The IRS has a tool to help people who have to repay their First-Time Homebuyer Credit. Reminder letters will no longer be mailed to taxpayers who have to repay the credit but you can now use an online look-up tool on the IRS website to check your repayment obligation. The following four tips will help you look up information on your First-Time Homebuyer Credit:

1. Who needs to repay the credit? – If you bought a home in 2008 and claimed the First-Time Homebuyer Credit, the credit is similar to a no-interest loan and must be repaid in 15 equal annual installments that began with your 2010 return. Also, anyone who sold their home, or stopped using it as their main home, may have to repay the entire credit whether their home was purchased in 2008, 2009 or 2010.

2. Information needed to access the tool - The First-Time Homebuyer Credit Tool will provide critical account information to help you report your repayment obligation on your tax return. To access the tool you will need: your Social Security number, date of birth and complete address. If you file a joint return, you’ll only be able to access your portion of the First-Time Homebuyer Credit account information.

3. What the tool provides – The tool will show the original amount of the credit, annual repayment amounts, total amount paid and the total balance left to be paid. You will be able to print your account page to share with your tax preparer and keep for your records.

4. How to repay the credit – To repay the First-Time Homebuyer Credit, add the amount you have to repay to any other tax you owe on your federal tax return. This could result in an additional tax owed or a reduced refund. To repay the credit, you report the repayment on line 59b on Form 1040, U.S. Individual Income Tax Return. If you make an installment payment, you do not need to attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, to your tax return. However, if you are repaying the credit because the home stopped being your main home, you must attach Form 5405.

You can access the First-Time Homebuyer Credit Look-up Tool, 24 hours a day, seven days a week, visit the IRS.gov website.

LINKS:

First-Time Homebuyer Look-up Tool

IRS Form 5405 and Instructions

Tips for Selling Your Home

Tips for Moving

In this particular situation, no you cannot.  In some situations, however, you can and you do it by filing a substitute W-2.

All employers have until January 31st of each year to send out your W-2′s.  This means POSTMARKED on the 31st, not in your hand on the 31st.  So don’t get too anxious!  My advice is to wait until about the second week in February to make sure you’ve given your employer enough time to get the form sent out.

So now you ask, well if I don’t have it by the second week in February, then can I file without it?  Absolutely not!  Sorry folks.  You have to make every reasonable attempt to contact your employer, make sure they have your updated mailing address, and give them the chance to resend your form to you.  You then have to allow a reasonable amount of time for the W-2 to get to you once it has been resent.

Only after you have made every attempt to contact your employer and get your form sent to you can you file the substitute form W-2.  This is IRS Form 4852.  You will need to use your paystubs and your knowledge of what you were earning to try to reconstruct what your total earnings were in order to report your income.

Be warned, however, that if you later receive a form W-2 and the amounts differ from what you reported on your form 4852, then you will need to file an amended return.  If your W-2 was reported to the IRS and it does not match your form 4852, the IRS may adjust your refund amount and/or send you a letter.

On the reverse, what if you receive a W-2 for income you never earned?  In this case, you need to send a letter to the IRS explaining that you never earned the income and authorizing the IRS to contact the employer for verification of the amounts reported on the W-2.   If it turns out that you did earn the income and the employer has proof, you will be required to claim it.

So all in all, you should probably just go by my general rule of thumb…when it’s between the taxpayer and the IRS and you are in doubt…the taxpayer gets the short end of the stick.

LINKS:

Tips if You Are Missing a W-2

IRS Form 4852

Do I Have to File a Return?

If you haven’t received your W-2, follow these four steps:

1. Contact your employer – If you have not received your 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 issue the W-2.

2. Contact the IRS – If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:

• Employer’s name, address and phone number

• Dates of employment

• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. 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 or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, 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 W-2 after you file your return using Form 4852, and the information may be different 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 this website or by calling 800-TAX-FORM (800-829-3676).

LINKS:

IRS Form 4852

IRS Form 1040X and Instructions

Can I File Without a W-2?

Amending Your Return

Do I Have to File?

1. You can order transcripts online or by phone for the current tax year as well as the past three tax years. Earlier tax years must be requested with Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript.

2. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.

3. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.

4. To request either transcript online from this website use our online tool called Order a Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message. When you use these automated self-service options, the selected transcript will be mailed to your current address of record. To have your transcript mailed to a different address, complete and mail Form 4506-T, Request for Transcript of Tax Return. The IRS does not charge a fee for transcripts.

5. To request a 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T.

6. If you order online or by phone, you should receive your tax return transcript within five to 10 calendar days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T or Form 4506T-EZ.

7. If you still need an actual copy of a previously processed tax return, it will cost $57 for each tax year you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year as well as the past six years. Please allow 60 days for actual copies of your return.

