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Top five tips on unemployment benefits

 

IRS tax tip 2016-34

If you lose your job, you may qualify for unemployment benefits. While these payments may come as a relief, it’s important to remember that they may be taxable. Here are five key facts about unemployment compensation:

1. Unemployment is Taxable. You must include all unemployment compensation as income for the year. You should receive a Form 1099-G, Certain Government Payments by Jan. 31 of the following year. This form will show the amount paid to you and the amount of any federal income tax withheld.

2. Paid Under U.S. or State Law. There are various types of unemployment compensation. Unemployment includes amounts paid under U.S. or state unemployment compensation laws. For more information, see Publication 525, Taxable and Nontaxable Income.

3. Union Benefits May be Taxable. You must include benefits paid to you from regular union dues in your income. Other rules may apply if you contributed to a special union fund and your contributions to the fund are not deductible. In that case, you only include as income any amount that you got that was more than the contributions you made.

4. You May have Tax Withheld. You can choose to have federal income tax withheld from your unemployment. You can have this done using Form W-4V, Voluntary Withholding Request. If you choose not to have tax withheld, you may need to make estimated tax payments during the year.

5. Visit IRS.gov for Help. If you’re facing financial difficulties, you should visit the IRS.gov page: “What Ifs” for Struggling Taxpayers. This page explains the tax effect of events such as job loss. For example, if your income decreased, you may be eligible for certain tax credits, like the Earned Income Tax Credit. If you owe federal taxes and can’t pay your bill check the Payments tab on IRS.gov to review your options. In many cases, the IRS can take steps to help ease your financial burden.

For more details visit IRS.gov and check Publication 525. You can view, download and print Form W-4V at IRS.gov/forms anytime.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Early withdrawals

 

Many people find it necessary to take out money early from their IRA or retirement plan. Doing so, however, can trigger an additional tax on top of the income tax you may have to pay. Here are a few key points to know about taking an early distribution:

1. Early Withdrawals.  An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.

2. Additional Tax.  If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an additional 10 percent tax.

3. Nontaxable Withdrawals.  The additional 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.

4. Check Exceptions.  There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.

5. File Form 5329.  If you took an early withdrawal last year, you may need to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with your federal tax return. See Form 5329 and its instructions for details.

6. Use IRS e-file. Early withdrawal rules can be complex. IRS e-file is the easiest and most accurate way to file your tax return. The tax software that you use to e-file will pick the right tax forms, do the math, and help you get the tax benefits you’re due. Seven out of 10 taxpayers qualify to use Free File, which is only available through the IRS website at IRS.gov/freefile.

More information on this topic is available on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Tax Time: Choose your preparer carefully

Free, IRS-certified help available for many in Michigan

By Mona Shand, Michigan News Connection

Web-TAXfcIt’s that time of year when Uncle Sam wants his share, but financial experts want to make sure Michiganders aren’t giving away any of their hard-earned money in the process.

According to the National Society of Accountants, the average family spends anywhere from $150 to $450 on income-tax preparation.

And Ross Yednock, program director with the Michigan Economic Impact Coalition, says because the multi-billion dollar tax preparation industry is unregulated, it can be tough to know exactly what you’re paying for.

“The vast majority of people don’t have very complicated taxes,” says Yednock. “And don’t need to be shelling out $300 or $400, particularly when you can go to an IRS-certified tax volunteer and get them done for free.”

People earning $54,000 a year or less can receive free, in-person tax preparation assistance at sites across the state, and households bringing in less than $62,000 can file federal taxes online, also free, with the help of a trained volunteer by phone.

Sites can be found by dialing 2-1-1 or at MichiganFreeTaxHelp.org.”

Awakon Federal Credit Union has offered free tax preparation to its members for several years, and this year, it joined many credit unions in partnering with the Voluntary Income Tax Assistance program to open the service to the entire community.

Dawn Bodnar, marketing and community development director at the credit union, says the response has been eye-opening.

“It literally takes our preparers 10 or 15 minutes, and then they walk out and they have it completely done,” she says. “And they’ve said they’ve saved between $250 and $450. So, that’s a big chunk of change.”

