Have you recently married? Do you plan on being married by the end of the year? Likely the last thing on your mind at this time is taxes, but there are a few things you’ll want to take care of in order to avoid unneccessary stress at tax time.
1. Notify the Social Security Administration Report any name change to the Social Security Administration so your name and Social Security number will match when you file your next tax return. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.ssa.gov, by calling 800-772-1213 or at local offices.
2. Notify the IRS if you move If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from www.IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
3. Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence or refunds.
4. Notify your employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check your withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on www.irs.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will give you the information you need to complete a new Form W-4, Employee’s Withholding Allowance Certificate. You can fill it out and print it online and then give the form to your employer(s) so they withhold the correct amount from your pay.
6. Select the right tax form Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
7. Choose the best filing status A person’s marital status on Dec. 31 determines whether the person is considered married for that year. Generally, the tax law allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but usually filing jointly is more beneficial.
Please consult a tax advisor with any questions. And may you live Happily Ever After.
Wednesday, November 2, 2011
Wednesday, April 27, 2011
WHAT IS REASONABLE COMPENSATION IF YOU ARE AN S CORP
Shareholders of an S corporation love receiving distributions of profits because there is no immediate tax consequences...however, guess who has an issue with this? You guessed it...the IRS! They have taken a long standing position that where the shareholder is also acting as an employee of the corporation, "reasonable" compensation must be paid. And guess what...this compensation is also subject to Medicare and Social Security taxes whereas shareholder distributions are not.
The classification of S-Corp payments to shareholders is a long standing compliance issue with the IRS. They feel that many taxpayers convert what would otherwise be self-employment income (wages) to distributions, in order to avoid self-employment tax (Medicare and Social Security).
This past December the IRS was successful at convincing a US District Court that an S Corp shareholder-employee's $24,000 salary was not "reasonable" and allowed the IRS to reclassify as salary over $67,000, resulting in additional Medicare and Social Security tax....and...as you would guess...penalties and interest were tacked on as well!
According to IRS fact sheet #2008-25 a list of factors has been issued to help determing whether "reasonable" compensation has been paid. They include:
The classification of S-Corp payments to shareholders is a long standing compliance issue with the IRS. They feel that many taxpayers convert what would otherwise be self-employment income (wages) to distributions, in order to avoid self-employment tax (Medicare and Social Security).
This past December the IRS was successful at convincing a US District Court that an S Corp shareholder-employee's $24,000 salary was not "reasonable" and allowed the IRS to reclassify as salary over $67,000, resulting in additional Medicare and Social Security tax....and...as you would guess...penalties and interest were tacked on as well!
According to IRS fact sheet #2008-25 a list of factors has been issued to help determing whether "reasonable" compensation has been paid. They include:
- training and experience;
- duties and responsibilities
- time and effort devoted to the business
- dividend history
- payments to non-shareholder employees
- timing and manner of paying bonuses to key people
- what comparable businesses pay for similar services
- compensation agreements; and
- use of a formula to determine compensation.
Saturday, January 22, 2011
HOW LONG DO I NEED TO KEEP MY TAX RECORDS
One of the most frequently asked questions that come into our office is "How long do I need to keep my tax papers and record?" I would like to say never, but unfortunately that is not the case! There are many records and documents that support your numbers that appear on your tax return that you need to hang onto should your Uncle Sam (a/k/a IRS) select your return for that unwanted and fear producing audit. If you are well organized and can produce support for any of these numbers the examination normally goes smoothly and quickly. However, if you are not prepared and can not prove what has been reported than audits can become your worst nightmare! Here are some suggestions...
1. Organize the records at the time you are providing us the information to prepare your return and keep them with your return. If some of your records need to be stored in other locations, make a copy of these items for your tax return file. Trying to reassemble records after a couple of years have past by can be time consuming and stressful.
2. Records you want to keep include bills, credit cards and other receipts, invoices, mileage logs (extremely important), cancelled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return. Now, how long you keep these records depends on your circumstances. The general rule, according to the statue of limitations, is to keep tax records for a minimum of three years.....with a few exceptions. If the document will affect a future tax return, such as the purchase of real estate, the three year rule does not start until after the transaction closes, that is when you sell the real estate!
3. Documents, such as medical bills and mortgage interest statements, affecting only the current year can usually be destroyed after three years.
In conclusion, being able to properly support your tax retun is important. What to keep and how long you need to retain your paperwork can be confusing and something you should talk with us about, especially if we are familiar with your situation.
Bottom Line..stay well organized....and if you do you will be doing yourself a huge favor. And remember, talk with us first before throwing away any of your records.
1. Organize the records at the time you are providing us the information to prepare your return and keep them with your return. If some of your records need to be stored in other locations, make a copy of these items for your tax return file. Trying to reassemble records after a couple of years have past by can be time consuming and stressful.
2. Records you want to keep include bills, credit cards and other receipts, invoices, mileage logs (extremely important), cancelled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return. Now, how long you keep these records depends on your circumstances. The general rule, according to the statue of limitations, is to keep tax records for a minimum of three years.....with a few exceptions. If the document will affect a future tax return, such as the purchase of real estate, the three year rule does not start until after the transaction closes, that is when you sell the real estate!
3. Documents, such as medical bills and mortgage interest statements, affecting only the current year can usually be destroyed after three years.
In conclusion, being able to properly support your tax retun is important. What to keep and how long you need to retain your paperwork can be confusing and something you should talk with us about, especially if we are familiar with your situation.
Bottom Line..stay well organized....and if you do you will be doing yourself a huge favor. And remember, talk with us first before throwing away any of your records.
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