[Individual] Figure out your withholding allowances in Form W-4 --1(Jan-31-2011, 78 days left)

First method: Using Form W-4 worksheets

Personal Allowances Worksheet

Exemptions	One exemption brings you one allowance For details see : How many exemptions can you claim
Only one job	If any of the following apply , you can claim an allowance: You are single and you have only one job at a time You are married, you have only one job at a time, and your spouse does not work Your wages from a second job or your spouse's wages( or total of both) are 1,500 or less
Head of household filing status	For details see: Understand your filing status
Child and dependent care credit	If you expect to claim credit for at least 1,800 of care expenses. Qualifying expenses are those you pay for the care of your dependent who is not able to care for himself/herself so that you can work or look for work.
Child tax credit	For details see: Child Tax Credit

Deductions and Adjustments Worksheet:

• Make sure use each amount you reasonably can expect to show on your return. Do not use more than:

The amount shown on your 2009 return + Any additional related amount that you can prove has happened or will happen

• Here nonwage income means your estimated total nonwage income (other than tax-exempt income). It includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income.

Two-Earners/Multiple Jobs Worksheet:

• Multiple Jobs: you only need finish one set of worksheets and split your allowances between the Forms W-4 for each job.
• Married Individuals filing jointly: you and your spouse work on one set of worksheets and split your total allowances between you and your spouse Form W-4.

• Married Individuals filing separate return: you should use separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits.

Supplement: Alternative method

You determine your allowances based on 3 things (withholding schedules, tax rate schedules, and the estimated tax worksheet). It will take into account the items of income, adjustments to income, deductions, and tax credits.

PSQ

Source: http://www.irs.gov

[Individual]What's withholding and estimated tax (Jan-30-2011, 79 days left)

The federal income tax is a pay-as-you-go tax. There are two ways to pay your tax.

First, Withholding. If you are an employee, your employer may withhold your income tax and pay to the IRS in your name.

Basically, the amount of your withholdings depends on two things:

• The amount you earn in each payroll period.
• The information you give your employer on Form W-4.

W-4 includes 4 types of information that your employer will use to figure out your withholding.

--Withhold at single rate or lower married rate.

--Withholding allowances (each allowances reduce the amount withheld).

--Any additional amount withheld.

--Any exemption from withholding.

Second, Estimated tax. You need to pay tax on income that is not subject to withholding as an estimated tax. Generally, the income includes from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You may also have to pay estimated tax if your withholding tax from your salary, pension, or other income is not enough.

Here I use a table to elaborate which is subject to withholding and which is subject to estimated tax.

Income subject to Withholding	Income subject to Estimated tax
Salaries and wages Tips (exclude allocated tips) Taxable fringe benefits Sick pay Pensions and annuities Gambling winnings Unemployment compensation Certain federal payments, such as social security Backup withholding on interest, dividends, and other payments	Income from self-employment Interest Dividends Alimony Rent Gains from the sale of assets Prizes Awards

PSQ

Source: http://www.irs.gov

[Individual]Can I correct my mistakes after filing?(Jan-29-2011, 79 days left)

The answer is you should correct your return, if you find out that you:

• Miss to add some income
• Claimed deductions or credits you should not have claimed
• Did not claim deductions or credits you could have claimed
• Should have claimed a different filing status (but once you file a joint return, you cannot choose to file separate return)

Which form should you use?

Form 1040X, enter your original report number and corrected number. Do not forget to show the year of your original return and explain all changes you made.

Time for filing a claim for refund:

Generally, you have 3 years period to correct your tax filing after due date of the year filing which you want to correct or your extended filing date, or 2 years after the date you paid the tax, whichever is later.

Limit on amount of refund:

The credit or refund of your correction cannot be more than the part of the tax paid within the 3-year period.

