It is the time of year when one’s thoughts turn to those cute bunnies and chicks and one starts to panic about preparing, filing and paying income taxes (at least in the USA). A few posts back (Thursday, February 25, 2016 BILLS, BILLS, BILLS) I mentioned that I am accountant and mentioned some ideas about how I keep track of our paid and unpaid bills. What follows are some things to perhaps help you to get your income tax info together, if not for right now, than for next year. I again mention that nothing I say should be taken as personal financial or income tax advice, everyone’s situation is different and you should have your tax advisor (even if it is someone at an major chain tax company or an online filing as your personal advisor).
The best idea is to gather information as the year goes along. It can be as simple as an envelope labeled “TAX YEAR xxxx” in which xxxx is the year that the papers relate to (right now you are dealing with tax year 2015, even though you are doing so in 2016) which can be from small to large in size depending on how much information you need to collect. A large manila envelope should be sufficient for most people. Put the envelope in a place where you will know where it is and it will not be accidentally thrown out or lost.
Some of the papers will come to you during the year such as if you work for wages you will receive a pay stub every time you are paid (it is the law, if you do not receive same you should). Or paperwork from matters completed during the year (see my mention below about receiving Form 1099-B during the year or Forms K-1 during the year). Most income papers will come to you at the beginning of the year after the tax year.
To explain it all short and simply - put any papers related to your income from any source in the envelope and also put in the envelope anything which you paid which you can deduct from your income on your tax return.
Today I will talk about income.
While you should also receive a form W-2 to report your wages and withholdings at the end of the year, it is a good idea to keep your weekly pay stubs - you can use them to double check your W-2 at the end of the year and if for some reason you do not receive your W2 the stubs (especially the final one if totals are carried forward week to week) will prove your income and the amounts withheld. In addition to your income for the year - which may show more than one amount as the same income may be calculated differently for different purposes - it will also show how much was withheld from your wages for Social Security, Medicare, Federal income tax withholding, your state income tax withholding, possibly other state’s income tax withholding (if you live in one state and work in another or several others), local income tax withholding and other local income tax withholding (again if you live and work in different localities which have income taxes) and possibly some other deductions or other information you need. If you work for more than one employer during the year - whether working more than one job at once or you switched jobs - you must receive a W2 from each employer. For many people this will be there only tax document needed for their income taxes. Compare it to your last pay stub if the amounts are totaled “to date” to make sure the amounts agree.
Next there are an assortment of what are called 1099 forms - these are forms with the number 1099 and a letter designation on them. They show income paid to you during the year which is not from wages earned as an employee. Among the more common and simple ones are 1099-INT (interest income), 1099-DIV (dividend income), and 1099-G - (certain payments, such as income tax refunds to you from a state). Among the ones that are common, but are more likely to have your require professional help with your income tax return are 1099- R (income from pensions, IRAs, annuities and some other insurance payments),1099-B (information from brokers for capital gains - sales of stock or other physical long term stuff) and 1099-MISC (a variety of types of income including income earned working as an outside contractor for someone). There is also a form SSA-1099 which is for Social Security benefits paid to you and any amounts withheld from same. There are other 1099 forms as well which you may receive which tell you about income you have earned during last year, but they are less common for the average person, but they are still needed for your income taxes if you receive them.
You may also receive forms marked “K-1" which will come from a partnership you are a partner in, a subchapter S corporation, or from an estate or trust which you are a beneficiary of. These will show various types of income you must report as well as possibly some deductions you are entitled to take.
Okay, your eyes are glazing over. But these are the easy things to gather for your income taxes. They all have to be mailed to you, most at the beginning of the year after you earned the money (that means for 2015 earned money they have to be sent to you in early 2016). Some partnerships, corporations, trusts or estates may use a year other than the regular calendar year and therefore will come to you during the year and must be held onto until the following year to file your return - start that envelope to keep them in as soon as you receive them and put it in a definite place you will remember and it will be safe). You might also receive some forms 1099-B during the year if something happened with a stock which you owned if the company did something during the year - say they sold themselves to another company or they bought back all the stock from small shareholders, etc. and then you have to make sure to hold onto the forms until the following year when you file your income taxes.
Most people do not receive lots of different forms. The average person will receive their W2(s) for their wages. Put each form in your envelope when you receive it and you will have it set aside when it is time to do your income taxes. In general unless something new happened during the year you will receive the same forms as you did last year - with the new amounts and date on them, of course, but basically if all you received last year was a W2 and you have the same job and did nothing unusual during the year, chances are that is all you will receive this year. Same one bank account means the same one 1099-INT (or none if your interest income was too low).
The important thing is to put each form received - whether during the year or at the beginning of the following year - together in an envelope which is placed where you know where it is.
A BIT OF A WARNING ABOUT SOME TAX RELATED SCAMS SO YOU DON’T FALL FOR THEM -
IRS and the various states will not contact by telephone or email out of the blue. They will mail to you a notice of any problems or questions. If you receive a telephone call or email from any of them - it is a scam. Hang up. Do not talk to them. (The only time they will call you is when you are already in contact with them and discussing a matter with them and they will not email you.)
Per IRS -
The real IRS will NOT:
* Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
* Demand tax payment and not allow you to question or appeal the amount you owe.
* Require that you pay your taxes a certain way. For example, demand that you pay with a prepaid debit card.
* Ask for your credit or debit card numbers over the phone.
* Threaten to bring in local police or other agencies to arrest you without paying.
* Threaten you with a lawsuit.
If you don’t owe taxes or have no reason to think that you do:
* Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
* You should also report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" to the comments of your report.
If you think you may owe taxes:
* Ask for a call back number and an employee badge number.
* Call the IRS at 800-829-1040. IRS employees can help you.
Next week unless something more exciting comes up I will write about what papers you might need for your deductions and you should collect over the year for next year’s taxes.
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