Archive for June, 2011

Itemized deductions

June 29th, 2011 -- Posted in W4 Assistance, W4 tax Form | No Comments »

Have you noticed itemized deduction items like mortgage interest, state and local income and property taxes, and charitable donations? By filing Form 1040, you can without difficulty write-off the full amounts on your itemized deductions. Good news is that: the current tax cut additional legislation cancelled the phase-outs for 2011 and 2012 as well.

For 2010, the highest adoption credit was increased to $13,170 (up from $12,150 in 2009). In addition, the credit was made 100% refundable for the 2010 tax year (previously, it was nonrefundable). This means that you will receive a check for any surplus adoption credit after your federal income tax bill has been condensed to zero. To claim the credit, fill out Form 8839 (Qualified Adoption Expenses), and enter the credit on line 71 of Form 1040.

Self-employed people can subtract their health insurance premiums on page 1 of Form 1040 (use line 29 for 2010). The deduction will help them to reduce their federal income tax bills. However, the self-employed have never been allowed to deduct those premiums while calculating their self-employment tax bills on Schedule SE. Good news is that for 2010 only, you will be able to deduct health insurance premiums. So those premiums will reduce both your income tax bill and your SE tax bill. Unfortunately, this break will not be accessible for 2011 and further unless Congress extends it.
In the majority of cases, only those who purchased homes in 2008 will be greatly affected. They will have to repay 1/15 of the credit with the 2010 Form 1040.

For 2008 and 2009, unmarried individuals who did not list could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married, joint-filing couples can write off up to $1,000. The 2009 Stimulus Act created a temporary write-off for non-itemizers who paid state and local sales taxes on new vehicles purchased between 2/17/09 and 12/31/09. The write-off came in the form of an additional standard deduction allowance. Similarly, itemizers were allowed to claim an extra itemized deduction for such taxes. Both breaks failed at the end of 2009, and they were not reinstated for 2010.

Would you like to get lump-sum pension?

June 29th, 2011 -- Posted in W4 Assistance, W4 tax Form | No Comments »

Personal Allowances Worksheet:

Nobody wants to owe a lot of money or have the IRS come knocking on your door. The personal allowances worksheet will give you step by step instructions on exactly how to file out a W-4 Tax Form.

The W-4 Form starts at A and ends with H. You have eight questions to consider. You can see the W-4 Form online through the IRS provided PDF file.

Lump-Sum Pension Payout:

If you receive a lump-sum payment from your retirement plan, the plan supervisor is required to withhold 10% for federal income taxes.

If you plan to spin the funds over into an IRA or another tax-free pension plan yourself, the tax withholding requirement is 20%. This applies even if you have retired, quit or are laid off. If 20% is withheld, you would have to prepay tax you might not even owe – especially if you spin over the distribution within 60 days.

So, if you handle the spin over yourself by taking the check and depositing it in IRA within 60 days:

  • Your plan supervisor will withhold 20% of your distribution.
  • Unless you include the amount which is equal to the 20% withholding from another source, you will not have sufficient to put the full payment into an IRA.
  • The IRS will tax and possibly penalize any part of the gross distribution that is not spinned into an IRA within 60 days.


To shun having 20% withheld from your distribution, you should go for a direct spin over by following:

  1. Inform your employer that you want to roll the funds over directly to another plan or IRA.
  2. Give your employer all the information about the account that is going to receive the rollover funds.
  3. Your employer will transfer the funds directly to the other account without withholding any taxes.

If done in this way, the transaction will be tax-free to you completely.

Tips and Withholding:

All the tips you receive are taxable income subject to withholding. If you receive $20 or more per month in tips, you should report that income to your employer.

How to get freedom from withholding?

June 29th, 2011 -- Posted in W4 Assistance, W4 tax Form | No Comments »

Exemption From Withholding:

You must have withholding if any of these apply:

  • Your income for 2010 is higher than $950.
  • You have more than $300 of unearned income. Unearned income includes interest on savings accounts and mutual fund dividends.

If you cannot be claimed as a dependent, you can make much more and still be exempt from withholding.

If you owe no federal tax last year and anticipate owing nothing in the current year, you might be exempt from withholding. For 2010, a single person who is not a dependent can have as much as $9,350 in gross income before any tax is due.

If you earn $200 weekly or more and claim the exemption from withholding on your W-4, your employer might be asked to send the form to the IRS. If the IRS questions about the number of exemptions you claim, you will be required to justify your claim.

Working Couples and Withholding:

If both of you- you and your spouse are employed, outline the total allowances that you both are entitled to and divide those total allowances between you and your spouse. The W-4 has a special worksheet for 2-earning couples. It helps you and your spouse figure the number of allowances you should each claim based on each income.

Withholding and Retirement Income:

You can choose to have federal income taxes withheld from your:

  • Pension
  • Annuity
  • Traditional IRA withdrawals
  • Social Security benefits

With other retirement plans, you might be required to file a form with the payer to end the required withholding. If you do not complete the withholding forms for pension benefits, then taxes will be withheld as though you were married and claiming 3 exemptions. So, taxes will only be withheld if your pension is at least $2,080 per month.

You should re-evaluate each year to see if you want to have taxes withheld. Use Form W-4P to have taxes withheld from your pension, annuities, and IRAs.

Voluntary Withholding Request to have taxes withheld from Social Security. Choose any 1 of these rates for Social-Security withholding:

  • 7%, 10%, 15% or 25%

What is meant by W-4?

June 9th, 2011 -- Posted in W4 tax Form | 1 Comment »

What is Form W-4?
Form W-4, the Employee’s Withholding Allowance Certificate for federal withholding, is used to decide the personal income tax withholding status for employees to make certain that the suitable sum of Federal taxes are withheld from their earnings.

It represents your total tax deductions divided by the personal exemption rate. The withholding allowance is related to, but not the same as, the number of dependents you can declare on your tax return.

How to determine the appropriate amount of withholding to be withheld?
The Residents for Tax Purposes can calculate your withholding by making the use of “Withholding Calculator”

Nonresidents for Tax Purposes: They can only claim a Single Marital Status and a maximum of one Allowance. Exceptions include citizens of the following countries: Canada, India, Mexico and South Korea.

How to file W-4 form:
Using the W-4 form, you can easily know the right amount of federal income tax to have withheld from your check.

Important tips:
Since your circumstances might change from year to year, you should evaluate your withholding allowances each year. In 2010, each allowance you claim reduces your taxable income by $3,650. If you claim more allowances than you have a rational basis for, the IRS can penalize you. So, be careful!

If you received a huge refund, you should consider reducing the number of allowances you claim. This will reduce the amount of tax which is withheld. If you paid the IRS a large sum when you filed your return, you should raise the number of allowances you claim.

If you do not file Form W-4, your employer must hold back tax from your wages at the highest rate - as though you're single with no allowances.

After claiming the allowances for yourself and your dependents, you should add extra allowances if any one of these is applicable:

· You're single and have only 1 job.
· You're married, have only 1 job, but your spouse doesn't work.
· Your wages from a second job or your spouse's wages are $1,000 or less.
· You have at least $1,500 of child- or dependent-care expenses and will claim a tax credit for these costs.
· You'll file your return as a head of household.
· You'll claim child credits – which are worth $1,000 for each eligible child. The number of allowances you claim depends upon the number of eligible children and your income.

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