Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did–and was able to legally deduct every dime that he spent on his vacation. Here’s how he did it.
Is your child a student with a summer job? Here’s what you should know about the income your child earns over the summer.
- All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. If you have any questions about whether your child’s withholding is correct, please call our office.
- Whether your child is working as a waiter or a camp counselor, he or she may receive tips as part of their summer income. All tip income is taxable and is therefore subject to federal income tax.
- Many students do odd jobs over the summer to make extra cash. If this is your child’s situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as baby-sitting and lawn mowing.
- If your child has net earnings of $400 or more from self-employment, he or she also has to pay self-employment tax. (Church employee income of $108.28 or more must also pay.) This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
- Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay–such as pay received during summer advanced camp–is taxable.
- Special rules apply to services performed as a newspaper carrier or distributor. As a direct seller, your child is treated as being self-employed for federal tax purposes if the following conditions are met:
- Your child is in the business of delivering newspapers.
- All pay for these services directly relates to sales rather than to the number of hours worked.
- Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes.
- Generally however, newspaper carriers or distributors under age 18 are not subject to self-employment tax
A summer work schedule is sometimes a patchwork of odd jobs, which makes for confusion come tax time. Contact us if you have any questions at all about income your child earned this summer season.
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The IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many of these letters and notices can be easily dealt with without having to call or visit an IRS office. Here are eight things you should know about if you receive a notice or letter from the IRS.
1. Don’t panic. There are a number of reasons why the IRS might send you a notice. Notices may request payment, notify you of account changes, or request additional information. A notice normally covers a very specific issue about your account or tax return. Most of the time, you can take care of a notice simply by responding to it.
2. Each letter and notice offer specific instructions on what action you need to take. Typically, an IRS notice is about a specific issue, such as changes to your account, regarding your federal tax return or tax account. It may ask you for more information. It could also explain that you owe tax and that you need to pay the amount that is due.
3. If you receive a correction notice, you should review the correspondence and compare it with the information on your tax return. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise
4. Each notice has specific instructions, so read it carefully because it will tell you what you need to do.
5. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment. If you do not agree with the correction the IRS made, a tax professional can help you to prepare a written explanation to send to the IRS of why you disagree and make sure it includes any information and documents the IRS should consider that support your case. You should hear from the IRS within 30 days regarding your correspondence.
6. Most correspondence can be handled without calling or visiting an IRS office. In order for your accountant to handle any issues that arise more quickly, please have a copy of your tax return, as well as any correspondence from the IRS available when you call.
7. Always keep copies of any notices you receive with your other tax records.
8. Be alert for tax scams. The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.
If you have received a letter or notice from the IRS and have questions or concerns don’t hesitate to call.
You have to know accounting. It’s the language of practical business life.
-Charles Munger, Vice-Chairman of Berkshire Hathaway Corporation
This excellent infographic breaks down the basics of business accounting and why it’s important to have good practices–and a good accountant–in place.
We all know somebody like Mitch, your mass-commuting, brown-bagging coworker who has toiled in accounting for as long as you can remember. Did you know he owns a vacation house at the beach?
Or the McGillicuddy family, who live down the street in a house just like yours. Would you believe they didn’t have to borrow a dime to send their kids to college?
Or Steve, your fellow baritone in the church choir. He just donated how much to help fund the city symphony?!
Call them the invisible rich. How do they do it? Sure, money like that sometimes comes from an inheritance or another fortuitous break, but more often than not, it’s the result of diligence, smart choices and, well, deferred gratification.
The tenets they follow can also put you on the path to financial prosperity and security. Discover how.