Tag Archives: tax tips

Paycheck Checkup for September

Tax Planning – Paycheck Checkup

With the change of seasons and start of the traditional school year, it’s a good time to
review your tax planning, and a Paycheck Checkup is an important part of that.

What is a Paycheck Checkup?

A Paycheck Checkup is a review of your tax withholding. Making sure the proper
amount of tax is being withheld from your paychecks will ensure you have no tax-time
surprises. Income tax is a pay-as-you-go system, and underpaying during the year can
result in taxes owed, and even penalties, when you file your tax return.

How To Do a Paycheck Checkup

The easiest way to do a Paycheck Checkup is to use the IRS’ Tax Withholding
Estimator . The Estimator will use information from a recent pay stub and your latest tax
return to estimate what should be withheld from current paychecks. The Estimator does
not save any of the information, nor does it ask for personally identifying information
such as social security or tax identification numbers.

What If the Withholding Is Wrong?

If you find the incorrect amount is being withheld from your paychecks, you could end
up loaning a lot of money, interest-free, to the government. This means too much is
being withheld, your paychecks are less, and you get a large tax refund. A large refund
might feel like a nice yearly boost, but it’s not the best management of your income.
If too little is being withheld, you could end up owing the IRS for your taxes (and even
penalties, in some cases). This would obviously be an unwelcome situation.

How To Change Withholding

Taxpayers who find their withholding should be changed need to ask their employer for
a Form W-4 (or print one here and submit it to their employer).
Those who have recently gotten married, divorced, had a child, gotten a raise, or begun
a side job should especially do a Paycheck Checkup, and end the year prepared for tax
season.

Tax Updates July 28

Transition Tax On Untaxed Foreign Earnings

The IRS has provided details on Section 965, transition tax on untaxed foreign earnings. The Tax Cuts and Jobs Act (TCJA) requires some untaxed foreign earnings and profits to be taxed as if those earnings have been repatriated to the US. Details on the income that must be recognized are provided, as well as a related deduction which generally lowers the effective tax rate to between 8% and 15.5%. Information is also available detailing how some taxpayers may choose to make installment payments over eight years.

Preventive Care To Include Some Chronic Conditions

The IRS has expanded the list of preventive care for HSA participants to include care for some chronic conditions. Preventive care benefits that may be provided by a high deductible health plan (HDHP) are not subject to the deductible, and now include certain medical care services received and items purchased, including prescription drugs, for certain chronic conditions for someone with that chronic condition. These include SSRIs, beta blockers, ACE inhibitors, diabetes testing materials, and more, for people with specific diagnoses.

Tax Security Remains a Priority

The IRS continues to help tax professionals secure client data and reduce tax fraud. “Taxes-Security-Together” – Step 1 details six sub-steps to secure basic protections, including anti-virus software, firewalls, two-factor authentication, backup services, encryption, and VPNs. The “Taxes-Security-Together” Checklist – Step 2 reminds tax professionals of their duty to have a written data security plan, and what is required in that plan. More steps to come.

IRS Pursues Virtual Currency Taxes

The IRS has begun sending letters to virtual currency owners, reminding them of their obligations to file amended returns and pay back taxes, interest, and penalties where appropriate. Ten thousand taxpayers are expected to receive these letters by the end of August as the IRS continues its efforts of addressing virtual currency non-compliance. Taxpayers who do not properly report such transactions could even be subject to criminal prosecution. 

Earning Money From Hobbies: An IRS Tip

Money-making Hobbies

Hobbies can be a great source of fun and recreation, and they can also be a source of income. Whether it’s making art, arranging flowers, or baking muffins, taxpayers must report any money they make on their tax return.

Business Or Hobby?

The rules governing the reporting vary, depending on whether the activity is actually a business or a hobby (a business is operated solely for profit, a hobby is engaged in primarily for pleasure or recreation.) If you’re not sure where your activity falls, these questions can help

Deductions

Only expenses that are “ordinary and necessary” may be deducted. Ordinary is defined as an expense common and accepted for the hobby, and necessary expenses are those deemed appropriate for the activity. Muffin ingredients and the electricity to run the oven qualify, as do packaging materials.

Unlike a business, taxpayers can usually only deduct hobby expenses up to the amount of hobby income. If a hobby’s expenses exceed its income, the loss can’t be deducted from other income. If you made $3,000 selling muffins, but your expenses were $4,000, only the $3,000 is deductible as expenses.

Prepared To File

Taxpayers claiming hobby expenses must itemize deductions (not claim the standard deduction) on Schedule A (Form 1040). It can be helpful to plan ahead for this, as hobby rules are complex and expenses may fall into three different categories, with different rules applied to each category. A tax professional can help you be prepared to file next year’s tax return.

 

How to Find the IRS Online

Social IRS

Need to connect with the IRS? There’s an app for that. IRS2Go, available in English and Spanish, and for Android and Apple, offers tax tips, IRS YouTube videos, and your refund status. You can even pay your taxes via the app.

In an effort to connect with small business owners and taxpayers, the IRS also has several official social media accounts. Find them on YouTube, Instagram, Twitter, Facebook, and LinkedIn.

 

YouTube

 

The official IRS YouTube channel offers a small business playlist full of tax tips. The videos are available in English, Spanish, and even American Sign Language.

Instagram

News and information can be found on the IRS’ official Instagram account, IRSNews.

Twitter

The IRS has several Twitter accounts:

And the newly added:

Facebook

If Facebook is your social media platform of choice, find the IRS on Facebook and in Spanish, for news, updates, tips, and more.

LinkedIn

For agency updates and job opportunities, check the IRS’ LinkedIn account.