PSQ

Source: http://www.irs.gov

[Individual]Where does the income belong to?(Jan-28-2011, 80 days left)

Fruit and tree doctrine will help you identify who is obligated to pay the tax:

• Income from personal services is taxable to who performs the services

• Income from property is taxable to the owner of the property

• Interest income accrues daily—allocate interest income based on the number of days

• Dividends: taxed to the party who is entitled to receive them

Dividends on stock transferred as gift between declared and record dates is generally taxed to the donor

• Dividend tax relief

Exception: dividend from certain foreign corporations (for most situation), from tax-exempt entities, do not satisfy the holding period requirement.

PSQ

Source: http://www.irs.gov

[Individual]When do I report my income (Jan-27-2011, 81 days left)

It basically depends on your accounting basis -- cash basis or accrual basis. When you file your first tax return, you have to decide it carefully, because you must use the same basis for the following tax filing. If you want to change the accounting basis, you must get approval from IRS.

Cash Basis:

• Cash, property or services received
• Constructive receipt (Amount readily determinable, no substantial limit on right to receive )

Constructive receipt	Not Constructive receipt
Negotiable note, check (even after banking hour, even you didn't cashed or deposited) received, landlord’s prepayment of rent, Garnisheed wages (employer uses your wages to pay your debts), Debts paid for you(your debts are paid or canceled by others), Payment to third party ( a third party is paid from property you own)	Only promise to pay, Postpone cashed check, AMT to repay later, landlord’s damage deposit

• Assignment of income: Income received by agent (employee) is same as received by the taxpayer (employer)。

Accrual Basis:

You generally report income when you earn it and deduct your expense when you incur them.

• Income paid in advance: an advance payment of income is generally included in gross income no matter you choose accrual basis or cash basis, like prepaid rent and interest.

However, Some may be deferred as exception: advance payment for goods and services if same method of accounting is used for tax and financial report. We only consider income for current year, and put the remaining under next year's income.

PSQ

Source: http://www.irs.gov

How many taxes do you know?(Jan-26-2011, 82 days left)

I create a table to present a list of major taxes which are close to your life. Check them out and see how many of them you are familiar with.

Tax	Tax Base	Tax Rate	Federal& State	Others
Property	Realty—Value base Personalty – Years, weight base	Progressive or Proportional	Federal	Some deduction or credit for special property
Transaction-Sales & Use	Tangible property	Proportional	State	Local tax may be larger than state tax
Death- Estate	Fair market value of property + interests Less: Deduction (funeral, marital) +Taxable Gifts (Never Pay Gift Tax before)-Tax Credit (Change every year) Unified Transfer Tax Credit	Progressive	Federal & State	Transferor
Gift	FMV-annual exclusion (13,000) – Marital deduction	Progressive	Federal
Income	Taxable Income	Progressive	Federal & State
FICA	Social security tax: when gross compensation less than 106,800 Medicare Tax	Proportional	Federal	Self-employed people: the tax is imposed by Self-Employment Contributions Act of 1954, they are responsible for the entire percentage of 15.3% multiplier to 92.35% of the business's net earnings from self-employment
FUTA	Unemployment benefit less than 7,000	Proportional	Federal

PSQ

Source: http://www.irs.gov

[Individual]How many exemptions can you claim?(Jan-25-2011, 83 days left)

You can deduct 3,650 for each exemption you can take from your taxable income.

First, you usually can claim yourself for exemption, except someone can claim you as a dependent.

Second, you may claim your spouse as your dependent, if each of the following rules applies:

• Your filing status is married filing jointly and your spouse cannot be claimed as a dependent by another people.
• You were married. Your filing status is married filing separately or head of household. Your spouse had no income and is not filing a return. Your spouse cannot be claimed as a dependent on another person's return.

However, if you became divorced or legally separately during 2010, you cannot take an exemption for your former spouse.

Last, if you have any other dependent, like children, parents, relatives, you also can claim the exemption. Detailed instructions to identify who is qualified as your dependents are posted in another link, named as " Dependent or Independent".

