If You Get an IRS Notice, Here’s What to Do

Each year the IRS mails millions of notices and letters to taxpayers. If you receive a notice from the IRS, here is what you should do:

• Don’t Ignore It. You can respond to most IRS notices quickly and easily. It is important that you reply right away.

• Focus on the Issue. IRS notices usually deal with a specific issue about your tax return or tax account. Understanding the reason for your notice is important before you can comply.

• Follow Instructions. Read the notice carefully. It will tell you if you need to take any action to resolve the matter. You should follow the instructions.

• Correction Notice. If it says that the IRS corrected your tax return, you should review the information provided and compare it to your tax return.

  If you agree, you don’t need to reply unless a payment is due.

  If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Include the bottom tear-off portion of the notice with your letter. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at least 30 days for a response from the IRS.

• Premium Tax Credit. The IRS may send you a letter asking you to clarify or verify your premium tax credit information. The letter may ask for a copy of your Form 1095-A, Health Insurance Marketplace Statement. You should follow the instructions on the letter that you receive. This will help the IRS verify information and issue the appropriate refund.

• No Need to Visit IRS. You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. You should have a copy of your tax return and the notice with you when you call.

• Keep the Notice. Keep a copy of the notice you get from the IRS with your tax records.

Watch Out for Scams. Don’t fall for phone and phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not initiate contact with taxpayers by email, text or social media.

If you have received a letter in the mail from the IRS and you have questions, please feel free to contact our office. We would be glad to help you get your taxes sorted out.

Source: IRS

 

Differences Between IRS Forms W-2 and W-4

Whether you’re a business owner or an employee, tax forms are an inescapable part of your job. Between the numerous consonants and hyphens, it’s easy to get lost in the IRS’ alphabet soup. Two related documents, Forms W-4 and W-2, are subject to confusion because their names are so similar. They are both related to an employee’s tax situation, but serve different functions.

Since it’s relatively easy to mix the two up, we’re going to take a look at how they differ, what purposes they serve, and when both employers and employees should think about them.

About the W-4

The W-4 is a tax form used to calculate the correct amount of federal income tax that should be withheld from an employee’s pay. An employee must consider factors like his or her family situation (i.e. number of children, marital status, etc.), home ownership (i.e. buying or selling a house), saving contributions (i.e. college, retirement, etc.), number of dependents and even employment status. This form is required for all employees except those that earn less than $800 per year.

This form must be completed whenever an employee starts a new job. An employee can also update his or her W-4 at any time based on changes in his or her personal or financial situation. As an employer, you are under no obligation to request updates. If a new hire is unsure about how much pay to withhold, he or she can use the IRS’ Online Withholding Calculator for assistance.

About the W-2

The W-2 is a tax form that employers give to their employees at the end of each year. This form includes the total amounts of wages earned, federal and state taxes withheld, and contributions to Social Security for a given tax year. After receiving it from his or her employer, the employee must submit this information when paying taxes in April with their Form 1040.

Employers are required to provide their employees with this information by January 31 of each year and submit a copy to the Social Security Administration (SSA) by February 29. A copy must also be kept on record for a minimum of four years. An additional three copies are furnished to employees for their personal records and tax filings.

If you have any questions, please feel free to contact our office.

Tips for Taxpayers Starting a New Business

Anyone starting a new business should be aware of his or her federal tax responsibilities. Here are several things you should know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type of business you open will determine which tax form has to be filed. The most common types of business are the sole proprietorship, partnership, corporation, and S corporation

2. The type of business you operate will determine what taxes must be paid and how you pay them. The four general types of business tax are income tax, self-employment tax, employment tax, and sales or excise tax.

3. An employer identification number is used to identify a business entity. Most businesses need an EIN, and your business will definitely need one if you hire employees, regardless of the type of business entity selected. Please call this office to determine whether your business needs an EIN and get assistance in obtaining one if it does.

4. Good records will help ensure the successful operation of your new business. You may choose any record-keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kinds of records. However, the business you are in will affect the types of records that will have to be kept for federal tax purposes. If you need assistance or guidance in setting up your business records, please give this office a call.

5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the cash method, income is generally reported in the tax year it is received, and expenses are deducted in the tax year they are paid. Under an accrual method, income is generally reported in the tax year it was earned, if not yet received, and expenses are deducted in the tax year they are incurred, even though they are not yet paid.

If you are contemplating starting a business or if you already have one, please contact our office if you need assistance with your accounting, bookkeeping, payroll or sales tax reporting, or other federal or state compliance issues.

 

Tax Tips for Students with Summer Jobs

Students often get a job in the summer. If it’s your first job it gives you a chance to learn about work and paying tax. The tax you pay supports your home town, your state and our nation. Here are some tips students should know about summer jobs and taxes:

• Withholding and Estimated Tax.  If you are an employee, your employer withholds tax from your paychecks. If you are self-employed, you may have to pay estimated tax directly to the IRS on set dates during the year. This is how our pay-as-you-go tax system works.
• New Employees.  When you get a new job, you will need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.
• Self-Employment.  Money you earn doing work for others is taxable. Some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction can cut taxes.
• Tip Income.  All tip income is taxable. Keep a daily log to report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
• Payroll Taxes.  You may earn too little from your summer job to owe income tax. But your employer usually must withhold social security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
• Newspaper Carriers.  Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from social security and Medicare taxes.
• ROTC Pay.  If you’re in ROTC, active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training is not taxable.

If you have any questions about your summer job, feel free to contact our office.

 

Tax Rules For Gamblers

If you’ve done some gambling, you may need to know about the applicable federal income tax rules.
They can be summarized as follows.

You must report 100% of your wagering winnings as taxable income on your Form 1040. The value of complimentary goodies (“comps”) provided by gambling establishments must also be included in taxable income
because comps are considered gambling winnings. These amounts are subject to your regular federal income tax
rate, which can be as high as 39.6%.

If you itemize deductions, you can write off wagering losses on Schedule A of Form 1040. However, allowable
wagering losses are limited to your winnings for the year, and any excess losses cannot be carried over to future years. Also, out-of-pocket expenses for transportation, meals, lodging, and so forth do not count as gambling losses and, therefore, cannot be written off at all.

If you qualify as a professional gambler, your wagering winnings and losses are reported on Schedule C of Form 1040. However, deductions for wagering losses are limited to your winnings, and any excess wagering losses cannot be
carried over to future years (same as for amateurs). The good news here is that you can also deduct travel expenses and other out-of-pocket costs of being a professional gambler.

In any case, you must adequately document wagering losses (and out-of-pocket nonwagering expenses if you are a professional) to claim a deduction. The government says you must compile the following information in a log or similar record:

1. The date and type of specific wager or wagering activity.

2. The name and address or location of the gambling establishment.

3. The names of other persons (if any) present with you at the gambling establishment (obviously this is not possible when the gambling occurs at a public venue such as a casino, race track, or bingo parlor).

4. The amount won or lost.

For example, the IRS says you can document income and losses from wagering on table games by recording the number of the table that you played and by keeping statements showing casino credit that was issued to you. For lotteries, your wins and losses can be documented by winning statements and unredeemed tickets.

Last but not least, be aware that amounts you win may have to be reported to you on IRS Form W-2G(Certain Gambling Winnings). In some cases, federal income tax may have to be withheld, too. Anytime a Form W-2G is issued to you, the IRS gets a copy. So the government will expect to see the winnings show up on your tax return.

Please contact us if you have questions or want more information on the tax rules for gambling activities.