Ask the Expert Page 2
(Click Here to return to Previous Subject Headings)
Foreign Income
Fraud - Who is in Trouble?
Gift Tax
Health Savings Account
How Long to Keep Copies of Returns
How Much Do People Pay?
I Under-With-Held; What Now?
Incorrect W-2's
IRA & 401K Information
IRS Collections
ITIN
Kiddie Tax
Lawsuit Settlements
Military Personnel
Missing W-2's
Non-Profits Filing Requirments
Non-Profit - Obtaining Status
Notice of Additional Taxes Owed
Offer in Compromise
Origin of Federal Taxes
Partnerships
Payment Plan with the IRS
Payroll Tax Requirments
Rental Property
Sale of Your Home
Sales Tax
Scams
Self Employment
Standard Mileage Rates
Stimulus Payments
Tax Programs
Taxes in Multiple States
(Click Here for more Subject Headings)
Foreign Income
Q: Are Americans living abroad required to pay U.S. income tax on their income earned there?
A: As of 2007, the earned income exclusion for expatriates became limited to $85,700. Anything above that amount is subject to U.S. income tax.
Q: Is the foreign income exempted income amount adjusted annually?
A: Yes. For 2008 the exempted amount is $87,600. If married individuals both work abroad, they are entitled to a combined foreign income exclusion of up to $175,200.
Q: For Americans working abroad, is there any exclusion for foreign housing expenses?
A: Yes. An amount of up to 30% of the allowable income exclusion can be taken for housing expenses. It would be $26,280 for 2008.
Q: With IRS taxing foreign earned income above $87,600, what tax relief is there for the double taxation?
A: Foreign tax credit can be taken on a U.S. tax return for taxes paid to another country on double-taxed income.
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Fraud – Who is in Trouble?
Q: Does the IRS prosecute tax preparers who claim inflated personal/business expenses?
A: Yes. IRS initiated 248 investigations of return preparer fraud in 2005 -- up from 26 in 2004
Q: Is the taxpayer protected from prosecution in those cases?
A: Absolutely not. The taxpayer is expected to examine and approve information claimed on a return before signing it. If you sign a fraudulent return, you share the responsibility.
Q: If I know of someone who is not complying with the tax
laws, how can I report that person or company?
A: You can complete & file a Form 3949-A or report it on-line at
http://www.irs.gov/individuals/article/0,,id=106778,00.html . You may also be entitled to a reward.
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Gift Tax
Q: What is the current tax-free amount you can gift to another person?
A: There is currently a $13,000 annual exclusion. Any cash or property donated in excess of that $13,000 requires filing a federal Gift Tax Return.
Q: Is there a lifetime cap on the amount you can gift to any individual?
A: Yes, there is a lifetime Gift Tax exemption of $1,000,000.
Q: Can a couple give larger tax-free gifts?
A: Yes. Couples can give $26,000 to any individual tax-free in
2010. Such gifts, while they are not tax deductible, offer an easy way to reduce your estate.
Q: Is the exclusion for the one gifting or the one
receiving the gift?
A: There is no tax deduction for making such a gift. However,
the one receiving the gift can exclude that amount from
his/her taxable income for the year.
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Health Savings Account
Q: What are the 2010 contribution limits for Health
Savings Accounts?
A: For individuals, the self-coverage limit is $3,050.
For family coverage the limit is $6,150.
Q: Can older people contribute more -- as they can with an
IRA?
A: Yes, the individual catch-up contribution limit is $1,000. However,
the qualifying age for HSAs is 55 -- not the 50 for IRAs.
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Holiday Gift Tax
Q: Are holiday gift certificates given by employers to their employees considered taxable income?
A: Yes. In a recent ruling IRS held that employers' gift coupons redeemable for groceries are regarded as taxable income to their employees.
Q: What if your employer gives you a ham or a turkey?
A: Actual gifts of food are still not considered to be taxable income to the employee - just redeemable gift certificates for food.
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How Long to Keep Copies of Returns
Q: How long should I keep my copies of my tax returns?
A: We recommend keeping them for five years. However, 940s and 941s for Payroll Taxes must be retained for seven years.