Yednock adds it should raise a red flag if any tax preparer claims they can get you “the most” money back.

“Whether you go to a free place, whether you pay $200, whether you pay $500, if they’re following the law, the tax return, the amount that you’ll get back or the amount you pay, is going to be the same, no matter where you go,” he says.

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Your Guide to Tax Time

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What’s Taxable, Non-Taxable Income?

All income is taxable unless a law specifically says it isn’t. Here are some basic rules you should know to help you file an accurate tax return:

Taxable income. Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is normally taxable.

Some types of income are not taxable except under certain conditions, including:

Life insurance. Proceeds paid to you upon the death of an insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount you get that is more than the cost of the policy is taxable.

Qualified scholarship. In most cases, income from a scholarship is not taxable. This includes amounts used for certain costs, such as tuition and required books. On the other hand, amounts you use for room and board are taxable.

Other income tax refunds. State or local income tax refunds may be taxable. You should receive a Form 1099-G from the agency that paid you. They may have sent the form by mail or electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some items that are usually not taxable:

Gifts and inheritances

Child support payments

Welfare benefits

Damage awards for physical injury or sickness

Cash rebates from a dealer or manufacturer for an item you buy

Reimbursements for qualified adoption expenses

For more on this topic see Publication 525, Taxable and Nontaxable Income. You can get it at IRS.gov/forms anytime.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Social Security benefits may be taxable

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine if you need to pay taxes on your benefits.

Form SSA-1099.  If you received Social Security benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.

Only Social Security.  If Social Security was your only income in 2015, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.

Free File.  Use IRS Free File to prepare and e-file your tax return for free. If you earned $62,000 or less, you can use brand-name software. The software does the math for you and helps avoid mistakes. If you earned more, you can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It’s best for people who are used to doing their own taxes. Free File is available only by going to IRS.gov/freefile.

Interactive Tax Assistant.  You can get answers to your tax questions with this helpful tool and see if any of your benefits are taxable.  Visit IRS.gov and use the Interactive Tax Assistant tool.

Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.

Base Amounts.  The three base amounts are:

$25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015

$32,000 – if you are married filing jointly

$0 – if you are married filing separately and lived with your spouse at any time during the year

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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ASK  SCORE: Tell them about it: Advertising will boost retail sales

For retailers, the decision whether to advertise is easy, for the answer is always yes. Advertising is a great way to attract new customers, who will spread the word about your business to others. It also reminds previous customers that your business is still there to serve them.

However, which medium to use is only part of the decision-making process. Designing and implementing an advertising strategy requires thoughtful planning. Like a reporter, you need to ask some basic questions: Who is your target market and what media is best to reach them-newspaper, magazines, radio, TV (including cable) or Internet? Also, what message(s) should be emphasized—price, selection, convenience, expert assistance or specialty items? When and where should the ads run? And most important, how will you measure their effectiveness?

The question now becomes how to budget and implement an effective advertising program. These expenses should be planned with a specific return on investment (ROI) in mind. For every advertising dollar, the business must recoup a percentage as part of every sale. Keep in mind that discounts advertised in your promotions affect your ROI because they mean less revenue.

Remember that your ads should generate a positive response among potential consumers. That’s why the creative aspect of a clever and intriguing ad is so important. A well-crafted ad campaign will continuously draw customers, while a poorly conceived or executed strategy may make your business memorable for the wrong reasons.

Whenever  possible, hire an ad agency or design firm to help develop the creative concept, layout and production of an advertising campaign. This need not be expensive; you can select from advertising agencies, graphic design firms and freelance marketing pros for as much or as little help as needed. If you can’t afford this investment, you may be able to get production support from the media outlet. For example, many newspapers and local shopper publications will include free in-house design for the cost of the ad. Just make sure you have carefully planned your messages and goals for the ads as well as their timing.

To review your advertising plans, contact an expert counselor from SCORE “Counselors  to America’s Small Business.” At SCORE, you’ll find a wealth of valuable information and insights from working and retired business owners, executives and managers. And it’s free.

All SCORE counseling is offered as a free and confidential community service. There are 389 SCORE chapters around the country assisting entrepreneurs. While counseling is always free-of-charge, local SCORE chapters also offer small business workshops and seminars for modest fees.

