Frequently Asked Questions - Tax Basics
  • How to fill out my W-4 Form?
  • What happens if I don't fill out a W-4 form when I start a new job ?
  • Which Tax Forms should I receive in the Mail ?
  • How to File an Extension ?
  • How to Amend my Tax Return ?
  • Should I notify the IRS if I changed my home address or my name ?

  • How to fill out my W-4 Form?

    You've most likely filled out a W4 form at some point in your life. The W-4 is the form that employers use to determine how much in taxes should be withheld from your paycheck. You usually get it when you start a new job.

    Tips to keep in mind:

    • Strive to be accurate. You may face a $500 penalty if you end up having too little tax withheld.
    • On the form, you claim exemptions for yourself, your spouse, and any dependents The more you claim, the less is withheld. You can also claim allowances for certain deductions or credits such as the Earned Income Credit, IRA contributions and deductions, alimony deductions, the dependent care credit and the credit for the elderly or totally disabled. If you don't file this form with your employer; the employer will have to withhold taxes at the highest rate.
    • You should fill out a new W-4 form whenever the number of your exemptions changes or whenever your withholding allowances increase or decrease. Times when you should consider amending your W-4 are when your marital status changes, when you have or adopt a child when a child spreads his or her wings and is no longer a dependent, or when your deductible expenses change (such as when you buy a house). In some cases, you need to file a new W-4 within 10 days.
    • If you're getting married, pay particularly close attention to your withholdings. You may be assuming that when you get married you'll pay less in taxes. If you and your spouse both work, that's likely not the case. Read up on the marriage penalty.
    • You don't have to claim all the exemptions available to you. The more you claim, the less will be withheld. But depending on your situation, this might leave you at the end of the year with too little having been withheld and therefore facing a penalty of some sort. If you're a careful tax planner, you'll estimate how much you expect to owe in taxes for the year and will ensure that at least 90% of that is being withheld. As a margin of safety, you might shoot for 100% but if you notice that 140% of your anticipated tax liability is being withheld, consider tweaking your W-4.
    • You should be able to resubmit a new W-4 form to your employer at any time during the year. It's not something that can only be submitted once or only changed after a major life event.
    • Use the W-4 as a tool. For example, if you expect to sell some significantly appreciated stock during the year and think your total tax due this year will be substantial, consider having more money withheld from your paychecks. This can help you avoid having to pay estimated taxes throughout the year.


    What happens if I don't fill out a W-4 form when I start a new job?

    The IRS expects you to fill out IRS Form W-4, Employee's Withholding Allowance Certificate, soon after your start a new job. The W-4 helps to calculate how much tax should be withheld from each of your paychecks. If you don't fill out a W-4, the IRS requires your employer to withhold taxes at the highest rate, which is as a single taxpayer with no allowances for dependents. If the employer failed to withhold taxes at this rate, the IRS could penalize him.


    Tax Forms That Arrive in the Mail

    Depending upon your individual situation, you may or may not receive a lot of tax-related forms in the mail this year. People who work for more than one employer can expect to receive a W-2 from each business by the end of January. If you have investments, own your own business or receive income from other sources, you can expect to find more and more forms clogging up your mailbox between January and February. Getting yourself acquainted with what forms you can expect to receive as well as what these forms are reporting will go a long way toward helping you when you finally sit down to tackle your tax return.

    If you have investments, or even a simple bank account, you can expect to receive a Form 1099 from each bank, company and fund you invested with this year. So not only may you receive a lot of Form 1099s if you have a tendency to invest your money, but there are a variety of 1099s you may receive, each indicative of its nature.