8. Visit this website to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be downloaded here or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

LINKS:

Order a Transcript Online Tool

Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript

Form 4506-T, Request for Transcript of Tax Return

Tips for Amending Your Taxes

Tips on How To Get IRS Forms & Publications

Tips for Recordkeeping

Form 4506, Request for Copy of Tax Form

WHAT TO KEEP ON FILE IF YOU HIRE SUBCONTRACTORS:

1.  SIGNED CONTRACT:  Many people just make verbal contracts, but a verbal contract doesn’t help you in an audit.  Create a contract between you and your sub that clearly states each party’s role and responsibilities.

2.  LICENSE, INSURANCE, AND BOND:  You should always ask your subs for copies of their Washington State business license, Contractor’s Registration (if they are in construction or a related trade) their business liability insurance, and their bond.  This is also good for your business because you know that you are using a responsible and professional person to work for you.

3.  FORM W-9:  Be sure to get a signed W-9 so that you have all of their information at the end of the year when it is time to 1099 them!  Form W-9 can be found online at www.irs.gov.

4. PROOF OF WORKER’S COMPENSATION AND EMPLOYMENT SECURITY ACCOUNTS:  Does your subcontractor have employees of their own?  Verify through Employment Security and Labor & Industries that they have current accounts.  Otherwise you may end up paying payroll taxes on their employees!

5.  AUTO INSURANCE AND DRIVER’S LICENSE:  If they do any driving in respect to the duties you have hired them for, make sure to keep a copy of their current driver’s license and auto insurance on file!  Again, this helps cover your liability as well as gives you the peace of mind that you have a responsible person working for you.

6.  INVOICES AND PAYMENT STUBS:  Make sure your subcontractor invoices you from their business for the work that they have performed and make sure that you keep records of your payments to them such as check stubs, credit card receipts, and automatic transfer slips.

These are just the basic documents you should keep on file.  The more paperwork you have to prove your relationship to your subcontractor, the better!  Keep all pertinent documents for a minimum of 5 years.  I recommend 10 years to be safe.

THINGS TO REMEMBER WHEN USING A SUBCONTRACTOR:

Your subcontractor is NOT your employee and you cannot treat your subcontractor as such.

Therefore, you cannot set the hours by which your subcontractor must work.  They are self-employed and show up to work when they choose and leave when they choose.  You are allowed to set up appointments for them and you are allowed to inform them of your business hours and your customers’ availability.  You cannot have them keep time sheets. Ultimately, they are responsible for maintaining their own work schedule.

You cannot supervise your subcontractor!  You can inspect the work they do, but you cannot assign tasks, train them, or tell them how to do their job.

You must issue a 1099-Misc to any subcontractor to whom you pay $600 or more during the calendar year.  A copy of this form, along with form 1096, must be sent to the IRS as well.  Go to www.irs.gov for more information and to order blank forms.

LINKS:

Labor & Industries, Independent Contractors

Labor & Industries, Guide to Hiring Independent Contractors

IRS Form 1099-Misc and Instructions

Employees vs. Subcontractors

Tips for the Self-Employed

The most frequent question we are asked by small business owners is:

Should I hire employees or use subcontractors?  What is the difference? So here is the answer as simply as I can put it:

A subcontractor is somebody you hire to do the things that you and/or your employees don’t do in the regular course of your business.

Example 1:  You are a party planner and you want to start offering catering, but you don’t do catering.  You could subcontract the catering out because it is outside the scope of your usual party planning duties.

Example 2:  You own a retail pet store and you would like to start offering pet grooming.  You could subcontract the grooming out because it is outside the scope of selling pet food and accessories.

These are just examples.  The truth is that sometimes the lines are not so black and white between Contractor and Subcontractor.  It’s a good rule of thumb, though, to look at what kind of position you are trying to fill and to determine if the work is just part of your ordinary business or if it is some kind of specialty.

If you do hire subcontractors, you need to make sure that you keep a very good document trail so that, in case of audit, the state and/or federal government does not come back and decide that your subs are actually employees.  You do not want to be on the hook for back payroll taxes!

People you hire as subcontractors should have established their own businesses and keep their own sets of books.  They should typically have more customers than just you.  You, as the contractor, are permitted to ask to see their business record-keeping.  If you ever have doubts about the subcontractors you hire maintaining their own status as a business, ask to see their books.

The reason it is so important to keep good records of your subcontractors is that many small business owners use subcontractors as a way to avoid paying payroll taxes.  When you use subcontractors, you are not liable for any payroll taxes in relation to the monies you pay them.  State agencies are really cracking down on the misuse of subcontractors now and they are coming after small business owners for back payroll taxes!  If you truly have a Contractor/Subcontractor relationship, then you should be fine in the case of an audit.  So always be sure to keep good records to protect yourself and your business!

