Tax & Finance FAQs

Tax software producers claim their products can prepare complex returns, but you may want to think twice before relying on software for all your tax and financial guidance. Although software may help you make choices on your tax return that result in the lowest tax this year, you should consider the long-term effect of your choices in order to pay the lowest tax over a number of years.

With a professional tax preparer you get more than just a tax return. An established relationship with a tax professional who is familiar with your finances, your family, and your goals can prove to be invaluable.

If you prepare your own returns, it's a good idea to let a professional preparer review your returns at least every three years. That's because you only have three years to amend a return to change any items of income, deductions, or credits that were reported in error or omitted on your original return.

First, don’t wait until the last minute to sort through your records. Set up a filing system early in the year and stay on top of your filing.

Second, realize that there's not one particular system that works for everyone. If you use a tax organizer, you may want to set up your files in the same order, so you can easily locate the items you'll need to complete it. Otherwise, you might want to use last year’s return as a guide, and organize your files in the same order they were reported on your prior-year income tax return.

Third, when you receive important tax documents, such as your W-2, 1099s, mortgage interest statements, retirement account statements, etc., verify that the information is accurate before filing the documents with your other records.

You may need to file a return even after you retire. You're required to file a return if your income is over certain levels. Generally, you must file a federal income tax return, even if you don’t owe tax, when your gross income exceeds the following limits:

Single                                                  $12,400

Head of Household                            $18,650

Married, filing jointly                          $24,800

Married, filing separately                   $12,400

If you are 65 or older or legally blind, you are allowed to make more money before you have to file a return. Single taxpayers who are legally blind or over age 65 can take another $1,650 ($1,300 for each married taxpayer).

If your total income is less than these amounts, you’ll still have to file a return if you are self-employed and your business net income is $400 or more.

Even if you do not have to file a return, you might still want to do so. For example, if you paid taxes to the IRS or had taxes withheld from your wages or pension, the only way you can get your money back is to file a tax return.

If you or someone else claims your child as a dependent, your child will need to file a tax return if he or she has:

1. Earned income from wages of more than $12,200.
2. Earned net income from self-employment (from a paper route, for example) of $400 or more.
3. Investment income only (such as interest and dividends) of more than $1,050.
4. Both earned and investment income totaling more than the larger of: (a) $1,050 or (b) $350 plus earned income, not to exceed $12,200.

If no one claims your child as a dependent, your child has the same filing requirements as any other taxpayer. Also remember, if your child has any withholdings, the only way to get them refunded is to file a tax return!

April 15* is the tax filing deadline for most individual income tax returns. If you can't complete your tax return by then, file Form 4868 with the IRS to give yourself up to six additional months to complete your return.

Caution: Form 4868 only extends your filing deadline; it does not extend your tax payment deadline. If your tax is not paid in full by April 15, you'll face interest and penalties on the balance owed.

* When April 15 falls on a Sunday or legal holiday, the deadline for filing is moved to the next business day.

The IRS offers several options to taxpayers who cannot pay their taxes in full when they file their return.

• You can charge your taxes on a credit card. The IRS's credit card service providers charge a convenience fee of about 2.5% in addition to the interest rate your credit card company charges on your balance.
• You can request to pay your taxes to the IRS in installments. If you owe $50,000 or less and agree to pay off the balance within a six-year period, the approval process is pretty straightforward. Larger balances can be set up on an installment plan too, but they won’t be automatically approved. The IRS will continue to add interest and penalties to your account until you pay off the balance.
• You can enter into an offer-in-compromise agreement with the IRS to settle your tax bill and get off to a fresh start. Under this arrangement, the IRS will settle your account for a portion of the tax you owe if you agree to file and pay your future taxes on time. You'll have to submit financial information to the IRS to prove that you don't have the money or ability to pay off the entire balance.

Yes—it means you're giving the IRS an interest-free loan when you could have the use of that money during the year to invest for yourself.

