After you’ve graduated from college and taken up your first job only recently, income tax can give you a tough time. Young professionals find it troublesome to get the hang of income tax and the finances that come along.
Sometimes you can get this information from websites or social media profiles of renowned business consultants in Dubai, UAE and USA, however mostly you’re left to figure out your own way through income taxes.
It is for young professionals like you that we have created this comprehensive guide to income tax basics and explained everything… in Plain English. Read on.
What do the terms ‘Tax Year’ mean?
Tax Year is also known as Previous Year or Financial Year. It refers to the 12-month period that starts on April 1st and ends on March 31st of the next year. Tax Year starts and ends on these exact dates irrespective of when you start your job. Tax Year is the duration for which income taxes are withheld for earnings or the year for which income tax return is being filed.
What is the amount of income on which tax is paid?
Income tax has to be paid on all of your sources of income. Your total income is the sum total of all the following major income sources:
The amount of tax to be paid also depends on your age and gender as there are different income slabs for men, women, and senior citizens.
What are the documents required for filing income tax?
Filing income tax can be a daunting tax for first-timers. We recommend taking the help of an experienced chartered accountant. However, you will need to provide/submit the following documents:
Income taxes may seem daunting but they are an essential duty of all earning citizens also obliged upon them by the law. The collected amount helps in further development of the nation, and in an indirect way, is invested back on the citizens themselves.
Author Bio: Brenda Cagara
Brenda has been writing for websites, articles and blogs for five years now. She has written for a variety of niches but her main focus is business, tax, and finance. Currently, She is working with Riz & Mona Consultancy which offers company formation and branch office Dubai services. Other services are products registration, visa processing, bank account opening, trade license, trade mark, local sponsors and many more.
Under a new law, the Protecting Americans from Tax Hikes (PATH) Act, enacted last December, the new filing deadline for employers to submit forms W-2 to the Social Security Administration is January 31. The new January 31 filing deadline also applies to certain forms 1099-MISC reporting non-employee compensation such as payments to independent contractors.
The January 31 deadline for employers to furnish copies of tax forms to employees is still the same.
The new law will also modify the rules for extending time to file form W-2. As of now, you can only request a one 30-day extension to file form W-2, and it is not automatic. If you, as an employer, need an extension, you must file form 8809, Application for Extension of Time to File Information Returns (downloads as a pdf). The form should be completed as soon as you know an extension is necessary, but no later than January 31.
Before, employers had until the end of February (paper filing), or the end of March (electronic filing), to submit these forms. However, the gap between that due date and the beginning of the filing season made it difficult for the IRS to match up forms W-2 with tax returns requesting refunds, which increased fraud. The new deadline, something the IRS wanted to do for a long time, makes it simpler to verify the legitimacy of tax returns and give refunds.
Other taxpayers could have a different experience. The PATH Act also requires the IRS to delay refunds involving two key refundable tax credits, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), until at least February 15. This new law requires the IRS to hold the entire refund for any taxpayer claiming either of these credits until February 15, and not just the portion related to the EITC or ACTC.
The IRS states that taxpayers should still file their returns as they always do. However, it advises you to practice some patience. With these changes, a few delays are sure to follow. Normally, the IRS issues more than nine out of ten refunds in less than 21 days. Expect delays as returns are held for further review.
Are you ready for the gift-giving season? The time may already have arrived, at least from a tax perspective. Between now and December 31, you can take advantage of this year’s gift tax rules as part of your year-end planning.
Here are two ways to transfer assets.
The annual exclusion. The annual exclusion is the amount you can give to anyone, free of gift tax, each year. For 2016, the annual exclusion is $14,000. You and your spouse can combine your individual annual exclusions and make gifts of up to $28,000 to a single recipient.
Some gifts have special rules. For instance, education and medical expenses that you pay directly to the respective providers do not reduce your annual exclusion.
As the name suggests, the annual exclusion is a use-or-lose tax break that expires on December 31 of each year. For 2017, the annual exclusion remains $14,000.
The lifetime exemption. The lifetime exemption is the total amount you can give away during your lifetime without paying gift tax. For 2016, the lifetime exemption is $5,450,000. When you’re married, you can double the exemption, to a maximum of $10,900,000. Note that the lifetime exemption is “unified” with the estate tax exemption. That means the amount you use for gifting will reduce your estate tax exemption.
