How to Read Your Form 1099-DIV

How to Read Your Form 1099-DIV. Many investors who receive dividend income are confused by the way this income is broken down on the 1099-DIV form. This article explains how to interpret the numbers in each of the commonly used boxes on this form. Have a question? Get an answer from tax advisor now!

Instructions

Earned Income Tax Credit

1 - Look at box 1a of your 1099-DIV. This box is labeled "ordinary dividends." This means that the income reported in this box is taxed as ordinary income. Ordinary income is always taxed at your top marginal tax rate. This income is reported either directly on the form 1040 or on Schedule B.

2 - Box 1b of your form is labeled "qualified dividends." These are dividends that qualify for the lower 15 percent or zero capital gains tax rate. They are reported separately on the 1040.

3 - Box 2a shows total capital gains distributions from a mutual fund or real estate investment trust (REIT). This income will be reported either on Schedule D or directly on your 1040.

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4 - Boxes 2b and 2c are used to report capital gains or income recapture from various types of real estate transactions. This type of income is much less common than the type of income realized in the previous boxes.

5 - Box 2d will contain the amount of capital gain received from the sale of a collectible or antique item. This type of income never qualifies for capital gains treatment, regardless of your holding period or tax bracket.

6 - Box 6 shows any foreign tax that has been paid to other countries. This is usually the result of investing in an international or global mutual fund, but can be from any type of foreign investment.
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How to File Taxes with Form 1099-Misc

When you get ready to file your taxes and you only have to file taxes with form 1099-Misc, you need to know where to enter this income. Besides knowing where to enter the information, you must know what other tax obligations you have that pertain to the 1099-Misc form. If you are an independent contractor who receives a 1099-Misc, you could be subject to self employment taxes and may be able to claim expenses on Schedule C that pertain to the business you conduct.        Have a question? Get an answer from tax advisor now!

Instructions

Schedule C Profit and Loss Form Business

1 - Start the Schedule C by filling in the top portion of the form with your personal information. In Part 1, enter the income that you have entered on the 1099-Misc. On line 7, total lines 1 through 6 to find your gross income.

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2 - Enter all expenses on lines 8 through 27 that apply. All expenses must relate directly to the business that you preformed. For instance, an artist may claim paints and studio rent if it is for work only. A writer may claim fees for office supplies that pertain to the business.

3 - Total the expenses on line 28. Subtract line 28 from line 7 (gross income) and enter that amount on line 29. Continue entering the amounts you have on lines 30 through 32. If you have a profit or loss on line 31, enter this amount on line 2 of the Schedule SE and on line 12 of the 1040 form. Enter a loss in parentheses to indicate a negative amount.

Schedule SE Self Employment Tax

4 - Follow the chart on the Schedule SE to see if you must file the short form or the long form. Most people will use the short form unless their income is over $106,800 or if they are a member of a religious order, such as a minister.

Child Tax Credit Information

5 - Enter any profit or loss that you may have from a farm profit (or loss) if this applies on line 1a. Complete line 1b if it applies. Lines 2 is already filled in with the total from the Schedule C. Add lines 1a, 1b and 2 together and enter this total on line 3.

6 - Multiply line 3 by .9235 and enter the total on line 4. If the total is less than $400, you do not owe any self employment taxes. If the total is more than $400, continue to line 5 and 6. Multiply line 4 by .153 if the total on line 4 is $106,800 or less and by .029 if line 4 is more than $106,800. Enter the result on line 5 and on line 56 of form 1040. Divide the total on line 5 in half and enter the result on line 27 of the 1040 form and line 6 of the Schedule SE.
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1040 Form

7 - Enter any other income you have to report on the 1040 form. This includes income such as taxable interest, W-2 forms, tax exempt interest, capital gains or unemployment compensation.

8 - Complete the adjusted gross income on lines 23 through and 37. Complete the taxes and credits on lines 38 through 55. Enter any other taxes you have on lines 56 through 60 and any payments on lines 61 through 71. If you made any estimated taxes during the tax year for the 1099-Misc income, write this amount on line 62.

Tax Deductions Information

9 - Continue the return until you have completed lines 72 through 76 to determine if you will owe money or if you have a refund coming. Sign and date the return. Send the Schedule C, Schedule SE, 1040 and all other schedules and 1099-Misc forms, along with any W-2 forms, the Internal Revenue Service address listed for your particular state.

How to Give the 1099 Form

If you've paid more than $600 to an individual who isn't part of your business, such as a freelancer, there is a good chance you will need to fill out and send them a 1099 form. This form is used to properly report their income to the government, and allows them to calculate the taxes and other withholding necessary to complete their income taxes. Have a question? Get an answer from tax advisor now!
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Instructions

1 - Determine whether you need to give the worker a 1099 at all. If the worker earned over $600 from you in the course of business and the worker was operating as an independent contractor, you will need to fill out a 1099.

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2 - Obtain a copy of the 1099 form to fill out. These forms are typically available at local libraries for free, or call 1-800-TAX-FORM to be sent a copy in the mail. A link to an informational 1099 is included in the Resources section below.

3 - Write your identifying information in the upper-left-hand boxes of the form. This includes your business name and address, as well as your federal identification number or EIN.

4 - Fill out the contractor's information, which is found below your information. Write the contractor's Social Security number into the box labeled "Recipient's identification number," and write his address information in the boxes below.

5 - Fill out the amount of income the contractor earned, and any federal income tax you withheld for her, in boxes 3 and 4 on the right-hand side of the form. In most cases, you will not have held any federal income tax for the contractor.

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6 - Send copies 2 and B to the worker no later than January 31 of the year following the one in which he earned the income. Send copy 1 to the tax revenue department of the contractor's state no later than February 28.

7 - Send copy A, along with form 1096, to the IRS no later than February 28. This will cover your reporting requirements to the government. You may retain copy C of the form for your own records.

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How to Calculate Taxes on Form 1099-Misc

When you work for a company as an independent contractor, the person or company you worked for will send you a Form 1099-MISC at the end of the year rather than a Form W-2. Because no federal, state, Social Security or Medicare taxes were withheld from your pay, you are responsible for any taxes due on the income. Have a question? Get an answer from tax advisor now!

Instructions

Kentucky Income Tax Brackets

1 - Find your earned income in Box 7 under non-employee compensation. If you were paid royalties, they will be recorded in Box 2 on the form. Box 3 is for any other income you received, which could include bonuses. If you had any federal or state tax withheld, this will be recorded in Box 4 and Box 16, respectively, but most independent contractors won't have entries in those two boxes.

2 - Add the amounts in boxes 7 and 3 to get your total income for the year. If you have more than one 1099-MISC, add all these totals before calculating your tax liability.

3 - Calculate any business-related expenses you had during the tax year and subtract them expenses from your total income. For example, if the total income on Form 1099-MISC is $6,891, and there were no expense deductions and no taxes withheld so the recipient is responsible for federal, state and self-employment taxes on income of $6,891. Multiply $6,891 by 92.35 percent (.9235) to calculate the amount subject to self-employment taxes ($6,891 x .9235 = $6,364).

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4 - Use the amount subject to self-employment tax to find your self-employment tax liability. If the amount is under $400, you do not owe any self-employment tax. If your total income is over $110,100, multiply the amount subject to self-employment tax by 2.9 percent (.029) and add $10,574 to that amount. If your total is under $110,100, multiply the amount by 13.3 percent (.133) to find your self-employment tax. For this example, the total subject to this tax is $6,364. The formula is $6,364 x .133 = $846. Your self-employment tax liability is $846.

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5 - Figure your federal tax liability on your total income using IRS Publication 15 for the current tax year (see example in Resources). Keep in mind that your federal tax liability will be reduced by a standard deduction or an itemized deduction and/or the earned income credit if it applies to you. You tax liability also can be reduced by other payments and credits.

6 - Calculate how much state tax you owe on the total income (see Resources).
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What’s the Tax Form for Tips? IRS form 4137

Did you know that tips aren’t just free money?  As usual, the IRS wants to be part of your income…every last drop.  So yes, you have to pay taxes on your tips.  Specifically, you have to pay Social Security and Medicare taxes on your tips…it’s only fair, since these taxes are what will help you through retirement and old age.  Everyone who makes money pays into the system…including waitstaff, maids,

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Tips are to be reported to your boss.  If you didn’t know you had to do this, you can still report your tips at tax time to the IRS.  The way it’s supposed to work is, you report your tips to your boss, then he or she withholds a certain amount from your paycheck to cover his portion of these taxes, which he must send to the IRS quarterly.  Paying throughout the year into the Social Security and Medicare taxes is how our Pay-As-You-Go tax system works.

But, if you forgot or you didn’t know how this works, you will use form 4137 when you file your federal taxes.  This form will calculate how much in taxes you will owe the IRS.

Even if you reported your tips to your boss, the salary may not be enough to cover your taxes, since tip jobs usually have a very low wage and the bulk of the income is through tips.  So, even if you reported your tips and money was withheld by your boss, you may still owe taxes to the IRS.  You’re going to need IRS form 4137.

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How to prepare your return

In publication 17 you will find a lot of useful information regarding preparing and filing electronic returns. You are required to figure out your taxable income during the tax year and you must also account for all your income and expenses that must clearly show your taxable income. In general terms a ‘tax year’ is an accounting period with the duration of a year and most tax returns for individual citizens cover a calendar year that is from January one through 31st of December. You can also choose your tax year or accounting period when filing your first IT return but it can never be longer than duration of 12 months. You can always refer to Publication 538 for more information about accounting periods or accounting methods.

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Your accounting method is actually the way you account for all your income and expenses. Either an accrual method or cash method is used by most taxpayers or you are required to choose your method at the time of filing your first return. The method can always be changed afterwards with an approval from the Internal Revenue Services. The cash method is used by most individual taxpayers and in this method you are required to report all items of your income in a year that you have constructively or actually received.

If it is not possible for you to pay the full due amount with your return then you can always ask for monthly installments and you can use form 9465 to apply online for installment payment facilities. But you will be charged with interest and may even require paying a late payment penalty and if your request is granted you are also required to pay a fee.

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IRS Publication 17 for Filing Your Income Tax Return – Pub 17

The IRS publication 17 is the general guideline for American citizens who are filing federal income tax returns. It provides information that is supplementary to the information in the tax forms. Publication 17 also explains the tax laws and makes sure that you always pay only the amount that you owe as your tax and never more than that. Form 1040 of United States Individual Income Tax return is closely followed by IRS Publication 17 and the publication is classified in six different parts covering different sections of Form 1040.

What do you get in Publication 17?

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IRS Publication 17 actually begins with a series of rules that you are required to know for filing your tax returns. It also explains

The conditions under which you must file a return

The tax form you are required to use

Due date of the return

The process of e-filing your return along with

Other general information

It can also help you to determine your actual filing status and if any dependents can be claimed. If your income is taxable this publication will also help to determine the expenses that might be deducted and also tells you about the different kinds of available credit that might help in reduction of your tax.
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IRS Publication 78 – Exempt Organizations – Pub 78

In Charity Road Sign with dramatic blue sky and clouds. IRS publication 78 the Internal Revenue Service has posted a record of non-profit organizations that have qualified for tax deduction and tax exemption advantages. Many companies that have been removed from the record are revoked in the new digital edition while certain companies that enjoy typical tax-exempt positions are generally omitted. The IRS publication 78 is a digital edition and includes details of a number of non-profit organizations and companies enjoying a tax deduction till the time of the last upgrade.

But it is also important to consider that as per the latest update by Internal Revenue Service publication of the document has been discontinued and the list of tax-exempt companies and non-profit organizations is now available in the ‘Exempt Organizations Select Check’ section of the IRS website. But the digital edition of the book is still available for download and is still a great online tool for researching tax-exempt organizations.

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Publication Definition:

As many other documents published by the Internal Revenue Service IRS publication 78 does not give you any step by step instruction for tax benefits, but actually provides you with a comprehensive list of companies along with charitable and non-profit organizations that are eligible for receiving tax-deductible and exemptible

Contributions under Section 1709 (c) of the Internal Revenue Code of 1986. According to this, taxpayers can claim deductions that are not more than 50% of their Adjusted Gross Income from contribution of cash and noncash items to the listed organizations.

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For maximum convenience of taxpayers on online version of IRS Publication 78 is also available that allows an individual to check out quickly whether an organization is actually qualified for receiving tax-exempting contributions or not. But you must also consider the fact that the list is not all inclusive there might be still a number of companies or organizations that are not included in the list.

For charitable organizations or trusts you must check out their individual positions before making any kind of contributions. That is the reason many consider it better to view IRS publication 78 along with Publication 561 and Publication 526.

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IRS Publication 463 for Travel and Entertainment Expenditure

IRS publication 463 deals with entertainment, gifts, cars and travel expenses and is document providing detailed information on business expenses that might be deducted from self employed and individual tax obligations. Deductions for these expenses are available on items that are categorized as either ordinary or necessary.

You must understand that the IRS publication 463 is not designed for trusts, partnerships and corporations and also for those employers who reimburse employees for the purpose of business expenditure. This document 463 is for those particular types of employees who are not fully reimbursed regarding their all commercial expenditures.

Travel and Entertainment Expenditure:

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According to the IRS publication 463 travel and entertainment expenses that are categorized as ordinary and necessary along with expenses that have direct association or relation are eligible for tax deduction. By direct relation the publication means that conducting business was the primary purpose of any particular expenditure and generation of a certain amount of income is also expected from it in future. If any meal and travel expenditure does not qualify as a direct relation then it might be categorized under the ‘Associated’ section but for that the expense is required to take place immediately before or after an important conversation.

In order to support your expenses the documents that IRS requires you to maintain are also available from this publication. Documentary evidences that you are required to maintain according to publication 463 are receipts, bills and cancelled checks that are considered adequate by the IRS as long as they contain the amount, date and place of the expenditure. Apart from the above mentioned documents you are also required to maintain a list of

The purpose of expenditure

Relationships

Business mileage to make them acceptable.

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Deductible Expenses:

As per Publication 463, you may actually be able to deduct business expenses from your tax return and the publication clearly explains the expenses that are deductible under specific conditions along with the method of reporting them in the return for a tax benefit. You will also get guidance on the documents and records that you are required to maintain in order to prove your expenses. You can also use this publication for finding ways of treating your reimbursements that you may receive during the financial year and this is also beneficial for employees and sole proprietors with business related gifts, travel or entertainment expenditures.

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If you are traveling away from home on business purpose you must keep and maintain records for all expenditures made and mention if you are provided with any advance payment. You must also have a reasonable basis for the allocations you made for your different expenses. If your spouse, any of your dependents or any other individual who is not contributing to the business travels with you on a business trip then his or her expenses are not deducted and travel expenditures of people who are your employees or have some bona fide business purpose to serve can only be deducted from the final return.

Exemption for Dependents

The IRS allows deductions in taxable income based on the number of dependents one claims. This however never includes the spouse. Qualified children, relatives and their children constitute dependents in a broad sense. There are definite rules and guidelines that one should consider before a person becomes a dependent, and one is able to claim exemptions on their behalf. In order to do away with any lingering confusions on the dependency issue, there is an online IRS tool available in the form of interactive interview. One can use this tool to determine the number of qualified dependents one has and seek exemptions on taxable income based on that.

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Who is Not a Dependent?

Knowing who is not a dependent sometimes clears the doubt and allows understanding of this important issue. There are tests available to ensure the number of qualified dependents. These include resident/citizen test, test for dependent taxpayer, and test for joint returns. Those who want to go through this need to peruse publication 501.

Tax return for Dependents:

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Many times it so happens that a defendant may need to file your tax return. It is important to remember that when a person becomes a dependent they are no longer qualified to claim their own personal exemptions. There is a separate form for dependents present, with a worksheet that helps them to calculate their own taxable income reductions, for filing correct returns.

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IRS publication 501 is all about making the job easier for taxpayers and helps them through the process of claiming exemptions. The issue regarding dependents seems confusing to untrained eyes but a proper study of the IRS publication and going through given tests can go a long way in resolving various issues.

Whittle Down Your Tax Bill with IRS Publication 501

What is IRS publication 501? This Internal Revenue Service publication tells taxpayers about exemptions and standard deduction amounts. In addition, this important publication explains the filing status, accounting for dependents when filing returns and, who should file. Knowledge about exemptions can help in substantial savings on tax returns. Reduce taxable income both through personal exemptions as well as for each dependent claim. These are the government’s way of reducing the burden of tax on the public and give them a much-needed breather.

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While the tax return of every individual is different based on their personal situation, still, there are certain general rules that apply to everybody related to federal tax returns. Knowledge of it can help a person to make the most of the federal tax structure and use it to their benefit. Here below are some important points regarding exemptions and deductions.

Reduction in Taxable Income Amounts:

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In order to make the job of taxpayers easy, IRS increases the deductible amount for each qualified exemption almost every year. This includes your personal, spousal exemptions, and those of dependents. The important thing to remember is that, exemptions always reduce taxable income and never the tax.

Personal Exemptions:

In case of joint filing, both husband and wife qualify for personal exemptions. However, in case of separate filing there is no scope for claiming each other’s exemption.

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Tax Deductions for Your New Addition

Did you have a baby this year? If so, congratulations on the little tax deduction!

Just kidding – congratulations on the addition to your family!

While you’re probably a little groggy still, kudos to you for thinking about your taxes when most can barely think at all.

Fortunately, along with your new baby, your family is now eligible for new tax deductions as well. Don’t overlook the tax advantages that come when you add a new member to your family.

Tax Benefits for Having Children

First, you receive another exemption when you have a child. Each exemption you have represents a deduction of $3,900 for 2013.

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So, a new child means that your income is reduced by the exemption amount. While this isn’t as valuable as a tax credit, it is still worthwhile, since a smaller income means a smaller tax liability.

You might also be eligible to claim the Earned Income Tax Credit. Parents that meet certain income requirements and have children can claim the EITC, which is a tax refundable credit.

Another possible tax benefit is the Child Tax Credit. This is a credit worth up to $1,000 for each child under the age of 17. Because it’s a credit, it represents a dollar for dollar reduction of your tax bill.

Not everyone is eligible for the Child Tax Credit and eligibility is based on adjusted gross income. For 2013, the phase-out for the credit begins at $110,000 for those filing jointly and $75,000 for those filing as single (married filing separately begin phasing out at $55,000).

It’s also possible to claim the Child and Dependent Care Tax Credit. This credit allows you to claim qualified child care costs as deductions.

There is still a phase-out with this credit too, so you might not be eligible if your income is above a threshold. You can also check to see if there is a Dependent Care Account offered by your employer. Money contributed to this account is tax deductible, and it can be used to pay child care expenses.

If you adopted, there is a generous tax credit for those who wish to adopt. The Adoption Tax Credit is refundable, and it can help offset the costs incurred as you adopted your new addition.

There are phase outs for this credit as well, but they are much higher than the phase outs for the other tax deductions and credits. If you adopted, you must look into this credit.

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Finally, remember to get a Social Security Number. In order to claim any of these tax advantages as a result of adding a child to your family, you will need a Social Security number.

If your baby is new, you need to apply for a Social Security Number. If you are taking over the care of a child and are eligible to claim the exemption or the Dependent Care Credit, you need to make sure you know his or her Social Security number.

Bringing a child into your family is a big step — and one that is very rewarding on an emotional level. However, your new bundle of joy also comes with some financial advantages to go with the financial costs.

While most of them simply offset some of your costs, others can actually be extremely beneficial so it’s important to look into them.

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Start Tax Planning Early: 8 Great Year-End Tax Tips

When you think of the holiday season, what comes to mind? Gift exchanges? Holiday parties? Home-baked pies? Taxes?

I know you have a lot of other things to do this time of year, but the holiday season is a great time to make some last-minute tax moves before the year is over. Here are eight of my favorites:

1.  Ask for a New Year’s Bonus Instead of a Christmas Bonus

By delaying your bonus by only a week, you can push the payment of taxes on the income 15 months into the future — a year from next April.

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2.   Clean Out Your Closets and Donate to Charity

You can clean out the old clothes, sporting goods, books, and other household goods that you no longer use and welcome the New Year with new space in your life, and get a quick tax deduction to boot. Document these donations by making a list of the items at the time you donate them. You can use our online website it’s Deductible to accurately value your donated goods.

3.  Pay Donations by Credit Card

Payments made by credit card are deductible in the year they are charged, not the year they are paid, so you can donate to your favorite charity by December 31 and not pay the bill until next year.

4. Contribute the Maximum to Your 401(k) or 403(b) Retirement Plans

Some employers will allow you to catch up on contributions by increasing your deduction on your last paychecks of the year. If you are 50 or over, don’t forget that you can contribute an additional $5,500 “catch-up” contribution in addition to the regular 401(k) or 403(b) $17,500 limit for 2013.

