U.S. Tax Preparation Worldwide   James Maertin CPA

 
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Tax Guide 

IRS Tax Law Changes

Americans Abroad

Capital Gains, Interest and Dividends

Deductions

Dependents

Education Credits, Scholarships

Foreign Bank Reporting

Foreign Nationals

Social Security, Medicare, Self Employment Tax

State Taxes

Tax Deadlines, Extensions, Late Payments, Estimated Tax

Tax Resident, Nonresident, Dual Status

Other Topics

Other Topics


 

Taxable Income

Residents (Form 1040):

Taxable on worldwide income (U.S. and foreign source).   Examples of earned income and unearned income.

Nonresidents (Form 1040NR):

Only taxable on U.S. source income. Any income reported on a Form W-2 for services performed outside the U.S. is not taxable.

How is my income being taxed?
Taxable income includes wages, self-employment income, interest, dividends, rental income, etc., less certain deductions such as the personal exemption (if you are entitled to claim one) and the standard deduction (or itemized deductions if you can itemize).

Your tax is a percentage of your taxable income (total income minus deductions). There are six federal tax rates as of 2017: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.  See the tax rates. Each state that has an income tax has its own tax rates, which are generally a lot lower than the federal rates. If you go to my Links page, you will find links to each state tax department website.

Gift Tax

 

There is no income tax on any gifts that you receive. The gift tax is a completely separate tax from the income tax and is always assessed on the giver, never on the recipient. See also IRS Gift Tax Questions.

 

If you made a gift in excess of $15,000 (2018) to any one donee during the year, it is taxable and I will need the following details:

  1. Total amount of gift

  2. Fair market value of gift if not cash.

  3. Date of each gift

  4. Name, address, and social security number of donee

  5. Relationship of donee to taxpayer.

 

Home Office

 

As of 2018, home office expenses can only be claimed on Schedule C - Profit and Loss from Business (Sole Proprietor). 

 

General Rules:

To qualify, a portion of your home or a separate structure must be used exclusively on a regular basis:

(1) As the principal place of your business (this includes a place where you conduct administrative or management activities of the business if there is no other fixed location to conduct them), or

(2) as a place where you meet clients in the normal course of business.

 

See IRS Publication 587 for more information.

 

 

Itemized Deductions vs. Standard Deduction

Residents (Form 1040):

Everyone is entitled to a standard deduction, which reduces your taxable income, but you may choose to itemize deductions if it gives you a larger dollar amount to deduct.   The standard deduction varies according to your filing status.  See 2018 tax changes

Federal itemized deductions include (1) medical expenses, (2) state and local taxes (limit is $10,000), (3) mortgage interest on primary residence and/or second home, (4) casualty/theft losses

Nonresidents (Form 1040NR):

You must itemize any deductions. Exception:  Students and business apprentices from India can claim the standard deduction under the tax treaty.

A nonresident is not entitled to certain deductions allowed to tax residents. These include mortgage interest, real estate taxes, and medical expenses.

Records to Keep

 

Keep the following for at least 3 years:

  1. Copies of all tax forms sent to you (such as W-2's and 1099's).

  2. Receipts for expenses included in your tax return.

  3. For meals and entertainment expenses, keep a log book containing the name, address, and location where the meal or entertainment occurred, the business reason, and the cost.

  4. For travel expenses, date and duration of the travel, destination, business purpose and costs.

  5. Books for an independent business, if possible. If you have a computer, I recommend getting Quickbooks. This makes it easy to keep track of expenses, and saves a lot of work at the end of the year sorting and figuring out your receipts.

Keep forever:  A copy of your tax returns. You never know when these might be needed.

 

Marriage - How it Affects Your Tax

 

Filing Status: You are considered married for the entire year in which you get married.  So if, for example, you were married on Dec. 31, 2018, for tax purposes you are deemed married for all of 2018  You must file either as Married - Filing Joint or Married - Filing Separate. You cannot file as Single (except in rare cases of legal separation).

 

Married Couples - One Working Spouse

Married couples with one non-working spouse (with little or no income) and one working spouse often pay less tax filing jointly than if the working spouse could file as Single. One reason this could be the case is that the couple is able to claim the exemption and standard deduction for the nonworking spouse. Filing Single, these benefits would be lost because the non-worker would not file a tax return at all.

 

Married Couples - Both Spouses Work

Married working couples with similar incomes may pay more tax filing jointly than they would if they both could file as Single - this extra tax is referred to as the marriage penalty.  Different factors can be involved in this including: (1) less favorable tax rates applied to individuals filing separately, (2) earlier phase-out of itemized deductions, and (3) alternative minimum tax (AMT) rules. 

 

Many married couples comprised of two working spouses do not have enough taxes withheld during the year and end up owing tax (sometimes a lot of tax) to the IRS when they file their returns. The main reason for this is because the withholding tables for married taxpayers assume that only one spouse works. It is a good idea to coordinate your withholdings on Form W-4.  I advise that you complete the IRS Tax Withholding Calculator in the beginning of year each to help you adjust your withholdings.

 

Married Filing Separately

In most cases, filing jointly on the federal return is better - but I always check this to be sure. Once a joint tax return has been filed for the tax year, a couple will not be entitled to file amended separate returns.

Nonresidents (Form 1040NR):
You must file Married - Filing Separately. You cannot claim your spouse on the tax return (there are exceptions for citizens of India).