If you receive tips as compensation at your workplace, you need to be aware of some facts from the IRS.

Very Important: Tips are taxable. Tips are subject to the following taxes-  federal income, Social Security and Medicare.  The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.

You must include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

You must report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

You need to keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income, and Publication 1244. You can find these publications at www.irs.gov. You can also order these forms by calling 800-TAX-FORM (800-829-3676).

Daniel Stoica Accounting Professional

The IRS rules regarding exemptions and dependents affect many, if not most, taxpayers. Here are some facts about exemptions and dependents that should help you file your tax return this year.

Exemptions are fixed amounts that reduce the amount of your income that is subject to income tax, and they are on a per-person basis.  There are two types of exemptions- personal exemptions and exemptions for dependents. These two types of exemptions are for the same amount per person, but different rules apply in order to be able to claim the exemptions. On your 2011 tax return, you can deduct $3,700 for each exemption.

Your spouse can never be counted as your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.

Even if someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe. Consult the IRS website or a tax professional to see if you must file.

If you are being claimed as a dependent, you cannot claim an exemption. If someone such as your parent is claiming you as a dependent, you may not claim your personal exemption on your own tax return.

Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, in order to claim someone as a dependent, he or she must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501 on the IRS website.

Daniel Stoica Accounting Professional

Claiming credits on your taxes will save you more money than taking tax deductions. A credit is a decrease in the amount you owe the IRS. A deduction is a only a decrease in gross revenue (income) before you figure how much tax you owe.

Here are some of the most common credits taxpayers may be able to take.

1. Education Tax Credits: There is the Hope Credit and the Lifetime Learning Credit. The Hope credit is for college tuition payments for you, your spouse or dependent. You can claim this credit for the first two years of college, for up to $1,650. On the Lifetime Learning Credit, you can claim up to $2,000 every year you, your spouse or dependent are in college.  For more info on these credits, read this post.

2. Adoption Tax Credit: Adopting a child can be very expensive, but you can claim a credit of up to $10,690 for the costs associated with adoption. There are certain rules you must follow in order to qualify for this credit, so you may want to contact a tax professional about your options. There is an income cap of $164,410 to be able to claim this credit.

3. Going Green: For several years now, the government has encouraged taxpayers to use more energy efficient products in in their homes, as well as hybrid vehicles. Energy efficient appliances, windows, water heaters, and solar panels can be a huge credit on your taxes.

4. Retirement Savings Tax Credit: The government gives tax credits to taxpayers who earn less than $25,000 as a single filer and $50,000 as joint filers while they put money in a retirement credit. The credit can be up to $1,000 depending on how you filed.

There are many other credits for which you may qualify. Talk to a tax professional to find out which credits you can claim.

Daniel Stoica Accounting Professional

Many taxpayers are busy updating their resumes and going to job fairs during the summer. The IRS wants everyone to be aware that most people can tax deductions on their tax returns for some of their job hunting expenses.

Here are 7 tips from the IRS regarding taking deductions for job search expenses.

1. All of the expenses must be related to your job search for your current career. You can’t take a deduction for job search expenses for a new career.

2. You are allowed to deduct expenses for employment agency fees while you are looking for work in your current career field. If those fees are paid back by an employer, you have to include that in your gross income.

3. You are allowed to take deductions for copies and mailing of your resume to employers if you are looking for a job in your current career field.

4. You may be allowed to deduct travel expenses to and from an interview that relates to your current occupation. Travel expenses include mileage and gas, but only if it’s related to your job search.

5. You may not take a deduction for job searches if there is a major gap in your employment. Check with the IRS website to find the specifics of this rule.

6. You may not take deductions if you are looking for your first job.

7. Your job search expenses are limited. You may only claim 2% of the adjusted gross income of your previous employer. You may figure your deductions on Schedule A when you file your tax return.

For more detailed information and instructions on deducting job search expenses, see Publication 529, Miscellaneous Deductions. You can find this publication on www.irs.gov or by calling 800-829-3676.

Daniel Stoica Accounting Professional

Tax Credits and Benefits for Disabled Taxpayers

These tax tips are of particular interest to people with disabilities and those who care for people with disabilities.

IRS Tax Tip 2011-24, February 03, 2011
Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits.

Here are seven tax credits and other benefits which are available if you or someone else listed on your federal tax return is disabled.

1. Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
2. Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
3. Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
4. Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
5. Medical Expenses If you itemize your deductions using Form 1040, Schedule A, you may be able to deduct medical expenses.See IRS Publication 502, Medical and Dental Expenses.
6. Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability.If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
7. Child or Dependent Care Credit Taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be entitled to claim this credit.There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.