PSQ

Source: http://www.irs.gov

[Individual] Child Tax Credit (Jan-24-2011, 84 days left)

This credit is for people who have a qualifying child as mentioned before.

Limits on the Credit

The maximum amount you can claim for the credit is 1,000 for each qualifying child.

However, you must reduce your child tax credit if either 1) or 2) applies.

1) The amount (on Form 1040, line 46; Form 1040A, line 28; or Form 1040NR, line 44) is less than the credit, you must reduce your credit.

2) The amount (on Form 1040, line 46; Form 1040A, line 28; or Form 1040NR, line 44) is zero, you cannot take this credit.

3) Your modified adjusted gross income (AGI) is above the amount shown below , you must reduce your credit:

110,000 (Married filing jointly), 75,000(Single, head of household, or qualifying widow), 55,000 (Married filing separately )

Here, MAGI is calculated by the following way:

Modified adjusted gross income = Adjusted gross income + Exclusion of income from Puerto Rico + Foreign Earned Income + Foreign Earned Income Exclusion + Exclusion of Income for Bona Fide Residents of American Samoa.

How much is your credit?

Worksheet 1: Child Tax Credit Worksheet (available at Form 1040, 1040A, 1040NR, or Publication 972)

Worksheet 2: Line 11 Worksheet (available at Form 8812 or Publication 972)

Worksheet 3: Earned Income Worksheet (available at Form 8812 or Publication 972)

You can just follow the worksheets and fill out each row step by step. Then put your final credit to Form 1040, 1040A,or 1040NR.

What's the additional child tax credit?

When you get less than the full amount of the child tax credit, you may get a refund under the Additional Child Tax Credit.

You can use Form 8812 to claim this credit. Please notice that "Line 4a -- Earned Income", you must recalculate your Earned Income by following the instructions in Form 8812, if these apply:

1) You are taking EIC

2) You are not taking EIC and not self-employed or filing Schedule SE as a member of the clergy or paid church employee, or filing Schedule C, or C-EZ as a statutory employee.

PSQ

Source: http://www.irs.gov

Overview of New Tax Law - Business (Jan-23-2011, 85 days left)

Today I am going to talk about the Business Incentives in the New Tax Law. They are quite beneficial to the business entities.

1. Bonus Depreciation

The Tax Relief Act boosts 50% bonus depreciation to 100% for qualified investment made for period (Sep-8-2010 to Jan-1-2012). It also makes 50% bonus depreciation for period (Dec-31-2011 to Jan-1-2013).

2. Small Business Expensing

The 2010 Small Business Jobs Act increased the Code Sec. 179 dollar and investment limits to 500,000 and 2 million for tax years beginning in 2010 and 2011.

The 2010 Tax Relief Act provides for a 125,000 dollar limit and a 500,000 investment limit for tax year beginning in 2012 (sunsetting after Dec-31-2012)

3. Research Tax Credit

The 2010 Tax Relief Act renew the Research Tax Credit through Dec-31-2011.

4. Small Business Stock

The 2010 Small Business Jobs Act enhanced the exclusion of gain from qualified small business stock to non-corporate taxpayers. For stock acquired after Sep-27-2010 and before Jan-1-2011, the exclusion is 100%.

The 2010 Tax Relief Act extends the 100% exclusion for one more year, for stock acquired before Jan-1-2012.

5. Work Opportunity Tax Credit

The 2010 Tax Relief Act extends the WOTC for individuals who begin employment after Aug-31-2011 and before Jan-1-2012, but with some modifications.

PSQ

Sources: http://tax.cchgroup.com/downloads/files/pdfs/legislation/bush-taxcuts.pdf

Overview of New Tax Law -Individual(Jan-22-2011, 86 days left)

December 17 the president signed into law the Tax relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Below is the summary of some of the provisions.

1. Capital Gains Taxes

The sunset rule in the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA): it is scheduled to rise to 20% in 2011 (10% for taxpayers below 25% income tax bracket)

Tax Relief Act: it continues current treatment 15% (0% for taxpayers in the 10 and 15 percent income tax brackets ) for 2 years, through Dec.-31-2012.

