What is the Self Employment Tax?

June 13, 2013 / / Comments Off

Self-employment tax (SE tax) is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.

Employers are required to withhold half of the Social Security tax and half of the Medicare tax from each employee’s pay check. Employers share the Social Security and Medicare tax obligation equally with their employees. When you are self-employed, you are responsible for paying all of the Social Security tax and Medicare tax yourself. So instead of paying 7.65 percent and an employer paying the other 7.65 percent, you are required to pay the entire 15.3 percent.

You are self-employed if any of the following apply to you:

  • You are issued a 1099 from an employer
  • You carry on a trade or business as a sole proprietor or an independent contractor
  • You are a member of a partnership that carries on a trade or business
  • You are otherwise in business for yourself

For self-employment income earned in 2013, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security and 2.9% for Medicare. The self-employment tax rate for self-employment income earned in calendar years 2011 & 2012 was 13.3% (10.4% for Social Security and 2.9% for Medicare). The reduced Social Security rate for 2011 & 2012 was due to a temporary reduction in the Social Security tax rate implemented by the IRS as a “payroll tax holiday.”

Category: self-employment tax / Tags:

2013 Capital Gains and Medicare Tax Rates

May 21, 2013 / / Comments Off

As of January 2013, the Capital Gains tax rate was increased from 15% to 20% for individuals filing single, with incomes in excess of $400,000. This new 20% rate also applies to married couples filing jointly, with incomes in excess of $450,000. The previous Federal Capital Gains tax rate of 15% remains for investors below these threshold income amounts.

Additionally, there is a Medicare tax of 3.8% for “net investment income.” This includes interest, dividends, capital gains, retirement income and income from partnerships (as well as other forms of “unearned income”). It affects taxpayers who exceed threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.

There is also a 0.9% increase in the Medicare tax imposed on wages. It applies to wages in excess of $200,000 for single filers and wages in excess of $250,000 for married couples.

Category: Capital Gains Tax, Medicare Tax / Tags: ,

Ordering a Transcript From the IRS

May 10, 2013 / / Comments Off

In some situations, such as when you apply for a student loan, mortgage or visa, you may be asked to provide a copy of your most recent tax return. If you do not have a copy, you can get a tax return transcript for free from the IRS.

Tax Return vs. Tax Account Transcript

A tax return transcript shows most line items from your tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules. In most cases, your transcript includes all the information a lender or government agency needs. It does not show any changes you, your representative or the IRS made after you filed. Ask your financial institution to be sure a return transcript will meet their requirements. The tax return transcript is generally available for the current and past three years.

The IRS can also provide a tax account transcript. The tax account transcript, which is also free, shows basic data from your return, including marital status, type of return filed, adjusted gross income and taxable income. It also includes any adjustments you or the IRS made after you filed your return. Like the tax return transcript, the tax account transcript is generally available for the current and past three years.

You can order a transcript by calling 1-800-908-9946, or by going online to the following link:

http://www.irs.gov/Individuals/Order-a-Transcript

Category: IRS Transcripts / Tags:

2013 Federal Income Tax Rate Schedules

May 8, 2013 / / Comments Off

The 2013 Federal income tax rates are listed below. Each tax rate applies to a specific range of taxable income. Taxable income is total income after various deductions have been subtracted.

SINGLE FILING STATUS

10% on taxable income from $0 to $8,925, plus
15% on taxable income over $8,925 to $36,250, plus
25% on taxable income over $36,250 to $87,850, plus
28% on taxable income over $87,850 to $183,250, plus
33% on taxable income over $183,250 to $398,350, plus
35% on taxable income over $398,350 to $400,000, plus
39.6% on taxable income over $400,000

MARRIED, FILING JOINTLY or QUALIFYING WIDOW(ER)

10% on taxable income from $0 to $17,850, plus
15% on taxable income over $17,850 to $72,500, plus
25% on taxable income over $72,500 to $146,400, plus
28% on taxable income over $146,400 to $223,050, plus
33% on taxable income over $223,050 to $398,350, plus
35% on taxable income over $398,350 to $450,000, plus
39.6% on taxable income over $450,000

MARRIED, FILING SEPARATELY

10% on taxable income from $0 to $8,925, plus
15% on taxable income over $8,925 to $36,250, plus
25% on taxable income over $36,250 to $73,200, plus
28% on taxable income over $73,200 to $111,525, plus
33% on taxable income over $111,525 to $199,175, plus
35% on taxable income over $199,175 to $225,000, plus
39.6% on taxable income over $225,000

HEAD OF HOUSEHOLD

10% on taxable income from $0 to $12,750, plus
15% on taxable income over $12,750 to $48,600, plus
25% on taxable income over $48,600 to $125,450, plus
28% on taxable income over $125,450 to $203,150, plus
33% on taxable income over $203,150 to $398,350, plus
35% on taxable income over $398,350 to $425,000, plus
39.6% on taxable income over $425,000

Category: 2013 Tax Brackets, Federal Income Tax Rate Schedule / Tags: ,

Is Your Child’s Summer Camp Tax Deductible?

