The IRS is very strict when it comes to payroll taxes and deductions. One miscalculation could get a business in a lot of trouble with the government. This is why you need to keep accurate records of your business’s payroll and stay informed about payroll tax rules.

The first thing every business needs to do when they hire a new employee is to make sure the employee fills out a W-4. This form calculates payroll taxes based on the employee’s marital status and how many dependents they have. Most states base their payroll taxes on federal guidelines, which helps businesses correctly calculate withholdings for both federal and state taxes.

It is important for businesses to accurately calculate and report payroll taxes. Every employee should be given their own payroll account so these deductions can be paid to state and federal governments at the end of each year.

If you operate a fairly new business and have just begun to hire hourly or salaried employees and need help figuring your payroll taxes, you can speak to a payroll or tax professional for help.

Daniel Stoica Accounting Professional

Often times, taxpayers don’t include certain types of income because they don’t believe it’s taxable or that they don’t need to because the amount is so minute. All income is taxable and it has to be reported on your tax return. Below is a list of some of the most commonly missed sources of income.

Unemployment benefits are taxable. If you get unemployment, you will receive a 1099-G Form from the IRS at the beginning of the year. If your unemployment benefits came from non-union funds that you contributed to, the amount that exceeds your contribution can be taxed. The American Recovery and Reinvestment Act made it possible for the first $2,400 of unemployment benefits to be tax-free.

Gambling winnings are taxable and have to be reported on your tax return. Casino, lottery and horse and dog track winnings must all be included. Cash winnings and the market value of other non-cash prizes are also taxable. If you win cash and prizes on a game show, or any other contest, the market value of the prize is considered taxable income.

Performance-based bonuses that are given by employers are taxable. Cash, gift cards, trips, and property are considered taxable. If you receive a bonus in the form of goods or services, the market value of those goods or services is taxable, so are holiday bonuses.

If you are awarded damages by the court for pain and suffering or money loss, this money is not taxable. Punitive damages (the excess of your loss) is taxable.

If your employer reimburses you for business expenses, you will have to pay taxes on it, however, you can take deductions on the expenses you incurred for business expenses to begin with, so there is still an upside.

Severance pay or payment at the end of employment, when a contract was signed, is taxable income.

For more information about taxable income, contact a tax professional or visit www.irs.gov.

Daniel Stoica Accounting Professional

Many taxpayers who have disabilities can qualify for tax credits, benefits and deductions. Even the parents of children with disabilities can qualify for some tax breaks.

• If you are considered legally blind and file with Standard Deductions, you may be eligible to take larger deductions.
• If you have a disability, are employed and have Related Work Expenses, you may qualify to claim any business expenses related to your workplace. These expenses must be proven to be necessary in order for you to perform your job effectively.
• A credit for the elderly and disabled can be claimed for taxpayers 65 years of age or younger; however, they must be retired and on permanent and total disability.
• You can deduct medical expenses if you itemize your deductions by using the IRS 1040 Form, Schedule A.
• You may be able to claim the Earned Income Tax Credit if you have disabilities or are the parent of a disabled child. If you retired while you were on disability, your disability payments are considered earned income and are taxable until you are 65  years old. The EITC is a credit, so it will reduce your liability and potentially give you a refund. If you are between the ages of 25 and 65 and are disabled with no children, you may still be eligible for the EITC. Age restrictions are waived if you have a disabled child and claim the EITC. If you are eligible for Supplemental Social Security Income or Medicare, you will not be considered as having income if you choose to take the EITC.
• You can claim the Child or Dependent Care Tax Credit if you pay someone to come to your home to care for your disabled child or spouse.

If you think you or someone in your household may qualify for these credits, speak to a tax professional about all of your options for getting your maximum amount of deductions and credits.

Daniel Stoica Accounting Professional

If you are age 65 or older, the following tax tips are for you.

Increased standard deduction
You qualify for a higher deduction if you are 65 years or older or were considered legally blind before the end of the year. You can’t, however, itemize your deductions if you take a standard deduction.

Social security taxes
Your income level determines whether or not you owe taxes on your Social Security. If your Social Security is your only source of income, you will probably not have to pay any taxes or file a tax return. Talk to a tax professional before you decide whether or not to pay taxes on your Social Security.

