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FAQ’s – Individual Income Tax

FAQ’s – Individual Income Tax

Q:  When is the best time to take my tax information to my accountant?

A:   As soon as you are sure that you have all of your tax information.  It is best to have your information, if possible, to your accountant by mid-March or earlier.

Q:  My accountant sent me a tax organizer and I’m not sure what to do with it?

A:   You do not need to fill in the organizer, but it can be helpful.  The organizer will show you what deductions and expenses you had last year.  If you do not fill it out, you can use it as a check list to be sure that you take all of the necessary information to your accountant.

Q:  If I do not have the money to pay my taxes on April 15^th, can I file an extension and pay them on October 15^th?

A:   No.  An extension only effects the due date of the return not the due date of payment.  If you can not pay all of your tax due, you must file Form 9465 – Installment Agreement Request with your tax return on or by April 15^th.

Q:  What should I do if I find an error on my tax return?

A:   You should always review your tax return before signing it.  If you find an error on your return before mailing it, contact your accountant.  If it is 4:30pm on April 15^th and your accountant has already left the office, we suggest that you mail the incorrect return, and then have your accountant prepare an amended return.  By doing this, you will avoid paying the late filing penalty.  If you find an error after the return is mailed, contact your accountant and have an amended return prepared.

Q:  If the taxpayer is deceased, who should sign their return? 

A:   Either the surviving spouse or the executor of the estate.

Q:  What is the amount of the standard deduction for 2010?

A:	Filing Status		2010 Basic		2009 Basic
Single			6,200		5,700
Married Filing Jointly			11,400		11,400
Married Filing Separate			5,700		5,700
Head of Household			8,400		8,350

Q:  What is the amount of the personal exemption for 2010?

A:   The amount of the personal exemption is $3,650 but is subject to phase-out if adjusted gross income exceeds a specified threshold amount.

Q:  What are the mileage rates for 2010?

A:			All year
Business			.50
Medical			.165
Moving			.165
Charitable			.14

 

Q:  I sold my residence this year.  Do I need to claim the entire sale on my tax return?

A:   A taxpayer can exclude income up to $250,000 of gain ($500,000 for joint filers meeting certain conditions) from the sale of a home owned and used by the taxpayer as a principal residence for at least two of the five years before the sale.  Consult your accountant for exceptions to the full exclusion.

Q:  What information do I need from my child-care provider to claim the child-care credit?

A:   No credit can be claimed unless the taxpayer reports on his or her Form 2441 the correct name, address and taxpayer identification number (TIN) of the dependent care provider.  A tax-exempt provider does not have to supply a TIN.  The credit is available to married couples only if they file a joint return.  Exceptions apply, so please consult your accountant.

Q:  What is the annual IRA contribution limit?

A:   The limit is $5,000 for 2010.  Individuals who turn age 50 before the close of the tax year may increase the maximum permitted annual contribution by $1,000 for 2010.

Q:  What is the minimum amount of estimated tax that I am required to pay without incurring any penalty or interest charges?

A:   In general, you may owe a penalty for 2010 if the total of your withholding and estimated tax payments did not equal at least the smaller of:

·          90% of your 2010 tax, or

·         100% of your 2009 tax.  There are special rules for farmers and fishermen, and for certain higher income taxpayers.

Q:  If I mailed my return in after April 15^th, would the return be considered received on the day it was postmarked or the day the IRS received it?

A:   A return delivered to the IRS by U.S. mail after the due date for the return is considered timely filed if the return was postmarked on or before the due date of the return.

Q:  What is the deadline for my employer to get my W-2 forms to me?

A:   An employer is required to furnish a completed Form W-2 (copies B, C and 2) to each employee showing their compensation and tax withholding amounts for the calendar year, by January 31 of the next year.

Q:  How can I find out the status of the refund I’m expecting?

A:   There are two options for finding the status of your refund:

1.      Call the automated toll-free line:

IRS – 1-800-829-4477

PA – 1-888-PATAXES

MD – 1-800-218-8160

2.      Check the website.  Users are required to enter the taxpayer’s social security number and the dollar amount of the refund.

IRS – www.irs.gov

PA – www.revenue.state.pa.us

MD – www.comp.state.md.us

Q:  I received a tax notice.  What should I do with it?

A:   Taxpayers should consider consulting their accountant immediately upon receipt of a tax notice.  Most notices have a deadline for response, therefore, they should be responded to promptly.  Remember, if a balance is due, the IRS does collect interest and penalties.

Q:  My refund check was different from the amount on my tax return.  Should I cash the check?

A:   Normally, you will receive a notice with or within a few days of your refund check if it is different from your tax return.  Always present this notice to your accountant.  You should consider not cashing the check until it is determined that the amount is correct, because upon cashing the clock starts ticking in applying interest if for some reason the refund amount must be returned to the agency.

Q:  I am starting a new business, should I consult an accountant or an attorney?

A:   It is highly recommended that an accountant and an attorney be consulted when considering the commencement of a business.  In consulting with an accountant, professional advice on tax planning strategies, initial start up costs, determining what business entity should be established, and assistance with bookkeeping are just a few parameters to consider.  Likewise, an attorney provides legal counsel on the advantages and disadvantages of various business entities and can assist in preparing the documents (if applicable) to set up the business entity.

Q:  How do I apply for a Federal Employer Identification Number (FEIN)?

A:   All business entities must complete Form SS-4, Application for Identification Number.  Questions will include items related to business entity and payroll.

Q:  What is the difference between a “C” Corporation and an “S” Corporation?

A:   Generally, the difference between a “C” Corporation and an “S” Corporation is the manner in which the corporation is taxed.  To determine which entity offers the greatest tax advantages, taxation at the corporate level must be evaluated, as well as the effects on the shareholder’s individual tax return.  Factors to consider include dividend taxation, top tax rates, bottom tax rates, corporate earnings, and fringe benefits.  Consult your accountant to further determine which entity would be beneficial to you.

Q:  What do I need to file to be considered an “S” Corporation?

A:   A corporation can elect “S” Corporation status by filing Federal Form 2553, Election by a Small Business Corporation.  A similar election may be made at the state level (consult your accountant).  The form can be filed any time during the tax year prior to the year the “S” election is to begin, or the form can be filed by the 15^th day of the 3^rd month of the tax year to which the election is to apply.  The IRS and state will notify the taxpayer of its determination and a copy should be provided to the accountant.

Q:  What is the difference between a business and a hobby?

A:   It is generally accepted that people prefer to make a living doing something they like.  If you are thinking of starting a business but it does not provide you with “a living”, or make a profit, your expenses may not be deductible.  Expenses connected with your business activities may be tax deductible or limited to the rules for hobby expenses.  In determining whether you are carrying on an activity for profit, all the facts should be taken into account.  Consult you accountant regarding these factors.

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