must be within or after the year in which you reach age 55.

If you begin a calendar year at age 54, reaching age 55 by the end of the year, the exception applies if you leave the employer. If you end a work relationship at age 54, but withdraw your 401(k) balance the following calendar year in which you reach age 55, the exception does not apply.

A 401(k) account is referred to as a qualified retirement plan. For public safety employees in a traditional pension plan with a defined benefit, the penalty exception becomes effective at age 50.

Form 1099-R

Recipients of retirement account distributions receive IRS Form 1099-R from the account payer for tax preparation purposes. Withdrawals from 401(k) accounts are reported as ordinary income for the year in which they are received. Form 1099-R must be properly coded for you to automatically receive the penalty exception. If Form 1099-R does not correctly specify the exception, another form is necessary.

Form 5329

IRS Form 5329 is used to clarify your 401(k) penalty exception if you received a Form 1099-R with an incorrect distribution code. Account payers sometimes enter distribution code 1 in error, indicating no known exception. Form 5329 is typically part of a tax return, but it can be filed by itself if there is otherwise no filing requirement.

The are other potential exceptions to the penalty on early withdrawals from retirement accounts. Contact a tax preparer, like Jack Landis And Company, for more information about the tax implications of retirement account activity.

FAQs For Truckers Filing An IRS 2290

If you drive a big rig, you likely have spent a good amount of time getting special training to ensure that you and your big haul stay safe on the road. You realize and understand that you are sometimes subject to stricter traffic laws than citizens driving a regular vehicle, and you probably put a lot of time and effort into making sure you would pass the test for your commercial driver’s license. That said, one area where you are also treated a little differently than most other people but may not have much about is your taxes. Certain truckers are required to file a special tax form called Form 2290 with the IRS. Here’s what you need to know about this special form.

Who is Required to File?

First things first, if your heavy highway motor vehicle does not have a gross weight of 55,000 miles or more, you do not have to complete an IRS 2290 filing. Your typical van or pick up truck does not apply here, only bigger rigs. With that said, if you drove your vehicle for less than 5,000 miles in the tax year, you should know that you have to file the form but you will not have to pay any taxes. Farm truck drivers can get out of paying the tax if they’ve driven less than 7,500 miles in a year.

Do I Need Any Special Information to File?

Anyone filing Form 2290 must have their EIN (Employee Identification Number) available at the time of filing. The IRS uses both your EIN and your name itself to help keep things organized in their system. Your social security number alone will not cut it. If you file Form 2290 without your EIN, it will be rejected and you will have to file again.

How Much Time Do I Have to Complete a IRS 2290 Filing After Purchasing a Vehicle?

You are legally required to file a 2290 with the IRS by the last day of the month following the month of first use. So, for example, if you were to start using a vehicle on July 1, you would have to file a 2290 by August 30. Keep in mind that the tax year for Form 2290 runs from July through June each year.

You likely did a lot of studying to become a big rig truck driver, but one important requirement of the job that you may not have spent any time learning about is how to pay your heavy highway vehicle use tax. The IRS has a page dedicated to Form 2290 on its website that can provide you with any additional information you might need to complete this important filing.

4 Easy Ways To Teach Your Kids About Money And Taxes

Taxes are a part of life. Most people don’t learn about taxes until they collect their first paycheck. If you learned about taxes when you collected your first paycheck, you were probably shocked to find out how much money was taken from you.

Now that you have children, it’s a good idea to teach them about money and taxes while they’re young. Learning about income and taxes at an early age will help your children make wise decisions when they’re older. Here are a few simple ways you can teach your kids about money and taxes.

Teach Your Kids How to Bank

Find teaching moments when you use your ATM card or make a banking transaction. This will help your children understand how your money works for you. While you’re in the bank, have your children sit down with a bank representative and encourage them to ask questions. This will allow them to become familiar with the way banks work. If your children are old enough to have an allowance, have them open a savings account during their trip to the bank.

Tax Their Allowance

You want your kids to understand the concept of taxation. Each time you pay your child their allowance, explain how much of their income went to taxes. Place the money you’ve deducted from their allowance into their savings account. When tax time rolls around, you’ll be able to show your children the money that they’ve paid to their taxes.

Instill Personal Responsibility

Let your children choose how to spend their own money, even if they make mistakes. When they do make a mistake, avoid the urge to bail them out. Instead, use it as a teaching moment to help them understand the consequences of the way they spent their money. Consider providing them with a loan that they’ll be required to pay back. This will help teach them to manage their money responsibly.

Schedule an Appointment with a Tax Professional

Filing taxes can be frightening, especially the first time you file. Help your child understand the process by having them sit down with a tax professional, such as RJ. Garner CPA & Associates, PLC. Your tax advisor will be able to explain the process. When it’s time for your child to file their first tax return, they’ll know what to do.

Money management and taxes are important aspects of adulthood. These ideas will help you prepare your child for the future by teaching them how to handle income and taxes while they’re young.