Required minimum distribution (RMD)
For retired persons who were older than 70 years old in 2009, a new tax law has eased the rules for mandatory minimum IRA withdrawals. Before the new tax law, you had to take a mandatory amount every year. This one-time law allows you to make a withdrawal only if you need it. It was put in place to keep retirees from having to withdrawal money from their IRAs when they don’t need to.

Roth IRA benefits
Roth IRAs are tax-free, which make things financially easier when you have no other income. You have the ability to change from a traditional IRA to a Roth IRA by doing a Roth conversion. You will have to pay taxes for the year you changed to a Roth IRA, but it will be much more helpful for the long-term. Speak to a tax professional to learn more about converting to a Roth IRA.

Winnings
Some retirees like to gamble at casinos, but they may forget to report their winnings to the IRS, which can get them into trouble. Gambling winnings are considered taxable income and must be reported on your taxes.

Medical expenses
The IRS allows for several deductions for your medical expenses if you itemize your deductions. Be aware that you may only claim medical expenses if they are more than 7.5% of your AGI. Record all of your expenses during the year in order to get your maximum deductions.

Stock losses
With the up and down stock market in the last few weeks, millions have lost money, including seniors. You can offset your capital gains if you report your stock losses now. You will also be able to deduct nearly $3,000 in losses and any other losses can be carried over to next year until it’s gone.

Seek professional advice
Tax codes are updated and changed constantly, so it can be difficult to keep up. In order to make sure you are taking every credit and deduction you are entitled to, it would be wise to seek the advice of a tax professional. They will help you fill out and submit your tax return, which will give you the maximum savings you can get.

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It’s summer and school is out, which means plenty of students will be out looking for summer jobs. Keep in mind, though, that the IRS wants you to remember that you won’t be keeping all of the money you will make from that summer job. You will have taxes withheld from your pay check.

There are six IRS tips to keep in mind when you start your summer job.

1. On your first day of your new job, you will be required to fill out a W-4, Employee’s Withholding Allowance. Your employer will use this form to determine how much tax will be taken out each pay period. If you have more than one summer job, you will fill out a W-4 for each job. To make sure the correct amount is being taken out, you can check the Withholding Calculator on the IRS website.

2. Depending on the type of summer job you get, you might get tips as part of your income. All tips are taxable and you must account for that at tax time. 

3. A lot of students take on odd jobs during the summer to make some extra money, and any income your receive, from either baby-sitting or mowing lawns, is taxable.

4. If you earn $400 or more from those odd jobs, you will also end up having to pay self-employment taxes, because you are, basically, self-employed. These taxes pay for your Social Security and Medicare benefits. Social Security and Medicare are for the self-employed as well as those who work for someone else, for when you retire. Your self-employment tax is calculated on the 1040 Form, Schedule SE.

5. If you are in the ROTC program for advanced training, your food and lodging allowances are not taxable. But active duty pay, the pay you get for summer ROTC, is subject to tax withholding.

6. There are special rules that apply if you are a newspaper carrier. You are considered a “direct seller” and are self-employed as far as your taxes are concerned, if you meet the following conditions:

-Your job involves delivering newspapers.
-All of your pay comes from sales instead of the hours you work.
-You are under contract as a newspaper delivery service worker that states you are not an employee and must withhold your own taxes.

Keep these simple tips in mind when looking for your summer job and you will not be penalized for not withholding enough in taxes come tax time.

Daniel Stoica Accounting Professional

Only two things are certain in life:  Death and taxes. Why do we pay taxes, though?  Surely there was a time when we didn’t have to pay taxes at all?

We have to take a look at history in order to answer this question. In the earlies days of our history, everyone generally worked for the good of others in their nomadic“tribes”. They basically bartered. Eventually, these tribes settled down and created communities.

A form of government evolved from these communities. Obviously, there have been many different types of governments,  from dictators and monarchies to republics and democracies. All of them have taxed their citizens for one reason or another, usually to run the government, but sometimes for their own benefit.

The concept of taxes for goods and services has changed quite a bit since the beginning. There are now many different taxes for many different things. These different taxes include:

-Real estate taxes – These are imposed by local governments to pay for schools, police and fire services, hospitals, waste management, road maintenance, parks, and libraries.

-Sales taxes – These taxes are taken by any level of government, but usually at the state level. These funds usually help with the state’s budget.

-Income tax – In the U.S., this tax is taken by the IRS and sometimes at the state level. In the U.S., income tax is constantly progressing.