LINKS:

Labor & Industries, Guide to Independent Contractors

Labor & Industries, Avoiding Liability for your Subcontractor’s Unpaid Premiums

Labor & Industries, Employer Audit Self-Service Library

Publication 334, Tax Guide for Small Businesses

Tips for Hiring Subcontractors

Tips for the Self-Employed

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed.

Here are six key points the IRS would like you to know about self-employment and self- employment taxes:

1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

2. If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.

3. You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.

4. If you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

5. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.

6. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

LINKS:

Publication 334, Tax Guide for Small Business

Publication 535, Business Expenses

Publication 505, Tax Withholding and Estimated Tax

Hiring Employees vs. Subcontractors

Tips for Hiring Subcontractors

Your kids can be helpful at tax time. That doesn’t mean they’ll sort your tax receipts or refill your coffee, but those charming children may help you qualify for some valuable tax benefits. Here are 10 things the IRS wants parents to consider when filing their taxes this year.

1. Dependents – In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit – You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit – You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit – The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit – You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents. For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income – If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income – Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits – Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest – You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction – If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.

LINKS:

Publication 501, Exemptions, Standard Deduction, and Filing Information

Publication 972, Child Tax Credit

Publication 503, Child and Dependent Care Expenses

Publication 596, Earned Income Credit

Form 8839, Qualified Adoption Expenses and Instructions

Publication 929, Tax Rules for Children and Dependents

Publication 970, Tax Benefits for Education

Dependents and Exemptions

Identity theft often starts outside of the tax administration system when someone’s personal information is unfortunately stolen or lost. Identity thieves may then use a taxpayer’s identity to fraudulently file a tax return and claim a refund. In other cases, the identity thief uses the taxpayer’s personal information in order to get a job. The legitimate taxpayer may be unaware that anything has happened until they file their return later in the filing season and it is discovered that two returns have been filed using the same Social Security number.

Here are the top 13 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS does not send emails stating you are being electronically audited or that you are getting a refund.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

  * Stealing your wallet or purse   

  * Posing as someone who needs information about you through a phone call or e-mail

  * Looking through your trash for personal information

  * Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov,’ forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx.

6. If your Social Security number is stolen, another individual may use it to get a job.  That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.  When this occurs, you should contact the IRS to show that the income is not yours.  Your record will be updated to reflect only your information.  You will also be asked to submit substantiating documentation to authenticate yourself. That information will be used to minimize this occurrence in future years.

7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know.  If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.

8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity.  You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed IRS Form 14039, Identity Theft Affidavit, which should be faxed to the IRS at 978-684-4542.  Please be sure to write clearly.  As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490.  You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes.  Do not routinely carry your card or other documents that display your Social Security number.

10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.

11. IRS impersonation schemes flourish during tax season and can take the form of e-mail, phone websites, even tweets.  Scammers may also use a phone or fax to reach their victims.  If you receive a paper letter or notice via mail claiming to be the IRS but you suspect it is a scam, contact the IRS at http://www.irs.gov/contact/index.html to determine if it is a legitimate IRS notice or letter.  If it is a legitimate IRS notice or letter, reply if needed.  If the caller or party that sent the paper letter is not legitimate, contact the Treasury Inspector General for Tax Administration at 1-800-366-4484.  You may also fax the notice/letter you received, plus any related or supporting information, to TIGTA.  Note that this is not a toll-free FAX number 1-202-927-7018.

12. While preparing your tax return for electronic filing, make sure to use a strong password to protect the data file.  Once your return has been e-filed, burn the file to a CD or flash drive and remove the personal information from your hard drive.  Store the CD or flash drive in a safe place, such as a lock box or safe.  If working with an accountant, you should ask them what measures they take to protect your information.

13. If you have information about the identity thief that impacted your personal information negatively, file an online complaint with the Internet Crime Complaint Center (IC3) at www.ic3.gov. The IC3 gives victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. IC3 sends every complaint to one or more law enforcement or regulatory agencies that have jurisdiction over the matter.

LINKS:

FS-2012-07, Protect Yourself from Identity Theft

FS-2012-08, Taxpayer Guide to Identity Theft

Cyber Scams

1. Tips are taxable – Tips are subject to federal income, Social Security and Medicare taxes. The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.

2. Include tips on your tax return – You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

3. Report tips to your employer – If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income – You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income, and Publication 1244 which are available at www.irs.gov. Both can be ordered by calling 800-TAX-FORM (800-829-3676).

LINKS:

Publication 531, Reporting Tip Income

Publication 1244, Employee’s Daily Record of Tips

Reporting Tip Income – Restaurant Tax Tips