Four Tips Regarding Tip Income
If your pay from work involves compensation through tips, then the IRS would like you to be aware of a few facts about tip income. Here are four key points to keep in mind:
1. Tips are taxable Tips are subject to federal income, Social Security and Medicare taxes. The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.
2. Include tips on your tax return You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
3. Report tips to your employer If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.
Contact the Law Office of Martin Cantu for more information, or www.sataxhelp.com.
Do I need to File an Income Tax Return This Year?
You are required to file a federal income tax return if your income is above a certain level, which varies depending on your filing status, age and the type of income you receive. However, the Internal Revenue Service reminds taxpayers that some people should file even if they aren’t required to because they may get a refund if they had taxes withheld or they may qualify for refundable credits.
Even if you don’t have to file for 2011, here are six reasons why you may want to:
1. Federal Income Tax Withheld You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.
3. Additional Child Tax Credit This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
4. American Opportunity Credit Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.
5. Adoption Credit You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.
6. Health Coverage Tax Credit Certain individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit. Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.
Questions? Please give me a call at the Law Office of Martin Cantu. You can also consult sataxhelp.com.
IRS Releases Guidance on Foreign Financial Asset Reporting
The Internal Revenue Service in coming days will release a new information reporting form that taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.
Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.
The Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
The thresholds for taxpayers who reside abroad are higher. For example in this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.
Form 8938 is not required of individuals who do not have an income tax return filing requirement.
The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts).
Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.
Form 8938, the form’s instructions, regulations implementing this new foreign asset reporting, and other information to help taxpayers determine if they are required to file Form 8938 can be found on the FATCA page of irs.gov.
For more information contact the Law Office of Martin Cantu or San Antonio Tax Help.
Tim Tebow and Tax Plannin
Tim Tebow is the most discussed, hated, vilified player in the history of the National Football League. Listen to talk radio or ESPN – a day does not go by without a discussion of Tebow. The discussion always centers on what he can’t do. He can’t pass. He doesn’t throw like an NFL QB. He can’t succeed.
Collin Cowherd, ESPN talk show host on radio and TV has made a career based on criticism of Tebow. As I write this I’m waiting for Cowherd’s show on the day following Denver’s victory over the San Diego Chargers. My guess is that the over under on the number of seconds before Cowherd mentions Tebow is 10.
Cowherd and the other critics focus on what Tebow can’t do and who he isn’t – all negative all time – Just like your taxes. We all have a tendency to focus on the negative, trying to react instead of act. There we are on January 31 trying to decide how we can shelter that big gain in the year before and reduce our tax liability. Trying to figure out how many miles you put on the car and how much of a business deduction you can get away with. Is that all I had withheld? We’re hammered with the negative – you can’t do that; you must do this; you have to file this – all a surprise, especially when it’s too late to engage in any serious tax planning. Income taxes, in fact, may be only slightly more unpopular than Tim Tebow.
So how do you turn this around? If you’re Tim Tebow you grind and find a way to win. If you’re dealing with your taxes you need to start earlier and grind away. A little discipline goes a long way here. The tools are there to make it a little easier for you turn a huge negative into a positive.
Here are some things to consider:
1. Re-examine your depreciation schedule.
2. Are you recording all your auto related expenses?
3. Do you employ a way to record your mileage? Use your smart phone.
4. Can you control the timing of any income and expense items?
5. Are you contributing the max to your 401k and a Roth IRA? Are you leveraging you retirement plan to its fullest? Can you borrow against the plan if you need to?
6. Are you using online banking tools to allow you to spend more time on planning instead of data input?
Tebow is not fancy, doesn’t look or throw like Marino or Elway. He just puts his head down and finds a way to get the job done, and focus on the positive – the things you can control. So let’s take a lesson from Tim – let’s focus on what we can control.
For more information on tax planning opportunities contact Martin Cantu at martin.cantu@cantulegal.com or visit www.cantulegal.com or www.sataxhelp.com.
Know What Each IRS Notice Means
Dealing with the IRS is one thing. Understanding what they say is another.
You can understand the context of what the IRS is saying and what they mean by de-coding the each specific notice letter. Why is this important? It gives you a leg up in dealing the IRS and allows you to plan and manage the situation. Check out this article by San Antonio tax attorney Martin Cantu.
Here’s the New Article on IRS Innocent Spouse Defense
Here is my new article on IRS innocent spouse defense in the 5th Circuit. Texas is in the 5th Circuit, so this summary applies to anyone in San Antonio and Austin seeking to use this defense.
Contact our office for more information as to how this may apply to you – San Antonio tax attorney Martin Cantu.
Nice Win on Innocent Spouse Defense this week
We had a nice win on an innocent spouse defense this week. Look for an upcoming article on how the innocent spouse defense is applied in the 5th circuit.
Watch the Amazon Lawsuit
The real story of the Amazon lawsuit against the State of Texas is not about the Comptroller trying to collect more taxes. It’s about the tools the Comptroller uses to determine the tax due, and whether the taxpayer is entitled to know about those tools. To coin a phrase – “Pay no attention to the woman behind the curtain, just pay the tax.”
Not too late to do some “year-end” planning.
It’s not too late to conduct a review of your business practices. Get more information by reading my Ezine article -
What Mack Brown and Will Muschamp can Teach us about Business
Take a look at my new article on what the coaching changes at the University of Texas football program can teach us about business.
You can read the Mack Brown article here.
