Generally a partnership is a business organization with two or more members for carrying on a trade, business, financial operation, or venture and divides its profits. An incorporated organization is not partnership. An LLC having two or more owners is a partnership for federal tax purpose unless the LLC elects to be treated as a corporation and files Form 8832. The conversion of a partnership into an LLC classified as a partnership for federal tax purposes or conversion of an LLC classified as a partnership into a partnership does not terminate the partnership.
A partner can be an individual person, corporation, trust, estate, or another partnership. All general partners are personally liable for partnership liabilities. There can be no limited partners in a general partnership.
Partnership Tax Return (Form 1065)
A partnership must file an information return Form 1065 showing its income, deductions, and other required information. It must show the names and addresses of each partner and each partner's distributive share of taxable income. The return must be signed by a general partner. If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return.
A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes.
A partnership files Income Tax Return Form 1065 and does not pay any taxes. The profit of a partnership is distributed among the partners. For this the partnership issues Form K-1 to the partners. Partners must include this profit in their own income income tax return and on this income pay 15.3% employment taxes. Form K-1 (Form 1065) income is reported on part II of schedule E (Form 1040).
Late Filing of Partnership Return
You the year 2007, the penalty is $85/month/partner, with a maximum of twelve months. The base penalty for 2008 is $86/month/partner with a maximum of twelve months.
Filing Extension Period
For the partnership returns (Form 1065 series) that have unextended due dates on or after January 1, 2009, the filing extension period is only five months (previously six months).
Partnership Termination
A partnership terminates when one of the following events take place
1. All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership
2. At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including sale or exchange to another partner (except in case an electing large partnership).
3. For special rules that apply to merger, consolidation, or division of partnership.
More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
6. My Tax Refund?
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
OctroTalk - for iPhone and iPad, Nokia S60 3rd., Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. OctroTalk supports Google Talk (GMail) audio and Video calls. Free Download http://www.octro.com/
Thursday, September 11, 2008
Tuesday, September 9, 2008
The U.S. Income Tax Topics 2
Reporting Tips
All tips you receive directly, through your employer and under a tip-splitting or tip-pooling are income. If you have tips income, you must keep a proper record of tips, report tips to your employer and report tips income on your tax return.
1. Keep a daily tip record. You can either maintain your personal tip diary, or keep copies of documents that show your tips, such as restaurant bills and credit card charge slips.
2. Report tips to your employer. You must report tips (amounting to $20 or more in a month) to your employer each month by the 10th of the next month so that your employer can withhold FICA taxes. If your employer does not give you any other way to report tips, you can use Form 4070. Fill in the information and give it to your employer. To get a 1-year supply of the form, ask your employer for Publication 1244 or contact IRS.
3. Report all your tips on your income tax return. Report your tips with your wages on line 1 of Form 1040EZ or line 7 of Form 1040A or Form 1040. You must report all tips you received in 2008 on your tax return, including both cash tips and non cash tips. Any tips you reported to your employer for 2008 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.
Record Keeping
You must keep all the records as per the federal law.
1. For assessment of tax you owe, this generally is 3 years from the date you filed the return or the due date of the return, which ever is later.
2. For filing a claim for credit or refund, this generally is 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date.
3. If you did not report income that you should have reported on your return, and it is more than 25% of the income shown on the return, the period of limitations does not run out until 6 years after you filed the return.
4. If a return is false or fraudulent with intent to evade tax, or if no return is filed, an action can generally be brought at any time
5. You may need to keep records relating to the basis of property longer than the period of limitations. Keep those records as long as they are important in figuring the basis of the original or replacement property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.
The clause "if the return is false or fraudulent...," may mean that you should keep record for all your life.
Read http://www.irs.gov/businesses/small/article/0,,id=98513,00.html
What If I Have Incomplete Records?
If you do not have complete records to prove an element of an expense, then you must prove the element with:
*Your own written or oral statement, containing specific information about the element, and
*Other supporting evidence that is sufficient to establish the element.
Destroyed records. If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Reasons beyond your control include fire, flood, and other casualty. Go through your bank statements, canceled checks, credit card statements and other records to collect as much information as you can. Get a copy of police report with you.
Excess Social Security Taxes Withheld
The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The FICA requires that the employer withhold social security tax at 6.2% and Medicare tax at 1.45% from the wages of the employees. For the year 2008 the social security tax is deducted from the first $102,000 of the wages while Medicare tax is deducted from the entire wages.If you, or your spouse if filing joint return, had more than one employer for 2008 and total wages of more than $102,000 (or $97,500 for 2007), too much social security tax may have been withheld. You can take a credit on this line for refund on line 67 of Form 1040 for the amount withheld in excess of $6324 for 2008 (or $6045 for 2007). But if any one employer withheld more than $6324, you cannot claim the excess on your return. The employer should adjust the tax for you. If the employer does not adjust the over collection amount, you can file a claim for refund using Form 843. The Form 843 is filed separate from the tax return.
More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
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Friday, August 22, 2008
The U.S. Income Tax Topics 1
Copy of Tax Return and Transcripts
If you did not keep a copy of your tax return, you can get it from IRS. You can also get transcripts of the tax return. Transcripts serve most of your requirements. There is no fee for the transcripts. Transcripts have most of the information from your tax return including information from W2, 1099. Transcripts are normally available for 3-years. You can order a transcript by calling 1-800-829-1040, or using Form 4506-T, Request for Transcript of Tax Return. If you have a fax number, you can get it faxed.
To request for Copy of Tax Return you must use Form 4506. You will get copy of tax return filed by you along with all the attachments (like W2, 1099..). For each return the charges are $57 and IRS takes about 60 days to complete your request. In the Form 4506 you can also authorize a third party to receive the return.
Debt Cancellation
Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. If canceled is intended as a gift to you, then it is not income. A debt includes any indebtedness for which you are personally liable. However, in case of bankruptcy, insolvency or no-recourse loans, the debt cancellation is not treated as income. A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. The lender cannot pursue you personally in case of default.
If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21 (Other Income). If it is a business debt, report the amount on Schedule C or Schedule C-EZ (Form 1040) (or on Schedule F, Profit or Loss From Farming (Form 1040), if the debt is farm debt and you are a farmer).
Also read about debt cancellation in case of foreclosure or repossession.
Settlement - Taxability
Court awards and damages.
You must consider the items that the settlement replaces. Part of settlement may be taxable depending upon:
1. Physical injuries or physical sickness settlements are generally non-taxable if you did not take an itemized deduction for medical expenses related to this injury in prior years. If you did deduct medical expenses related to the injury, the amount is taxable and is reported as "Other Income" on line 21 of Form 1040.
2 Interest, punitive damages, emotional distress or mental anguish, and employment discrimination or injury to reputation settlements are generally taxable. Interest is taxable as "Interest Income" and is reported on line 8a of Form 1040). Punitive damages, emotional distress or mental anguish, and employment discrimination or injury to reputation settlements are reported as "Other Income" on line 21 of Form 1040.
Punitive Damages are taxable even if is related to a physical injury or physical sickness). Emotional distress or mental anguish amounts are taxable to the extent that they exceed medical costs, not previously deducted, for treatment of emotional distress or mental anguish.
3. Compensation for lost wages or lost profits in most cases is taxable income. Amounts received in settlement of pension rights (if you did not contribute to the plan) is taxable.
4. Loss-of-use or loss-in-value of property settlements may be taxable if the settlement exceeds your basis in the property; the excess is gain. Gains on personal capital assets are reported on Form 1040’s Schedule D, Capital Gains and Losses. Gains on business capital assets are reported on Form 4797, Sale of Business Property.
5. Attorneys fees are deductible if they are an attempt to get you taxable income otherwise they are not deductible. You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax.
Scholarship and Fellowship Grants
If you are a degree candidate and if the financial aid (includes scholarship and fellowship grants) is for tuition fee, other fees, books, supplies and equipment, and are not a payment for your services, then it is not taxable. For a degree candidate aid for boarding and travel are taxable. If you are not a degree candidate, then all the financial aid is taxable. You must use Worksheet 1-1 in Chapter 1 of Publication 970 to figure out the taxable amount.
If you receive a scholarship award under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program, the amount received is tax free without regard to any services you are obligated to perform.
Scholarship and fellowship grants not reported on Form W-2 are included in your wages income. Also, enter “SCH” and the amount on the dotted line next to line 7 of Form 1040 (or line 1 of 1040EZ or line 7 of 1040A). However, if you were a degree candidate, include on line 7 only the amounts you used for expenses other than tuition and course-related expenses. For example, amounts used for room, board, and travel must be reported on line 7.
Any "SCH" amount that you put on line 7 of Form 1040 is subject to employment taxes at 15.3%. Include amounts you receive under a scholarship as pay for your services as an independent contractor in determining your net earnings from self-employment. If your net earnings are $400 or more, you will have to pay self-employment tax. Use Schedule SE, Self-Employment Tax, to figure this tax.
Read IRS Publication 970 - Tax Benefits for Education - Tax Benefits for Education; Chapter 1--Scholarships, Fellowships, Grants, and Tuition Reductions.
Social Security Income & Disability Benefits
Your social security benefits including social security disability benefits (excluding SSI payments) may be taxable, if the total of one-half of your benefits, plus all your other income including tax-exempt interest is more than the base amount for your filing status. The SSI benefits are not taxable.
