These common tax preparation errors can cost you money or even lead to an audit by the IRS. Here's how to avoid them.
This post comes from Stacy Johnson at partner site Money Talks News.
As humans, we all have the right to make mistakes. But tax time isn't the time to exercise that right. In the best case, mistakes on a tax return could mean a delayed refund. In the worst, a smaller refund, an amended return or an audit.
Most taxpayers concentrate on ways to reduce their taxable income, but they need to focus on adjusted gross income instead.
Most taxpayers concentrate on ways to reduce their "taxable income." However, it is your "adjusted gross income" (AGI) -- Line 37 on Form 1040 or Line 21 on Form 1040A -- that is really the most important number on your tax return.
There are two types of tax deductions -- those allowed "above the line" and those claimed "below the line." The "line" is your adjusted gross income.
"Above the line" deductions reduce your adjusted gross income. You do not have to itemize to claim these deductions, aka "adjustments to income", which include:
Most people don't and could easily get free help or do their own taxes with an online service. But if you truly need help, here's how to pick the right professional.
This post comes from Stacy Johnson at partner site Money Talks News.
According to the IRS, 60 percent of Americans use a paid professional to prepare their taxes. But April 15 is taxing enough without blowing big bucks on paid preparers who are either overkill or overpriced.
For many people, there's no reason to pay at all.
If your wage statement gets waylaid, here's a substitute the IRS will accept.
You're still waiting for your W-2. You know you're getting a refund and you want to file your return, but it's something you can't do until you receive your annual wage statement.
The Internal Revenue Service requires employers to get workers their earnings information by the end of each January, so allow a few days after the 31st for it to show up.
But if your Form W-2 never arrives, you can create your own for tax-filing purposes. Here's the information you'll need:
- Year's wages.
- Payroll taxes withheld.
- Federal and state income taxes withheld.
- Contributions to your company retirement/401k plan.
- Employer's tax identification number.
If the Bronco's quarterback doesn't retire after Sunday's game, his earnings will fall victim to New Jersey's 'jock tax.'
Peyton Manning has the opportunity to pull a John Elway and ride off into the sunset as a Denver Bronco after winning his second ring, not that he wants to retire. His career will hinge upon an offseason exam on his surgically repaired neck, according to ESPN's Chris Mortensen. Obviously, the most important implication of the exam will be Manning's health. But whether his career continues will have an effect on how much tax New Jersey can collect from him for his appearance in the Super Bowl XLVIII.
Should the Broncos beat the Seahawks, Manning -- and the rest of his teammates -- will earn $92,000. The loser's share in the Super Bowl is $46,000. So why does Manning's future beyond Feb. 2 matter to New Jersey? It would seem logical that the Garden State would apply its tax rates on the $92,000 or $46,000 Manning earns for his week in East Rutherford. Unfortunately, we are dealing with tax laws, not logic.
New Jersey, and every other state that imposes a jock tax, taxes players on their calendar-year income from each employer. If the Broncos defeat the Seahawks, Manning's 2014 playing income to this point would be $157,000 derived from playoff bonuses. If the Broncos lose, his playing income would be $111,000.
Beware of the 7 factors outlined below that can raise your AMT risk.
Will I or won't I? Now that it's January, let the annual AMT guessing game begin.
Even if you've been paying the reviled alternative minimum tax known as the AMT for years, your status can change. It all hinges on how much you make, where your money comes from and the deductions you can claim.
"I love to describe the AMT as one of those big roulette-type wheels that goes round and round, and where it stops nobody knows," said Pete Lang, president of Lang Capital, a Hilton Head, S.C.–based private wealth manager.
This may come as a surprise, but it's not the rich who have the most to worry about. Some 3.9 million taxpayers -- 4.2 percent of the nation's total -- are expected to get hit with the AMT for 2013, according to experts from the Tax Policy Center. The average tab for individuals: $6,600.
"Unfortunately, AMT is really targeted at the middle market," said Dave McKelvey, partner in Friedman LLP, a New York City accounting and advising firm. "If you make a lot of money, your regular tax is going to be high enough that AMT is not going to be an issue, and if you make an income that's low enough, AMT is not going to be an issue."
Be aware that many of these crucial financial documents are now delivered electronically.
Statements are on the way from employers, banks, stockbrokers and other institutions and agencies that were involved in taxpayers' financial lives last year. Each of these groups has, by law, until Jan. 31 (or the next business day when that date falls on a holiday or a weekend) to get their annual tax statements in the mail to you.
Many taxpayers now receive these documents electronically. So be sure to double-check your email, not just the curbside mailbox, for these statements.
Common income, deduction statements
Most taxpayers depend on the same basic data to file returns. If you work for someone else, the Internal Revenue Service expects you, and the agency, to get a statement detailing that income. The data are slightly different, depending on whether you get paid a salary or do contract work, but there's a form for either case.
W-2 -- This is the key form, and you need one from each employer you worked for during the past year. Your W-2 shows how much money you made, how much income tax was withheld, Social Security and Medicare taxes paid, and any benefit contributions -- retirement plans, medical accounts and child care reimbursement plans.
About 43 percent of Americans won't pay 2013 taxes. Here's why they're not filing.
Do you have to file a tax return? Maybe not.
While the Internal Revenue Service gets around 140 million returns a year, millions of Americans are exempt from this annual duty.
Before you wish you were among that group, however, take a look at just who typically does not have to file a 1040.
47 percent and falling
During the 2012 presidential election, much attention was given to individuals who didn't file or pay taxes. That was when Republican nominee Mitt Romney cited data -- the now infamous 47 percent figure.
That number came from a study by the Urban Institute and Brookings Institution's Tax Policy Center, or TPC, of 2009 IRS filing data.
The Washington, D.C.-based policy group has been analyzing U.S. tax filing and paying for years and actually is seeing a drop in those who don't have to pay federal income taxes. For the 2013 tax year, TPC estimates that the number will be 43 percent.
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