Tuesday, September 2, 2014

You may be able to deduct some of your job hunting expenses

Are you looking for a new job? If so, you may be able to deduct some of your job hunting costs. Here are some key tax facts you should know if you search for a new job:

• Same occupation — Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.

• Résumé costs — You can deduct the cost of preparing and mailing your résumé.

• Travel expenses — If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.

• Placement agency — You can deduct some job placement agency fees you pay to look for a job.

• First job — You can’t deduct job search expenses if you’re looking for a job for the first time.

• Work-search break — You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.

• Reimbursed costs — Reimbursed expenses are not deductible.

• Schedule A — You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than 2 percent of your adjusted gross income.

• Premium Tax Credit — If you receive advance payment of the premium tax credit in 2014, it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more on job hunting, refer to Publication 529, Miscellaneous Deductions, on IRS.gov. You can also call 800-TAX-FORM (800-829-3676) to get it by mail.

For more information, visit IRS.gov.

Learn the rules of IRA Required Minimum Distributions

If you will be age 70 1/2 or older by the end of 2014, you must withdraw a minimum amount — a Required Minimum Distribution — from your non-Roth IRAs for 2014. Withdrawals are not required from Roth IRAs until after the owner’s death.

Required Minimum Distribution deadline

You must take your 2014 RMD by Dec. 31, 2014. If you reached the age of 70 1/2 in 2014, you can delay taking your 2014 RMD until April 1, 2015.

Required Minimum Distribution amount

Your 2014 RMD is your account balance as of the end of 2013 divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if your spouse is your sole beneficiary and is 10 or more years younger than you. You can use these worksheets to calculate your RMDs.

Failure to take full amount of a Required Minimum Distribution

If you fail to take the full amount of your RMD (you can always withdraw more than the required amount), you may have to pay a 50 percent excise tax on the amount not distributed as required.

• To report the excise tax, file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

• See Form 5329 instructions for additional information about this tax.

Starting a business? Check out these tax tips

If you plan to start a new business, or if you’ve just opened your doors, it’s important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started:

1. Type of business — Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Type of taxes — The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number — Oftentimes, a business needs to use a federal EIN for tax purposes. Check IRS.gov to find out if you are required to obtain and use an EIN. If you do, you can apply for an EIN online.

4. Accounting method — Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and the accrual method of accounting. Under the cash method, you typically report income in the year that you receive it and deduct expenses in the year that you pay them. Under the accrual method, you typically report income in the year that you earn it and deduct expenses in the year that you incur them. This is true even if you receive the income or pay the expenses in a future year.

5. Employees — If you have employees, they need to fill out Form W-4, Employee’s Withholding Allowance Certificate. This ensures that you withhold the correct federal income tax from their pay.

Each state has additional requirements for starting and operating a business. For information regarding state-level requirements for starting a business, please refer to your state's Web site.

For more information, check out the Small Business and Self-Employment Tax Center page on IRS.gov. From there, review the special section on Starting, Operating, or Closing a Business. Publication 583, Starting a Business and Keeping Records, may also help new business owners with the tax aspects of running a business. The booklet is also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Education credits: Understand your Form 1098-T

If you’re a college student or parent of a college student, you may be eligible for an education credit. Most students receive a Form 1098-T, Tuition Statement, from their educational institution. Form 1098-T contains helpful instructions and other information you’ll need to claim education credits on your federal tax form. These credits help offset your out-of-pocket expenses for tuition and fees, books and equipment.

Your educational institution is required to file a Form 1098-T with the IRS and provide you a copy when there is a reportable transaction. A reportable transaction includes payments received, amounts billed or refunds made for tuition and related expenses. The form should also give you other information for the educational institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements, or refunds, and whether you were enrolled at least half time or were a graduate student.

In most cases, you should receive Form 1098-T from the eligible educational institution by Jan. 31. If you don’t receive it by the end of January, be sure to contact your school.