Your base amount (without any exclusions) is:
$25,000 if you are single, head of household, or qualifying widow(er),
$25,000 if you are married filing separately and lived apart from your spouse for all of 2007,
$32,000 if you are married filing jointly, or
$-0- if you are married filing separately and lived with your spouse at any time during 2007.
Generally, up to 50% of your benefits will be taxable. However, up to 85 percent of your benefits could be taxed if
* you are a single and the total of all your other income plus half of your Social Security checks exceed $34,000,
* you are married filing jointly and the total of all your other income plus half of your Social Security checks exceed $44,000, or
* you are married filing separately and lived with your spouse at any time during 2008.
To find out your taxable benefits, you must complete the work sheet found in your Form 1040 or 1040A instruction book.
Your social security benefits or rail road benefits are reported in box 5 of Form SSA-1099 or RRB-1099. Enter is amount on Form 1040 line 20a or on Form 1040A line 14a. The taxable part of the benefits will appear on Form 1040 line 20b or on Form 1040A line 14b.
More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
OctroTalk - - For iPhone and iPad, Nokia S60 3rd. phones, Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. OctroTalk supports Google Talk (GMail) audio and Video calls. Free Trial/Download http://www.octro.com/
Foreclosure or Repossession of Main Home
The current economic crisis is causing record number of foreclosures, short sales and debt cancellations. If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. In the foreclosure, the homeowner relinquishes title of property generally to the bank that holds the first mortgage or deed of trust on the property. Homeowners associations, taxing agencies, and other interested parties will sometimes also foreclose on a property. In case of foreclosures and short sales, when mortgages are not paid in full upon the transfer of real estate, it may be complicated to calculated the tax implications.
If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. If your home was foreclosed on or repossessed, you may have two tax situations:
1. You have a sale. The sale may generate capital gain or loss. You figure the gain or loss from the sale in generally the same way as gain or loss from any sale. But the selling price of your home used to figure the amount of your gain or loss depends, in part, on whether you were personally liable for repaying the debt secured by the home and and whether the debt is qualified principal residence indebtness.
2. You have forgiveness of debt. Debt forgiveness may generate taxable ordinary income.
Form 1099-A and Form 1099-C.
Generally, you will receive Form 1099-A, Acquisition or Abandonment of Secured Property, from your lender. This form will have the information you need to determine the amount of your gain or loss and any ordinary income from cancellation of debt that is not a discharge of qualifying principal residence indebtness.
If your debt is canceled, you may receive Form 1099-C, Cancellation of Debt. You may need to report the cancellation of debt as income. When you borrowed the money you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. However, in case of bankruptcy, insolvency or no-recourse loans, the debt cancellation is not treated as income.
Qualified Principal Residence Indebtness. This indebtness is a mortgage you took out to buy, build or substantially improve your principal residence and the mortgage is secured by your principal residence.
Abandonment. If you abandon your home and have a home debt for which you are personally liable (recourse loan) and the debt is canceled, this is your ordinary income that you must report on your tax return.
Non-Recourse Loan. A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. The lender cannot pursue you personally in case of default.
Mortgage Forgiveness Debt Relief Act of 2007.
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt of recourse loan on their principal residence. The provision is to exclude cancelled mortgage debt from income applies only to the portion of the debt that was used to buy, build or improve the residence. Debt forgiven in connection with a foreclosure or debt reduced through mortgage restructuring, qualify for this relief.
The act applies to qualified debt forgiven in the years 2007, 2008 or 2009, and the taxpayer may be able to claim special tax relief up to $ 2 million (The limit is $1 million for a married person filing a separate return) by filling out newly-revised Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)) and attaching it to their federal income tax return.
For more information: IRS Publication 523 Selling Your Home
If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. If your home was foreclosed on or repossessed, you may have two tax situations:
1. You have a sale. The sale may generate capital gain or loss. You figure the gain or loss from the sale in generally the same way as gain or loss from any sale. But the selling price of your home used to figure the amount of your gain or loss depends, in part, on whether you were personally liable for repaying the debt secured by the home and and whether the debt is qualified principal residence indebtness.
2. You have forgiveness of debt. Debt forgiveness may generate taxable ordinary income.
Form 1099-A and Form 1099-C.
Generally, you will receive Form 1099-A, Acquisition or Abandonment of Secured Property, from your lender. This form will have the information you need to determine the amount of your gain or loss and any ordinary income from cancellation of debt that is not a discharge of qualifying principal residence indebtness.
If your debt is canceled, you may receive Form 1099-C, Cancellation of Debt. You may need to report the cancellation of debt as income. When you borrowed the money you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. However, in case of bankruptcy, insolvency or no-recourse loans, the debt cancellation is not treated as income.
Qualified Principal Residence Indebtness. This indebtness is a mortgage you took out to buy, build or substantially improve your principal residence and the mortgage is secured by your principal residence.
Abandonment. If you abandon your home and have a home debt for which you are personally liable (recourse loan) and the debt is canceled, this is your ordinary income that you must report on your tax return.
Non-Recourse Loan. A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. The lender cannot pursue you personally in case of default.
Mortgage Forgiveness Debt Relief Act of 2007.
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt of recourse loan on their principal residence. The provision is to exclude cancelled mortgage debt from income applies only to the portion of the debt that was used to buy, build or improve the residence. Debt forgiven in connection with a foreclosure or debt reduced through mortgage restructuring, qualify for this relief.
The act applies to qualified debt forgiven in the years 2007, 2008 or 2009, and the taxpayer may be able to claim special tax relief up to $ 2 million (The limit is $1 million for a married person filing a separate return) by filling out newly-revised Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)) and attaching it to their federal income tax return.
For more information: IRS Publication 523 Selling Your Home
More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
OctroTalk - - For iPhone and iPad, Nokia S60 3rd. phones, Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. OctroTalk supports Google Talk (GMail) audio and Video calls. Free Download http://www.octro.com/
Saturday, August 9, 2008
Elective Deferrals 401(k) Plans
Retirement Plan
A section 401(k) plan allows an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre–tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040 since they were not included in the taxable wages on your Form W-2. However, they are included as wages subject to social security, Medicare, and federal unemployment taxes.
A 401(k) plan can have an automatic enrollment feature. The employer can automatically reduce your pay by a fixed percentage and contribute that amount to the 401(k) plan unless you (the employee) affirmatively chooses not to invest 401(k) or reduce your investment percentage. These contributions qualify as elective deferrals.
Eligible Plans
In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans.
1. A profit-sharing plan, or
2. A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date.
For tax years beginning after December 31, 2005, a 401(k) plan may allow employees to contribute to a qualified Roth contribution program.
Matching Contributions
In many 401(k) plans, the employer may also choose to make matching contributions to your 401(k) plan. For example, an employer contributes 50 cents for each dollar you choose to defer under your 401(k) plan.
Contribution Dollar Limit
The amount that an employee may elect to defer to a 401(k) plan is limited. This limit applies without regard to community property laws. For 2007 and 2008, the basic limit on elective deferrals is $15,500 per year. If the deferral limit is exceeded, the difference is included in the employee's gross income.
Catch-up contributions. A 401(k) plan can permit participants over the age of 50 to make catch-up contributions. The catch-up contribution limit for 2007 and 2008 is $5,000 per year. Elective deferrals are not treated as catch-up contributions for 2007 until they exceed the $15,500 limit. However, the catch-up contribution a participant can make for a year cannot exceed the excess of the participant's compensation over the elective deferrals that are not catch-up contributions.
Reporting on Form W-2
The employer must report the total amount deferred in boxes 3, 5, and 12 of an employee's Form W-2.
Early Withdrawal
In most cases, if you withdraw funds from your 401(k) plan before you are 59 1/2, you must pay the 10 percent additional tax on early distributions on any amounts that are not rolled into an IRA. However, this additional tax will not apply if the payments are made after your separation from service in or after the year you reached age 55, or if the payments are part of a series of substantially equal payments that are paid over your life.
Hardship Distribution
Many 401(k) plans allow employees to make a hardship withdrawal because of immediate and heavy financial needs. Generally, hardship distributions from a 401(k) plan are limited to the amount of the employee's elective deferrals only, and do not include any income earned on the deferred amounts. Hardship distributions are not treated as eligible rollover distributions.
Exceptions to Early Withdrawal
The tax does not apply to distributions that are
1. If you are totally and permanently disabled,
2. After the death of the plan participant or contract holder,
3. After your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),
4. Made to an alternate payee under a qualified domestic relations order,
5. You have deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year,
6. From an employee stock ownership plan for dividends on employer securities held by the plan,
7. Made due to an IRS levy of the plan, or
8. Made from elective deferral accounts under 401(k) or 403(b) plans, or similar arrangements that are qualified reservist distributions.
Early Withdrawal for Home Purchase
If you are under the age of 59 1/2, any withdraw from your 401(k) plan to purchase your first home, the withdrawal is subject to a 10 percent early distribution tax. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Check with your 401(k) plan administrator.
Change of Job
When you leave your job, your old employer may send you a check for your 401(k) and withhold 20% tax. You have 60 days to roll over the entire distribution (including 20% withholding tax) to your current employer's 401(k) plan without at tax implications. However, if the amount rolled over was the net amount, that is, the amount of the distribution less the tax withheld, then the 20% withholding amount not rolled over is included in gross taxable income and may be subject to a 10 percent additional tax on early distribution.
Lump Sum Distribution After retirement
A lump-sum distribution is the distribution or payment, within a single tax year, of an employee's entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans.
