Tax Tips for Students with a Summer Job

Is your child a student with a summer job? Here's what you should know about the income your child earns over the summer.

All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. If you have any questions about whether your child's withholding is correct, please call us.

If your child is working in food service, he or she may receive tips as part of their summer income. All tip income is taxable and is, therefore, subject to federal income tax.

If you own your own business, consider hiring your child and pay them a deductible wage rather than simply giving them nondeductible spending money.

Many students do odd jobs over the summer to make extra cash. If this is your child's situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as babysitting and lawn mowing. 

If your child has net earnings of $400 or more from self-employment, he or she also has to pay self-employment tax. This tax pays for benefits under the Social Security and Medicare system. The self-employment tax is figured on Form 1040, Schedule SE.

Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay, such as pay received during summer advanced camp is taxable.

Special rules apply to services performed as a newspaper carrier or distributor. As direct seller, your child may be treated as being self-employed for federal tax purposes if all pay for these services directly relates to sales rather than to the number of hours worked and delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes. Generally however, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

A summer work schedule is sometimes a patchwork of odd jobs, which makes for confusion come tax time. Contact the office if you have any questions at all about income your child earned this summer season.

Employee or Independent Contractor? Know the Rules

All businesses and business owners should know the rules when it comes to classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:

• The extent of the worker's investment in the facilities or tools used in performing services
• The extent to which the worker makes his or her services available to the relevant market
• How the business pays the worker, and
• The extent to which the worker can realize a profit or incur a loss

2. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:

• Written contracts describing the relationship the parties intended to create
• Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company
• The extent to which the worker has unreimbursed business expenses

If you have any doubt as to whether you are correctly classifying your workers, contact AA Tax CPA to make sure you are in compliance.

Did You Receive a WRONG 1099-G From Arizona?

The Arizona Department of Revenue announced last week that they made a mistake.  It mailed incorrect 1099-G statements of refunds to about 580,000 taxpayers in January 2017. The 1099-G forms for 2016 are supposed to show refunds taxpayers received after filing their 2015 tax return. Instead, the department sent out forms showing the 2014 refund amount.

Taxpayers use the forms to fill out their state and federal tax returns. Using the incorrect information could cause a taxpayer's return to be flagged by the IRS.

Any taxpayer who received an incorrect 1099-G from the Arizona Department of Revenue in January should destroy the form. The correct form has the word CORRECTED located in the upper right side of the form in red.

This matter does not impact anyone who did not itemize deductions on the federal return and did not receive an Arizona state income tax refund in 2016 for tax year 2015 or earlier.

Corrected 1099-G forms have been printed and will be mailed out on Monday, February 6th.

The additional cost to reprint and mail the corrected tax forms is estimated at nearly $300,000.

Charitable Contributions

With the holidays now upon us, remember as you give to others don’t forget you can give to yourself at the same time!

Many of your Arizona charities donations could equal a dollar-for-dollar Arizona tax credit, meaning it is of no additional cost to you to make these donations. But hurry! Although you can donate until April 15, 2017 to receive a tax credit on your 2016 Arizona tax return, donations must be donated by December 31, 2016 to be deductible on your 2016 federal tax return. 

These tax credits are available to individuals who make charitable contributions to certain organizations and schools. Each of these tax credits provides a dollar-for-dollar reduction of your Arizona tax liability (up to your tax liability, subject to limitations). These tax credits effectively redistribute your Arizona taxes from the Arizona Department of Revenue to the charities of your choice.

If you have questions on how these tax credits can be utilized to their maximum potential, please reach out to us to discuss.

Contributions to Qualifying Charitable Organizations (previously called the Working Poor tax credit)

The maximum amount of the credit for 2016 is $800 for married couples ($400 if single).

Contributions to Qualifying Foster Care Charitable Organizations

An additional credit, over and above the QCO credit described above, is available for contributions made to Qualifying Foster Care Charitable Organizations (QFCO).

The additional available credit amount for 2016 is $1,000 for married couples ($500 if single).

For recommendations or suggestions on charities to donate to, please see our website www.aataxcpa.com

Contributions to Public Schools

Arizona provides a credit for contributions made to a public school, regardless of whether you have a child in school. This credit allows taxpayers to make donations in the following year (until April 15th, 2017) to claim a credit against 2016 Arizona tax.

The maximum amount of the credit is $400 for married couples ($200 if single).

The Arizona Department of Education keeps a listing of all public and charter schools in Arizona. You can search for a school by name or by location on their website, http://ade.az.gov/edd/

Contributions to School Tuition Organizations

In addition to public schools, Arizona also provides a credit for contributions made to a Private School Tuition Organization (STO) AND a Certified School Tuition Organization. This credit also allows taxpayers to make donations in the following year (until April 15th, 2017) for a credit against 2016 Arizona tax.

The maximum amount of these credits is $2,173 for married couples ($1,087 if single). 

A current list of School Tuition Organizations can be found online at:

https://www.azdor.gov/Portals/0/RefundCredits/sto_i_list.pdf

Please call our office today if you would like any further information or clarification.

Thank you for supporting Arizona Charities!

Seasonal Tax Preparer Job Posting

We are a growing CPA firm looking for a Tax Preparer with a great personality to assist with the preparation of individual tax returns from January through April 2017.

Responsibilities

• Prepare state and federal income tax returns for individual clients

• Establish and maintain a positive relationship with all clients and co-workers to promote a positive work and client environment

• Deliver a full range of tax services in compliance with current laws and regulations and remain current on all state and federal tax laws

• Research and resolve client and system problems to ensure accuracy of work

Skills/Requirements

• 2-5 years income tax experience

• Exceptional customer service skills and the ability to develop strong client relationships

• Knowledge of tax accounting, tax compliance and all varieties of tax returns

• Experience with tax software

• Developed written and verbal communication skills

Pay

• Will vary based on experience; Range is $15-25/hour

Email resumes to jmilner@aataxcpa.com