Education credits

An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit.

To claim an education credit, you must file Form 1040 or 1040A with Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). See Instructions for Student on Page 4 of Form 1098-T for more details.

To see if you qualify for a credit, and for help in calculating the amount of your credit, see Pub. 970, Tax Benefits for Education; Form 8863, Education Credits; and the Form 1040 or 1040A instructions. You can also use the IRS’s Interactive Tax Assistant tool to help determine if you are eligible for these benefits.

Don’t overlook these important credits. Find out more about education credits by visiting the Education Credits Web page on IRS.gov.

Friday, August 29, 2014

Reminder about Forms W-4

An accurate Form W-4 is important. Tax Topic 753 has information to help employees and employers.

Notice about Backup Withholding for Form 1099-K available

Notice 1430

Don’t Get Caught in Backup Withholding
Information about Your Form 1099-K

Why you are receiving this notice

Your name and taxpayer identification number (TIN) submitted on Form 1099-K, Payment Card and Third Party Network Transactions, by a payment card processor or third-party settlement organization does not match IRS records. If a payment card processor or third-party settlement organization submits a Form 1099-K for tax year 2013 with an incorrect TIN or name for you, the payments you receive for your payment card or third party network transactions will be subject to backup withholding. This means the payment card processor or third-party settlement organization will be required to withhold 28% from each payment to you beginning as early as September 2014.

If you operate as a partnership or subchapter S corporation, any monies withheld due to an incorrect name or TIN can only be claimed by the partners and shareholders on their individual income tax returns for their shares of the withheld amounts. The monies are not refundable to the partnership or subchapter S corporation.

What you need to do

You need to immediately contact your payment card processor or third-party settlement organization. Verify that the name and TIN the payment card processor or third-party settlement organization has in its records matches the exact name and TIN on your income tax return.

For additional information on Form 1099-K reporting and backup withholding, visit our website at www.irs.gov and enter keywords, “Third Party Reporting Center” or “Backup Withholding.”

Thursday, August 28, 2014

Back-to-School Tax Credits

Are you, your spouse or a dependent heading off to college? If so, here’s a quick tip from the IRS: some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:  
  • American Opportunity Tax Credit.  The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
  • Lifetime Learning Credit.  With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
  • One credit per student.  You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student.  For example, you can claim the AOTC for one student and claim the LLC for the other student.
  • Qualified expenses.  You may include qualified expenses to figure your credit.  This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
  • Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T.  In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.
  • Nonresident alien.  If you are in the U.S. on an F-1 student visa, you usually file your federal tax return as a nonresident alien. You can’t claim an education credit if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. To learn more about these rules see Publication 519, U.S. Tax Guide for Aliens.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.
For more information, visit the Tax Benefits for Education Information Center on IRS.gov. Also, check Publication 970, Tax Benefits for Education. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

Make A Mistake? Amend Your Tax Return

Don’t worry if you made a mistake on your tax return or forgot to claim a tax credit or deduction. You can fix it by filing an amended return. Here are 10 tips that you should know about amending your federal tax return:

1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a request for the missing item.

3. Form to use.  Use Form 1040X to amend a federal income tax return that you previously filed. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.

4. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the correct address to use.

5. Form 1040X.  Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

6. Other forms or schedules..  If your changes involve other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. Failure to do this will cause a delay in processing.

7. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 12 weeks to process. You will receive any additional refund you are owed.

8. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit any interest and penalty charges.

9. When to file.  To claim a refund, you generally must file Form 1040X within three years from the date you filed your original tax return. You can also file it within two years from the date you paid the tax, if that date is later than the three-year rule.

10. Track your return.  You can track the status of your amended tax return three weeks after you file with ‘Where’s My Amended Return?’ This tool is available on IRS.gov or by phone at 866-464-2050.

Visit IRS.gov to get Form 1040X or call 800-TAX-FORM (800-829-3676).

Additional IRS Resources: