All Things Taxes » Tax Problems

IRS Answers the “What If” Tax Questions of an Economic Downturn

JK Harris — Wed, 25 Feb 2009 18:58:38 +0000

From the IRS Newsroom:

What if I lose my job? Is my unemployment check taxable? Can I afford to take money out of my retirement account? These are just a few of the “What If” questions people are dealing with these days.

The IRS recognizes that many people are going through difficult times financially. Often, there is a tax impact to events such as job loss, debt forgiveness or dipping into a retirement account. If your income has decreased, you may even be eligible for certain tax credits, such as the Earned Income Tax Credit, which can mean money in your pocket.

Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. There are steps the IRS can take to help. To avoid additional penalties, you should always file your tax return on time even if you are unable pay your tax bill.

Here are some “What if” questions that are answered on the official IRS Web site. Simply go to www.irs.gov and type the keywords “What If” in the “Search” box at the top of the page.

Job Related

What if I lose my job?
What if my income declines?
What if I withdraw money from my IRA?
What if my 401(k) drops in value

Debt Related

What if I lose my home through foreclosure?
What if I sell my home for a loss?
What if my debt is forgiven?

Tax Related

What if I can’t pay my taxes?
What if I can’t pay my installment agreement?
What if I can’t resolve my tax problem with the IRS?
What if I need legal representation to help with my tax problem but can’t afford it?

IRS News Alert – What to do if you are missing a W-2

JK Harris — Wed, 25 Feb 2009 18:37:57 +0000

Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:

1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:

Employer’s name, address, city, and state, including zip code;
Your name, address, city and state, including zip code, and Social Security number; and
An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.

4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X, and instructions are available on the IRS Web site, www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Business or hobby?

JK Harris — Tue, 13 Jan 2009 02:05:24 +0000

According the IRS, if your favorite activity makes a profit every year or so, there might be tax issues that you are not aware of. The IRS defines a hobby as a not-for-profit activity; something that is recreational and is not pursued for profit. Your activity could be considered a business if it is carried on with the expectation of earning a profit.
Keep in mind, the first two years of your activity, you are entitled to write off your losses, but if you have not turned a profit by the beginning of year three, be prepared for the possibility of facing an audit.
Thinking about turning your hobby into a business? Here are a few tips to get you started and to help avoid tax problems:

Have a sound business plan in place.
Be sure to keep your personal and business banking accounts completely separate. Do not co-mingle funds.
Meet with professionals in the field you are considering. They may be able to offer you advice and guidance on the best way to run your business.
Invest the necessary time to launch your business.

If you are not sure which category you fall under remember that an activity is considered a business if it is profitable for three out of five years. A tax professional can assist you in preparing your returns if necessary.