Tax Information for Students Who Take a Summer Job

Many students take a job in the summer after school lets out. If it’s your first job it gives you a chance to learn about the working world. That includes taxes we pay to support the place where we live, our state and our nation. Here are eight things that students who take a summer job should know about taxes:

  1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.
  2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to withhold from your pay. For help go to 5641040.com
  3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
  4. Money you earn doing work for others is taxable. Some work you do may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction may help lower your taxes.
  5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.
  6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count toward your coverage under the Social Security system.
  7. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.
  8. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded. Call Wagner and Associates for an appointment at 702-564-1040 or make an appointment at 5641040.com

Defense Of Marriage Act-Same Sex ruling comes down from IRS

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. This will allow people to file amendments for joint returns possibly generating refunds for millions of Americans.

The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling.

Other agencies may provide guidance on other federal programs that they administer that are affected by the Code.

Estate Tax FAQ

What is “Fair Market Value?”

Fair Market Value is defined as: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” Regulation §20.2031-1.

When can I expect the Estate Tax Closing Letter?

There can be some variation, but for returns that are accepted as filed and contain no other errors or special circumstances, you should expect to wait about 4 to 6 months after the return is filed to receive your closing letter. Returns that are selected for examination or reviewed for statistical purposes will take longer.

Who should I hire to represent me and prepare and file the return?

The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider:

  • How complex is the estate? By the time most estates reach $1,000,000, there is usually some complexity involved.
  • How large is the estate?
  • In what condition are the decedent’s records?
  • How many beneficiaries are there and are they cooperative?
  • Do I need an estate tax professional?

With these questions in mind, it is a good idea to discuss the matter with several estate tax professionals. Ask about how much experience they have had and ask for referrals.

This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on estate matters, make sure the lines of communication remain open so that there are no surprises during administration or if the estate tax return is examined.

Finally, most estates engage the services of both attorneys and/or Enrolled Agents (EA). The attorney usually handles probate matters and reviews the impact of documents on the estate tax return. The EA often handles the actual return preparation and some representation of the estate in matters with the IRS. However, some attorneys handle all of the work.

EAs may also handle most of the work, but cannot take care of probate matters and other situations where a law license is required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others) may need to be engaged during this time. Engaging these separate professionals is not the complete answer. They need to work on the same team.

What if I do not have everything ready for filing by the due date?

The estate’s representative may request an extension of time to file for up to six months from the due date of the return. However, the correct amount of tax is still due by the due date and interest is accrued on any amounts still owed by the due date that are not paid at that time.

Do I have to talk to the IRS during an examination?

You do not have to be present during an examination unless an IRS representative needs to ask specific questions. Although you may represent yourself during an examination, most executors prefer that professional(s) they have employed handle this phase of administration. They may delegate authority for this by signing a designation on the Form 706 itself, or executing Form 2848 “Power of Attorney”. Enrolled Agents and Attorneys are best suited to represent you against the IRS.