If the lump-sum distribution qualifies, you can elect to treat the portion of the payment attributable to your active participation in the plan before 1974 as long-term capital gain taxed at a 20% rate. If you are born before January 2, 1936, you can also elect to figure the tax on the rest of the distribution using the 10–year tax option (Form 4972). You should receive a Form 1099-R from the payer of the lump-sum distribution showing your taxable distribution and the amount eligible for capital gain treatment.
The Retirement Benefits – Pension and Annuities
If you receive retirement benefits in the form of pension or annuity payments from a qualified employer retirement plan, the amounts you receive may be fully taxable, or partially taxable. If you contributed after–tax dollars to your pension or annuity, your pension payments are partially taxable. You will not pay tax on the part of the payment that represents a return of the after–tax amount you paid. If the starting date of your pension or annuity payments is after November 18, 1996, you generally must use the Simplified Method to determine how much of your annuity payments is taxable and how much is tax free.
Required Beginning Date
A participant in the 401(k) plan must begin to receive required minimum distributions (RMDs) from his or her qualified retirement plan by April 1 of the first year after the later of the following years.
*Calendar year in which he or she reaches age 70½.
*Calendar year in which he or she retires from employment with the employer maintaining the plan.
However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 701/ even if the participant has not retired. If no distribution is made in your starting year, the minimum required distributions for 2 years must be made the following year (one by April 1 and one by December 31). If you do not take the distribution, the excess accumulation is subject to 50% excise tax.
To calculate the RMD, divide the amount in the account at year end by the number of years left in the owner’s life expectancy and take out that amount. Normally from the distribution, the plan administrator must withhold federal income tax at 20%.
Form 5329
Use Form 5329, Additional Taxes on Other Qualified Plans (including IRA's), and Other Tax-Favored Accounts, to report any 401(k) tax penalty.
When you withdraw from 401(k), the plan administrator will send you Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. On your tax return, report the amount in box 1 of 1099-R as income, and the amount in box 4 of 1099-R as federal income tax withholding.
Reference: IRS Publication 4222 401(k) Plans for Small Business; http://www.irs.gov/
A section 401(k) plan allows an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre–tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040 since they were not included in the taxable wages on your Form W-2. However, they are included as wages subject to social security, Medicare, and federal unemployment taxes.
A 401(k) plan can have an automatic enrollment feature. The employer can automatically reduce your pay by a fixed percentage and contribute that amount to the 401(k) plan unless you (the employee) affirmatively chooses not to invest 401(k) or reduce your investment percentage. These contributions qualify as elective deferrals.
Eligible Plans
In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans.
1. A profit-sharing plan, or
2. A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date.
For tax years beginning after December 31, 2005, a 401(k) plan may allow employees to contribute to a qualified Roth contribution program.
Matching Contributions
In many 401(k) plans, the employer may also choose to make matching contributions to your 401(k) plan. For example, an employer contributes 50 cents for each dollar you choose to defer under your 401(k) plan.
Contribution Dollar Limit
The amount that an employee may elect to defer to a 401(k) plan is limited. This limit applies without regard to community property laws. For 2007 and 2008, the basic limit on elective deferrals is $15,500 per year. If the deferral limit is exceeded, the difference is included in the employee's gross income.
Catch-up contributions. A 401(k) plan can permit participants over the age of 50 to make catch-up contributions. The catch-up contribution limit for 2007 and 2008 is $5,000 per year. Elective deferrals are not treated as catch-up contributions for 2007 until they exceed the $15,500 limit. However, the catch-up contribution a participant can make for a year cannot exceed the excess of the participant's compensation over the elective deferrals that are not catch-up contributions.
Reporting on Form W-2
The employer must report the total amount deferred in boxes 3, 5, and 12 of an employee's Form W-2.
Early Withdrawal
In most cases, if you withdraw funds from your 401(k) plan before you are 59 1/2, you must pay the 10 percent additional tax on early distributions on any amounts that are not rolled into an IRA. However, this additional tax will not apply if the payments are made after your separation from service in or after the year you reached age 55, or if the payments are part of a series of substantially equal payments that are paid over your life.
Hardship Distribution
Many 401(k) plans allow employees to make a hardship withdrawal because of immediate and heavy financial needs. Generally, hardship distributions from a 401(k) plan are limited to the amount of the employee's elective deferrals only, and do not include any income earned on the deferred amounts. Hardship distributions are not treated as eligible rollover distributions.
Exceptions to Early Withdrawal
The tax does not apply to distributions that are
1. If you are totally and permanently disabled,
2. After the death of the plan participant or contract holder,
3. After your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),
4. Made to an alternate payee under a qualified domestic relations order,
5. You have deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year,
6. From an employee stock ownership plan for dividends on employer securities held by the plan,
7. Made due to an IRS levy of the plan, or
8. Made from elective deferral accounts under 401(k) or 403(b) plans, or similar arrangements that are qualified reservist distributions.
Early Withdrawal for Home Purchase
If you are under the age of 59 1/2, any withdraw from your 401(k) plan to purchase your first home, the withdrawal is subject to a 10 percent early distribution tax. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Check with your 401(k) plan administrator.
Change of Job
When you leave your job, your old employer may send you a check for your 401(k) and withhold 20% tax. You have 60 days to roll over the entire distribution (including 20% withholding tax) to your current employer's 401(k) plan without at tax implications. However, if the amount rolled over was the net amount, that is, the amount of the distribution less the tax withheld, then the 20% withholding amount not rolled over is included in gross taxable income and may be subject to a 10 percent additional tax on early distribution.
Lump Sum Distribution After retirement
A lump-sum distribution is the distribution or payment, within a single tax year, of an employee's entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans.
If the lump-sum distribution qualifies, you can elect to treat the portion of the payment attributable to your active participation in the plan before 1974 as long-term capital gain taxed at a 20% rate. If you are born before January 2, 1936, you can also elect to figure the tax on the rest of the distribution using the 10–year tax option (Form 4972). You should receive a Form 1099-R from the payer of the lump-sum distribution showing your taxable distribution and the amount eligible for capital gain treatment.
The Retirement Benefits – Pension and Annuities
If you receive retirement benefits in the form of pension or annuity payments from a qualified employer retirement plan, the amounts you receive may be fully taxable, or partially taxable. If you contributed after–tax dollars to your pension or annuity, your pension payments are partially taxable. You will not pay tax on the part of the payment that represents a return of the after–tax amount you paid. If the starting date of your pension or annuity payments is after November 18, 1996, you generally must use the Simplified Method to determine how much of your annuity payments is taxable and how much is tax free.
Required Beginning Date
A participant in the 401(k) plan must begin to receive required minimum distributions (RMDs) from his or her qualified retirement plan by April 1 of the first year after the later of the following years.
*Calendar year in which he or she reaches age 70½.
*Calendar year in which he or she retires from employment with the employer maintaining the plan.
However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 701/ even if the participant has not retired. If no distribution is made in your starting year, the minimum required distributions for 2 years must be made the following year (one by April 1 and one by December 31). If you do not take the distribution, the excess accumulation is subject to 50% excise tax.
To calculate the RMD, divide the amount in the account at year end by the number of years left in the owner’s life expectancy and take out that amount. Normally from the distribution, the plan administrator must withhold federal income tax at 20%.
Form 5329
Use Form 5329, Additional Taxes on Other Qualified Plans (including IRA's), and Other Tax-Favored Accounts, to report any 401(k) tax penalty.
When you withdraw from 401(k), the plan administrator will send you Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. On your tax return, report the amount in box 1 of 1099-R as income, and the amount in box 4 of 1099-R as federal income tax withholding.
Reference: IRS Publication 4222 401(k) Plans for Small Business; http://www.irs.gov/
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Tuesday, August 5, 2008
The U.S. Visas
Here is a list of some common visas for the U.S.
Visa A. The A-1 nonimmigrant visa is given to diplomats representing a foreign government inside the United States of America. Spouses and dependents are also eligible for this visa.
Your days in the U.S. are exempt from residency so you are non-resident. Employees of foreign governments, their families, and their servants are exempt on salaries paid to them in their official capacities as foreign government employees.
Visitor Visa B1/B2. The "B" Visitor Visa is a non-immigrant visa for persons desiring to enter the United States temporarily for business (B-1) or temporarily for pleasure (B-2).
Normally, B-1 visa holders cannot take up work in the U.S. Under a few circumstances, B-1 visitors may perform work like missionaries, volunteer workers for non-profit entities, certain domestic servants whose employers are not U.S. residents, certain airline employees.
For federal income tax purpose, your days on presence in the U.S. on B-1 visa count towards substantial presence test.
Visa G. The G-4 visa is nonimmigrant visa which allows foreign officers or employees of international organizations of any rank to enter into the U.S. to engage in business activities and not for personal business and pleasure. The staff and immediate family members of principal G-4 visa holders also qualify for G-4 visa.
Your dependents may work only after receiving permission from the USCIS. Working without prior permission is considered a violation of the visa status. They may apply for permission to work if there is a reciprocal work arrangement between the U.S. and your nation.
As a full time employee of an international organisation, you are exempt from income tax and will file Form 1040NR or 1040NR-EZ and Form. Employees of international organizations are exempt from Social Security/Medicare taxes on wages paid to them for services performed within the United States in their official capacity as employees of such organizations.
The exemption does not automatically apply to servants of employees of such international organizations. The exemption does not apply to spouses and children of nonimmigrants in G status who are employed in the United States by anyone other than an international organization.