Q: What is the statute of limitations for audits?
A: 3 years for federal and 4 years for Arizona. If fraud is involved though, they can go back for as many years as fraudulent returns were filed and assess taxes, penalties and interest.
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How Much Do People Pay?
Q: What is the difference between what taxpayers should be paying in taxes, and what they do pay?
A: After recently concluding 46,000 compliance examinations, the IRS estimates the tax gap to be about $350 billion.
Q: Who are the worst offenders that the IRS plans to target to begin recovering this unreported income?
A: Self-employed, partnerships, S-Corps, tipped employees, and gamblers. Expect more K-1 matching, and crack-downs, on business write-offs, unreported tips & gambling winnings.
Q: Who actually pays the bulk of individual income
taxes each year?
A: A Treasury Dept. Fact Sheet issued March 2,
2005, shows that the top 5% of taxpayers pay
53.8% of all individual income taxes.
Q: How much of the income tax is borne by the bottom 50%
of taxpayers?
A: Less than 4% of the total. The top 50% consistently pay over
96% of all individual income taxes.
Q: With all of the deductions & credits, who actually
winds up paying the bulk of income taxes?
A: Although single & married couple with income of
$100,000 or more represent only 10% of all tax
returns, they pay 73% of all federal income tax.
Q: So the tax burden really isn’t being shifted to the backs of
the poor and middle class, as politicians claim?
A: No. The fact is that 1 out of every 10 Americans (those earning
$100,000+) pays nearly $3 of every $4 in tax collected.
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I Under-With-Held; What Now?
Q: If I have little or no taxes withheld from my wages, will I get in trouble with the IRS?
A: Yes. The IRS is starting to crack down on severe under withholding, and is sending letters to employers requiring them to make adjustments.
Q: What is the current rate of interest charged by the IRS for unpaid or underpaid tax?
A: For individuals, the rate remains at 8%. Corporations may pay as much as 10%. The IRS interest rates are set on a quarterly basis and do change.
Q: What rate of interest does IRS pay you on overpayments of taxes, or taxes collected in error?
A: Interestingly enough, the IRS pays the same 8% interest to taxpayers on overpaid taxes (7% to corporations).
Q: Is the IRS outsourcing its collection of delinquent income taxes?
A: Yes, at least part of it. They have turned over 12,500 taxpayer accounts for tax debts of less than $25,000 each.
Q: How many collection agencies is the IRS using to collect these back taxes owed?
A: Currently the IRS is using three large collection agencies to collect these tax debts.
Q: How can I tell if a bill from a collection agency for past-due federal income taxes is legitimate?
A: For taxpayers whose tax debt has been assigned to a collection agency, IRS is sending a letter identifying the name of the collection company.
Q: Do I have to deal with that collection agency?
A: No. You can negotiate your tax debt directly with the IRS, if you prefer. Beware of fake IRS debt collectors. They are out there!
Q: How can I report my recent address change to the IRS? Can I do it on-line?
A: Address changes can now be entered via the IRS website (www.IRS.gov), using the "Where's my Refund" page. You can also mail in a Form 8822.
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Incorrect W-2’s
Q: If a W-2 is issued in the wrong Social Security
Number, can you file a tax return with it?
A: In the past, the employer had to either issue a
corrected W-2, or a substitute W-2 had to be filed,
usually with a paper return.
Q: Can a tax return with such a mismatch ever be
electronically filed?
A: Yes. The IRS has just created a way for us to e-file such
returns, correcting the tax information in the process.
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IRA & 401K Information
Q: If I withdraw funds from my IRA for my education, will I be subject to the 10% penalty?
A: Withdrawal of funds from an IRA for "qualified" higher education expenses isn't subject to the 10% penalty.
Q: What education expenses are considered "qualified"?
A: Eligible expenses include tuition, room & board (must be attending at least half-time), fees, books, supplies & equipment. See IRS Pub. 590 and IRS Code section 72(t)(2)(E).
Q: What education expenses can be paid for with IRA funds without incurring a penalty?
A: College tuition, course textbooks, and the cost of room and board can be paid for penalty-free with IRA funds.
