Tax

Tax

A Slip of the Lip May Bring on a Tax Audit

A Slip of the Lip May Bring on a Tax Audit

Many taxpayers have learned, to their dismay, that it generally isn’t wise to talk carelessly about their taxes – especially about sensitive areas. Why? Because the wrong person overheard their careless talk and “turned informer,” either for revenge or in the hope of an “informer’s reward.”

An informer’s “tip” to the IRS will often trigger a tax audit. Even though the taxpayer has done nothing improper, he or she may have to suffer through the audit. Not only is this time-consuming, but it can also result in additional taxes due to the discovery of an innocent error on the return or the disallowance of a marginal deduction.

Tip: Most informers are disgruntled employees and former spouses or lovers.

Business Tax

Six Tips for Paying Estimated Taxes

Estimated tax is a method used to pay tax on income that is not subject to withholding. Depending on what you do for a living and what type of income you receive, you may need to pay estimated taxes during the year.

These six tips from the IRS will provide you with a quick look at estimated taxes and how to pay them…

  1. If you have income from sources such as self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, or awards, then you may have to pay estimated tax.
  2. As a general rule, you must pay estimated taxes in 2011 if both of these statements apply: 1) you expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and credits, and 2) you expect your withholding and credits to be less than the smaller of 90% of your 2011 taxes or 100% of the tax on your 2010 return. There are special rules for farmers, fishermen, certain household employers, and certain higher-income taxpayers.
  3. For sole proprietors, partners, and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
  4. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions, and credits for the year. Use the worksheet in Form 1040ES, Estimated Tax for Individuals, which we can send you. You want to be as accurate as possible to avoid penalties. Also, consider changes in your situation and recent tax law changes.
  5. The year is divided into four payment periods, or due dates, for estimated tax purposes. Those dates generally are April 15, June 15, Sept. 15, and Jan. 15.
  6. Form 1040ES, Estimated Tax for Individuals, provides all you’ll need to pay estimated taxes. This includes instructions, worksheets, schedules, and payment vouchers. The easiest way to pay estimated taxes, however, is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Take our advice and don’t ignore your estimated tax payments. And please call us with any questions.

Accounting Tax

Tips on Tips

Do you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant, or do you drive a taxicab? The tip income you receive as an employee from those services is taxable income.

Here are some tips about tips:

  • Tips are taxable. Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
  • Include tips on your tax return. In your gross income, you must include all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
  • Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.
  • Keep a running daily log of your tip income. Be sure to keep track of your tip income throughout the year. If you’d like a copy of the IRS form that helps you record it, let us know.

Tips can be tricky. Don’t hesitate to contact us if you have questions.

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