Important : Reminders about Tip Income

19 Feb 2013: 

If your pay from your job includes tips, the IRS has a few important reminders about tip income:

  • Tips are taxable. Individuals must pay federal income tax on any tips they receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.
  • Include all tips on your return. You must include all tips that you receive during the year on your income tax return. This includes tips you received directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.
  • Report tips to your employer. If you receive $20 or more in cash tips in any one month, you must report your tips for that month to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips.
  • Keep a daily log of tips. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tips.

Determining Your Correct Filing : Status

13 Feb, 2013 :It’s important to use the correct filing status when filing your income tax return. It can impact the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return.

Are you single, married or the head of your household? There are five filing statuses on a federal tax return. The most common are "Single," "Married Filing Jointly" and "Head of Household." The Head of Household status may be the one most often claimed in error.

The seven facts to help you choose the best filing status for you.

1. Marital Status. Your marital status on the last day of the year is your marital status for the entire year.

2. If You Have a Choice. If more than one filing status fits you, choose the one that allows you to pay the lowest taxes.

3. Single Filing Status. Single filing status generally applies if you are not married, divorced or legally separated according to state law.

4. Married Filing Jointly. A married couple may file a return together using the Married Filing Jointly status. If your spouse died during 2012, you usually may still file a joint return for that year.

5. Married Filing Separately. If a married couple decides to file their returns separately, each person’s filing status would generally be Married Filing Separately.

6. Head of Household. The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.

7. Qualifying Widow(er) with Dependent Child. This status may apply if your spouse died during 2010 or 2011, you have a dependent child and you meet certain other conditions

Missing : W-2? Here’s What to Do

It’s a good idea to have all your tax documents together before preparing your 2012 tax return. You will need your W-2, Wage and Tax Statement, which employers should send by the end of January. Give it two weeks to arrive by mail.

If you have not received your W-2, follow these three steps:

1. Contact your employer first. Ask your employer – or former employer – to send your W-2 if it has not already been sent. Make sure your employer has your correct address.

2. Contact the IRS. After February 14, you may call the IRS at 800-829-1040 if you have not yet received your W-2. Be prepared to provide your name, address, Social Security number and phone number. You should also have the following information when you call:

• Your employer’s name, address and phone number;

• Your employment dates; and

• An estimate of your wages and federal income tax withheld in 2012, based upon your final pay stub or leave-and-earnings statement, if available.

3. File your return on time. You should still file your tax return on or before April 15, 2013, even if you have not yet received your W-2. File Form 4852, Substitute for Form W-2, Wage and Tax Statement, in place of the W-2. Use the form to estimate your income and withholding taxes as accurately as possible. The IRS may delay processing your return while it verifies your information.

If you need more time to file you can get a six-month extension of time. File Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return. If you are requesting an extension, you must file this form on or before April 15, 2013.

If you receive the missing W-2 after filing your tax return and the information on the W-2 is different from what you reported using Form 4852, then you must correct your tax return. File Form 1040X, Amended U.S. Individual Income Tax Return to amend your tax return

IRS Form 433A for Hardship or Offer In Compromise (OIC)

3 Feb 2013: The economy is not doing well, although the government would like you to think otherwise. Many people are still finding it hard to make ends meet. To apply to be considered under the hardship status, you have to fill up IRS Form 433A. The process involves disclosing your total monthly costs for a wide range of expenses such as food and clothing, transport, utility expenses, mortgage or rental expenses, home supplies, personal products etc. All the relevant information on your spending records will be declared as you fill up Form 433A. The IRS will then review the form and decide whether you are eligible for hardship status.

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Ways to Avoid an IRS Audit

Avoiding the following helps prevent an IRS Audit:

1. Extremely wealthy people not declaring all their global wealth to the IRS.

2. Hiding your income in offshore havens like Switzerland, Caribbean, etc.

3. Claim big amounts of charitable donations deductions as a proportion of your income.

4. Protesting paying taxes by not paying or filing tax returns to the IRS is a sure way to end up in jail sooner or later.

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IRS Offshore Voluntary Disclosure Initiative (OVDI)

29 Jan 2013: As a U.S. tax payer, you are required to declare your taxable income regardless of where it is earned and where it is kept. So if you draw income from an overseas country, you are obligated to furnish details of this in your annual tax return. In addition, you are required to fill up the Foreign Bank Account Report (FBAR). If you have missed the deadline to file the FBAR or any other deadline to comply with US Tax Laws regarding the disclosure of foreign bank account such as TDF 8938, you should participate in the OVDI. This is because failure to file such kinds of foreign disclosure will result in massive penalties and maybe criminal charges.

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U.S. Corporations use of offshore tax havens

29 Jan 2013: A recently released report from an analyst has revealed that tech giant Apple transferred $11.2 billion into offshore accounts in the fourth quarter of 2012 to shield it from taxes. As a result, Apple has only paid 2% taxes on its overseas profits. The analyst with the Sunday Times says that Apple has shielded up to $94 billion from taxes and it is perfectly legal. Corporation tax on Apple's overseas operations amount to just 1.9% of profits, compared with a tax rate of up to 24% in the UK and 35% in the US.

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Do you owe the IRS back taxes that you cannot afford to fully repay?

20 Jan 2013: There is one way you can pay off the entire debt by paying only a portion of what you owe. It is called making an offer in compromise (OIC) to the IRS. Under this program, if the amount you offer is accepted by the IRS, your entire tax liability is cancelled once you pay this amount.

Needless to say there are very strict requirements to meet for the IRS to accept your offer in compromise. To evaluate if you qualify to make an OIC, the IRS would look at your total equity in assets that can be seized for payment, as well as the present amount they believe you can pay each month toward your outstanding debt. Under the new tax rules, the IRS will still calculate your total asset equity that can be seized, but the present amount you must pay has been greatly reduced. In the past, the monthly amount to pay was multiplied by 48 but now it is multiplied by 12.

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Financial Account Tax Compliance Act (FATCA)

15 Jan 2013: First enacted in 2010, the Financial Account Tax Compliance Act (FATCA) is now being implemented by the IRS this year. In essence, the FATCA makes it mandatory for all foreign financial institutions to identify and declare their American account holders to the IRS. Failure to agree and comply with the regulations of FATCA will result in a 30% withholding tax on any “withholdable payment” made to the financial institution’s proprietary account. In addition, account holders who do not provide the foreign financial institution with information as required by FATCA will also be subjected to punitive action. The financial institution will have to deduct a 30% withholding tax on any withholdable payment credited to their accounts.

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