Gift-giving is a valuable estate planning tool. Please call to schedule an appointment for discussing these or other types of giving, including charitable gifts and gifts made in
As 2016 winds down, a lame-duck Congress is unlikely to take action on tax legislation. The pace of activity may change next year, with a new Administration and ongoing talk of tax reform, and 2017 could bring welcome and needed improvements. Whatever happens, we’re here to keep you updated as events unfold in the tax world.
Until political clarity emerges, however, you’re smart to make the most of established rules in your year-end tax planning. Evaluate your financial situation, select what moves will provide the most savings, and execute your plan in a timely manner. Currently available deductions, credits, and other tax benefits will reduce your 2016 tax burden and put you on track to accommodate new planning opportunities as they arise in the future.
This Letter offers suggestions and strategies to help you achieve your tax-saving plans. Contact us for answers to questions you may have, and to arrange a year-end tax review. As always, feel free to share this Letter with friends or associates who are interested in minimizing taxes.
Are you a first-time freelancer? Have you taken on temporary project- or contract-based work? Congratulations on becoming self-employed! If you didn’t know this type of work is considered self-employment, you have lots of company. The Small Business Committee of the U.S. House of Representatives recently held hearings that indicated many new entrepreneurs are unaware of some or all tax filing responsibilities. Here are issues to know about.
From whatever source you earn income, keeping up with filing requirements can save you money. Contact us for help.
You can use this free IRS service to get your tax information
Do you need a transcript of your federal income tax return, tax account, wages and income, or record of account? These transcripts, as well as a verification of non-filing, are once again available for no charge online at the IRS website. The online service, known as “Get Transcript,” was shut down for more than a year due to fraudsters using it to gain access to taxpayer information.
The IRS has reopened Get Transcript with increased security and authentication procedures, including verification with a credit reporting agency of your mobile phone number as well as a financial account number that you provide from a credit card, auto loan, mortgage, home equity loan or home equity line of credit.
Once you’re signed up, you can view, print, or download your transcript, or request that a transcript be mailed to you.
Transcripts only provide line-by-line information. If you need a copy of your original return, use Form 4506, Request for Copy of Tax Return, instead. Contact us if you have questions.
2016 has been a quiet year in terms of new tax legislation. Read our 2016 tax planning letter mid year for tax planning tips
||Aug 1||Retirement or employee benefit plan returns (5500 series) for plans on a calendar year.|
||Aug 1||Form 941, Employer’s Quarterly Federal Tax Return.|
||Aug 1||Form 720, Quarterly Federal Excise Tax Return.|
Note: Because July 31, 2016, is a Sunday, the due date for the above returns is August 1, 2016.
Note: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees’ pay and both the employer’s and employees’ share of FICA taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
For more information on tax deadlines that apply to you or your business, contact our office.
I often get asked in January, “How’s tax season going?” “It’s going well,” I say, only because it hasn’t really started for me in terms of 1040s. My staff on the other-hand is frantically trying to get our business clients’ accounting completed through year-end and gather SSNs or EINs for the non-incorporated, non-employees who provided services to our clients last year. I help in picking up the slack.
If it’s getting too close to the end of January my clients will start receiving calls from their contractors requesting 1099s so they can complete their tax return. The funny thing about the 1099-MISC form in terms of reporting contract labor is that just because a self-employed individual has not received a 1099 reporting how much he or she earned, doesn’t mean they can exclude that income from their tax reporting.
The best method for correctly reporting self-employed income and to avoid being dependent upon receiving 1099-MISC forms is to keep a separate business checking account and keep electronic bookkeeping with products such as QuickBooks or Xero, even if you are a self-employed sole proprietor. Make sure all receipts, checks and cash, received for contract or self-employed work is deposited into the business checking account. Business expenses such as tools and supplies should be paid out of the business checking account. When the expenses needed to operate the business have been paid the owner should then transfer the profit from their business checking account to their personal checking account to pay for personal expenses as needed.
The separation of business and personal checking account activity is extremely beneficial when the self-employed taxpayer is audited. This separation of activity combined with monthly bank reconciliations and topped off with electronic bookkeeping are the most important things the self -employed business owner should do for correctly reporting taxable income and surviving an audit. I would bet that the IRS prefers these three steps as opposed to saying “Well, I never received a 1099 so I didn’t include it in income.