2. Individual Income Tax Rates

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA): it is scheduled to revert income tax rate from 10%, 15%, 25%, 28%, 33%, 35% to 15%, 28%, 31%, 36%, and 39.6%.

Tax Relief Act: it extends all individual rates at 10%, 15%, 25%, 28%, 33%, 35% for 2 years, through Dec.-31-2012.

3. Alternative Minimum Tax

AMT patch--Exemption amounts for 2010 and 2011 with/and without a patch:

	2010	2011
Single individuals	47,450/33,750	48,450/33,750
Married couples filing jointly	72,450/45,000	74,450/45,000
Married couples filing separately	36,225/22,500	37,225/22,500

4. Payroll Taxes

Social Security Tax on all wages up to 106,800	Old	New
Employee	6.2%	4.2%
Self-employed individual	12.4%	10.4%

Tax Relief Act also extend some tax benefits related to the following issues for 2 more years, through Dec.-31-2012

• Enhancement on Child Tax Credit ($1,000)
• Enhancement on Adoption Credit
• Enhancement on Dependent Care Credit
• Enhancement on Earned Income Tax Credit
• Enhancement on Student loan interest deduction
• Enhancement on Coverdell Education Savings Accounts
• Full repeal of the Peace limitation
• Repeal of the Personal Exemption Phaseout
• EGTRRA's marriage penalty
• Employer-Provided Child Care Credit
• American Opportunity Tax Credit
• Educational Assistance Exclusion
• State and local sales tax deduction
• Higher education tuition deduction
• Teacher's classroom expense deduction
• Charitable contribution of IRA proceeds
• Scholarships exemption from National Health Service Corps Scholarship Program and the Armed Forces Scholarship Program
• Mortgage Insurance Premiums (extend 1 year subject to some limitations)

PSQ

Sources: http://tax.cchgroup.com/downloads/files/pdfs/legislation/bush-taxcuts.pdf

[Individual]Understand your filing status (Jan-21-2011, 87 Days)

There are 5 filing status available and more than one filing status can apply to you. You'd better choose the one that will give you the lowest tax. In general, the ones that will give you the lowest tax are listed last.

• Married filing separately

• Single

• Head of household

• Married filing jointly or qualifying widow(er) with dependent child

Single	Any of the following was true on Dec.-31-2010 Never married Legally separated according to your state law Widowed before Jan.-1-2010, and did not remarry before Dec.-31-2010 Notice: Nonresident aliens cannot file jointly, so they usually file as a single.
Head of household	1. Unmarried individuals : Legally separated according to your state law Married but lived apart for the last 6 months of 2010, file a separate return, paid over half the cost of keeping up your home that was the main home. Married to a nonresident alien and do not choose to treat spouse as a resident alien 2. Provide a home for certain person Test 1. You paid over half the cost of keeping up a home that was the main home. Test 2. You paid over half the cost of keeping up a home in which you lived and one of the following also lived for more than half of the year. Any person whom you can claim as a dependent, except: Dependent under rule for Children of divorced or separated parents Dependent because he/she lived with you for all of 2010 Dependent under a multiple support agreement Your unmarried qualifying child who is not your dependent Your married qualifying child who is not your dependent only because you can be claimed as someone else's dependent Your child who is not your dependent because of the rule for Children of divorced or separated parents.
Married filing separately	You cannot take student loan interest deduction, the tuition and fees deduction, the education credits, or the earned income credit. You also cannot take the standard deduction if your spouse itemizes deductions.
Married filing jointly (not for Nonresident aliens couple)	Married at the end of 2010, even if you did not live together You spouse died in 2010 and you did not remarry in 2010 You were married at the end of 2010, and your spouse died in 2011 before filing
Widow(er) with dependent child	Your spouse died in 2008 or 2009 and you did not remarry before the end of 2010 You have a child or stepchild as your dependent who live in your home for all of 2010 You paid over half the cost of keeping up your home.

PSQ

Source: http://www.irs.gov

[Individual]China & U.S. Treaty --Who are eligible to exempt income tax(Jan-20-2011, 88 days)

Article 16 (Artistes and Athletes)

Incomes derived by an entertainer or athlete from activities exercised in accordance with a special program for cultural exchange agreed upon by both governments are exempt from tax.

But income derived from their personal activities (e.g. exercised in U.S. ) may be taxable.

Article 19 (Teacher, Professors and Researchers)

Teacher, professors and Researchers should be exempt from tax for a period not exceeding 3 years in the aggregate , if they meet the following requirements:

• A resident of China, immediately before visiting U.S.
• Primary purpose is to teach, give lectures or conducting research

Article 20 (Students and Trainee)

A student, business apprentice or trainee (resident of china, immediately before visiting U.S. ) should be exempt from tax with respect to:

• Payments from abroad for the purpose of his maintenance, education, study, research or training;
• Grants or awards from a government, scientific, educational or other tax-exempt organization;
• Income from personal service performed in an amount not in excess of 5,000 U.S. Dollar.

This Article shall extend only for such period of time as is reasonably necessary to complete the education or training. It means students who claim as resident alien are also can benefit from this Article.

There is a very clear example on Publication 519 Page 58 Example. It says that "even though Mr. Yu is now a resident alien, the provisions of Article 20 still apply. Mr. Yu should submit Form W-9 and the required statement to the payor.

If your employer failed to deduct your first $5,000 from your taxable income, you can file Form 8833 when you do the tax refund next year.

How to report your income on tax return files?

First, you must make sure whether your taxable income includes the exemption part.

Second, if it is not included, you don't need to worry about anything. If it is included, you should follow the instruction below:

e.g. Form 1040

Line 7 (wages, salaries, scholarships, or fellowships): your taxable income on a Form W-2, Form 1042-s, Form 1099

Line 21: The amount for which treaty benefits are claimed, e.g. 5000. Next to the amount write " Exempt Income" , the name of the treaty county and Article Number.

PSQ

Source: http://www.irs.gov

[Individual]Social Security and Medicare Taxes for Aliens (Jan-19-2011, 89 days)

In most cases, Social Security Tax is levied on the first 160,800 taxable wages. All taxable wages are subject to Medicare tax. We may know term "FICA". It's the combination of Social Security tax and Medicare tax.

Usually employer deducts these taxes from each wage payment. You can claim a credit for excess social security tax on your income tax return if the total amount deducted is more than 6,621.60 by using Form 843. However, there are some special rules applied to the specific group of people.

Tax Treaty

Not covered by FICA	Covered by FICA
Students and Exchange Visitors (F, J, M, Q) claim as nonresident alien (income sources :on-campus work, practical training, and economic hardship employment )	Spouse or minor child of nonimmigrant aliens (F-2, J-2, M-2, Q-3) Students claim as resident alien (unless they are under the " Student FICA exemption" discussed below )

Tip 1: Usually, the exemption applies to :

• F-1 and J-1 Student Visa holders for the first 5 calendar years*

• J-1 Scholars (including teachers, professors, researcher, and alien physicians ) for the first 2 calendar years*.

Tip 2: Definition of Calendar Year

No matter when you entry U.S., it is counted as a full calendar year when you determining the exemption for FICA withholding. For example, you entered U.S. at December-1-2008, it is counted as 1 calendar year.

Student FICA Exemption

If you are students and claim as resident alien, you may also exempt from FICA. You should bear in mind that IRS also provides an exemption from FICA for all students, American and foreign. This is so -called "student FICA exemption".

