JANUARY 15TH, 2010
By CPA SAM
Q. My payroll person told me that the filing status on the W-4 doesn’t necessarily mean the same thing as my marital status. Is that true? What is filing status?
A. Filing status on the W-4 and filing status on your tax return are not necessarily the same thing. The W-4 drives withholding only. The withholding formulas issued by the IRS come in only two flavors, married and single. Any other situation is handled by the number of allowances claimed. Other situations include head of household, children and multiple jobs. In certain situations, if married folks claim married on their W-4s, they will not have enough withholding. By switching over to the single withholding formula, additional withholding takes place. Some companies use the W-4 to determine the marital status of their employees. This is not a good policy. In fact, if an employer receives a lock-in letter for a specific employee, he/she may be directed to withhold at Single with zero allowances regardless of the marital status of the employee.
On your tax return, the rules are different. You are only allowed to claim married if you are in fact married. If you are married, you cannot claim single. There is a special status called married filing separately for those who wish to use it. Certain situations may warrant this for better tax treatment. The key here is that your marital status on the last day of the tax year determines your status for the tax return for that year.
I hope this helps.
SEPTEMBER 2ND, 2009
By CPA SAM
Q. How do I know what tax bracket I’m in? Where does that number come from?
A. This question probably ranks right up at the top of the list of most frequent questions. First of all, you probably meant to ask what is your marginal tax rate. Let me explain. Federal income tax is calculated on a graduated scale. If you look at the image to the left of this post, you will see several numbers under the heading “Tax Rate.” These are the percentages used in calculating your tax liability for a given amount of income. You can see that your income is taxed at different rates as the amount of taxable income increases. To say you are in the 25% bracket, only means that you make at least $67,900 of taxable income (for married people) and that a portion of your income is taxed at that rate. Truly, your marginal or average rate is lower than your bracket in most cases until income gets significantly over $372,950.
To determine your marginal rate, you need to look at last year’s tax return. Take your total tax liability number from line 61 of the 1040 and divide that by the number found in line 38 of the IRS Form 1040. This tells you the percentage of your income that is subject to federal tax. For a total marginal tax rate, simply add up all the taxes you pay and divide by the value in line 38 of the 1040.
I think you will be surprised to see how high that number actually is. Keep in mind that to get this exact, you should include property, sales, income and payroll taxes. Higher income individuals in New York and California for instance, could see their marginal rate rise above 50% Ouch!
MARCH 12TH, 2009
By CPA SAM
1) The IRS just released a press release regarding a new deduction for the 2008 and 2009 tax years. If you pay real estate taxes, but don’t have enough deductions to itemize on Schedule A, you can still deduct some of the real estate tax you pay on your home. The amount can be up to $500 per person or $1,000 for those that are joint filers. This means if you are married filing joint, your standard deduction could be increased from $10,900 to a maximum of $11,900. Depending on your marginal rate, this could equate to a significant tax savings. Make sure you talk to your tax preparer about this deduction. There is some fine print regarding qualifications for this deduction.
2) Don’t forget about the Retirement savings credit. If you fall into one of the following categories, you may be able to take an additional credit against your tax liability for contributing to a retirement plan:
- Single with income up to $26,500
- Head of Household with income up to $39,750
- Married Filing Jointly, with incomes up to $53,000
This is a great incentive to establish and contribute to a retirement plan. You can contribute for the 2008 tax year until April 15 of 2009. Check with your tax preparer or financial advisor regarding the best type of investment for your situation.
Don’t miss out on these tax savings items. There are many credits and deductions available in the tax code. This is yet another reason to have a licensed tax preparer take care of your tax return. You don’t want to miss out because you didn’t know that they existed!
JANUARY 28TH, 2009
By CPA SAM
Q. My divorce was finalized mid November…I do not work….how should my ex-husband and I file? We still live in the same house, although me and the kids upstairs, he downstairs…In our divorce decree, he gets to claim both kids as exemptions through 2010. As stated in the decree, he also must pay me temporary spousal support through Nov 2011. Does this payment have to be claimed as a type of alimony paid or received …or does the fact that we still reside together in the same home exempt us from having to claim it either way? I guess the main question is how do we file for this year? How will I file beyond 2008, being as though I won’t work, but will receive child support/temp. spousal support, all the while living in the same home?
A. Oh what a tangled web we weave…(Sir Walter Scott)
Your case is a complicated one and you definitely need to find a competent tax professional in your area to go over the details of your case to prepare an accurate tax return. In the eyes of the IRS, if you are not married on December 31st, you were not married at all for the year. You would file either single or Head of Household although I believe you are not eligible for the latter. Following is the definition of Read more »
SEPTEMBER 10TH, 2008
By CPA SAM
Q. I will be self directing an IRA to generate income. I will need a computer, software, attending investing seminars, and a host of other expenses in order to self direct it. Can any of these be business deductions?
A. Wouldn’t it be nice if we could get paid for every activity that we undertake. I think that producers should Read more »
AUGUST 20TH, 2008
By CPA SAM
Q. I would like to ask how I can decrease the withholdings from each paycheck…I am married, salaried about 52K yearly; HR explained to me that I needed to increase the number of dependents (?!) I bought a house, I will therefore deduct the mortgage interest and the taxes. I live in Florida. Thanks for your help!
A. I get so many W-4 questions that it’s almost impossible to know where to start. Your HR department Read more »
JULY 30TH, 2008
By CPA SAM
Special Note: Dear readers, Thanks for your patience last week. There were two problems with the blog. Due to a configuration issue, it was down for a few days. Also, I was unable to post due to a very remote cabin for a week-long vacation. Things will return to normal now will at least weekly posts on Wednesday.
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Q. I worked in Arizona for the first quarter of this year. I moved to Read more »
JUNE 12TH, 2008
By CPA SAM
Q. I’m using PaycheckCity.com to estimate my paycheck after moving to Arizona. What’s up with the percentage stuff? Why is there no filing status and allowance values like everyone else?
A. I wish I could tell you why Arizona withholds like it does. Employers in Arizona calculate withholding as a percentage of federal withholding. This is the last state that bases it’s withholding on the federal calculation. In past years as federal withholding as decreased for many people. As federal withholding declines so does state withholding if Read more »
MAY 16TH, 2008
By CPA SAM
Q. I had way too much withholding last year and got a huge refund when filing my tax return. How do I change that?
A. This blog is coming from the floor of the Exhibit Hall at the American Payroll Association 2008 Congress in Austin, TX. With almost 2000 payroll folks surrounding me, I get to see the other side of your question as well. Payroll folks sometimes can’t understand why the regular employees don’t Read more »
Q. What happens if I no longer have the same checking account for my direct deposit to go into with the Economic Stimulus Check?
A. The IRS has a great section of Frequently Asked Questions regarding the Economic Stimulus payment. Many questions, like this one are already answered. According to the IRS website at this address, “Typically, the direct deposit will be rejected. After the IRS receives Read more »
