The kiddie tax applies to children, who have unearned income above $2,000 (for 2013 and 2014). Their tax rate is at their parents’ highest marginal rate rather than their own lower rate.
Children under age 18 or full time students under age 24 are subject to the “kiddie tax”. The instructions for calculating a kiddie tax liability are detailed in the Federal Form 8615 – Tax for Certain Children Who Have Unearned Income.
TS Eliot, in the opening to his poem ‘The Wasteland”, begins by saying “April is the cruelist month……..”.
Many taxpayers might echo this sentiment, since April 15 is the due tax for most individual tax returns that are filed on Form 1040.
However, a taxpayer can postpone the filing of a Form 1040 for six months until October 15, 2014. There are some rules for obtaining a valid extension.
Request an extension using Form 4688, if you request by mail. If you pay by email or by phone you do not need to file an extension form.
Pay the taxes you owe by April 15, 2014. If you pay by email you go to the IRS website at PAY1040.com; If you pay by phone you will call Link2Gov at 1-888-729140. The credit cards accepted are Visa, MasterCard, American Expresss, and Discover.
But you may say, “How do I know how much to pay, if I have not completed my tax return by April 15?”
You will need to estimate since if you have not paid at least 90% of your tax liability by April 15, you will be assessed a late-payment penalty of 1/2 of 1 % of the unpaid taxes, to a maximum of 25%.
Most states that charge income taxes also have tax return extension processes. In some cases, the states will accept a Federal Tax Return extension if the state tax liability has been paid by the state tax filing deadline.
| Many do not realize the existence of a “National Taxpayer Advocate”, Service headed by Nina Olson, who is described by Mary Beth Franklin in Kiplinger’s web site in August 2011 as follows: |
| “Nina Olson is your voice at the Internal Revenue Service. You may have never heard of her, but Olson has been the national taxpayer advocate for the past ten years. Her role is twofold: to intercede for taxpayers when normal IRS channels aren’t working, and to identify harmful tax policies and practices that should be changed. A tax attorney and former tax preparer, Olson uses her semiannual reports to Congress to recommend legislative or administrative solutions — and to get the last word when the IRS doesn’t heed her suggestions. |
| in a report dated November 4, 2013 Olson stated: |
| TOWARD A MORE PERFECT TAX SYSTEM: A |
| TAXPAYER BILL OF RIGHTS AS A FRAMEWORK FOR |
| EFFECTIVE TAX ADMINISTRATION |
| November 4, 2013 |
| Nina E. Olson |
| In addition to 10 taxpayer rights, Ms. Olson identified 5 taxpayer responsibilities: |
| 1. The Responsibility to Be Honest |
| 2. The Responsibility to Provide Accurate Information |
| 3. The Responsibility to Keep Records |
| 4. The Responsibility to Pay Taxes on Time |
| 5. The Responsibility to Be Courteous |
| Many taxpayers own rental real estate and incur a “passive loss” even though the rental income is sufficient to cover the cash required to pay interest on a mortgage, real estate taxes, and maintenance and upkeep costs. |
| How can there be a “passive loss” when there is a cash breakeven? |
| The answer often is that tax basis depreciation on the property, a non-cash expense, is deductible for tax purposes. |
| However, except on a limited basis established by the taxpayer’s adjusted gross income, a passive loss cannot be deducted unless the taxpayer has “passive income” in amounts sufficient to offset the “passive loss”. |
| By definition Income and losses from investment real estate or rental property are passive, unless you qualify as a “real estate professional”. |
| To be a real estate professional you must spend more than 50% of your services in real property trades or businesses in which you are a material participant, and more than 750 hours of services in these businesses during the tax year. |
| Passive losses on real estate property accumulate until such time as the property is sold; at that time the accumulated passive losses are deductible.