There are also Payroll (FICA), Capital Gains, Corporate, Estate, Gift, and Excise taxes.  We would like to think that taxes benefit everyone equally, but that doesn’t always happen because people pay taxes for government services that some people don’t need or use. For instance, a childless person still pays taxes for a public school’s budget. And all of us are required to pay taxes despite the fact that some of us disagree with being taxed to fund certain policies or services. 

Of course, there are some people who refuse to pay their taxes. They are called “tax protesters”. These people regularly receive notices, audits and liens from the IRS for not paying their taxes.  Some even receive jail time.   

If you are in need of more details on why we are required to pay taxes, you should talk to someone who is not involved with a government entity. Consult with a tax professional for some answers.

Daniel Stoica Accounting Professional

IRS Tax Tip: IR-2011-39, April 7, 2011

If you are one of those taxpayers who will do just about anything to get out of paying your taxes, and you think you found a way to get out of it, you might want to reconsider it because the IRS will find out.

The IRS recently released its annual list of the worst tax scams with a warning to consumers to not even try pulling one over on the government. There are probably many taxpayers who haven’t filed yet because they owe money. They may have been thinking about ways to get around paying them, which will cause a lot of problems down the line, including fines, liens, and even jail.

The annual “dirty dozen”, as the IRS refers to scams people have used to evade paying taxes, are listed below. They range from putting money in offshore accounts to claiming non-existence dependents.  Some of the most devious scams have been perpetrated by dishonest tax preparers who used tactics to get more of a refund for their clients and take some off the top for themselves.

Besides the obvious scams, there are some methods that have most likely crossed the minds of many taxpayers. The IRS has reported that some taxpayers have lied about how much they earn, embellished or made up charitable donations and claimed they withheld more in Social Security in order to reduce their taxable income.

The IRS has also reported that some taxpayers try to get out of paying their taxes by claiming that paying taxes is not mandated in the constitution. (There are several videos on YouTube that claim this, as well). Others have even gone as far as to claim that it’s “against their religion”. The Supreme Court has, again and again, determined this to be a unjustified argument.

If the IRS believes you have tried any of these scams, you will be audited and fined $5,000 or more, or even incarcerated for worse offenses. And, if you know someone who has tried to pull off one of these scams, you should notify the IRS. You may be rewarded for your honesty.

Here is the full list of the worst scams:
• Hiding income offshore – This is where taxpayers deposit money in banks in such places as the Cayman Islands or Switzerland
• Identity theft and phishing – This scam has been running rampant for quite some time. People steal IDs and Social Security numbers to take another person’s identity
• Return preparer fraud – Tax preparers making false claims on their clients’ tax returns for their own gain
• Filing false or misleading forms – exaggerating or claiming false information on your tax return to pay less on their taxes
• Frivolous arguments – claiming that paying taxes is unconstitutional or against your religion
• Nontaxable Social Security benefits with exaggerated withholding credits – trying to take more credits and deductions on income that is actually taxable
• Abuse of charitable organizations and deductions – claiming to have given to charity or exaggerating how much you actually did give to a charity
• Abusive retirement plans – transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions
• Disguised corporate ownership – Corporations are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number,
• Zero wages – reporting that you made no money at all during the tax year
• Misuse of trusts – the inappropriate use of private annuity trusts and foreign trusts to shift income and deduct personal expenses
• Fuel tax credit scams – individuals who claim the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable

To avoid becoming one of the “dirty dozen”, consult with a trusted tax professional to prepare your taxes.

Daniel Stoica Accounting Professional

Are Social Security Benefits Taxable?

This is a very important subject as, according to AARP: “Social Security provides benefits to 52.5 million Americans. Nearly 14 percent of people 65 and older rely on Social Security for 100 percent of their family income. About 50 percent of the people in this age group count on benefits for 50 percent of their income.”

IRS Tax Tip 2011-26, February 07, 2011

The Social Security benefits you received in 2010 may be taxable. You should receive a Form SSA-1099 which will show the total amount of your benefits. The information provided on this statement along with the following seven facts from the IRS will help you determine whether or not your benefits are taxable.

How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

Generally, if Social Security benefits were your only income for 2010, your benefits are not taxable and you probably do not need to file a federal income tax return.

If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.

Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.

You can do the following quick computation to determine whether some of your benefits may be taxable:

• First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
• Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

The 2010 base amounts are:

• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
• $0 for married persons filing separately who lived together during the year.

For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.