Refund of Taxes Withheld in Error

You can fill out the Form 843 to file a refund for over-withholding part. Please attach the following items to Form 843:

• Copy of Form W-2

• Copy of your visa

• Form I-94

• Form I-20, if F-1 visa

• Form DS-2019, if J-1 visa

• Form I-766 or Form I-688B, if you are engaged in optional practical training

• Statement from your employer (indicating the amount of the reimbursement your employer provided and the amount of the credit or refund your employer claimed or you authorized your employer claim). Or your own statement and explain why you are not attaching a statement from your employer or on Form 8316 claiming your employer will not issue the refund.

• Statement indicating the tax paid during the period you were exempt, if you were exempt from FICA only part of the year.

PSQ

Sources: http://www.irs.gov

[Individual]Which forms should Nonresident alien use? (Jan-18-2011, 90 Days)

Usually Nonresident Aliens use Form 1040NR, but if all items in the following list apply to you, you may also use 1040NR-EZ:

	1040NR-EZ	1040NR
Income Source	less than 100,000 Only wages, salaries, tips, state or local tax refund and scholarship or fellowship grants	All
Dependent	Do not claim any dependents Do not be claimed as another person's dependents	Yes
Exemption	Only one person exemption, not for your spouse	Only one person exemption, not for your spouse, except you are resident of Mexica, Canada, South Korea or india and meet certain requirements.
Exclusion	student loan interest deduction Scholarship and fellowship grants excluded from Income	IRA Deduction Archer MSA Deduction Health Savings Account Deduction (Form 8889) Student loan interest deduction Moving Expenses Self Employed health insurance Deduction Self-Employed SEP, SIMPLE, and Qualified Plans Penalty for early withdrawal of savings Scholarship and Fellowship grants excluded from Income Domestic Production Activities Deduction (Form 8903)
Itemized Deduction	state and local income taxes	If you receive income effectively connected with U.S. trade or business: State and local income taxes Charitable contributions to U.S. non-profit organizations Casualty and theft losses Miscellaneous itemized deductions The ordinary and necessary expenses related to a U.S. trade or business
Credit	No credit	Can not claim Earned Income Tax Credit, the Hope Credit, or the Lifetime learning Credit.
Tax you owe	Tax from the tax table Unreported social security and medical tax from Form 4137 or Form 8919
Self-Employment Tax	Not liable to	Not liable to
Other	No credit for excess social security and tier 1 RRTA tax withheld This is not an "expatriation return".

PSQ

Source: http://www.irs.gov

[Individual]Which forms should U.S. Citizen and Resident alien use? (Jan-17-2011, 91 Days)

The basic individual income tax forms are Forms 1040, 1040 A and 1040 EZ. Taxpayers only need to choose one form to file based on their personal tax situation.

	1040 EZ	1040 A	1040
Filing Status	Single or married filing jointly	All	All
Dependents	No	Yes	Yes
Personal	Under age 65 and not blind at the end of 2010	All	All
Taxable income	<=100,000 Only : --wages, salaries, tips, --taxable scholarship or fellowship grants, --unemployment compensation, --Alaska Permanent Fund dividends, --taxable interest (not over 1,500).	<=100,000 Only: 4 more items than 1040 EZ --Interest and ordinary dividends, --capital gain distributions, --pensions, annuities and IRAs --taxable social security and railroad retirement benefits	All
Adjustment to income	No	Only: --Educator expenses --IRA deduction --Student loan interest deduction --Tuition and fees deduction	All
Deduction	Do not figure your standard deduction using Schedule L.	No itemize deduction	All
Credit	No	Only: --Child tax credit --Additional child tax credit --Education credits --Earned income credit --Credit for child and dependent care expenses --Credit for the elderly or the disabled --Retirement savings contributions credit --Making work pay credit	All
Others	Do not receive any advance earned income credit payments. Do not owe any household employment taxes on wages. Not a debtor in a chapter 11 bankruptcy case filed after Oct-16-2005	Can receive advance earned income credit (EIC) payments, dependent care benefits, or if you owe tax from the recapture of an education credit or the alternative minimum tax.

PSQ

Source: http://www.irs.gov

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