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March 2010 Newsletter

Supercalifragilisticexpialidocious Tips For Handling Your Nanny’s Taxes. Getting The Most For Your Ride. And Crowns For A Cure Takes Steps To Cure Cancer.

Nanny’s Taxes Requires More Than a Spoonful of Sugar

Whether Mary Poppins or Nanny McFee are watching your heirs to the throne, parents of young children who hired a nanny last year need to take certain steps when it comes to the taxes they pay.

According to the IRS Web site, household employers need to pay Social Security and Medicare taxes on the cash wages they pay an employee over a certain threshold. A nanny is said to be considered a household employee, and the threshold for the current filing season is $1,700.

Nannies aren't the only household employees this law applies to. Workers who provide services like gardening and housekeeping are also often subject to taxes.

The IRS goes on to note that households that paid their nannies or other domestic workers below this threshold will not have to pay Social Security or Medicare. However, if such taxes are owed, the tax is 15.3 percent of cash wages, which is to be split evenly between the worker and the employer.

Those who hire a nanny may in some cases be responsible for paying unemployment taxes. For these tax obligations, a form 1040, Schedule H form will be needed. Depending on the state one resides in, it makes sense to consult with a tax preparer about what additional tax requirements may be in effect.

Jalopies, Hot Rods and Rides Get The Once-Over By The IRS

Just because your ride is the love of your life and therefore, priceless, does not mean the IRS agrees. Taxpayers everywhere have heard commercials on radio and television urging them to donate their cars to charity in order to receive a deduction when filing season comes around.

However, the IRS is advising people that there can be certain pitfalls when it comes to such donations. For example, one important detail to focus on is the actual market value of the vehicle in question.

The IRS Web site notes that various guides are available where people can determine the typical sale prices for many vehicle models. However, it adds that adjustments are typically made for "unusual equipment, unusual mileage, and unusual condition."

For example, things like body damage, engine trouble and high mileage are among the things that will bring a vehicle's value lower than one may hope. If a car typically sells for less in a private sale than it does at the retail level, this could also bring down its market value.

Taxpayers also need to be sure an organization is qualified to receive tax deductible donations from the IRS, and they generally need to itemize their deduction when filing time comes around.

An Education on Education Credits

Does it feel like you need a Ph.D. to understand education expense tax breaks?  Here is a CliffsNotes™ version to help you move the head of the class: 

• American Opportunity Credit
• Hope Credit
• Lifetime Learning Credit
• Tuition and Fees Deduction

American Opportunity Credit
You may not take this credit if you file 1) Married Filing Separate, 2) if filing Single, Head of Household, or Qualifying Widow(er) and you adjusted gross income is greater than $80,000 or 3) if filing Married Filing Joint and your adjusted gross income is greater than $160,000. This credit is available all four years of school, unlike the Hope Credit that is available for the first two years.  The credit maxes out at $2,500 per year.

Hope Credit
This credit applies to the first two years of college and is non-refundable, meaning that it can reduce your tax liability up to the amount of the credit or zero.  It will not place any of the credit in your wallet.

Lifetime Learning Credit
The student must be in post-secondary education and claim up to $2,000.  The charm of this credit is that there is no year limit on this credit, so it is not just for those in the first two or four years of post-secondary education.

Tuition and Fees Deduction
Depending on your income level you may be able to deduct up to $4,000 of qualified education expenses from your income.  This is different from the other options as it is not a tax credit; but is an actual adjustment to your income which will help reduce any tax you may owe. 

For a more detailed description of the options available to you, visit the IRS website IRS education.

Liberty’s Relay For Life Team Christened

With a build-up of excitement and a nationwide competition sponsored by the Liberty Tax Service Marketing Department, Liberty’s Corporate Relay For Life Team name was chosen during the February 4 Employee Meeting in Virginia Beach. Chosen from more than 100 entries, Adele Farmer’s entry of “Crowns for A Cause” will now adorn T-shirts, posters and relay-ers for all of Liberty’s Relay For Life events.

After such a successful involvement with March of Dimes, this year, Liberty is turning our attention to helping find a cure for cancer with the American Cancer Society through Relay For Life. Started in 1985 by a single man passionate about raising money for the American Cancer Society, we know Liberty’s family and friends can really make a difference in the lives of those celebrating, remembering and fighting for loved ones with cancer.

For LTS, it means connecting with an exciting national event that annually has more than 5,000 local events. To participate on a national level, we must commit to at least 50 teams, nationwide. In our debut year, we hope to commit 200 teams to make a difference! To assist with the fundraising effort, the LTS Web site now features an “Ask” in LIBTAX Software that asks for a $1, $2 or $3 donation. With more than 1 million tax returns prepared, we could donate $225,000.

Relay For Life is more than just a fundraiser. It’s a life-changing experience. At Relay, every person has a chance to celebrate, remember, and fight back. Thanks to Relay participants, the American Cancer Society continues to save lives. And Liberty Tax is proud to be involved on a national level with Crowns for A Cause.

Tax Trivia

Did You Know?
The payment of taxes and the professionals who handle the task are often me with mixed emotions. Historically, taxes have been met with rebellion and unrest; patriotism; war; and voluntary compliance. In 1789, French tax collectors were sent to the guillotine.

Which ancient civilization revered the tax professional as the noblest man in society?
A. Rome
B. Greek
C. Incas
D. Egypt

*see below for the answer

 

 

Tax Trivia answer: B