Non-immigrant Work Visa E3. The E-3 are non-immigrant visas that allow Australians to work in the U.S. without restrictions. E-3 is issued for 2 years but is renewable indefinitely. Visas issued to spouses and children are not included in the E3 quota and spouses and children do not need to be Australian citizens.
The income in the U.S. is subject to FICA taxes and income taxes, and the days in the U.S. count towards the Substantial Presence Test (SPT). However, under the totalization agreement with Australia, your tax payments will be credited to the equivalent program in Australia.
During the first year on E3, if you do not meet SPT, you will file non-resident tax return Form 1040NR or 1040NR-EZ. If you meet SPT, then you are dual status resident, and file dual status tax return. A dual status resident who is married and meets SPT in the next year can choose to file joint tax return as residents under "First Year Choice." On the joint return as residents, you must report your worldwide income.
Student Visa F1. There are two nonimmigrant visa categories for persons wishing to study in the United States. The "F" visa is for academic studies, and the "M" visa is for nonacademic or vocational studies.
An F1 student (including OPT or CPT period) is exempt from residency for 5-years and must file non-resident tax return Form 1040NR or 1040NR-EZ and 8843. During this period your income is not subject to FICA (Social Security and Medicare) taxes. Normally, on the nonresident tax return, you get your personal exemption and itemized deductions, and you do not get exemption deductions for your spouse and dependents except if you are from Canada, Mexico or South Korea or if allowed by the tax treaty. You may get some deduction based on the tax treaty with your country of citizenship, which you can claim on your tax return.
After you have completed 5-years on F1 or OPT, your days in the U.S. count towards the Substantial Presence Test (SPT). If you meet the SPT, you are resident for tax purpose, and must file resident tax return. Your income is subject to FICA taxes. On your tax return, you will get standard deduction unless you wish to itemize your deductions. If you are married, then you will file as Married Filing Jointly or Married Filing Separately. You can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, you must report your worldwide income for the year.
In some cases, even after spending more than five years as student in the U.S., you can still claim exemption from residency (and not pay FICA taxes) and file non-resident tax return if you must provide sufficient facts on an attached statement to establish that you do not intend to reside permanently in the United States. You must prove that you maintained closer connection to your country of citizenship than to the U.S.
Exchange Visitor Visa J1 and J2. A J-1 Visa is issued for an Exchange Visitor who is participating in an established J Exchange program pre-approved by the State Department. Exchange Visitors under J-1 visas include secondary school and college students, business trainees, trainees in flight aviation programs, primary and secondary school teachers, college professors, research scholars, medical residents or interns receiving medical training in the U.S., certain specialists, international visitors, and Government visitors. This rule requires some J visa holders to reside in their home country for at least two years before they may obtain an H, L or other immigrant visa to enter the U.S. or adjust their status within the U.S. A J-2 Visa is issued to a child (under age 21) or spouse of a J-1 principal. Once the minor child reaches his/her 21st birthday, he/she no longer qualifies for a J-2 visa or J-2 status. Also, if the J-2 spouse divorces the J-1 status holder, he/she no longer qualifies for J-2 status.
Everyone on J1 visa is exempt from residency for 2 years. J1 students, just like F1 visa holders, are exempt for 5 years. During the exempt period, your income is not subject to FICA taxes and you must file non-resident tax return Form 1040NR or 1040NR-EZ. Normally, on the nonresident tax return, you get your personal exemption and itemized deductions, and you do not get exemption deductions for your spouse and children (unless allowed by the tax treaty). You will also get deduction is based on the tax treaty.
Based on the tax for many countries the J1 Researchers, Professors and Teachers are exempt from federal income tax for two year, and for many countries the exemption is lost if the visa holder over stays.
After the exempt period, the days in the U.S. count towards the Substantial Presence Test (SPT). If you meet the SPT, you are resident for tax purpose, and must file resident tax return.
Non-immigrant Work Visa H1-B and H4. The H-1B is a non-immigrant visa category that allows U.S. employers to seek temporary help from skilled foreigners who have the equivalent U.S. Bachelor's Degree education. H-1B employees are employed temporarily in a job category that is considered by the U.S. Citizenship & Immigration Services to be a "specialty occupation." An H1B visa is typically valid for up to six (6) years and entitles your spouse (husband/wife) and children to accompany you and 'live' in America. H1-B visa holders can apply for a Green Card (Legal Permanent Residency).
The income in the U.S. is subject to FICA (Social Security and Medicare) taxes and income taxes, and the days in the U.S. count towards the Substantial Presence Test SPT. If you are single, then during the first year of H1-B, if you do not meet SPT, you will file non-resident tax return or you can file dual status tax return after you meet SPT in the next year. If you meet SPT during the first year of H1-B, and you were non-resident in the beginning of the year, then you will file dual status tax return.
If you are married, then during the first year of H1-B, if you do not meet SPT, you can file
(i) non-resident tax return, or
(ii) dual status tax return after you meet SPT in the next year, or
(iii) file joint return as residents after you meet SPT in the next year.
If you meet SPT, then you can file
(i) dual status tax return, or
(ii) joint return as residents. On the resident tax return, you can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, you must report your worldwide income for the year.
On the joint return, it is not required that your spouse must be in the U.S. or must be resident of the U.S. If your spouse can not get SSN, then you will attach W7 (ITIN application) with your tax return. Also for a dependent, who can not get SSN, you will attach W7 (ITIN application).
Non-immigrant Inter-company Transferee Visa L1 and L2. The United States L1 is non-immigrant visa classification that applies to an intra-company transferee. It allows companies operating both in the US and abroad to transfer certain classes of employee from its foreign operations to the USA operations for up to seven years. The employee must be in in a managerial, executive, or specialized knowledge capacity and must have worked for a subsidiary, parent, affiliate or branch office of your US company outside of the US for at least one year out of the last three years.
Spouses of L-1 visa holders get L2 visa and are allowed to work after obtaining work authorization, without restriction, in the US, and the L-1 visa may legally be used as a steppingstone to the Green Card under the doctrine of dual intent. An L2 visa holder may engage in full or part time study. Children of L1 visa holder also get L2 visa.
The income in the U.S. is subject to FICA (Social Security and Medicare) taxes and income taxes, and the days in the U.S. count towards the Substantial Presence Test SPT.
If you are single, then during the first year of L1, if you do not meet SPT, you will file non-resident tax return. If you meet SPT, and you were non-resident in the beginning of the year, then you will file dual status tax return.
If you are married, then during the first year of L1, if you do not meet SPT, you can file non-resident tax return or you can file joint return as residents after you meet SPT in the next year. If you meet SPT, then you can file joint return as residents. On the resident tax return, you can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, you must report your worldwide income for the year.
On the joint return, it is not required that your spouse must be in the U.S. or must be resident of the U.S. If your spouse can not get SSN, then you will attach W7 (ITIN application) with your tax return. Also for a dependent, who can not get SSN, you will attach W7 (ITIN application).
Useful Articles for Aliens1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. Mandatory Reporting of Foreign Bank and Financial Accounts
7. The U.S. Visas
Complete List of Articles
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Visa A. The A-1 nonimmigrant visa is given to diplomats representing a foreign government inside the United States of America. Spouses and dependents are also eligible for this visa.
Your days in the U.S. are exempt from residency so you are non-resident. Employees of foreign governments, their families, and their servants are exempt on salaries paid to them in their official capacities as foreign government employees.
Visitor Visa B1/B2. The "B" Visitor Visa is a non-immigrant visa for persons desiring to enter the United States temporarily for business (B-1) or temporarily for pleasure (B-2).
Normally, B-1 visa holders cannot take up work in the U.S. Under a few circumstances, B-1 visitors may perform work like missionaries, volunteer workers for non-profit entities, certain domestic servants whose employers are not U.S. residents, certain airline employees.
For federal income tax purpose, your days on presence in the U.S. on B-1 visa count towards substantial presence test.
Visa G. The G-4 visa is nonimmigrant visa which allows foreign officers or employees of international organizations of any rank to enter into the U.S. to engage in business activities and not for personal business and pleasure. The staff and immediate family members of principal G-4 visa holders also qualify for G-4 visa.
Your dependents may work only after receiving permission from the USCIS. Working without prior permission is considered a violation of the visa status. They may apply for permission to work if there is a reciprocal work arrangement between the U.S. and your nation.
As a full time employee of an international organisation, you are exempt from income tax and will file Form 1040NR or 1040NR-EZ and Form. Employees of international organizations are exempt from Social Security/Medicare taxes on wages paid to them for services performed within the United States in their official capacity as employees of such organizations.
The exemption does not automatically apply to servants of employees of such international organizations. The exemption does not apply to spouses and children of nonimmigrants in G status who are employed in the United States by anyone other than an international organization.
Non-immigrant Work Visa E3. The E-3 are non-immigrant visas that allow Australians to work in the U.S. without restrictions. E-3 is issued for 2 years but is renewable indefinitely. Visas issued to spouses and children are not included in the E3 quota and spouses and children do not need to be Australian citizens.
The income in the U.S. is subject to FICA taxes and income taxes, and the days in the U.S. count towards the Substantial Presence Test (SPT). However, under the totalization agreement with Australia, your tax payments will be credited to the equivalent program in Australia.
During the first year on E3, if you do not meet SPT, you will file non-resident tax return Form 1040NR or 1040NR-EZ. If you meet SPT, then you are dual status resident, and file dual status tax return. A dual status resident who is married and meets SPT in the next year can choose to file joint tax return as residents under "First Year Choice." On the joint return as residents, you must report your worldwide income.