Steps to take. As early as possible each year, you should:

• Take the time to estimate your total tax bill for that year.
• Consider adjusting your withholding so that the amount your employer withholds comes closer to what you will actually owe on your tax return.
• Change your withholding at any time during the year by giving a new Form W-4 to your employer to make mid-year corrections.

Oversights and errors are not uncommon, so the IRS provides a way for you to correct them. You can correct your return for up to three years after you file your original return by filing an amended return with the IRS.

You need to tell the IRS why you are correcting the return, and include the appropriate documentation with your amended return.

If you've discovered income or deductions that you should have reported on your income tax return, give us a call. We can help you set the record straight and pay only the tax actually due.

For income tax purposes, there are three levels of income: gross income, adjusted gross income, and taxable income.

• Gross Income. Gross income includes income from all sources whatsoever unless specifically excluded by tax law. Gifts and inheritances, for example, are specifically excluded from income.
• Adjusted Gross Income. To arrive at adjusted gross income (AGI), you are allowed a long list of deductions from gross income including such things as business expenses, certain losses, and retirement account contributions. These deductions, also called above-the-line deductions, are allowed even if you don't itemize your personal deductions (if you choose instead to use the standard deduction). AGI is an important number because it is used to determine certain other tax benefits.
• Taxable Income. Taxable income is AGI minus your itemized deductions (or standard deduction) and your personal and dependency exemptions. Taxable income is used to determine your tax bracket, your tax rate, and your ultimate tax liability.

Your loss might qualify as a nonbusiness (personal) bad debt deduction.

You can take a tax deduction for a nonbusiness bad debt only in the year it becomes worthless and only as a short-term capital loss. In addition, you must be able to prove that a bona fide debt existed and that you've made efforts to collect the debt.

Immediately contact your employer and correct your Social Security number. Ask your employer for a corrected W-2 (Form W-2C, Corrected Wage and Tax Statement). If the W-2 information is not corrected, you will not get social security credit for the wages you earned. If this happens to you make sure your employee record is corrected as soon as possible. The same process holds true with other common errors including a name change when you get married or divorced.

Contact your employer and ask for a corrected W-2 (Form W-2C, Corrected Wage and Tax Statement). If you do not receive the corrected W-2, you should report the incorrect amount as noted on the W-2 to avoid an IRS correspondence audit AND then correct the amount on your tax return.

You are required to report all your income, whether or not you receive information forms (W-2s or 1099s) from the parties who paid you. You'll have to reconstruct your income and income tax withholding based on your paycheck stubs or other documents.

Make sure your income is also properly reported on your account with the Social Security Administration as your future benefits could be negatively impacted if not properly reported by your employer.

According to the IRS, you should contact the IRS and a representative will take a W-2 complaint.

Yes, unemployment benefits are subject to federal income tax. The government unit that paid you should provide you with a year-end statement (Form 1099-G) showing the amount that is to be included as income on your tax return.

To avoid having a large tax balance due at filing time, you should consider filling out Form W4-V to have the proper amount of income tax withheld from each unemployment check.

Cancelled debt is included in income unless it is specifically excluded by some provision in the tax code. Thankfully, certain types of debt forgiveness are generally excluded from income (e.g., discharge in bankruptcy under Title 11, a discharge when the taxpayer is insolvent outside of bankruptcy, qualified farm indebtedness, and qualified real property business debt).

Under special circumstances, some types of student loan cancellations are also excluded from income. A common example of this is student loan debt forgiveness when you work in an approved government incentive program.

Before accepting a debt forgiveness offer from a bank or other source, please understand the tax ramification of accepting the terms before you sign.

A deduction reduces your taxable income, and a credit is a dollar-for-dollar offset against your computed tax liability. Some credits are refundable, meaning that if your credit is larger than your tax liability, the IRS will pay you the difference.

This example may help: A $100 deduction will reduce your taxes by $24 if you are in the 24% tax bracket. A $100 credit will reduce your taxes by $100.