|
| Many taxpayers in prior years have been subject to the Federal Alternative Minimum tax, | ||
| the so-called “heads I win, tails you lose tax”, where the taxpayer pays the higher of | ||
| the tax calculated the “regular” way or the AMT way. | ||
| IRS Form 6251 is a detailed schedule that shows, line by line, differences between | ||
| various income and expense categories. Many of these differences seem esoteric. | ||
| Listed below, however, is a table that shows whether various Schedule A – Itemized Deductions | ||
| are available in each calculation. | ||
| SCHEDULE A EXPENSE AVAILABILITY | REGULAR TAX | ALT MIN TAX |
| State And Local Income Tax, if applicable | YES | NO |
| State And Local Sales Tax, if applicable | YES | NO |
| Mortgage Interest | YES | YES |
| Investment Interest | YES | YES |
| Medical Expenses | YES | YES |
| Charitable Contributions | YES | YES |
| Unreimbursed Employee Business Expenses | YES | NO |
| Tax Preparation Fees | YES | NO |
| Other Investment Expenses | YES | NO |
| Many do not realize the existence of a “National Taxpayer Advocate”, Service headed by Nina Olson, who is described by Mary Beth Franklin in Kiplinger’s web site (August 2011) as follows: |
| “Nina Olson is your voice at the Internal Revenue Service. You may have never heard of her, but Olson has been the national taxpayer advocate for the past ten years. Her role is twofold: to intercede for taxpayers when normal IRS channels aren’t working, and to identify harmful tax policies and practices that should be changed. A tax attorney and former tax preparer, Olson uses her semiannual reports to Congress to recommend legislative or administrative solutions — and to get the last word when the IRS doesn’t heed her suggestions. |
| in a report dated November 4, 2013 Olson entitled: |
| TOWARD A MORE PERFECT TAX SYSTEM: A |
| TAXPAYER BILL OF RIGHTS AS A FRAMEWORK FOR |
| EFFECTIVE TAX ADMINISTRATION |
| November 4, 2013 |
| Nina E. Olson |
| Ten Taxpayer Rights, as recommended by Olson |
| 1. The Right to Be Informed |
| 2. The Right to Quality Service (included in IRS Publication 1) |
| 3. The Right to Pay No More than the Correct Amount of Tax (included in IRS Publication 1) |
| 4. The Right to Challenge the IRS’s Position and Be Heard (included in IRS Publication 1) |
| 5. The Right to Appeal an IRS Decision in an independent Forum (included in IRS Publication 1) |
| 6. The Right to Finality |
| 7. The Right to Privacy (included in IRS Publication 1) |
| 8. The Right to Confidentiality (included in IRS Publication 1) |
| 9. The Right to Retain Representation (included in IRS Publication 1) |
| 10. The Right to a Fair and Just Tax System, including Access to the Taxpayer Advocate Service |
| Items 1, 6, and 10 are not included in IRS Publication 1, Declaration of Taxpayer Rights. |
| If you have been an employee during 2013, by the end of January 2014, you should have received a Form W-2. This is a complex form that supposedly contains 25 alpha and numeric information boxes regarding various dollar facts about your wages, withholdings, social security, and other data. |
| However, for Box 12: Deferred Compensation and Other Compensation there are up to 24 alpha subboxes for the numerical Box 12. These boxes contain information about social and medicare taxes on tips, group term life insurance, non-taxable salary deferrals, non-taxable sick pay, non-taxable reimbursements for employee moving expenses, non-taxable combat pay, employer contributions to health insurance costs, and so on. |
| For an employer the preparation and issuance of Forms W-2 is not an easy process, and many of the data contained in the detail boxes will be reported on the employee’s Federal Income Tax return, Form 1040.
|
| What is this TAXSPEAK name “THRESHOLD” mean ? | |
| In 2013 there are additional Medicare Taxes of 9/10 of 1% imposed on wages, and sell employment compensation for those whose employment amounts are above a THRESHOLD amount. | |
| FILING STATUS | THRESHOLD AMOUNT |
| Married Filing Jointly | $ 250,000 |
| Married Filing Separate | $ 125,000 |
| Single | $ 200,000 |
| Head of Household | $ 200,000 |
| Qualifying Widow(er) | $ 200,000 |
| So if your tax status is above the THRESHOLD AMOUNT, your Medicare Tax will be higher, otherwise no change from your current status. | |
| There is also a new “Net Investment Income Tax” of 3.8 % for those whose “Modified Adjusted Gross Income” (MAGI) is as follows: | |
| FILING STATUS | THRESHOLD AMOUNT |
| Married Filing Jointly | $ 250,000 |
| Married Filing Separate | $ 125,000 |
| Single | $ 200,000 |
| Head of Household | $ 200,000 |
| Qualifying Widow(er) | $ 200,000 |
| Certain Estates and Trusts, with undistributed investment income | $ 11,950 |
| The actual calculation of the new medicare and the net investment income tax is more complex than determining whether something is above a Threshold Amount. However, the concept of using Threshold Amounts in calculating taxes is found throughout the Internal Revenue Code. Another way to express “THRESHOLD AMOUNT” is to say “more than” . | |
| Do I owe any taxes when I receive a gift? |
| Fairly regularly, we are asked by client “Are gifts that someone gives me taxable ?” |
| We consider this a “tax iceburg” inquiry. The question is visible, but the complex nature of the difference between various types of taxes is hidden below the water. |
| There are many types of taxes, however many taxpayers are unsure of the difference between income taxes, and estate and gift taxes. If you receive taxable income, you may owe an “Income Tax” to the government, but if you receive a gift or inheritance from someone, and there is a gift or inheritance tax to pay, the donor is responsible for this liability. |
| Thus, from a tax point of view, we always prefer to receive a gift rather than incur taxable income !
|
When a taxpayer files an income tax return with a spouse
he or she assumes what is known as “joint and several
liability” with his or her partner. There is no division of the
liability between the signing parties, each is entirely
responsible for any tax liability, and for any information or
misinformation of a tax return which gives rise to a tax
liability including any additional tax liability that the IRS
determines to be due.
Simply expressed, if you are married and file a joint tax return both taxpayer
and spouse take full responsibility for the contents, including income reporting,
deductible expenses, and tax liabilities. There are situations where one spouse
believes that he or she did not know and should not be liable for jointly filed
tax return misstatements.
There is an IRS Form 8857, Request for Innocent Spouse
Relief, which the IRS says “You should file Form 8857 as
soon as you become aware of a tax liability for which you
believe only your spouse or former spouse should be
held responsible”. This is a complex form, consisting of
23 questions.
