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Whether you’re trying to make a little extra cash before the school year starts back up, or you’re just bored—summer jobs are a great way to put a little something in your pockets.  But just because the summer is void of tests and studying, doesn’t mean you get a free ride from every angle.  That summer job you have right now will still have to be reported come tax time.  Here are a few tips to help you be sure you’re in line with what the Tax Man expects:

1)  Tips are taxable

A tip is considered income, so you have to report it on your return.  Be sure to keep track of exactly how much you’re given.  You’ll report this on Form 4137, which TurboTax will help you fill out (so don’t worry about having to track the form down).

2)  Odd jobs aren’t exempt

Even if you’re just mowing a few of your neighbors’ lawns, you still have to report the money you receive for that service as income tax.  This type of income is considered self employment income, so be sure to report it correctly (using a Schedule C).   And good news! TurboTax will walk you through this process as well.

3)  If you make $400 or more from your odd job, you have to pay self-employment tax

You may be the entrepreneurial type and turn your lawn mowing gig into something a little more lucrative.  If you make over $400 from this, you’ll need to not only pay income tax on your earnings, but self-employment tax as well (this is what pays for Social Security and Medicare).  This tax will be figured on Form 1040, Schedule SE—surprise, surprise, TurboTax has you covered.

4)  Fill out a W-4 Form

This may be a no brainer, but fill out a W-4 no matter how trivial the job may seem.  If you have a boss, you should have tax withholdings.  Doing so will make sure the right amount of taxes are being taken out of each paycheck so you hopefully won’t have to pay when you file a return.

5)  Newspaper carriers have some unique rules when it comes to taxes

You must meet a few conditions to be considered a direct seller and therefore treated as self employed:

• You are in the business of delivering newspapers

• Your pay is directly related to sales instead of how many hours you worked

• You deliver under a written contract that specifies you are not treated as an employee for federal tax purposes.

6)  Most of the time, newspaper carriers that are under 18 aren’t regulated to self-employment tax

7)  If you’re in ROTC, subsistence allowances from advanced training are not taxable

The caveat to this is that active duty pay (like the pay you received while participating in a summer advanced camp) is taxable like any other income.  You’ll get a W-2 just like with any other job, so be on the lookout at the end of the year.

And there it is!  A few tips to keep in mind while earning a little extra money.  Pretty simple.  Now, one more bonus tip….try to relax a little, the summer is too short as it is.

Let’s start with some good news.  The American Recovery and Reinvestment Act (the 2009 Stimulus) included some new stipulations to unemployment income.  Here’s the main tax highlight:

- The first $2400 of your unemployment benefits is completely tax free (this only applies to Federal taxes—states have the right to tax unemployment pay and, at this point, we’re not sure how many states will do the same as the Federal Government).  After that, you’ll still have to pay taxes (more in a bit on how to deal with this).  The tax break only applies to 2009, though.  If you collected unemployment payment in 2008, you still have to pay taxes on that—regardless of how much.

That takes care of the Stimulus.  Here is some more information that will help you as you begin to plan for your taxes:

What’s Taxable?—

Severance:  Any severance or compensation you received from your employer as part of a termination package is taxable.  Along with this, if you received compensation for any vacation or sick time that you had accumulated, you’ll need to pay taxes on these if they aren’t already taken out.  Your final W-2 will document if taxes were withheld or not, so pay attention to that.  Remember, your employer may not have given you the final W-2 right after you left your job.  They’re allowed to wait until the end of the year (January 31st) to issue it, so don’t forget about including it with your return.

Odd Jobs:  If you did any odd jobs while you were out of work, the income you collected for them is taxable, so keep track of it (this would be entered on a Schedule C as business income).

Unemployment Income:  As I stated above, unemployment income after the first $2400 is taxable just like any other income.  The twist here is that no tax is automatically withheld when you are issued unemployment pay.  If you want taxes withheld up front, you can submit a Form W-4V (Voluntary Withholding Request) to the office where you filed for unemployment.  Once you’ve done this, you will have 10% withheld for your Federal taxes.

Union Benefits:  Any union unemployment benefits must be reported on your return.  Since these are not government funds they are subject to income tax.

Other Important Information—

At the end of the year, if you’ve received unemployment benefits, you’ll get a Form 1099-G that will report what you collected.  The IRS will also receive one.  You should enter this under “Other Income” in TurboTax under Federal Taxes.

Finally, we’re all optimistic that our situation will turn around soon.  When this happens (and if you’re able to) consider paying back any unemployment compensation income you received.  If you can, then you’ll get to deduct what you reimbursed.

April 15 Tax Deadline

The tax deadline is less than a week away.  Instead of using a bunch of clichés about lights at ends of tunnels and finish lines, I’ll jump right to the point (after all, we need as much time as possible to finish our taxes).