5.  Check the Balance in Your Flexible Spending Account

A wonderful fringe benefit, these helpful plans allow you to set aside a portion of your salary before taxes for certain purposes, such as child care or health care expenses.

These plans did work on the “use it or lose it” concept: any amount unused at the end of the year was lost, however the Treasury and IRS modified the rule and now employees may be allowed to carry over $500 of unused amounts for next year’s expenses.  Your employer may also offer the existing plan option to use unused amounts for up to two and half months following year end.

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6.  Bunch your Medical Bills

Medical expenses are only deductible when they exceed 10% of your adjusted gross income (still 7.5% if you are over 65). If your income is low this year or your medical expenses are high, speed up your deductions accordingly. If you want to take the deductions this year, pay any outstanding medical bills before year-end, stock up on prescriptions, get new glasses, and pay your health insurance premiums before the end of the year.

7.  Estimate Your Taxes

You can use our online website to estimate your taxes and see if you need to make any last minute tax moves.  The IRS treats income taxes withheld from your paycheck as if they were paid in equal amounts throughout the year. So if your calculations show you’ll owe money, you can increase the withholding on your last paychecks of the year to make up the difference.

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8.  Don’t Forget to Gather Your Receipts

You can deduct union dues, legal and professional fees relating to tax and investment advice, and unreimbursed employee business expenses of mileage, equipment, education, and supplies, among other things. If you pay a lot of expenses for your job or your investments, gather up the receipts and cancelled checks so you can save more money when you file your 2013 taxes.

Fall Energy Efficient Improvements to Save Money at Tax-Time

Fall is here, and if you’re remembering your heating bills from last winter, you probably are already thinking about what you can do to cut that bill as the mercury drops.

Today, we will look at tax breaks that help save you money while you make your home a bit more energy efficient.

These tax breaks are in the form of tax credits and a bit of explanation is in order. You are aware of the usual tax deductions, mortgage interest, property tax, etc.

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These deductions act to reduce your taxable income, and the net savings you see will depend on your marginal tax bracket. For example, $8000 of mortgage interest might save you $2000 in tax if you are in the 25% bracket, but only if you are able to itemize your tax deductions.

A tax credit, on the other hand, is a direct reduction of your tax bill, no itemizing required. There are two groups of items that offer this credit in 2013. Let’s look at what you save with each kind of energy efficient improvement to your home.

Non-Business Energy Property Credit

The first category is the Non-Business Energy Property Credit, which is worth 10% of the cost, up to a $500 lifetime limit on qualified energy efficient items installed in your home.

This category includes the cost of qualified insulation, windows, doors, and roofs. Windows have their own separate limit within this group, a maximum $200 credit.

The manufacturers of these products will have a ‘credit certification statement,’ which they’ll either show on their web site or offer along with the product.

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Be sure to request this as you are making your purchase as not all products qualify.

You may have heard that these credits were due to expire in 2011. Fortunately, congress extended them through the end of 2013, so you still have a few months to go shopping for these items.

Procrastinating on this purchase will cost you, so let this tax credit motivate you to take action. Also note, this credit applies to improvements made to your main home, which must be located in the US.

Residential Energy Efficient Property Credit

The second category is the Residential Energy Efficient Property Credit. It offers a far more generous 30% credit with no dollar limit.

This credit applies to solar hot water heaters, solar power (the photovoltaic panels you are starting to see on roofs) and wind turbines.

If the credit is more than your total tax bill for the entire year, the remainder is carried forward to next year. The installation of these systems must be in the US, but can be at a home that’s not your main residence.

Each state has its own rebates which help to reduce your cost. Check out the Database of State Incentives for Renewable & Efficiency to see what your state offers.

With the cost of electricity rising, and the cost of solar panels continuing to fall, it makes sense to see if this is a wise purchase for your house.

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The tax credit may tip the math to favor going solar or simply make a good deal better.

Don’t worry about figuring out your tax credits on your tax return, we will accurately calculate these tax credits, based on your answers to questions about your energy efficient improvements.

Do the math and see if going ‘green’ is not just good for the planet, but for your wallet, too.