May 7, 2013 / / Comments Off

With summer fast-approaching, working parents are faced with a dilemma: what to do with the kids now that school is out? Many families choose to send their kids to overnight camps. Unfortunately, sleep-away camps are not tax-deductible.

However, if you send them to day camp during the hours you’re working, that expense could qualify as a claim for the child and dependent care credit. If your care costs are for one child, you can count up to $3,000 of care expenses each year toward the credit. The expense amount is doubled for the cost of caring for two or more dependents.

Your actual tax credit can be up to 35 percent of your qualifying expenses, depending upon your income. Remember that since it’s a credit, you get to use it, dollar for dollar, to offset your tax bill.

Category: Tax Credits, Tax Tips for Parents / Tags: ,

Can I Get Tax Credits for Providing Insurance to My Employees?

May 6, 2013 / / Comments Off

If you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of your insurance. This will bring down the cost of providing insurance.

Starting in 2014, the small business tax credit goes up to 50% (up to 35% for non-profits) for qualifying businesses. This makes the cost of providing insurance even lower.

Category: Small Business Health Insurance / Tags:

Filing Late Tax Returns? What You Need to Know

May 1, 2013 / / Comments Off

Taxpayers who do not owe tax are not penalized for filing late income tax returns. However, taxpayers who file late returns and owe tax will be assessed penalties and interest from the date the return was due (usually April 15).

In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes the property of the U.S. Treasury.

If you do not file your income tax return after it is requested by the IRS, then it may file a return on your behalf. The return filed by the IRS will not include any credits or deductions for which you may be eligible, thereby increasing your tax liability. If the IRS determines that you owe a balance due, you could risk collection action if you do not pay the tax in full or make payment arrangements. You can, however, file your own return, which will replace the IRS return.

Forms and publications are available for filing income tax returns on the IRS website. You can download the forms from the website or call 800-TAX-FORM (800-829-3676) to order the forms by phone. You cannot file old returns electronically but must mail them to the IRS. You must use the tax form for the year in which you’re filing, as tax law is amended each year, impacting your deductions and credits.

Category: Filing a Late Tax Return / Tags:

Alternative Minimum Tax (AMT) Strategies

April 24, 2013 / / Comments Off

What is the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax (AMT) is an extra tax that some people are required to pay in addition to their regular income tax. Several things can cause AMT tax liability. The most common AMT triggers are:

  • Personal exemptions
  • Medical expenses
  • Incentive stock options
  • Tax-exempt interest
  • Long-term capital gains

There are several alternative minimum tax strategies that you can implement to better your chance of cutting back on how much additional money you will owe.

How to Reduce the AMT

One way to minimize the AMT is to reduce your adjusted gross income (AGI). If you participate in a 401(k), 403(b), SARSEP, 457(b) plan or SIMPLE IRA, consider making the maximum allowable salary deferral contributions to your account to reduce your taxable income for both taxes. If your employer offers a cafeteria plan, look into whether you could reduce your taxable income even further by paying for medical insurance, dental insurance, life and disability insurance, and even dependent care expenses through the plan.

If you are self-employed, claiming your business expenses directly against your self-employment income on the Schedule C instead of as a miscellaneous itemized deduction on the Schedule A reduces your AGI and also ensures that you won’t lose any of these deductions to the AMT. Plus, contributing to a SEP IRA, SIMPLE IRA, Solo 401(k) or other qualified plan also helps minimize the impact of this tax.

Category: AMT / Tags: ,

IRS Late Payment Penalties

April 4, 2013 / / Comments Off

IRS penalties are calculated on the amount due. If you have a balance due on a late tax return, the IRS will calculate additional penalties. There are 3 separate penalties, and each is calculated differently:

  • Failure to file
  • Failure to pay
  • Interest

Failure to File

The penalty for failing to file is 5% for each month the tax return is late, up to a total maximum penalty of 25% of the amount owed.

Failure to Pay

This is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. It is calculated from the original payment deadline (the original April 15 deadline) until the balance due is paid in full.

Interest

Interest is calculated based on how much tax you owe. The current rate for underpayment of tax is 3% and it is compounded daily.

Category: IRS, Late Payment Penalties / Tags:

What Is An Offer In Compromise?

March 22, 2013 / / Comments Off

An Offer In Compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

They generally approve an Offer In Compromise when the amount offered represents the most they can expect to collect within a reasonable period of time. Explore all other payment options before submitting an Offer In Compromise.

In most cases, the IRS will not accept an Offer In Compromise. The IRS takes into consideration the taxpayer’s ability to pay, as well as the taxpayer’s assets, such as real property, bank accounts, automobiles, and other property. In addition to property, the IRS also includes anticipated future income, less certain amounts allowed for basic living expenses.

Make sure you are eligible

Before the IRS considers your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal. The link is listed below.

http://irs.treasury.gov/oic_pre_qualifier/

 

 

Category: Offer in Compromise / Tags:
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