Q: Can I buy a computer with my IRA funds without getting penalized for my withdrawal?
A: No. The tax court recently ruled that a computer is not eligible unless students are required by the school to have a computer.
Q: Is it true that I can make tax-free donations from my Traditional IRA?
A: Yes. If you are 70 1/2 or older, you can make a tax-free transfer from your IRA to a charitable 501(c)(3) organization - for 2007 only.
Q: How much can I give to a charitable organization from my IRA under this new provision?
A: Each individual can transfer up to $100,000 per year without increasing federal gross income for that year.
Q: Can my tax-free transfer from my IRA to a charity also qualify as a charitable tax deduction?
A: No. The IRS would consider that to be prohibited "double-dipping".
Q: Should I cash out my IRA and write a check to the qualifying charity?
A: No! The assets must be transferred directly by your IRA trustee to the charity. Contact both your IRA administrator and the charity to arrange the transfer of the funds.
Q: Am I required to take funds out of my IRA at a particular age?
A: Yes. At age 70 1/2 you must begin taking required minimum distributions. Table III, available at www.irs.gov, will help you calculate the amount.
Q: What happens if you don't comply?
A: You definitely do not want to go there. The penalty is 50% of the RMD (Required Minimum Distribution). Also see IRS Pub. 590. Not every person should use Table III.
Q: How much can I contribute as a tax deductible
amount to my IRA for 2010?
A: The deductible contribution amount has been
raised to $5,000 this year -- and $6,000 if you are
age 50 or older.
Q: How long do I have to make my annual IRA contribution
for 2010?
A: You have until the due date of your tax return: April 15, 2006.
Q: If I am eligible for a pension plan at work, is my
deductible contribution to my IRA limited?
A: Yes, it may be; but the phase-out ranges have
been raised for 2010. If you are single, the new
phase-out range for IRAs is $56,000 - $66,000.
Q: What would be the combined income phase-out range for
my IRA deduction if I am married?
A: The new phase-out range for marrieds is $89,000 to $109,000.
If your combined income exceeds $80,000, you can make no
deductible contribution.
Q: If I have been unable to have a ROTH IRA,
could I contribute to a ROTH 401(k)?
A: Yes. there are no income limits on ROTH
401(k) plans. This is a particular advantage to
business owners and high-salaried employees.
Q: Can an individual invest in both a ROTH IRA and a
ROTH 401(k)?
A: Yes. However, the taxpayer’s combined contributions to
those plans cannot exceed the ROTH limit of $15,000 per
year ($20,000 for those age 50 or older).
Q: What are the advantages of the new ROTH
401(k) plans some employers are offering?
A: Up to $15,000 for 2006 can be sheltered in a
ROTH 401(k), plus a $5,000 catch-up provision
for taxpayers age 50 and older.
Q: Could I get a tax deduction from my ROTH 401(k)
contributions?
A: No. Like a ROTH IRA, the potential tax benefit comes
when you withdraw the after-tax contributions and their
accumulated earnings as tax-free income.
Q: How does the new Roth 401(k) work?
A: Since it is funded with after-tax dollars, there is
no tax deduction for contributions. Like a Roth
IRA, the gains, though, are tax-free.
Q: Are matching contributions made by my employer
to a Roth 401(k) taxable?
A: Yes. Any employer match would be taxable income to you
in the year the matching contribution is made.
Q: How much will it cost me in taxes to withdraw
money from my retirement plan to buy a car?
A: A bundle! Figure minimum 25% - 35% federal
tax, plus state taxes as well. (There is a 10%
penalty for withdrawing funds before age 59 1/2.)
Q: Is a $100,000 plus income household still barred
from converting a Traditional IRA to a Roth IRA?
A: No. As of 2010, there is now no household
income limit on rolling Traditional IRAs into
Roths.
Q: If I convert my Traditional IRA to a Roth IRA, will I still have
to pay the 10% penalty if I am under age 59 1/2?
A: Not if you do it this year. The special 2010 rule allows you to
make the move without being subject to the usual 10%
penalty. However, the withdrawal will still be taxable.
Q: If I convert my Traditional IRA to a Roth IRA, do I
have to pay the tax on the income in one year?
