This week your tax forms should be showing up if you haven’t gotten them already. It’s income tax season, so we have to ask: What is income? There are two types of income.
There’s earned income (that would be from your job). You’re going to get a W-2 on that. If you have a business, there may be a business tax return. If you’ve done any contract work for someone and you’ve made over $625, they are required to send you a 1099. If you’re taking withdrawals from a retirement account, then that’s money you earned while you were working that has not been taxed, and a 1099R may be coming to you.
That earned income is taxed at your income tax bracket. What will that be? That depends on all of your household income. It depends on the number of dependents you have and the number of deductions.
The other type of income is investment income. You may get something called a 1099B if you have interest on bank accounts, on bonds, if you get stock dividends or capital gains (meaning you sold something for more than you paid for it). You’ll have that showing up on a 1099B.
Investment income is taxed differently than earned income. The interest from those bank accounts or bonds will be taxed at your income tax rate, but the capital gains and dividends are taxed at a lower rate.
The big question is: What isn’t taxed? Investment income that is in a retirement account. Many times I will have people call me and say: I haven’t gotten my 1099B on my retirement account. You won’t get one on a retirement account. [If you withdraw funds from a retirement account, you will receive a 1099R.] If you take qualified withdrawals from Roth IRAs, they’re tax exempt. Of course, if you have business losses, you won’t pay tax on the loss; you may get a tax advantage there.
Those W-2s and those 1099s are also reported to the IRS, and eventually they match those forms with our returns. They’re a little slow, but they will catch up with you. They may send you a notice saying you missed something from a couple of years ago.
If you need help with your taxes, you can do something called Free-File. If your household income is $64,000 or less, you go to the IRS website, and you can file free through their tax software. Of course, you can use your own tax prep software. The IRS also has VITA. This is volunteer assistance that helps you with your taxes. Check with your local library. There are some income limits on those as well. And look for a local CPA to help you with all of that.
It is tax time. You need to file it. Even if your income is lower, you still may want to file it, because you may get money back.
If there’s a mistake on your taxes, don’t panic. Know that you can amend those returns. You can go back and find that information. If someone helped you with those taxes, call them if you’re notified and go back and do the work.
If you miss reporting income, same thing. You’re just going to go back and correct that. What often happens with capital gains, they will assume there is no cost basis and so it looks like you owe a whole lot of money. Don’t panic. Go back and get the work done, and it can be fixed.
Tuesday, April 18th is the deadline this year because we have a holiday and a weekend.
VIEWER QUESTION: Is there such a thing as selling your stock to a broker and depositing it in the bank?
With our stock, it’s either going to be in certificate form or book entry form. Certificate form means you have an actual certificate that you have maybe in a bank deposit box that someone has left you. If you have that, you need to take it to a broker and open an account with the broker. They will deposit that stock certificate in that account. Then you can place a trade to sell it, and that cash can come out to your bank.
Nancy's back on WLBT for more on taxes: http://www.msnewsnow.com/clip/13084679/midday-money-tax-time?autostart=true.