To learn more about SCORE and its counseling services, call 1-616-771-0305, or email your questions to the Grand Rapids Chapter at scoregr.org.

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Seven tips to avoid Presidents Day rush

WASHINGTON—The period around Presidents Day marks the peak busy season for IRS toll-free phone service, but there are faster ways to find answers to your questions. The Internal Revenue Service provides tools and apps on IRS.gov that can help many of taxpayers get answers immediately online.

Traditionally, the Tuesday after Presidents Day is the busiest day of the year for phone calls. The IRS will staff the toll-free lines on Saturday, February 13 and Monday, February 15, the Presidents Day holiday in an effort to answer more taxpayer calls.

The hours of operations are 9 a.m. to 5 p.m. local time on Saturday and 7 a.m. to 7 p.m. local time on Monday.

But on IRS.gov, taxpayers can, among many things, check the status of their refund, request a copy of their tax transcript or get an answer to their tax questions around the clock.

The entire week of the Presidents Day holiday marks a peak time for the IRS,” said IRS Commissioner John Koskinen. “We’re keeping our phones open over part of the holiday weekend to manage the increased demand.”

To save time and find answers faster, taxpayers should make IRS.gov their first stop. A good place to start is the “IRS Services Guide” for a quick overview of online services and resources. IRS information and some tools also are in Spanish.

Here are some of the most common reasons people call us over Presidents Day holiday week and the faster and easier ways to get answers:

Want to know where your refund is?

More than 90 percent of refunds are issued in less than 21 days. IRS representatives will not provide individual refund information before then. Taxpayers can easily find information about their refund by using the Where’s My Refund? tool. It’s available on IRS.gov and on the Smartphone app, IRS2Go. Where’s My Refund? provides taxpayers with the most up-to-date information available. Taxpayers must have information from their current, pending tax return to access their refund information. Refund information is updated just once a day, generally overnight, so there’s no need to check more than once a day.

Didn’t get a W-2?

Employers are required to send their employees a Form W-2, Statement of Earnings, by January 31. Employees should allow enough time for their form to be mailed to their address of record. If form W-2 is not received by the end of February, employees should first contact their employer to ensure they have the correct address on file.

After exhausting all options with the employer, employees may contact the IRS and we will send a letter to the employer. However, we would urge you to wait until the end of February to avoid long wait times on the telephone.

Need a copy of your tax return or transcript?

Taxpayers can easily order a return or transcript on the IRS.gov website, or by mailing us a completed Form 4506-T. See our Get Transcript application to have a transcript mailed to you. More information on these options is available at IRS.gov.

Ordering a tax return or tax transcript does not mean a taxpayer will get their refund faster. The two are not connected in any way. IRS transcripts are often used to validate income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation.

Wondering how the Affordable Care Act will affect you?

This year almost all taxpayers must do something related to health care reporting requirements. The majority of taxpayers—more than three out of four—will simply need to check a box to verify they have health insurance coverage. For the minority of taxpayers who will have to do more, IRS.gov/aca features useful information and tips regarding the premium tax credit, the individual shared responsibility requirement and other tax features of the ACA. Publication 5201, The Health Care Law and Your Taxes, also provides a snapshot of ACA requirements.

Need answers to tax law questions?

Questions about what filing status means, whether to file a tax return or who can be claimed as a dependent? There’s the Interactive Tax Assistant that takes you through a series of questions just like one of our customer service representatives would. You can also do a keyword search on IRS.gov; use Publication 17, the annual, searchable income tax guide; or the IRS Tax Map, which allows search by topic or keyword for single-point access to tax law information by subject.

Can’t pay a tax bill?

For taxpayers whose concern is a tax bill they can’t pay, the Online Payment Agreement tool can help them determine in a matter of minutes whether they qualify for an installment agreement with the IRS. And for those whose tax obligation is even more serious, the Offer in Compromise Pre-Qualifier can help them determine if they qualify for an offer in compromise, an agreement with the IRS that settles their tax liability for less than the full amount owed.

Need help preparing your taxes?

