On: April 26, 2019
Income Tax W2 – This is employee wage income. Withholding is usually held by the employer to pay off the employees taxes. Try to be accurate in the amount of exemptions (deductions) you take. 1099 (1099-MISC) – This is income earned by independent contractors. A persona receives a 1099 at the end of the year, supposedly before January 30. No taxes are withheld. The independent contractor is responsible for paying taxes on this income. This person should treat this income as business income, and should deduct business expense against it on a Schedule C before claiming personal income. Many people forget to do this as they are treated as employees by the paying contractor. Take your expenses! The following is from the IRS website (irs.gov):
File this form for each person to whom you have paid during the year:
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- at least $600 in:
- rents;
- services performed by someone who is not your employee;
- prizes and awards;
- other income payments;
- medical and health care payments;
- crop insurance proceeds;
- cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish;
- generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- payments to an attorney; or
- any fishing boat proceeds,
In addition, use this form to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. 1099-R – Retirement income 1099-G – Gambling winnings 1099-DIV – Dividends and Distributions 1099-INT – Interest Income SSA-1099 – Social Security Benefit Statement There are numerous other 1099s beyond the scope of this article. These are the basics. K1 – The partnership uses Schedule K-1 to report your share of the partnership’s income, deductions, credits, etc. Similar to a partnership, S corporations must file an annual tax return on Form 1120S.The S corporation provides Schedule
K-1s that reports each shareholder’s share of
income, losses, deductions and credits. The shareholders use the information on the
K–
1 to report the same thing on their separate tax returns Capital Gains Tax – An important distinction to make in income versus capital gains when determining what to pay the IRS. Income is what you receive in the form of revenues. Capital gains are what you receive when you sell a piece of property for a profit. This piece of property can be real estate, socks and bonds (though interest and dividends you receive will be considered interest income), cars, art, guns, etc… Capital gains can be short-term or long term. Capital Losses are the same except that you sell at a loss. Capital Losses can only be deducted against capital gains. Capital gain and loss carry forwards and carry backs are beyond the scope of this article. Estate Tax and Gift Tax Estate Tax (from the IRS website irs.gov) – The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (
Refer to Form 706 (PDF)). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your “Taxable Estate.” These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify. After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 – 2005; $2,000,000 in 2006 – 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent’s dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, and $5,490,000 in 2017. Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election. Gift Tax (from the IRS website irs.gov) – The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not. The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift. The donor (the giver of the gift) is generally responsible for paying the gift tax. Under special arrangements the donee
may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement. The IRS does not collect
sales tax, property tax, license fees, state income tax, city tax, local tax, tax of foreign nations, hotel tax and sin tax.
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