eZ Advice

Advice that comes from experience and that fits your life!

  • W2 Form:
    You should only receive a W-2 if you are an employee. If you are an independent contractor or self-employed, the work you do may be the same as an employee, but you will receive an earnings statement on a Form 1099 rather than a W-2. The W-2 form is divided into boxes that report various items relating to your income. In box 1 of the W-2 you will find your annual wage and salary payments with the amount of federal tax withheld from it in box 2. Since only a portion of your income is subject to the Social Security tax, you may find that box 3 reports an amount that is less than your total wages for the year. Other boxes on the W-2 form include your wages subject to Medicare tax, Social Security taxes that are withheld and information on your state income tax withholding, if applicable.
  • Importance of your tax withholding:
    When your employer withholds amounts from your paycheck for federal income taxes, those amounts are remitted to the IRS throughout the year. You may not realize it, but in most cases, you cannot wait until April 15 to pay your entire tax bill. The IRS requires everyone to make periodic payments throughout the year; however, your employer takes care of this for you. When you prepare your federal return and calculate your tax for the year, the withholding amount your employer reports on the W-2 must be subtracted from your tax bill. Once you perform this calculation, you will know whether to expect a refund or make an additional tax payment. If you file a state income tax return, the same calculation is necessary for the amount withheld to pay your state income taxes.
  • Verifying your name and Social Security number:
    The identifying information section of the W-2 is essentially a tracking feature. If the income you report on your taxes does not match the information on your W-2, the IRS will want to know why. Similarly, the IRS will match the reported payment amounts with your employer's corporate tax return for accuracy. But most importantly, since the IRS receives a copy of your W-2, it already knows whether you owe tax and may contact you if you fail to file a tax return. If the name or Social Security number on your W-2 is inaccurate, you should immediately report this to your employer to correct.
  • Attaching your W-2:
    When you finish your tax returns and get ready to file them, remember that a copy of your W-2 must always be attached. If you e-file using TurboTax then your W-2 information is sent along with your tax return. However, if you are filing your tax return by mail then you need to place a copy on the front of your return.

IRS 1099 Form:

  • Introduction:
    The 1099 form is a series of documents the Internal Revenue Service (IRS) refers to as "information returns." There are a number of different 1099 forms that report the various types of income you may receive throughout the year other than the salary your employer pays you. The person or entity that pays you is responsible for filling out the appropriate 1099 tax form and sending it to you by January 31. .
  • Independent contractor income:
    If you are a worker earning a salary or wage, your employer reports your annual earnings at year-end on Form W-2. However, if you are an independent contractor or self-employed you should receive a Form 1099-MISC from each business client that pays you at least $600 during the tax year. For example, if you are a freelance writer, consultant or artist, you hire yourself out to individuals or companies on a contract basis. The income you receive from each job you take should be reported to you on Form 1099-MISC. When you prepare your tax return, the IRS requires you to report all of this income and pay income tax on it. Your are still required to report all of your income even if you do not receive a 1099-MISC
  • 1099s for interest and dividends:
    When you own a portfolio of stock investments or mutual funds, you may receive a Form 1099-DIVto report the dividends and other distributions you receive during the year. These payments are different than the income you earn from selling stocks. Rather, it is a payment of the corporation’s earnings directly to shareholders. Other types of investments you have may pay periodic interest payments rather than dividends. These interest payments are also taxable and are usually reported to you on Form 1099-INT. Commonly, taxpayers receive this form from banks where they have interest bearing accounts
  • The 1099-B for debt Brokerage Statement:
    The Form 1099-B is an IRS tax form that is issued by brokers or barter exchanges. The Proceeds from Broker and Barter Exchange Transactions form lists the gains or losses of all broker or barter exchange transactions. Brokers and barter exchanges must mail 1099-B forms by January 31. The Internal Revenue Service (IRS) requires the submission of form 1099-B to function as a record of a taxpayer’s gains or losses associated with the brokered sale or trade of certain securities. Form 1099-B describes activity over a specified period, such as one calendar or tax year. It records the gains or losses that occurred within that timeframe. Brokers must submit this form for each person who sold stocks, options, commodities and other trading vehicles. Taxpayers transfer information from form 1099-B to Form 8949 to calculate preliminary gains and losses. The calculated result is input onto Schedule D of the tax return. For example, assume you sold several stocks within the last year, and the proceeds from the sales of these stocks are $10,000. This $10,000 amount is reported by the brokerage to the IRS on form 1099-B. As a taxpayer, you will also include this amount as a capital gain when you file your income taxes.
  • Government payments:
    The federal and state governments are equally responsible for reporting income that it pays to taxpayers. Government agencies commonly use Form 1099-G to report the state income tax refunds and unemployment compensation you receive during the year. If you receive unemployment income, you must include the entire amount your state reports on the 1099-G form in your taxable income. However, you only include your state refund in income if you claimed deduction state income taxes in a prior tax year.
  • Withdrawals from a retirement account:
    When you withdraw money from your traditional IRA, in most cases it is taxable. You will receive a Form 1099-R that reports your total withdrawals for the year. The form also covers other types of distributions you receive from pension plans, annuities and profit-sharing plans. Usually the 1099-R will show the taxable amount of the distribution on the form itself and will report the amount of federal tax that was withheld.
  • The 1099-C for debt cancellations:
    Sometimes, transactions can increase your taxable income even when you don’t receive a payment. This commonly occurs when a creditor cancels a portion of your outstanding debt. When this happens, the IRS treats the debt cancellation as income which may be taxable to you. For example, if your credit card company no longer requires you to pay your outstanding balance, it may send you Form 1099-C to report the amount of debt it cancels and you may need to report this amount on your tax return.
  • Payroll:
    If you operate a business and have employees working for you, then you likely need to file IRS Form 941, Employer’s Quarterly Federal Tax Return, four times per year. As an employer, you are responsible for withholding federal income tax and other payroll taxes from each employee’s paycheck and remitting it to the IRS. Each Form 941 you file reports the total amount of tax you withheld during the quarter.
  • Who must file Form 941?
    Generally, any person or business that pays wages to an employee must file a Form 941 each quarter, and must continue to do so even if there are no employees during some of the quarters. The only exceptions to this filing requirement are for seasonal employers who don’t pay employee wages during one or more quarters, employers of household employees and employers of agricultural employees.
  • Completing Form 941:
    Every time you prepare a Form 941 for the quarter, you must report the number of employees you have, the total wages you paid and the amount of taxes you withheld to arrive at the amount you must send to the IRS. Before starting the return, you need your payroll records plus documentation for any taxable tips your employees report to you. When you calculate the amount to send to the IRS, in addition to federal income tax, the payment must reflect 6.2 percent of each employee’s wages, up to $128,400 in 2018, for Social Security insurance. It will also include 1.45 percent of all taxable wages for Medicare tax. As the employer, you are responsible for making an additional payment to the IRS equal to all Medicare and Social Security taxes withheld. Also, beginning in 2015, an employer must withhold Additional Medicare Tax from wages paid in excess of $200,000 during the year in addition to any other taxes withheld.
  • Form 941 filing deadlines:
    Since you must file a separate form for each quarter, the IRS imposes four filing deadlines that you must adhere to. The deadlines are April 30, July 31, Oct. 31 and Jan. 31 of each year. Just remember that the filing deadline always falls on the last day of the month following the end of the quarter. This gives you one month to prepare the form before submitting it to the IRS.
  • Avoiding penalties:
    Failure to timely file a Form 941 may result in a penalty of 5 percent of the tax due with that return for each month or part of a month the return is late. The penalty caps out at 25 percent. A separate penalty applies for making tax payments late or paying less than you owe. The IRS will charge you 2 to 15 percent of your underpayment, depending on how many days you are late paying the correct amount
 
 
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