A: No. The special 2010 rule permits you to pay
nothing for 2010, and 50% of the tax on the
rollover amount for 2011, and 50% for 2012.
Q: Why would IRS offer a 3-year payment deal like that?
A: They are no dummies. Applicable tax rates are expected to go
up for 2011 and 2012. If you opt to pay later, you will pay more.
Q: If I qualify to take a hardship withdrawal from my
Traditional IRA, can I roll that over to a Roth IRA?
A: No. A hardship distribution does not qualify to be
used as a rollover from a Traditional IRA to a Roth
IRA.
Q: If I must take a Required Distribution from my Traditional
IRA, can I roll that amount over into a Roth IRA?
A: No. Required Minimum Distributions (RMDs) from any plan,
including inherited IRAs, do not qualify to roll over to a Roth
IRA.
Q: If I inherited an IRA from my uncle, what are my
options?
A: You can now roll that IRA into an IRA of your own,
or you can withdraw the funds. However, if you
take the funds, it is taxable income to you.
Q: Will I be subject to an early withdrawal penalty if I take
the money out from my uncle’s IRA that I inherited?
A: No. You will be subject to the tax on this deferred income, but
not to the 10% early withdrawal penalty (if you are under 59 1/2
years of age) — since it is not your IRA.
Q: If I inherited an IRA from my husband, can I
convert that to a Roth IRA?
A: Yes, only a spouse is given this privilege. Anyone
else who inherits an IRA cannot roll it over into a
an inherited Roth IRA.
Q: If I am able to convert my deceased husband’s IRA to a
Roth IRA, am I still liable for the tax on the full amount?
A: Yes. That has been tax-deferred income, so it all becomes
taxable when it is converted or withdrawn. However, if you
convert it in 2010, you can pay the taxes over 3 years.
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IRS Collections
Q: What is the latest on the IRS’ plan to farm out tax
debt collection to private collection agencies?
A: Two representatives in Congress recently failed
in their latest attempt to block funding for the IRS’
private debt collection process.
Q: How much of the total tax debt on the books does the IRS
plan to turn over to collection agencies?
A: Of the $120 billion calculated in 2003, the IRS plans to hand
over $13 billion to 10 large collection agencies in the first year
of the program (by the end of 2005).
Q: Is the IRS continuing to use private debt
collection firms to collect taxes owed?
A: After an extensive review of the private debt
collection program, IRS has decided it will not
renew its contracts with the two agencies used.
Q: What factors influenced the IRS in its decision?
A: IRS feels its employees have more flexibility in handling
cases, important in these difficult economic times. However,
they are hiring 1,000 new collection personnel in FY 2009.
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ITIN
Q: What is an ITIN, and how is it different from a Social Security Number?
A: IRS issues ITINs to individuals required to have a US taxpayer ID, but who do not qualify for a SSN. An ITIN is not valid for U.S. employment.
Q: How can you recognize an ITIN?
A: An ITIN is an 9-digit number that always begins with a 9, and has a 7 or an 8 in the fourth digit.
Q: What can an ITIN (Individual Tax Identification Number) be used for?
A: ITINs are for federal tax reporting only, and are not intended to serve for any other purpose. ITINs do not provide eligibility for Social Security benefits.
Q: Can a person filing a tax return with an ITIN receive Earned Income Credit?
A: No. A person filing a tax return with an ITIN, instead of a SSN, is not eligible to receive Earned Income Credit.
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Kiddie Tax
Q: Did the Kiddie Tax rules change again in 2010?
A: Yes they did. Kids under 18 (or under 24 if still in school) are taxed at parent's tax rate if investment income exceeds $1,900.
Q: Should I reconsider a planned transfer of income-generating stock to my 20-year old daughter in college?
A: Under the new rules, it would be advisable to delay such a transfer until she turns 24 years of age. Otherwise that income may still be taxed at your tax rate, as she is single.
Q: I heard they have changed the “Kiddie Tax.”
What’s the scoop on this?
A: The revised “Kiddie Tax,” requires unearned
income of minors under age 18, in excess of
$1,700, to be taxed at their parents’ rate.
Q: How does the new law differ from the old requirements?
A: Prior to this, the law applied only to the unearned income
(interest, dividends & capital gains) of minors under age 14.
The new law is retroactive to Jan. 1, 2006.
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Lawsuit Settlements
Q: If you are injured in an auto accident, is the
settlement for your injuries taxable?
A: Unless the settlement is to cover lost wages, it is
usually not reported or regarded as taxable income.
Q: If the settlement in an auto accident is to reimburse you
for your medical expenses, is the income taxable?
A: That depends. If you paid & deducted those expenses on your tax return, the income would be taxable. If you have not deducted those expenses, the income would not be taxed.
Q: For taxable legal settlements, can you deduct
the amount paid for attorneys?
A: Although a recent unanimous Supreme Court
decision held that attorney’s fees must be
included in the taxable income. Congress trumped
that decision in October.
Q: What did Congress do to provide relief?
A: The Tax Act of 2004 allows plaintiffs to net legal fees and court
costs against the taxable portion of civil damages awards --
effective Oct. 22, 2004.
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Military Personnel
Q: Can a person who is in the military claim moving
expenses on their tax return?
A: Yes. Members of the Armed Forces on active duty
moving due to a change of station can deduct any
reasonable unreimbursed moving expenses.
Q: Is combat pay taxable?
A: No. Persons serving in a combat zone can exclude from
income all pay received for military service for any part of a
month served in a combat zone, as well as full months served.
Q: Can a member of the Armed Forces Reserves
deduct travel expenses?
A: Yes. Unreimbursed travel expenses for traveling
more than 100 miles from home to perform
reserve duties are deductible.
Q: Are subsistence allowances paid to ROTC students in
advanced training taxable?
A: No. However, active duty pay (such as received during
summer advanced camp) is taxable.
Q: My husband and I file a joint tax return, but he is
serving in the Army in Iraq and isn’t here to sign
our return. What can I do?
A: If a spouse is not available due to military duty, a
power of attorney may be used to sign the return.
Q: Are there any extensions available for the tax returns of
members of the military who are away on active duty?
A: Yes. The deadlines for filing tax returns, paying taxes and
claiming refunds are automatically extended for the military.
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Missing W-2s
Q: I still have not received a W-2 from one of my employers. What can I do?
A: First contact your employer and ask that a copy of your W-2 be mailed to your current address or that it be faxed to your tax preparer.
Q: What if I do not receive my W-2s by the end of January?
A: After you have made a reasonable effort to obtain them from
your employer, a substitute W-2 can be filed instead after Feb.
15, using the information from your final pay stub for that year.
Q: What if my employer has gone out of business and can't be located?
A: A Substitute W-2 (Form 4852) can be prepared and filed from the information contained on the stub of your last paycheck.
Q: Can I go ahead and file my tax return with my final paystub, instead of waiting for my W-2?
A: No, the IRS does require attaching actual W-2 forms to your return. Substitute W-2s (Form 4952) cannot be used until after Feb. 15.
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Non-Profits Filing Requirements
Q: What is the income limit for non-profit organizations to be exempt from filing a Form 990?
A: It used to be $25,000. As of 2007, non-profits with any income under $25,000 must now file a new Form 990-N.
Q: When does that new Form 990-N have to be filed?
A: The filing deadline is the 15th of the 5th month after the close of the organization's tax year (May 15 for an organization on a calendar year).
Q: What are the consequences if a small non-profit organization fails to file the new Form 990-N?
A: Fines will likely be assessed for the first couple of years. Failure to file the form for 3 years results in the loss of the organization's tax-exempt status.
Q: How complicated is the new Form 990-N?
A: Compared to the regular Form 990, the 990-N is simple. It is an electronic form, though, so it must be filed on-line.
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Non-Profit – Obtaining Status
Q: Our non-profit organization has never obtained 501(c)(3) recognition. How difficult is it to get?
A: You do not want to attempt that on your own. Enlist the help of a tax professional. The application is lengthy and complicated.
Q: Does it cost the organization anything to apply for a tax-exempt determination by the IRS?
A: Yes. $300 must be submitted with the application if income is under $10,00; and $750 if annual income over a 4-year period has exceeded (or is expected to exceed) $10,000.
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Notice of Additional Taxes Owed
Q: If you receive an IRS notice saying your owe
additional taxes, should you just pay it?
A: No, the IRS may be wrong. First come to talk with
us about it. We find that more than half the time
the errors are on the IRS side, rather than on the
taxpayers’.
Q: If I believe the IRS is wrong, can you help me resolve the
problem?
A: Yes. While most tax firms do not, and will not, provide representation,
we have always provided this vital service.
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Offer in Compromise
Q: How reliable are ads by firms claiming they can settle your IRS debts for pennies on the dollar?
A: IRS has never liked the Offer in Compromise program, and it has been very difficult to get them to agree to settle for less than the total owed.
Q: Does the taxpayer have to pay anything up-front
when submitting an offer-in-compromise?
A: Yes. The IRS now requires the taxpayer to pay
20% of the proposed offer-in-compromise
amount before any deal will be considered.
Q: How is that front-end payment used by the IRS?
A: Unless you specify that it is to be applied against the unpaid
tax liability, the IRS is free to apply it to any back interest you
may owe, allowing more interest to build up on this tax debt.
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Origin of Federal Taxes
Q: When was the federal income tax established?
A: It was created by the 16th Amendment to the U.S. Constitution, and ratified by Congress 95 years ago on February 3, 1913.
Q: What was the original top tax rate for the federal income tax?
A: The highest marginal tax bracket during the code's first year was 7%.
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Partnerships
Q: Is there a limit on losses that can be taken on a partnership?
A: Yes. Your tax loss cannot exceed your basis in the partnership.
Q: Are there any other considerations related to partnership losses?
A: Yes. You need to remember that your tax loss from the partnership each year reduces your basis by that amount.
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Payment Plan with the IRS
Q: I didn't have enough taxes withheld, and I am going to owe a lot. I don't have the money.
A: First of all, don't make the mistake of waiting to file your tax return past the April 15 deadline. You will be assessed a penalty for failure to file your return.
Q: Is there a way I can set up a payment plan with the IRS?
A: Yes. While there is a charge, filing Form 9465 (Installment Agreement Request) allows you to set the monthly payment amount and the date each month the payment will be due.
Q: How much interest is the IRS charging now in
2009 on taxes owed?
A: Currently (since 4-1-09), IRS is charging 4% for
individual taxpayers. Large corporations are
charged 6%.
Q: If the IRS owes you money, are they required to pay
interest on what they owe to you?
A: Yes, the IRS would be required to pay you the same 4%
interest on what they owe you. However, the rate is adjusted
quarterly by the IRS, per Sec. 6621 of the Internal Rev. Code.
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Payroll Tax Requirements
Q: Is there a new Form 941 (the employment tax
return for reporting payroll taxes)?
A: Yes, the IRS recently redesigned this form that is
filed by 6.6 million employers each year — a total
of 23 million of them filed last year.
Q: Where can I get a copy of the new form?
A: The new form can be downloaded from the IRS website:
www.IRS.gov.
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Rental Property
Q: What are the new requirements for issuing
1099s for owners of rental property?
A: Beginning in 2011, owners of rental property are
required to issue a 1099-MISC to any service
provider who has been paid $600 or more per yr.
Q: What will be the penalties for failure of rental owners to
issue those 1099s?
A: Depending on how late they are in issuing them and filing the
information returns with the IRS, penalties will range from $30
to $100 per 1099. Intentional disregard will cost $250.
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Sale of Your Home
Q: I sold a home in California at a profit. Is that
taxable income?
A: If you occupied the home as your personal
residence for 2 of the last 5 years, you can
exclude a gain of up to $250,000 (or $500,000 if
you are married and filing a joint tax return).
Q: Would I have to file a Calif. return, and would Calif. also
allow me that exclusion?
A: Yes, you would be required to file a California return; and yes,
California permits the same exclusion of gain as the federal.
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Sales Tax
Q: When does Bullhead City begin collecting directly
its own sales tax?
A: BC’s collection agreement with ADOR ended on
3/31/09. The Transaction Privilege Tax for March
(or 1st quarter) is due to BC on 4/20/09.