There are millions of Americans each year that are not able to finish and file their taxes by April 15th.  Because of this, the IRS offers the option of filing an extension (Form 4868), which extends your filing date to October 15th.  Good news, right?  It is, and yes, TurboTax can help.  But first, there are a few things you need to know.

The most important piece of information to keep in mind is; if you think you’re going to owe, you still need to pay by April 15th in order to avoid any late penalties.  Filling an extension with the IRS only allows you to postpone when you actually file your return, it doesn’t mean you can pay later as well.  This is important, because the penalty could be up to 25% of your tax bill.  The actual late payment penalty is ½ of 1% of any tax due (not your total taxes due, just what you haven’t paid by April 15).  This will be charged each month the tax remains unpaid, up to a maximum of 25%.

TurboTax has a couple of ways to help you file an extension.  You can file an extension from TurboTax itself.  Just open it up, type “Extend time to file” in the FIND box and it’ll take you to the correct screen to fill out Form 4868 (Application for Automatic Extension of Time to File).  If you use TurboTax to file your extension, you’ll need to print and mail the form.

If you want to file Form 4868 electronically, TurboTax offers Easy Extension for free!  Follow this link:

https://extension.intuit.com/extexp/ExtFiling.html?priorityCode=4558400000

It’s got a slick design and makes the process as painless as possible.

So you’re probably asking, what if I don’t know if I’m going to need to pay or not? We’ve got you covered there too.  Use TaxCaster that TurboTax provides for free to help you estimate your taxes.

http://turbotax.intuit.com/tax-tools/calculators/taxcaster/index.jsp?height=700&width=980

Remember, although extremely useful, TaxCaster is to help you estimate your taxes, it doesn’t actually do them for you (you’ll need TurboTax for that).

And finally, to be as accurate as you can be, you’ll need to have some information with you when you fill out Form 4868.  Here’s a quick list of the possible things you’ll need:

* Your spouse’s (if applicable) as well as your own SSN and Date of Birth

* Your address

* A copy of your 2007 tax return (for your AGI and tax liability from last year)

* How much money you have already paid in taxes for 2008

* Your 2008 tax liability (See below for a quick explanation of this)

* Your bank account and routing number (if you owe taxes)

* Your User ID and password for your account on TurboTax.com (if you have one)

Figuring Out Your 2008 Liability:

The Tax Caster will calculate your estimated taxes based on the following information:

* Taxes withheld by your employer(s) on your W-2(s) (Box 2 of your W-2)

* Estimated taxes you sent the IRS

* Income

* Deductions

* Various Credits

If your tax situation hasn’t changed that much from last year, you may be able to use last year’s return to help you estimate whether or not you owe.  If you owed, send in at least the amount you paid last year (don’t worry, if it turns out that you actually owe less, the IRS will return the balance).  You can find what you owed last year on:

* Line 76 of the 1040

* Line 46 of the 1040A

* Line 12 of the 1040EZ

I know I’ve talked a lot about determining whether or not you owe.  For those of you fortunate enough to expect some money back, there really isn’t a penalty for filing late.  Since the penalty is a percentage of what you would owe and, since you don’t owe, there isn’t a penalty.  But don’t wait too long—the longer you wait, the longer you go without getting your money.  And, if you don’t file your return within three years, you won’t get a refund.

Finally, don’t forget about your state return.  States often charge a similar penalty as federal for late filing.  Some states don’t require you to file an extension as long as you complete a federal extension (but there is a voucher needed for each state).  TurboTax has all the state extension forms for you to file manually.  Easy Extension, however, does not, so keep that in mind.

For more detailed information about filing an extension, please see these following FAQs:

http://turbotax.intuit.com/support/kb/e-file/ef/7418.html

http://turbotax.intuit.com/support/kb/e-file/ef/7419.html

9)  Renter’s Credit

This one depends on the state where you live.  You can’t claim this one on your federal return (this only applies to your state taxes), but, if you live in a participating state, it’s worth looking into.

10)  Take Home Pay

Here’s a hypothetical—you take a job that promises $50,000 a year.  On a bi-weekly pay schedule, your check should be about $1900.  Yeah right.  If we didn’t have taxes and other withholdings, it would be.  But, depending on how much you elect to take out for federal, the check could be as low as $1400-1500.  So be prepared (yes, I’m implying that you shouldn’t go out and buy that Bentley right away—at least wait a while).  Here’s a very brief breakdown of what’s being withheld from your checks:

Federal—Amount is based on the information you provided on your W-4 Form.

State—Varies from state to state, but is usually a certain percentage of your Federal withholding.  To view the withholding form for your state, go here:

http://www.statew4.com/content/taxforms.php

Medicare—A straight 1.45% of your gross pay.

Social Security—This is 6.2% of your wages, unless you make over $106, 800.  If you make that much, you don’t pay any Social Security taxes.