Student Visa F1. There are two nonimmigrant visa categories for persons wishing to study in the United States. The "F" visa is for academic studies, and the "M" visa is for nonacademic or vocational studies.
An F1 student (including OPT or CPT period) is exempt from residency for 5-years and must file non-resident tax return Form 1040NR or 1040NR-EZ and 8843. During this period your income is not subject to FICA (Social Security and Medicare) taxes. Normally, on the nonresident tax return, you get your personal exemption and itemized deductions, and you do not get exemption deductions for your spouse and dependents except if you are from Canada, Mexico or South Korea or if allowed by the tax treaty. You may get some deduction based on the tax treaty with your country of citizenship, which you can claim on your tax return.
After you have completed 5-years on F1 or OPT, your days in the U.S. count towards the Substantial Presence Test (SPT). If you meet the SPT, you are resident for tax purpose, and must file resident tax return. Your income is subject to FICA taxes. On your tax return, you will get standard deduction unless you wish to itemize your deductions. If you are married, then you will file as Married Filing Jointly or Married Filing Separately. You can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, you must report your worldwide income for the year.
In some cases, even after spending more than five years as student in the U.S., you can still claim exemption from residency (and not pay FICA taxes) and file non-resident tax return if you must provide sufficient facts on an attached statement to establish that you do not intend to reside permanently in the United States. You must prove that you maintained closer connection to your country of citizenship than to the U.S.
Exchange Visitor Visa J1 and J2. A J-1 Visa is issued for an Exchange Visitor who is participating in an established J Exchange program pre-approved by the State Department. Exchange Visitors under J-1 visas include secondary school and college students, business trainees, trainees in flight aviation programs, primary and secondary school teachers, college professors, research scholars, medical residents or interns receiving medical training in the U.S., certain specialists, international visitors, and Government visitors. This rule requires some J visa holders to reside in their home country for at least two years before they may obtain an H, L or other immigrant visa to enter the U.S. or adjust their status within the U.S. A J-2 Visa is issued to a child (under age 21) or spouse of a J-1 principal. Once the minor child reaches his/her 21st birthday, he/she no longer qualifies for a J-2 visa or J-2 status. Also, if the J-2 spouse divorces the J-1 status holder, he/she no longer qualifies for J-2 status.
Everyone on J1 visa is exempt from residency for 2 years. J1 students, just like F1 visa holders, are exempt for 5 years. During the exempt period, your income is not subject to FICA taxes and you must file non-resident tax return Form 1040NR or 1040NR-EZ. Normally, on the nonresident tax return, you get your personal exemption and itemized deductions, and you do not get exemption deductions for your spouse and children (unless allowed by the tax treaty). You will also get deduction is based on the tax treaty.
Based on the tax for many countries the J1 Researchers, Professors and Teachers are exempt from federal income tax for two year, and for many countries the exemption is lost if the visa holder over stays.
After the exempt period, the days in the U.S. count towards the Substantial Presence Test (SPT). If you meet the SPT, you are resident for tax purpose, and must file resident tax return.
Non-immigrant Work Visa H1-B and H4. The H-1B is a non-immigrant visa category that allows U.S. employers to seek temporary help from skilled foreigners who have the equivalent U.S. Bachelor's Degree education. H-1B employees are employed temporarily in a job category that is considered by the U.S. Citizenship & Immigration Services to be a "specialty occupation." An H1B visa is typically valid for up to six (6) years and entitles your spouse (husband/wife) and children to accompany you and 'live' in America. H1-B visa holders can apply for a Green Card (Legal Permanent Residency).
The income in the U.S. is subject to FICA (Social Security and Medicare) taxes and income taxes, and the days in the U.S. count towards the Substantial Presence Test SPT. If you are single, then during the first year of H1-B, if you do not meet SPT, you will file non-resident tax return or you can file dual status tax return after you meet SPT in the next year. If you meet SPT during the first year of H1-B, and you were non-resident in the beginning of the year, then you will file dual status tax return.
If you are married, then during the first year of H1-B, if you do not meet SPT, you can file
(i) non-resident tax return, or
(ii) dual status tax return after you meet SPT in the next year, or
(iii) file joint return as residents after you meet SPT in the next year.
If you meet SPT, then you can file
(i) dual status tax return, or
(ii) joint return as residents. On the resident tax return, you can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, you must report your worldwide income for the year.
On the joint return, it is not required that your spouse must be in the U.S. or must be resident of the U.S. If your spouse can not get SSN, then you will attach W7 (ITIN application) with your tax return. Also for a dependent, who can not get SSN, you will attach W7 (ITIN application).
Non-immigrant Inter-company Transferee Visa L1 and L2. The United States L1 is non-immigrant visa classification that applies to an intra-company transferee. It allows companies operating both in the US and abroad to transfer certain classes of employee from its foreign operations to the USA operations for up to seven years. The employee must be in in a managerial, executive, or specialized knowledge capacity and must have worked for a subsidiary, parent, affiliate or branch office of your US company outside of the US for at least one year out of the last three years.
Spouses of L-1 visa holders get L2 visa and are allowed to work after obtaining work authorization, without restriction, in the US, and the L-1 visa may legally be used as a steppingstone to the Green Card under the doctrine of dual intent. An L2 visa holder may engage in full or part time study. Children of L1 visa holder also get L2 visa.
The income in the U.S. is subject to FICA (Social Security and Medicare) taxes and income taxes, and the days in the U.S. count towards the Substantial Presence Test SPT.
If you are single, then during the first year of L1, if you do not meet SPT, you will file non-resident tax return. If you meet SPT, and you were non-resident in the beginning of the year, then you will file dual status tax return.
If you are married, then during the first year of L1, if you do not meet SPT, you can file non-resident tax return or you can file joint return as residents after you meet SPT in the next year. If you meet SPT, then you can file joint return as residents. On the resident tax return, you can also claim exemption for dependents. On the resident tax return, just like the U.S. citizens and residents, you must report your worldwide income for the year.
On the joint return, it is not required that your spouse must be in the U.S. or must be resident of the U.S. If your spouse can not get SSN, then you will attach W7 (ITIN application) with your tax return. Also for a dependent, who can not get SSN, you will attach W7 (ITIN application).
Useful Articles for Aliens1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. Mandatory Reporting of Foreign Bank and Financial Accounts
7. The U.S. Visas
Complete List of Articles
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Thursday, June 19, 2008
Working or Living in Two or More states
If you work in two different states, you will file tax return in both the states. One state is your tax home white the other state is where you are part year resident. In some cases, you may be part year resident of two or more states.
In the state that is not your tax home, where you are part year resident, report income you earned while in that state. If you have received only one W2 from your employer, then use simple arithmetic based on number of days spent in the state to figure our the income that you should report to this state.
In the state that is your tax home, report your worldwide income for full year. Also in this state claim credit for the taxes paid to the other state.
State with no income tax. The states that do not have individual income taxes are Florida, Alaska, Nevada, South Dakota, Washington, Texas and Wyoming. In New Hampshire you only pay income tax on Dividend and Interest income at flat rate of 5%. Tennessee does have tax on income (at a 6% rate) received from stocks and bonds not taxed ad valorem.
Florida, Alaska and South Dakota have corporate income tax. Washington has a corporate tax called the "Business and Occupation Tax (B&O)", which is a gross receipts tax. Texas in May 2006, passed a franchise tax on businesses (sole proprietorships and some partnerships are exempt).
States with a flat rate personal income tax. Most states (34) have a progressive income tax, where the rate rises as an income gets larger. Following states have flat rate income tax: Colorado 4.63%, Illinois 3%, Indiana 3.4%, Massachusetts 5.3%, Michigan 4.35%, Pennsylvania 3.07% and Utah 5%.
Moving After Retirement. If you are getting retirement benefits and you moved from a state with no income tax to a state with income tax, then you must pay state income tax even on your retirment benefits.
Nonresident Aliens and Exempt Individuals. States define tax residence differently than the IRS does at the federal level. At the state level, there are generally three types of people: residents, part-year residents and nonresidents. The determination of residence tends to be based on the time of year an individual moved into or out of a state, or if they lived there all year. It is entirely possible that an nonresident alien is considered a resident for tax purposes at the state level several years before they are considered a resident for federal tax purposes.
Some states honor the federal tax treaty benefits. States the do not honor federal treaty benefits are Alabama, Arkansas, California, Connecticut, Hawaii, Kansas, Kentucky, Mississippi, New Jersey, North Dakota and Pennsylvania.
Members of Armed Forces. The service pay of members of the armed forces is taxable only by the state of their legal residence, regardless of where they may be stationed in the line of duty.
Situation 1: Living in one state while commuting daily to work in another state.
It may happen that you live in one state while you go to work in a different state. A common example is you live in New Jersey and work in New York. You commute daily from NJ to NY. For NY you are nonresident and NJ is your tax home. You must file NY tax return as nonresident and report income earned while in NY. You must file NJ return as full year resident and report your world wide income for the year including NY income. On the NJ return, claim credit for taxes paid to NY.
Situation 2: Working and living in a state while the employer is in a different state For example, you live and work in California while the employer is in New Jersey. You must file CA tax return and report all your income including the income received from the NJ employer. Your income is not subject to NJ state taxes. If the employer is withholding NJ state taxes, tell them not to withhold NJ taxes. In case, on your W2, NJ taxes are withheld, then you will file NJ return to get the refund of taxes withheld. File nonresident tax return (Form NJ-1040NR), and list the NJ income as zero , which results in zero NJ tax and the return will show the refund. With your NJ tax return you will attach a statement that you were never present in NJ for this employment. If possible get a statement from the employer that you worked from California.