Q: Can this TPT (sales) tax still be paid on line?
A: Yes. Contact Carol Gardner, BC Business License/Tax Rep at
928-763-9400, ext 285, or cgardner@bullheadcity.com, to help
you do the set-up with RDS, BC’s new collection partner.
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Scams
Q: I received an e-mail from the IRS, offering me
$80 to participate in a survey. Is it legitimate?
A: No. The IRS never sends unsolicited e-mail. You
probably received it from an IRS.com address.
That is not from the IRS (IRS.gov).
Q: I received a phone call from the IRS, informing me that I
may be entitled to a larger phone tax rebate than I
claimed for 2006. What should I do?
A: Ignore the call. It’s a scam. The IRS does not call anyone
offering additional tax refunds.
Q: A person called & claimed she could obtain a tax
refund for me from my Social Security. True?
A: No. This is a scam targeting the elderly. Retirement
or disability benefits generally cannot be
used to generate a legal tax refund.
Q: I received an email informing me that I had an
unclaimed tax refund. Does the IRS do that?
A: No. Such emails are scams. The IRS never
notifies taxpayers via email that they have
unclaimed tax refunds.
Q: What is the best way to avoid mail delivery and mail theft
problems with tax refund checks?
A: The best way is to electronically file your tax return and choose
the option to have your refund directly deposited to your bank
account.
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Self Employment
Q: I recently began a new business. How do I pay
myself and handle the taxes?
A: Write yourself a check as a “draw” against the net
income from the business, and make quarterly
estimated tax payments to the IRS.
Q: How will I report the income from my new business to the
IRS?
A: As a self-employed person, you will file a Schedule C (to
report income & expenses) and a Schedule SE (to calculate
Self-Employment Tax) with your personal tax return.
Q: What are SE Taxes you mentioned that a person
in business must pay?
A: SE (Self-Employment) Taxes, are calculated at
15.3% of your net income. They pay your Social
Security and Medicare Taxes.
Q: How do SE Taxes differ from regular Income Taxes, and
do I have to pay both?
A: Yes, you must pay both if you are self-employed. Income taxes
pay for other required government services, and are calculated
by tax brackets, based on your total taxable income.
Q: Why does a self-employed person have to pay
so much more for Social Security & Medicare
Taxes than a regular employee does?
A: One-half of an employee’s Social Security &
Medicare Taxes are required to be payed by the
employer. As self-employed, you pay both halves.
Q: As a new business owner, are there other taxes I have to
pay beside income and SE taxes?
A: If you are selling any product, you are also required to collect
and pay State Transaction Taxes (sales taxes), and you must
obtain a license from the state related to these taxes.
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Standard Mileage Rates
Q: What is the new standard business mileage
rate?
A: It has increased from 50 cents a mile for 2010,
to 51 cents for 2011.
Q: What is the new mileage rate for moving, or has it
changed?
A: The moving and medical mileage rates have both increased to
19 cents a mile for 2011, with charitable mileage remaining at
14 cents.
Q: Is an employer required by law to pay employees
the standard IRS business mileage rate?
A: No. There is no legal requirement to reimburse
employees for business mileage at the standard
IRS business mileage rate.
Q: Can an employee deduct on his tax return the difference
between the standard rate and their reimbursement?
A: Yes. Claim the standard mileage rate on Form 2106, less the
amount reimbursed. This only applies, though, to employees
who itemize deductions on a Schedule A.
Q: Do you believe employers should reimburse
employees at the standard IRS mileage rate?
A: Yes. While not legally bound to do so, it costs the
employer less to pay it & deduct it as an expense
of the business than it costs the employee.
Q: Why does it cost the employee more, if he can deduct the
mileage on his tax return?
A: Employees can only deduct mileage if they itemize deductions,
and that section of the Schedule A is subject to a 2% of AGI
deduct; so he doesn’t get it all back even as a tax deduction.
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Stimulus Payments
Q: Will I be taxed on this year’s Making Work Pay (MWP)
Credit (tax stimulus payment).
A: No — in most cases. However, some will have to pay taxes on
any duplication of the c
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