For help budgeting that money that you’re actually able to take home after all of this stuff is taken out, you should check out some of the stuff Quicken Online offers (another shameless plug, but it’s definitely worth the mouse click—and it’s free to boot!):

http://quicken.intuit.com/online-banking-finances.jsp?lid=site_banner

There it is.  See, painless.  And hopefully a little enlightening.  When you go to fill out your returns, you should have a little more ammo to use.  Here’s hoping your returns flow like wine and you’re finally able to buy that 1080p HD flat screen.

8)  W-4

If you’ve ever worked a job (for a reputable business, that is) then you’ve filled out a W-4.  You may not have known what you were doing, but you filled it out.  Here’s some info that should help you figure out how to make it work better (or at least more efficiently) for you.

You fill this out so your employer can withhold the correct federal income tax from your pay.  You’ll be asked if you are single or married and how many allowances you have.  If you’re single and don’t own a home, you’ll probably enter 1or 2.  Keep this in mind—the higher the number you write down on your W-2, the less is withheld.  While this sounds like a good thing up front, it could lead to you owing taxes at the end of the year.  I’m not going to tell you what to do, but hopefully the form makes a little more sense.

We’re hitting the home stretch.  Just two more–stay tuned tomorrow.  The last two are worth it!

7)  401(K)

These days, you’re lucky if you’re working for a company that provides you with a 401(k) plan. A 401(k) is a retirement plan that you can contribute to so you have money when you’re old and gray—and who knows if there will be any social security left over for you?  If you’re a teacher, it’s called 403(b) plan.   Also, if your income is less than $26,500 you might get a retirement saver’s credit of up to $1,000 for contributions to your 401(k) or 403(b). You can’t be a full time student to get this credit.  This type of retirement plan is fantastic because it gives you some input into how the money you’re contributing is being invested and growing.  Talk to your human resources department if you want to get more involved in where your money is going.

6)  What Paperwork Do I Need In Order to File My Return?

No matter how many commercials you see, you can’t file your tax return with just your pay stub.  Trust me on this.  Don’t try it.  You need, at the very least, your Form W-2 (which must be provided to you by your employer before January 31st).

If you have any savings accounts, you’ll need a 1099-INT from your bank.  This will tell you the interest you earned (which is taxable).  You can also get this info on your year end bank statement.

If you paid interest on a student loan you’ll receive a 1098-E that shows the amount of interest paid (use this to deduct and save some cash!).

If you paid tuition for courses during the year, you’ll receive a 1098-T.

If you received unemployment income, you’ll get a 1099-G (yes, unfortunately, unemployment income is taxable).

Before you sit down to complete your return, try to have these forms with you (if you need them all).  It’ll make your life a lot easier and you’ll get done a lot faster.  Look at it like an open book test.  You don’t have to have it all memorized before, but the more info you have in front of you, the easier it’ll be.

5)  Individual Retirement Agreement (IRA) Deduction

This is a double-whammy in a good way.  You could save for your retirement AND reduce your taxes.  How?  Read on:

If your income is less than $26,500 you may get a retirement saver’s credit of up to $1000 for contributions to an IRA.  The catch here is that you can’t be a full time student to get this credit.

If your income is under $63,000 and you’re eligible for a retirement plan with your job, you can make a contribution of up to $5000.  However, if your income is $63,000 or more, you won’t get to deduct it.  See http://turbotax.intuit.com/tax-tools/ and click on the IRA Calculator to figure out how much you can deduct on your tax return (not a shameless plug—just a freakin sweet tool).

A final word on IRAs: If you aren’t eligible for a retirement plan, it doesn’t matter how high your income is—you can contribute and deduct up to $5000.  The nice thing about this is—deductions reduce your income.  And deducting your income reduces the amount of taxes you have to pay. Not to mention the fact that having a retirement fund might work out better for you than working at a burger joint when you’re 80.

Stay tuned for my next installment.  I’ll be talking about what paperwork you’ll want to have with you when you actually sit down to file.

Tip 4 can be a little confusing, but the potential benefit to you is pretty nice.  And, I’ve tried to put this in the least legal (or boring) words possible:

4)  Moving Expenses

Did you move to live near your new job?  Did the move cost you money?  You might get to deduct those costs.  Here’s the deal—if you moved to live near your first job, and your new workplace is at least 50 miles from your former home and your new employer didn’t pay for your moving expenses (costs of moving household goods/ travel expenses: lodging but not meals) then you get to deduct those moving expenses, which reduces your income!  If you’re making the move because you’re changing jobs, the distance between your new job location and your prior home must be at least 50 miles more than the distance between the old job location and prior home.  Stop and re-read that if you think it may apply to you.  It’s worth it.

Next time–How an Individual Retirement Agreement (IRA) can help you in more ways than one.