Free tax return preparation help is available nationwide from volunteers and on IRS.gov with Free File. Local community partners operate roughly 13,000 Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites nationwide. Find a location nearby by searching “Free Tax Help” on IRS.gov.

IRS Free File is offered by 13 tax software companies that make their brand-name products available for free to the 70 percent of taxpayers who earned $62,000 or less last year. Free File Fillable Forms is available for households whose earnings are more than $62,000 and are comfortable preparing their taxes.

Taxpayers may also use our searchable directory on IRS.gov for help on finding a tax professional with credentials and select qualifications to help them prepare their tax returns.

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Missing Form W-2? IRS can help

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Most people get their W-2 forms by the end of January. Form W-2, Wage and Tax Statement, shows your income and the taxes withheld from your pay for the year. You need it to file an accurate tax return.

If you haven’t received your form by mid-February, here’s what you should do:

• Contact your Employer. Ask your employer (or former employer) for a copy. Be sure they have your correct address.

• Call the IRS. If you are unable to get a copy from your employer, you may call the IRS at 800-829-1040 after Feb. 23. The IRS will send a letter to your employer on your behalf. You’ll need the following when you call:

**Your name, address, Social Security number and phone number;

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

**The dates you worked for the employer; and

**An estimate of your wages and federal income tax withheld in 2015. You can use your final pay stub for these amounts.

• File on Time. Your tax return is normally due on or before April 18, 2016. Use Form 4852, Substitute for Form W-2, Wage and Tax Statement, if you don’t get your W-2 in time to file. Estimate your wages and taxes withheld as best as you can. If you can’t get it done by the due date, ask for an extra six months to file. Use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to request more time. You can also e-file a request for more time. Do it for free with IRS Free File.

• Correct if Necessary. You may need to correct your tax return if you get your missing W-2 after you file. If the tax information on the W-2 is different from what you originally reported, you may need to file an amended tax return. Use Form 1040X, Amended U.S. Individual Income Tax Return to make the change.

Note: Important 2015 Health Insurance Forms

Starting in 2016, most taxpayers will receive one or more forms relating to health care coverage they had during the previous year.

If you enrolled in 2015 coverage through the Health Insurance Marketplace, you should get Form 1095-A, Health Insurance Marketplace Statement by early February.

If you were enrolled in other health coverage for 2015, you should receive a Form 1095-B, Health Coverage, or Form 1095-C, Employer Provided Health insurance Offer and Coverage by the end of March. You should contact the issuer of the form – the Marketplace, your coverage provider or your employer – if you think you should have gotten a form but did not get it.

If you are expecting to receive a Form 1095-A, you should wait to file your 2015 income tax return until you receive that form. However, it is not necessary to wait for Forms 1095-B or 1095-C in order to file.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Phone scams continue to be a serious threat

 

WASHINGTON—Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, headlining the annual “Dirty Dozen” list of tax scams for the 2016 filing season, the Internal Revenue Service announced this week.

The IRS has seen a surge of these phone scams as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

“Taxpayers across the nation face a deluge of these aggressive phone scams. Don’t be fooled by callers pretending to be from the IRS in an attempt to steal your money,” said IRS Commissioner John Koskinen. “We continue to say if you are surprised to be hearing from us, then you’re not hearing from us.”

“There are many variations. The caller may threaten you with arrest or court action to trick you into making a payment,” Koskinen added. “Some schemes may say you’re entitled to a huge refund. These all add up to trouble. Some simple tips can help protect you.”

The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so.

This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam.

“The IRS continues working to warn taxpayers about phone scams and other schemes,” Koskinen said. “We especially want to thank the law-enforcement community, tax professionals, consumer advocates, the states, other government agencies and particularly the Treasury Inspector General for Tax Administration for helping us in this battle against these persistent phone scams.”

Protect Yourself

Scammers make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via a phishing email.

Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.

Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.

The IRS will never:

Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.

Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.

Require you to use a specific payment method for your taxes, such as a prepaid debit card.

Ask for credit or debit card numbers over the phone.

Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

If you don’t owe taxes, or have no reason to think that you do:

Do not give out any information. Hang up immediately.

Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.

Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

Call the IRS at 800-829-1040. IRS workers can help you.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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