Disclaimer: this is intended as an informational and to provoke questions with your tax professional, if you use one. This is NOT a “how-to.”
If your gross income is $9,350 or more, you need to file. Taxes are due by Monday, April 18, 2011.
The government decided that you should pay “x” amount of taxes based upon your gross income earned in a calendar year for funding of public goods among “other things.”
The distinction between owing the IRS and receiving a refund from them is your withholdings exceeding or falling below the amount of taxes the Fed says you should pay according to your Taxable Income. The idea is to get your taxable income as low as you can within the parameters of “tax law.”
Note: THERE IS A DIRECT CORRELATION BETWEEN YOUR AGI AND TAX RATE
Taxable Income $45,000
Taxes @ $45k $2,500
Withholdings for 2010 $3000
Refund $500 (withholdings are more than your taxes according to the tax table)
Taxable Income $45,000
Taxes @ $45k $2,500
Withholdings for 2010 $2,000
You Owe $500 (withholdings are less than your taxes according to the tax table)
W-2, W-9, 1099-G, and the Self-employed
- The W-4 is the form you fill out when you are employed by a company. When you fill out a W-4, you receive a W-2 from your employer after the calendar year has finished.
A W-9 is the form you fill out when you are hired as an independent contractor, you are NOT an employee. You will receive a 1099. There are several types of income on the W-9, but for most readers it is for contracted work.
Beware of W-9, 1099 income. Companies typical do not process the withholdings, which means 100% of the income will be taxed at tax time.
A copy of the W-2 and whichever type of 1099 you receive is submitted to the Feds by the company furnishing you one. Be careful, when you try to not to claim 1099 income. Retirement benefits are also shown on 1099s. If you do not withdraw any money, it remains tax free (Early Distributions is another discussion).
Companies have to furnish a W-2 and/or a 1099 to its employees/independent contractors by January 31st. I have not had a company send me one late as of yet.
Unfortunately, many American citizens are unemployed and have been for prolonged periods of time. You should have received a 1099-G. It is included in your gross income. There is separate line for unemployment.
If you are self-employed, your gross receipts are your income. Your income is calculated via invoices and receipts.
- There are three of them: 1040, 1040EZ, and 1040A. Visit this website to see which one you can use. It’s very simple! Click here.
- Gross income – total income earned before withholdings or any other taxes, includes Dividends (stock payouts), Capital Gains and Losses (sell of personal and/or investment assets), Interest Income (bank accounts, money markets, CDs, and Deposit Insurance), and Business Income. Get more information with the link I provided at the bottom of this post.
Withholdings – the amount your job has withheld via the W-4 and submitted to the Feds on your behalf. This goes toward the total amount of taxes you owe for the year, per the Tax Rate Schedule of the current tax year.
Deductions – You either itemize (Schedule A) or take the standard deduction given by the Feds according to your filing status (married, single, widowed, etc.) This figure is adjusted annually. It reduces your AGI. Thus, you’re reducing your tax rate.
- For itemized deductions, use Schedule A if you:
Cannot use the standard deduction
Had large uninsured medical and dental expenses
Paid interest or taxes on your home
Had large unreimbursed employee business expenses
Had large uninsured casualty or theft losses, or
Made large charitable contributions
Student Loan Interest – you do NOT have to itemize to take this deduction. Your school may have sent you a 1098-E before of your fees for the year. “Like airline tickets, restrictions apply.” Find out more information here.
Contributions – tithing counts if your church is a registered not-for-profit and can provide you a statement of your contributions. Ask for something like a receipt when you donate from the organization you donate to. Sorry I do not have the formal name, but typically they can provide you something with their organization’s name and ID number.
Credits – There are several. Here are some:
Earned Income – you did not earn much income and although you did not have withholdings, you can still have a refund. EITC exceeds the amount of taxes owed, which results in a refund.
First Time Homebuyer – Limit $8,000. Make less than $125,000 a year, single. Less than $225,000, joint. Home can be no more than $800k. It has to be your main home for 36 months. Otherwise, you will have to repay.
If you purchase another home after residing and owning the same home for ANY 5 consecutive years within the last 8 years, you qualify up to $6,500 for another home purchase. (For example, if you purchased a home in 2002, lived there from 2005 – 2010, and purchase another PRINICIPAL residence home, you qualify for First-Time Home Buyer Credit up to $6,500)
Personal Exemption – you are typically allowed one for yourself. If filing married, your spouse can also be an exemption. Your spouse is NEVER a dependent. Qualifying children and dependents can also be an exemption. Do the test.
Child and Dependent Care – you had to pay child care expenses for a qualifying child less than 13 years old while you and your spouse are at work or looking for work. You must fill out a W-10. See other rules.
Retirement Savings Contribution –For IRAs, you typically cannot receive the credit if you have an employer contributing to a retirement fund on your behalf. You will also need to figure out your Modified AGI.
Doing your own taxes is not hard. It just takes time and research. Yes, it is a risk, but I swear it’s not that bad, especially if you can fill out a 1040EZ. Save the $100 to $200 you would spend paying someone like me for 30 minutes of my time. Yea, I said it.
For more information and to confirm visit the IRS at to view more. or seek your tax consultant.
To file your taxes electronically, as I have done for the past 3 years, which is excellent and FREE, visit this site.
*crosses fingers* I hope yours is a refund.
Don’t forget your State taxes.