2016 Tax Season Begins Jan. 20: Have These 4 Things Ready

You only have a few weeks if you want your refund as soon as possible.

1. All of the relevant financial information about your job in 2015
Anyone who worked in 2014 will need to know key figures like how much income they earned, as well as how much they had withheld from their paychecks for things like federal and state income taxes. But to avoid problems, you can’t simply add up your gross income, because many people have deductible expenses like health insurance contributions automatically taken from their paychecks.
Tax W read more

Tax Treaty Benefits to Canadians

Married Canadians who are subject to U.S. Taxes on their U.S. earnings may benefit from a nondiscrimination clause in the treaty. The clause is designed to benefit only those Canadians who are not U.S. citizens and whose U.S. income is entirely, or almost entirely, from work as an employee. Many Canadians who live in Canada and commute to work in the United States many benefit.
To take advantage of this provisions:
– Prepare Form 1040NR as usual;
– Prepare and attach to Form 1040NR a statement that shows your computation of the tax limitations; and
– Enter on the income tax line of Form 1040NR the tax computed as usual or the tax limitation, whichever is less.
Computations of tax limitation:
1. Use Form 1040, pages 1 and 2 marked “Statement,” to compute the U.S. income tax that would be due if you and your spouse were U.S. citizens filing a joint return; that is, the tax on your worldwide income that would be entered on line 39, Form 1040. A loss realized by your spouse cannot be taken into account in computing taxable income, however.
2. Use the following formula to compute the tax limitation on wage income:
Tax from line 40, Form 1040 x taxable income from Form 1040NR / taxable income from line 39, Form 1040.
3. On Form 1040NR, enter the tax computed as usual or the tax limitation, whichever is less, plus the tax on effectively connected income other than wages (such as rental income from U.S. property). Then, compute and enter any other taxes and complete the return. read more

Have a Small Business. Should I Give My Kids a Salary?

Paying your kids can be a very legitimate move for small business owners.
There is no minimum age someone has to be before they can earn a salary. Think about all those baby commercials on TV – those babies are getting paid for looking cute — or mischievous.
Your child needs to be able to perform work duties and be paid the appropriate rate for the job they are doing, Hook said. Depending upon their age, certain clerical functions can be done, but it’s key to have proper documentation and that you pay the appropriate taxes. The child will also need to file a tax return.
The operative term here is “comparable wage”. Payments shouldn’t be too high, but be commensurate with what you would pay others to do the same work. Considering the current minimum wage, what you can pay could come out to quite a bit.
For example, as an accountant I create a large volume of paper waste that needs to be shredded,” he said. ” I pay an outside person about $10 per box. I paid my children the same amount to provide the same service.”
There are many advantages to paying your children, especially if you are unincorporated and the children are under 18.
If they are under 18, neither you nor your child have to pay FICA, Medicare or FUTA tax, and in many states, there is no need to pay unemployment or disability to the state department of labor, Matheson said.
And because wages are earned income, the child can put money in an IRA or Roth IRA and the funds would benefit from compound growth for many years. And under certain circumstances, those funds can be used to pay for college.
Example: If your child invested $5,000 in an Roth IRA when he was say 10, by age 65, the Roth would have grown to $119,200 at a 5% rate.
Remember Roth IRAs are tax-free. Not bad. A Roth IRA versus a regular IRA would likely be the best vehicle since the child’s tax bracket will likely be very low. The kiddie tax does not apply to earned income such as wages. It applies only to unearned income such as interest and dividends.
The child will have to file a tax return, and they’d get the standard deduction, which is the larger of $1,050 or their earned income plus $350, with the maximum equal to $6,300. If the child earns $5,000, the standard deduction is $5,350. If the child earns $6,300, they receive a standard deduction of $6,300.
When they are over 18 years old, the benefits are not quite as good since you have to pay all the taxes — FICA, FUTA, Medicare, State UI and DI — on them, but if you are going to pay someone else anyway. It might as well be your children. read more

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