Situation 3: Moving out of a state to another state
For example, you were living and working in CA, and then in the same year you moved to NJ and started working from NJ.
Now during the period you are in NJ, you will report income on the NJ tax return. You may need to report this income on the CA tax return also if your moving out of CA is considered temporary or transitory. This is especially true if you are domiciled in CA or were resident of CA. If you must report the NJ income on the CA tax return, then on the CA tax return you will also claim credit for taxes paid to NJ.
If you moved out of CA permanently (and did not leave any links with CA), you will not report your NJ income on CA tax return. If you moved out of CA permanently but you returned back to CA after one or two years, then CA will certainly like to tax you for the period you were out of CA. Now it is for you to prove that stay outside was not temporary or transitory.
Situation 4. Moving out the U.S. to a foreign country
If you are a U.S. citizen or permanent resident, you must file the U.S. tax return and report your worldwide income. If you paid any taxes in the foreign country, then you get foreign tax credit by filing Form 1116 or you can use earned income exclusion Form 2555 if you meet the requirements.
Your foreign income may be taxable in the state you are domiciled or were resident when you left the country. And on the state tax return, you do not get foreign tax credit or foreign earned income exclusion. If your foreign income is taxable in a state depends upon your situation. For this you must read the state’s residency requirements. If your stay out of state is considered temporary or transitory, then many states in the U.S. will certainly tax you.
Situation 5. Married Working and Living in Different States
If you are married, then normally it is better tax wise to file joint return. And if you file joint for the federal return, then most states require that you file state in the same way. If both the spouses work and live in the same state, then the state return is simple. In many cases, both the spouses live and work in different states.
For example, one spouse lives and works in MN and other spouse lives and works in NJ and they are filing a joint return. For the MN tax return, one spouse is resident of MN and must declare his/her worldwide income to MN while the other spouse is nonresident of MN and does not have any MN income. Similarly, for the NJ tax return, one spouse is resident of NJ and must declare his/her worldwide income to NJ while the other spouse is nonresident of NJ and does not have any NJ income.
State Tax FormsTax Administrator has a map that has links to all the state's tax information web sites.
Where is My Refund?
California. Please wait 7 days after you e-file. If you filed on paper, please allow 8 weeks for processing of your return. Before you begin, make sure you have: Your social security number, your complete mailing address, and the refund amount shown on your tax return. Check here http://www.ftb.ca.gov/online/refund/index.asp
North Carolina. To determine the status of your refund for the current tax year 2007, you will need: The first social security number shown on the return and the exact amount of refund shown on your return (D-400 Line 28). Click the link: https://eservices.dor.nc.gov/wheresmyrefund/selection.jsp
More Articles:Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
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In the state that is not your tax home, where you are part year resident, report income you earned while in that state. If you have received only one W2 from your employer, then use simple arithmetic based on number of days spent in the state to figure our the income that you should report to this state.
In the state that is your tax home, report your worldwide income for full year. Also in this state claim credit for the taxes paid to the other state.
State with no income tax. The states that do not have individual income taxes are Florida, Alaska, Nevada, South Dakota, Washington, Texas and Wyoming. In New Hampshire you only pay income tax on Dividend and Interest income at flat rate of 5%. Tennessee does have tax on income (at a 6% rate) received from stocks and bonds not taxed ad valorem.
Florida, Alaska and South Dakota have corporate income tax. Washington has a corporate tax called the "Business and Occupation Tax (B&O)", which is a gross receipts tax. Texas in May 2006, passed a franchise tax on businesses (sole proprietorships and some partnerships are exempt).
States with a flat rate personal income tax. Most states (34) have a progressive income tax, where the rate rises as an income gets larger. Following states have flat rate income tax: Colorado 4.63%, Illinois 3%, Indiana 3.4%, Massachusetts 5.3%, Michigan 4.35%, Pennsylvania 3.07% and Utah 5%.
Moving After Retirement. If you are getting retirement benefits and you moved from a state with no income tax to a state with income tax, then you must pay state income tax even on your retirment benefits.
Nonresident Aliens and Exempt Individuals. States define tax residence differently than the IRS does at the federal level. At the state level, there are generally three types of people: residents, part-year residents and nonresidents. The determination of residence tends to be based on the time of year an individual moved into or out of a state, or if they lived there all year. It is entirely possible that an nonresident alien is considered a resident for tax purposes at the state level several years before they are considered a resident for federal tax purposes.
Some states honor the federal tax treaty benefits. States the do not honor federal treaty benefits are Alabama, Arkansas, California, Connecticut, Hawaii, Kansas, Kentucky, Mississippi, New Jersey, North Dakota and Pennsylvania.
Members of Armed Forces. The service pay of members of the armed forces is taxable only by the state of their legal residence, regardless of where they may be stationed in the line of duty.
Situation 1: Living in one state while commuting daily to work in another state.
It may happen that you live in one state while you go to work in a different state. A common example is you live in New Jersey and work in New York. You commute daily from NJ to NY. For NY you are nonresident and NJ is your tax home. You must file NY tax return as nonresident and report income earned while in NY. You must file NJ return as full year resident and report your world wide income for the year including NY income. On the NJ return, claim credit for taxes paid to NY.
Situation 2: Working and living in a state while the employer is in a different state For example, you live and work in California while the employer is in New Jersey. You must file CA tax return and report all your income including the income received from the NJ employer. Your income is not subject to NJ state taxes. If the employer is withholding NJ state taxes, tell them not to withhold NJ taxes. In case, on your W2, NJ taxes are withheld, then you will file NJ return to get the refund of taxes withheld. File nonresident tax return (Form NJ-1040NR), and list the NJ income as zero , which results in zero NJ tax and the return will show the refund. With your NJ tax return you will attach a statement that you were never present in NJ for this employment. If possible get a statement from the employer that you worked from California.
Situation 3: Moving out of a state to another state
For example, you were living and working in CA, and then in the same year you moved to NJ and started working from NJ.
Now during the period you are in NJ, you will report income on the NJ tax return. You may need to report this income on the CA tax return also if your moving out of CA is considered temporary or transitory. This is especially true if you are domiciled in CA or were resident of CA. If you must report the NJ income on the CA tax return, then on the CA tax return you will also claim credit for taxes paid to NJ.
If you moved out of CA permanently (and did not leave any links with CA), you will not report your NJ income on CA tax return. If you moved out of CA permanently but you returned back to CA after one or two years, then CA will certainly like to tax you for the period you were out of CA. Now it is for you to prove that stay outside was not temporary or transitory.
Situation 4. Moving out the U.S. to a foreign country
If you are a U.S. citizen or permanent resident, you must file the U.S. tax return and report your worldwide income. If you paid any taxes in the foreign country, then you get foreign tax credit by filing Form 1116 or you can use earned income exclusion Form 2555 if you meet the requirements.
Your foreign income may be taxable in the state you are domiciled or were resident when you left the country. And on the state tax return, you do not get foreign tax credit or foreign earned income exclusion. If your foreign income is taxable in a state depends upon your situation. For this you must read the state’s residency requirements. If your stay out of state is considered temporary or transitory, then many states in the U.S. will certainly tax you.
Situation 5. Married Working and Living in Different States
If you are married, then normally it is better tax wise to file joint return. And if you file joint for the federal return, then most states require that you file state in the same way. If both the spouses work and live in the same state, then the state return is simple. In many cases, both the spouses live and work in different states.
For example, one spouse lives and works in MN and other spouse lives and works in NJ and they are filing a joint return. For the MN tax return, one spouse is resident of MN and must declare his/her worldwide income to MN while the other spouse is nonresident of MN and does not have any MN income. Similarly, for the NJ tax return, one spouse is resident of NJ and must declare his/her worldwide income to NJ while the other spouse is nonresident of NJ and does not have any NJ income.
State Tax FormsTax Administrator has a map that has links to all the state's tax information web sites.
Where is My Refund?
California. Please wait 7 days after you e-file. If you filed on paper, please allow 8 weeks for processing of your return. Before you begin, make sure you have: Your social security number, your complete mailing address, and the refund amount shown on your tax return. Check here http://www.ftb.ca.gov/online/refund/index.asp
North Carolina. To determine the status of your refund for the current tax year 2007, you will need: The first social security number shown on the return and the exact amount of refund shown on your return (D-400 Line 28). Click the link: https://eservices.dor.nc.gov/wheresmyrefund/selection.jsp
More Articles:Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
13 Card Indian Rummy by Octo. It is available for iPhone, iPad, Android and Facebook. Indian Rummy by Octro has LIVE TABLES for Rummy, and you play with REAL PLAYERS from all around the world. It is a multiplayer card game that you can play with bots (computer) and with your Facebook friends. Free Download http://www.octrorummy.com/
Saturday, May 24, 2008
How to Get Missing Forms W-2 and 1099
Documents like Forms W2, 1099-Int, 1099-Misc, 1099-R are needed to complete your tax return. They contain information about your income that you may be required to report on your tax return.
Some of these forms may even be available online. It depends upon the policy of your employer or the who issues the form. So find out from them if you can view it or download it online. If your employer does not have your W2 information online, then you can not get it online from any other source.