Last time I talked about Education Credits.  And, while I promised that I’d talk about something different than education, there are a lot of breaks when it comes to the money surrounding secondary education.  So, here’s tip # 2:

2)  Student Loan Interest

Student loans are the greatest things in the world when you’re in school.  But once you graduate, they have this annoying tendency of needing to be paid back.  But don’t worry—you can deduct up to $2500 of the interest, which can significantly lessen the sting of those monthly bills.

Not to go back on my word, here’s a bonus tip for today:

3)  Do I Really Need to File?

If your income is less than $8950, you don’t have to file.  But don’t let that stop you.  If you had any taxes withheld from your paycheck, you’ll need to file so you can get that money back (nope, the IRS isn’t going to show up on your doorstep with a giant cardboard check).  Also, if you’re 25 and your earned income is less than $12,880, you can file to get an earned income credit.

Two tips in one day…I’m feeling pretty generous.  Stay tuned for the next post.  I’ll be talking about moving expenses and how you can make them work for you.

The Top 10 Things for 18-25 Year-olds to Know About Taxes

As exciting as living on your own for the first time is, it can be equally intimidating and overwhelming.  For every night with a wild, too-crazy-to-blog-about activity, there are an equal number of new (and incredibly less sexy) responsibilities of paying bills and, yes, filing taxes.  And just like that growing pile of dishes in your sink, ignoring your taxes only makes them more daunting when you finally get around to doing them.

I’m new to the TurboTax team and not all that removed from being a first time tax-filer myself, so I figured, why not throw a proverbial bone to those twenty-somethings who will be leading the world in the not too distant future?  I know I could have used some help when I was trying to figure out how to get the most money back from the government: when I wasn’t quite ready to itemize every single expenditure, but knew my situation was a little more complex than a 1040EZ.  So, without further delay, here are the top 10 things every person from the age of 18-25 should know about taxes.  Sit back, crank-up that really awesome underground band that only you know about and love mentioning at parties, and forget about the mold growing under you sink.  Get ready to have some fun (yes, I did use the word FUN in a tax blog) and get ready to find out how to make your youth work for you.  These aren’t your parents’ taxes…

1)  Education Credits

Are you working and going to school?  If so, good for you.  You may be able to reduce your taxable income by some, or even all, of your education expenses.  If you’re in the first two years of an undergraduate degree and your total income is under $58,000, you qualify for a Hope Credit worth up to $1800.

For those of you that are past the two year mark in college, don’t despair—you can get a Lifetime Learning Credit of 20% of your expenses up to $2000 (if your income is under $58,000) or up to a $4000 tuition deduction if your income is under $80,000.  Pretty sweet, huh?  And here’s the best part—TurboTax will figure out which option is best for you (I know…shameless plug).

Stay tuned for more tips.  I’ll be posting about three a week for the next few weeks.  Here’s a little teaser…not all of them have to do with education.

For most people eager to get their taxes filed, February 1 has become sort of like Christmas.  The only difference being that instead of Santa Claus shimmying down the chimney with a bag of toys, a mail carrier brings little gifts in the form of W-2s, 1098s and various 1099s (who said grown-ups don’t have any fun?).  While we anxiously await the arrival of our various financial statements, it may be helpful to know that some of the forms may be delayed this year.  Take heart, it’s not necessarily bad news.

Why the change?  Last year, when the Congressional bailout was passed, a provision was added that gave mutual-fund corporations, as well as brokerage firms, additional time to distribute tax forms (especially Form 1099-B) that are used to report earnings from brokers’ transactions.  The deadline has been pushed back from the usual January 31st to February 15th.  And, to add some confusion to an already confusing situation, February 15th falls on a Sunday this year and the 16th is President’s Day, so brokers technically have until February 17th.

But wait, there’s more!  The February 17th deadline also pertains to other tax information that customers receive from their brokers.  Interests and dividends on a combined year-end statement could be affected too.

So, what’s the silver lining?  Well, the change was designed to give brokers more time to make sure the year end statements they provide their customers are accurate.  According to the IRS, up to 20% of the 1099s brokers send to their clients end up getting amended.  Usually, the clients have already filed their taxes by the time they get the amended 1099s and that means they have to amend their returns (and even with TurboTax, amending a return is no fun).  So the thinking is—give the brokers more time to compile accurate info, and returns should be more accurate (I guess you could call this trickle down taxes).  I guess we should take a few things from this.

1)    The 1099-Bs that show up later this year should be more accurate and therefore should make it easier for us to file.

2)    Not all year end forms are affected—W-2s, 1098s and other 1099s still have a Jan. 31st deadline.

3)    Stop bugging your mail carrier—he/she isn’t Santa and, just because you haven’t gotten some of your statements, doesn’t mean you’ve landed on some financial naughty list (although I’m pretty sure mail carriers do appreciate milk and cookies).