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Seven Tax Tips for Students with a Summer Job

Many students get a summer job during their time off from school. It is important to remember that everyone has to pay taxes and file a return. Just because you are a student does not change much in this regard.  Here are the top seven things the IRS wants everyone to know about income earned while working a summer job. If it’s your first job it gives you a chance to learn about the working world. That includes taxes we pay to support the place where we live, our state and our nation. Here are eight things that students who take a summer job should know about taxes:

You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded. You can prepare and e-file your tax return for free using IRS Free File. It’s available exclusively on IRS.gov. When no one else can claim you as a dependent, you can figure out whether filing a tax return is necessary by comparing the total income you earn from your summer job (and all other jobs) to the sum of the standard deduction you can take for the filing status you use plus one personal exemption. If your income is less than this sum, you do not need to file a tax return

 

Information on Taxes and Summer Jobs for High School and College Students

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1. 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. To make sure your withholding is correct, visit the Withholding Calculator on IRS.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. 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.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

  • You are in the business of delivering newspapers.
  • All your pay for these services directly relates to sales rather than to the number of hours worked.
  • You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax. Babysitting, mowing lawns, and other odd jobs are generally considered self-employment. If your net income (income minus expenses) from self employment is $400 or more, the IRS requires you to pay self-employment taxes.

Regardless of the rules you follow to determine your filing obligations, there are ways to reduce your taxable income – the final amount you calculate tax on – other than taking the standard deduction and personal exemptions. Several credits and deductions can reduce your tax bill, some of which are available for the expenses you incur as a student. If itemizing saves you more in tax than the standard deduction, filing a Schedule A with your return can further reduce your taxes.

 

Additional IRS Resources on Summer Jobs:

 

IRS YouTube Videos on Part-time and Summer Jobs:

 

IRS Podcasts on Summer Jobs:

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7 Tips for Taxpayers Starting a New Business

Anyone starting a new business this summer should be aware of their federal tax responsibilities. Here are the top seven things the IRS wants you to know if you plan on opening a new business this year. You probably hear this from tax advisors and accountants all year long, but proper record-keeping year-round is the first step to ensuring your taxes are filed accurately and that you have the paperwork you need to back-up your deduction claims should you be audited.

Keeping your money for working capital rather than paying it out in taxes to Uncle Sam will give you an edge.

 

Below Are Some Starting Business Tax Tips

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  1. First, you must decide what type of business entity you are going to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
  2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
  3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
  4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
  5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
  6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
  7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

 

Understand Your Business Deductions

What small business deductions can you take? Do you have the documentation and original receipts to back them up? Tax credits and deductions change each year. Both your CPA and your tax software can guide you through these deductions by asking you probing questions. These blogs also offer tips on common small business tax deductions and some deductions and credits that are specific to the 2011 tax year:

 

Additional IRS Resources on Business Taxes

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Top 6 Tax Benefits for Job Seekers

Many taxpayers spend time during the summer months polishing their resume and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. However, there are specific rules that you must follow or job search tax deductions will be disallowed. The Internal Revenue Service offers some relief on your income taxes to offset upfront job-hunting expenditure if you itemize your deductions. The IRS categorizes these as miscellaneous expenses.

 

Top 6 Tax Benefits for Job Seekers

First, you must itemize deductions on Schedule A to count your job-hunting expenses. That task is further limited by a threshold amount you must meet. Your job search costs are considered miscellaneous expenses. As such, they are deductible when they, and all other allowable expenses in this category, are more than 2 percent of your adjusted gross income

 

What Job Hunting Expenses You Cannot Deduct

You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. You cannot deduct these expenses if:

  • You are looking for a job in a new occupation
  • There was a substantial break between the ending of your last job and your looking for a new one
  • You are looking for a job for the first time

 

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Here are the top six things to know about deducting costs related to your job search.

  1. In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
  2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
  3. You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
  4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
  5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
  6. You cannot deduct job search expenses if you are looking for a job for the first time.

As with all tax deductions, there are three important words to remember: document, document, document. Keep track of your expenses, and back them up with receipts. For more information about job search expenses, see IRS Publication 529 -Miscellaneous Deductions. This publication is available below, on the IRS Web site or by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Resources of Deducting Job Hunting Expenses:

 

IRS YouTube Videos on Job Search Expense Deductions:

Tax Tips for Online Auction Sellers

An online business comes with many tax breaks, but it also comes with some tax responsibilities. There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with offshore bank accounts. The IRS’ interest, however, extends beyond offshore bank accounts. The IRS reminds you to report your worldwide income including online auctions sales to foreign customers on your U.S. tax return and lists the possible consequences of hiding income overseas.

If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents. See Publication 525, Taxable and Nontaxable Income (PDF) for more information.

 

Tax Tips for Online Auction Sellers

Online Garage Sales
If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales. In a garage sale, you generally sell household items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable. Losses on personal use property are not deductible, either. However, see Sales of Appreciated Assets at an Online Auction for gain reporting.

Home-Based Online Auction Seller Businesses
If your online garage sale develops into a business and/or you have recurring sales and are purchasing items for resale with the intention of making a profit; you may have started an online auction business.

Online Auction Sales Trade or Business
If you are operating a viable online auction seller business you may be entitled to deduct business expenses. Do you have an established business and you are augmenting your sales with online auction sales? Then, remember to include the online auction sales in your business income. View an IRS video on Business Income or read a transcript of the video.

Sales of Appreciated Assets at an Online Auction
Examples of appreciated assets often include art, antiques and collectibles. If you have online auction sales of property where the sales price is more than your cost or other basis, you usually will have a reportable gain. These gains may be business income or capital gains.

Sales of Depreciated Business Assets
If you sell business assets or close your business you may have capital gains, ordinary gains and depreciation recapture to report. An example is the sale of an automobile used for business.

For tax information if you sell or close your online business view the IRS video entitled Closing a Business or read the transcript online.

Don’t Be A VICTIM OF A TAX SCHEME!
Some promoters are targeting home-based businesses including online auction sellers for abusive tax schemes.

 

Sales Tax and Online Auctions

Sales tax should be collected on your eBay sales if the state you live in charges a sales tax. You need to collect sales tax only from buyers that reside in the same state. You do not have to collect sales tax from buyers that live in other states. Each state has its own set of goods that are exempt from sales tax. For example, there is no sales tax on food. Some states also exempt certain types of sales transactions such as garage sales. Be sure to check with your state’s sales tax authority for more information. When you purchase items for resale using a seller’s permit, you don’t pay sales tax on that purchase. However, when you sell the items, you need to collect sales tax. Depending on your sales volume, the collected sales tax must be paid to your state’s sales tax authority on a bi-weekly, monthly, or quarterly basis.

 

References/Related Topics for Tax Tips and Online Auction Sales

Online Auction Sellers
Publication 587, Business Use of Your Home
Publication 463, Travel, Entertainment, Gift, & Car Expenses
Publication 334, Tax Guide for Small Business
Publication 17, Your Federal Income Tax for Individuals