If you are an employee you will get Form W-2, Wage and Tax Statement, from each of your employers each year. For example, your employer has until January 31, 2011 to give you 2010 form. You should allow two more weeks to receive your W-2 from employers who send them by mail. If you do not receive your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect or incomplete address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a “reissued statement.” Be aware that your employer is allowed to charge you a fee for providing you with a new W-2. When you do receive your W2, first thing you should do is to check all the information on it to make sure that it is correct. Check your social security number and income and taxes reported on it.
Contact IRS
You should try to get W2 from your employer, as this will save your from some future problems that may arise. If you still do not receive your missing or corrected form by February 15th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
*Employer's name, address, city, and state, including zip code and phone number,
*Your name, address, city and state, including zip code, and Social Security number, and
*Dates of your employer and an estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
With your information, the IRS will contact the employer/payer for you and request the missing form. IRS will also send you a Form 4852 (Substitute for Form W-2 or Form 1099-R).
Use Form 4852 for Tax Filing
It is always better to get W2 from your employer. If you do not receive the missing information in time to file, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
Amending Your Tax Return
On occasion you may get back conflicting documents. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
W2 and Other Forms for Past Years
The IRS does not retain actual copies of Form W-2. However, the IRS maintains (and will provide free of charge) Form W-2 information for any purpose for the past ten processing years. Call 1–800–829–3676, or visit the IRS web site at www.irs.gov to Form 4506-T, Request for Transcript of Tax Return, to order the information from the IRS.
The only way to get a copy of your Form W-2 from IRS is to order a copy of the entire return on Form 4506, Request for Copy of Tax Return, and pay a fee of $39.00 per tax year.
The Social Security Administration will provide copies of Forms W-2 for retirement purposes at no charge and for other than retirement purposes for a fee. Call 1–800–772–1213, or visit the SSA web site at www.ssa.gov for instructions on how to obtain wage information from the SSA.
Some of these forms may even be available online. It depends upon the policy of your employer or the who issues the form. So find out from them if you can view it or download it online. If your employer does not have your W2 information online, then you can not get it online from any other source.
If you are an employee you will get Form W-2, Wage and Tax Statement, from each of your employers each year. For example, your employer has until January 31, 2011 to give you 2010 form. You should allow two more weeks to receive your W-2 from employers who send them by mail. If you do not receive your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect or incomplete address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a “reissued statement.” Be aware that your employer is allowed to charge you a fee for providing you with a new W-2. When you do receive your W2, first thing you should do is to check all the information on it to make sure that it is correct. Check your social security number and income and taxes reported on it.
Contact IRS
You should try to get W2 from your employer, as this will save your from some future problems that may arise. If you still do not receive your missing or corrected form by February 15th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
*Employer's name, address, city, and state, including zip code and phone number,
*Your name, address, city and state, including zip code, and Social Security number, and
*Dates of your employer and an estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
With your information, the IRS will contact the employer/payer for you and request the missing form. IRS will also send you a Form 4852 (Substitute for Form W-2 or Form 1099-R).
Use Form 4852 for Tax Filing
It is always better to get W2 from your employer. If you do not receive the missing information in time to file, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
Amending Your Tax Return
On occasion you may get back conflicting documents. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
W2 and Other Forms for Past Years
The IRS does not retain actual copies of Form W-2. However, the IRS maintains (and will provide free of charge) Form W-2 information for any purpose for the past ten processing years. Call 1–800–829–3676, or visit the IRS web site at www.irs.gov to Form 4506-T, Request for Transcript of Tax Return, to order the information from the IRS.
The only way to get a copy of your Form W-2 from IRS is to order a copy of the entire return on Form 4506, Request for Copy of Tax Return, and pay a fee of $39.00 per tax year.
The Social Security Administration will provide copies of Forms W-2 for retirement purposes at no charge and for other than retirement purposes for a fee. Call 1–800–772–1213, or visit the SSA web site at www.ssa.gov for instructions on how to obtain wage information from the SSA.
More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
State Tax Return
1. Working in Two or More States
Complete List of Articles
OctroTalk for iPhone and iPad. Instant messaging, VoIP, SIP audio call, video chat/conference. OctroTalk is an Jabber/Gtalk client with support for Google Talk (GMail) audio and Video calls. Free download from AppStore http://www.octro.com/download_iphone.php
Monday, May 19, 2008
Traditional IRA and Roth IRA
This article covers two types of individual retirement arrangements (IRA) that you can use to save money for your retirement: Traditional IRA and Roth IRA. You can contribute to Trad IRA and Roth IRA if you have taxable compensation during the year.
What is compensation? The compensation includes wages, salaries, tips, professional fees, bonus and income for personal services. If you are self-employed or a partner, then the compensation your net earning from your trade or business reduced by total of deductions for retirement plans and one half of your self-employment taxes. The compensation does not include rental income, interest, dividend, pension, annuity, capital gains, deferred compensation, investment income (where you did not provide services) and foreign earned income and housing costs that you exclude from income.
Traditional IRA
A traditional IRA is also known as ordinary or regular IRA and is not a Roth IRA or a SIMPLE IRA. The contributions to traditional IRA can be deductible and the amounts in the IRA, including earnings and gains, are not taxed until they are distributed.
For 2009 and 2010, the limit of the contribution to traditional IRA is your taxable compensation for the year and the maximum is $5,000 ($6,000 if you are 50 or older in 2010). On a joint return for 2010 the total combined contributions made for the year to your IRA and your spouse's IRA can be as much as $10,000 ($11,000 if only one of you is 50 or older, or $12,000 if both of you are 50 or older). Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year.
Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Thus for the year 2008, the contribution can be made between January 1, 2008 to April 15, 2009. For the contributed amount to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. You can file your return claiming a traditional IRA contribution before the contribution is actually made, but the contribution must be made by the regular due date of your return.
The deductible IRA contributions are reported on Form 1040, line 32 or Form 1040A, line 17.
Retirement Plan at Work
If you are covered by a retirement plan at work or on a joint return, if you or your spouse or both are covered by a retirement plan at work, your deductions to traditional IRA may reduce (phase out) if your modified adjusted gross income (AGI) is above a certain amount.
Nondeductible Contributions
You may have nondeductible contribution if the total contributions to your IRA are more than your total permitted contributions. To designate contributions as nondeductible, you must file Form 8606 even if you do not have to file a tax return for the year. When you file, you can even designate otherwise deductible contributions as nondeductible.
Early Withdrawal
If you withdraw from the IRA before the age of 59½, it is early withdrawal. Early Withdrawal is subject to 10% penalty, and is reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Also the withdrawal will be taxed at your normal income tax rate. However, in some case there is no penalty on early withdrawals.
*If distributions are not more than your qualified higher education expenses related to enrollment or attendance at an eligible post secondary school. It includes tuition and fees, books, supplies and equipment.
*You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. The distributions are not more than the cost of your medical insurance.
*You are disabled.
*You are the beneficiary of a deceased IRA owner.
*You are receiving distributions in the form of an annuity.
*You use the distributions to buy, build, or rebuild a first home for yourself, your spouse, your or your spouse’s child, grandchild, parent or ancestor. The distribution up to $10,000 is not subject to 10% additional tax. (If both you and your spouse are first-time home buyers, each of you can
receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.)
*The distribution is due to an IRS levy of the qualified plan.
*The distribution is a qualified reservist distribution.
Care When You Must Withdraw from IRA
When withdrawing from IRA, you should plan in such a way that you pay minimum income tax. Withdraw in the year you have minimum income. If you must withdraw the entire amount, do it in two or more years.
Excess Contributions
If the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax cannot be more than 6% of the value of your IRA as of the end of your tax year.
You can withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution by the date your tax return for that year is due, including extensions. In that case you will not pay any excess contribution tax.
Insufficient Distributions (Excess Accumulations)
You must begin receiving distributions by April 1 of the year following the year in which you reach age 70½. The required minimum distribution for any year after the year in which you reach age 70½ must be made by December 31 of that later year. If distributions are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required.
If you are unable to take required distributions because you have a traditional IRA invested in a contract issued by an insurance company that is in state insurer delinquency proceedings, and you meet the requirement, then the 50% excise tax does not apply. If the excess accumulation is due to reasonable error, and you have taken, or are taking, steps to remedy the insufficient distribution, you can request that the tax be excused on Form 5329.
Withdrawals from IRA
You will get Form 1099-R from the IRA administrator. You will report this as income on line 15 of Form 1040. If any taxes are withheld, report on line 64 of Form 1040. You may also need to file Form 5329 to report tax on early withdrawals, excess contributions, and insufficient distributions. The additional tax is reported on Form 1040, line 60.
Inherited IRAs
If you inherit a trad. IRA, you are called a beneficiary. If you inherit someone other than your deceased spouse, you can not treat the inherited IRA as your own. Any taxable distributions your receive must be reported as ordinary income on your tax return. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of deceased IRA owner for the benefit of you as beneficiary.
Inherited from spouse. If you inherit trad. IRA from you spouse, you have the choices:
1. Treat it as your own by designating yourself as the account owner,
2. Treat it as your own by rolling over to your trad. IRA, or some eligible retirement plans, and
3. Treat yourself as the beneficiary. You must report the distribution as ordinary income on your tax return. The distribution is not subject to early withdrawal penalty of 10%.
Roth IRA
You can set up Roth IRA at any age and you can leave amount in your Roth IRA as long as you live. You can not deduct the contributions to a Roth IRA. Also the qualified distributions from Roth IRA are tax free. For 2008, the limit of the contribution to IRA (Roth IRA and/or Trad IRA) is your taxable compensation for the year and the maximum is $5,000 ($6,000 if you are 50 or older in 2008).
