Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Jun 23

    Question: Like many students, I am looking forward to some time off from school and perhaps a summer job. What are the most important things I should know before I get that first job?

    Answer: Here are seven of the most important tips I could think of:

    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. If you don’t expect to owe taxes, then you can choose to write “exempt” on the W-4 and not have any taxes withheld.
    2. Whether you are working as a waiter or a camp counselor, you may receive tips as a part of your summer income. All tip income you receive is taxable income and therefore subject to income tax.
    3. Many students do odd jobs over the summer to make extra cash. Earnings you receive 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 Social Security benefits. 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 and Medicare taxes 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 a 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.

    Do you have a question for the Taxpert that you’d like to see answered in a future Taxing Times? Or perhaps just an issue you’d like the Taxpert to address? Send the Taxpert a note to Taxing Times, 1050 Hillcrest Rd., Ste A, Mobile, AL 36695 or an email to taxpert@CPAMobileAL.com.

  • Feb 7

    Q: What’s my tax liability in a foreclosure?

    A: When you borrow money it’s not a taxable event because it’s assumed you’ll pay it back. But with most types of debt relief, you have income because it’s an enhancement to your balance sheet. That’s true even if you never actually received any cash. The IRS considers any forgiven debt of more than $600 as taxable income.

    There are some exceptions however:

    1. a discharge of debt in a bankruptcy proceeding under Title 11;
    2. a discharge when you are insolvent outside of bankruptcy;
    3. a discharge of qualified farm indebtedness;
    4. a discharge of qualified real property business indebtedness, and
    5. a discharge of qualified principal residence indebtedness before January 1, 2014.

    Note the date in number five above. Since January 1, 2007 there has been an exception for qualified principal residence indebtedness. Taxpayers did not have to recognize income from the discharge of that debt. However, that’s now gone away. Assuming, of course, Congress doesn’t change the law retroactively.

    Think of it this way: John ran up $15,000 in credit card debt but he settles the debt for $10,000. If the lender is unable to collect the remaining debt and writes it off as a loss, then John should expect to pay taxes on the $5,000 of the debt that was forgiven. The IRS considers that $5,000 of debt relief as a windfall because you used that money to buy stuff, like clothes, dinners at restaurants, a new bike, and you no longer have the obligation to pay it back.

    Be on the lookout for a Form 1099C. If you had debt relief, it’s an important tax document and should be reported on your tax return for the year in which the debt was forgiven.

    Many people don’t realize they have to report it, just don’t think about it, or they ignore the form and just toss it out.

    You also need to make sure the Form 1099C is correct. Nina Olson, head of the IRS’s Office of the Taxpayer Advocate, has warned Congress that financial institutions have issued 1099Cs for debts they haven’t even tried to collect for some time. Beware, taxpayers have been known to receive duplicate 1099Cs for the same debt and have found it difficult to reconcile with the IRS, according to Ms. Olson.

    Do you have a question for the Taxpert that you’d like to see answered in a future Taxing Times? Or perhaps just an issue you’d like the Taxpert to address? Send the Taxpert a note to Taxing Times, 1050 Hillcrest Rd., Ste A, Mobile, AL 36695 or an email to: taxpert.zl@comcast.net.