    • Form W-2 - Wage and Tax Statement, is a statement from your employer of the wages and other compensation paid to you in a given year and the taxes that were withheld from your pay. If you have more than one employer, each one is responsible for sending you its own W-2. You must attach one copy to the front of your federal tax return, one to your state tax return, and keep one for your own records..
    • Form 1099-INT - This form is usually received from banks and reports the amount of interest you earned during the tax year. If you do not receive a Form 1099-INT from a company you received interest from during this tax year, you are still required to report it on your Form 1040.
    • Form 1099-DIV - These forms are usually received from mutual funds, brokers and companies with whom you have invested and report the dividends you received during the year. This income is reported on a Form 1040.
    • Form 1099-B - This form reports stock and security sales. It lists all the investments you sold during the year as well as the amounts you received from the transactions. Stock and security sales are reported on Schedule D. You list the cost of your security as the total amount you paid, including commissions and fees.
    • Form 1099-G - State refund taxes, unemployment compensation and other payments made to you by the government are reported on this form. You must complete the State and Local Income Tax Refund Worksheet included in the Form 1040 instructions to det5eremine if your tax refund has to be included on your return.
    • Form 1099-MISC - This form reports such incomes as royalties, rental and self-employment income. The kind of income reported will determine which schedule you report this income on. For example, royalties and rental income should be reported on Schedule E, while self-employment income should be reported on Schedule C.
    • Form 1099-R - This form reports distributions from IRAs and other retirement plans. Be careful here, determining the right amount of pension income to report can be tricky.
    • Form 1099-SSA - This form reports any social security income you may have received for the year. To determine if, and if so how much, you must report on your tax return, fill out the Social Security Benefits Worksheet in the instructions for Form 1040.
    • Form 1098 - Home mortgage interest statement from your lender.
    • Form 1098-T - Tuition payments statement from your educational institution.
    • Form 1098-E - Student loan interest statement from your student loan lender.

    Still, there are yet more types of income that you may or may not receive forms for, but are still required to report in your tax return.

    • Alimony Income - report this on Form 1040.
    • Income From Your Own Business - You must report this income even if you did not receive a Form 1099-MISC for it. Your business income and expenses are reported on Schedule C (Schedule F if your business is farming.)
    • Rental Property Income - You should receive a Form 1098, Mortgage Interest Statement, if you make mortgage payments on rental property. This income and related expenses should be reported on Schedule E.
    • Income From Partnerships and Estates or Trusts - You are the Beneficiary For - You should receive a Schedule K-1 reporting this income from each partnership, eastate or trust you are a part of. Report this income on Schedule E.


    How to File an Extension?

    Form 4868 is used to file a request for an extension on or before April 15th of the current tax year to get a four-month extension with your form 1040, 1040A, or 1040 EZ. You have to send in at least 90% of the estimated tax due in order to not incur any late payment penalties by the end of the extension. After you have filed your tax return, you will then be responsible for paying the remainder of the taxes that you owe.

    Interest is usually charged on the amount of the unpaid tax from the due date of the return. If the initial four-month extension does not allot you enough time in which to complete your tax return, you may opt to request a further two-month extension from the IRS.


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    Revising and Amendind Your Tax Return

    You may decide to revise areturn for a previous year if it comes to your attention that you made a mistake on it. There are two main reasons people file an amended return, to claim extra deductions or credits that they overlooked or to correct a previously improperly claimed deduction. Needless to say, the IRS receives many more amended returns for the prior than the latter.

    To correct a prior year's tax return you must use Form 1040X, Amended US Individual Income Tax Return. In order to claim a deduction for a prior year, you must file an amended return within three years from the date the original return was filed or within two years from the time the tax was paid, whichever is later. This three-year rule is suspended for anyone suffering from a disability that renders him unable to manage his financial affairs. However, when another person, such as a guardian or spouse, is authorized to act on the disabled taxpayer's behalf, this rule does not apply and is restricted to the three-year rule.

    An amended return is also permitted when a net operating loss is involved. A net operating loss (NOL) occurs when you lose more money in a business or profession than you gain through all other incomes. You have two choices when you have incurred a NOL, you can carry it back to offset your taxable income for the two previous years or you can carry it forward to serve the same purpose. To carry back a NOL, you will need to use Form 1045, Application for Tentative Refund if you are filing within one year of the year you had the NOL. If it has been more than one year, you must use Form 1040X, Amended US Individual Income Tax Return. A three-year carryback can be used when pertaining to casualty and theft losses as well as NOL losses incurred by small businesses in a presidentially declared disaster area. A five-year carryback of an NOL can be used when pertaining to farmers.

    Amended returns are also useful in the following situations:

    • You want to switch between five- and ten-year averaging on paying tax on a lump sum retirement payment
    • You want to change from claiming the standard deductions to itemizing your deductions, or vice versa
    • You are married and filed separately, but now want to file jointly (However, you cannot switch from filing jointly to filing separately)


    Should I notify the IRS if I changed my home address or my name ?

    File Form 8822 to notify the Internal Revenue Service if you changed your home mailing address. If this change also affects the mailing address for your children who filed income tax returns, complete and file a separate Form 8822 for each child.

    If you or your spouse changed your name because of marriage, divorce, etc., complete line 5.
    Also, be sure to notify the Social Security Administration of your new name so that it has the same name in its records that you have on your tax return. This prevents delays in processing your return and issuing refunds. It also safeguards your future social security benefits.