Contribution to Roth IRA are not reported on Form 1040. Keep track of your annual contributions and make sure you don't exceed the limit. You may qualify for the "Retirement Savings Credit" (Form 8880). For your Roth contribution IRS will get information from your plan administrator.
For 2007, your contributions to Roth IRA begin to phase out if your modified AGI is more than
$156,000 for married filing jointly or qualifying widower (contribution limit is nil at $166,000),
$99,000 for single, head of household, or married filing separately and you did not like with your spouse at any time during the year (contribution limit is nil at $114,000), or
$0 for married filing separately (contribution limit is nil at 10,000).
For 2008, your contributions to Roth IRA begin to phase out if your modified AGI is more than $159,000 for married filing jointly or qualifying widower (contribution limit is nil at $169,000), $101,000 for single, head of household, or married filing separately and you did not like with your spouse at any time during the year (contribution limit is nil at $116,000), or $0 for married filing separately (contribution limit is nil at 10,000).
Qualified Distributions
Qualified distributions from Roth IRA are not taxable. It must meet the following requirements.
1. Distribution is made after the 5-year period beginning with the first taxable year for which contribution was made to a Roth IRA set up for your benefit, and
2. Made on or after the date you reach 59 1/2, made because you are disabled, made to a beneficiary or to your estate after your death, or pay up to $10,000 (lifetime limit) of certain qualified first-time homebuyer amount.
Distributions to Beneficiaries. A beneficiary of Roth IRA, other than spouse, must distribute all interest with in five calender years after the owner's death unless the interest is payable to a designated beneficiary as an annuity over the life or life expectancy of the designated beneficiary. If paid as an annuity, the distributions must begin before the end of the calendar year following the year of death.
If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½, or treat the Roth IRA as his or her own.
(For any clarification and more information, refer IRS Publication 590 Individual Retirement Arrangements (IRAs)(Including Roth IRAs and Education IRAs)
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2. Head of Household
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2. 2009 Filing Requirements
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OctroTalk - World's First without 3G Live Video Chat/Conference & Video Streaming for Mobile Phones -- For Nokia S60 3rd., Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. Free Trial/Download http://www.octro.com/
What is compensation? The compensation includes wages, salaries, tips, professional fees, bonus and income for personal services. If you are self-employed or a partner, then the compensation your net earning from your trade or business reduced by total of deductions for retirement plans and one half of your self-employment taxes. The compensation does not include rental income, interest, dividend, pension, annuity, capital gains, deferred compensation, investment income (where you did not provide services) and foreign earned income and housing costs that you exclude from income.
Traditional IRA
A traditional IRA is also known as ordinary or regular IRA and is not a Roth IRA or a SIMPLE IRA. The contributions to traditional IRA can be deductible and the amounts in the IRA, including earnings and gains, are not taxed until they are distributed.
For 2009 and 2010, the limit of the contribution to traditional IRA is your taxable compensation for the year and the maximum is $5,000 ($6,000 if you are 50 or older in 2010). On a joint return for 2010 the total combined contributions made for the year to your IRA and your spouse's IRA can be as much as $10,000 ($11,000 if only one of you is 50 or older, or $12,000 if both of you are 50 or older). Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year.
Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Thus for the year 2008, the contribution can be made between January 1, 2008 to April 15, 2009. For the contributed amount to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. You can file your return claiming a traditional IRA contribution before the contribution is actually made, but the contribution must be made by the regular due date of your return.
The deductible IRA contributions are reported on Form 1040, line 32 or Form 1040A, line 17.
Retirement Plan at Work
If you are covered by a retirement plan at work or on a joint return, if you or your spouse or both are covered by a retirement plan at work, your deductions to traditional IRA may reduce (phase out) if your modified adjusted gross income (AGI) is above a certain amount.
Nondeductible Contributions
You may have nondeductible contribution if the total contributions to your IRA are more than your total permitted contributions. To designate contributions as nondeductible, you must file Form 8606 even if you do not have to file a tax return for the year. When you file, you can even designate otherwise deductible contributions as nondeductible.
Early Withdrawal
If you withdraw from the IRA before the age of 59½, it is early withdrawal. Early Withdrawal is subject to 10% penalty, and is reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Also the withdrawal will be taxed at your normal income tax rate. However, in some case there is no penalty on early withdrawals.
*If distributions are not more than your qualified higher education expenses related to enrollment or attendance at an eligible post secondary school. It includes tuition and fees, books, supplies and equipment.
*You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. The distributions are not more than the cost of your medical insurance.
*You are disabled.
*You are the beneficiary of a deceased IRA owner.
*You are receiving distributions in the form of an annuity.
*You use the distributions to buy, build, or rebuild a first home for yourself, your spouse, your or your spouse’s child, grandchild, parent or ancestor. The distribution up to $10,000 is not subject to 10% additional tax. (If both you and your spouse are first-time home buyers, each of you can
receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.)
*The distribution is due to an IRS levy of the qualified plan.
*The distribution is a qualified reservist distribution.
Care When You Must Withdraw from IRA
When withdrawing from IRA, you should plan in such a way that you pay minimum income tax. Withdraw in the year you have minimum income. If you must withdraw the entire amount, do it in two or more years.
Excess Contributions
If the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax cannot be more than 6% of the value of your IRA as of the end of your tax year.
You can withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution by the date your tax return for that year is due, including extensions. In that case you will not pay any excess contribution tax.
Insufficient Distributions (Excess Accumulations)
You must begin receiving distributions by April 1 of the year following the year in which you reach age 70½. The required minimum distribution for any year after the year in which you reach age 70½ must be made by December 31 of that later year. If distributions are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required.
If you are unable to take required distributions because you have a traditional IRA invested in a contract issued by an insurance company that is in state insurer delinquency proceedings, and you meet the requirement, then the 50% excise tax does not apply. If the excess accumulation is due to reasonable error, and you have taken, or are taking, steps to remedy the insufficient distribution, you can request that the tax be excused on Form 5329.
Withdrawals from IRA
You will get Form 1099-R from the IRA administrator. You will report this as income on line 15 of Form 1040. If any taxes are withheld, report on line 64 of Form 1040. You may also need to file Form 5329 to report tax on early withdrawals, excess contributions, and insufficient distributions. The additional tax is reported on Form 1040, line 60.
Inherited IRAs
If you inherit a trad. IRA, you are called a beneficiary. If you inherit someone other than your deceased spouse, you can not treat the inherited IRA as your own. Any taxable distributions your receive must be reported as ordinary income on your tax return. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of deceased IRA owner for the benefit of you as beneficiary.
Inherited from spouse. If you inherit trad. IRA from you spouse, you have the choices:
1. Treat it as your own by designating yourself as the account owner,
2. Treat it as your own by rolling over to your trad. IRA, or some eligible retirement plans, and
3. Treat yourself as the beneficiary. You must report the distribution as ordinary income on your tax return. The distribution is not subject to early withdrawal penalty of 10%.
Roth IRA
You can set up Roth IRA at any age and you can leave amount in your Roth IRA as long as you live. You can not deduct the contributions to a Roth IRA. Also the qualified distributions from Roth IRA are tax free. For 2008, the limit of the contribution to IRA (Roth IRA and/or Trad IRA) is your taxable compensation for the year and the maximum is $5,000 ($6,000 if you are 50 or older in 2008).
Contribution to Roth IRA are not reported on Form 1040. Keep track of your annual contributions and make sure you don't exceed the limit. You may qualify for the "Retirement Savings Credit" (Form 8880). For your Roth contribution IRS will get information from your plan administrator.
For 2007, your contributions to Roth IRA begin to phase out if your modified AGI is more than
$156,000 for married filing jointly or qualifying widower (contribution limit is nil at $166,000),
$99,000 for single, head of household, or married filing separately and you did not like with your spouse at any time during the year (contribution limit is nil at $114,000), or
$0 for married filing separately (contribution limit is nil at 10,000).
For 2008, your contributions to Roth IRA begin to phase out if your modified AGI is more than $159,000 for married filing jointly or qualifying widower (contribution limit is nil at $169,000), $101,000 for single, head of household, or married filing separately and you did not like with your spouse at any time during the year (contribution limit is nil at $116,000), or $0 for married filing separately (contribution limit is nil at 10,000).
Qualified Distributions
Qualified distributions from Roth IRA are not taxable. It must meet the following requirements.
1. Distribution is made after the 5-year period beginning with the first taxable year for which contribution was made to a Roth IRA set up for your benefit, and
2. Made on or after the date you reach 59 1/2, made because you are disabled, made to a beneficiary or to your estate after your death, or pay up to $10,000 (lifetime limit) of certain qualified first-time homebuyer amount.
Distributions to Beneficiaries. A beneficiary of Roth IRA, other than spouse, must distribute all interest with in five calender years after the owner's death unless the interest is payable to a designated beneficiary as an annuity over the life or life expectancy of the designated beneficiary. If paid as an annuity, the distributions must begin before the end of the calendar year following the year of death.
If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½, or treat the Roth IRA as his or her own.
(For any clarification and more information, refer IRS Publication 590 Individual Retirement Arrangements (IRAs)(Including Roth IRAs and Education IRAs)
More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Retirement Plans
1. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax
1. Working in Two or More States
What's New for 2009
What's New for 2009
Complete List of Articles
OctroTalk - World's First without 3G Live Video Chat/Conference & Video Streaming for Mobile Phones -- For Nokia S60 3rd., Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. Free Trial/Download http://www.octro.com/
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