S Square Financials

08/18/2021

Retirement and taxes: Understanding IRAs

Individual Retirement Arrangements, or IRAs, provide tax incentives for people to make investments that can provide financial security for their retirement. These accounts can be set up with a bank or other financial institution, a life insurance company, mutual fund or stockbroker.

Here's basic overview to help people better understand this type of retirement savings account.

1. Contribution. The money that someone puts into their IRA. There are annual limits to contributions depending on their age and the type of IRA. Generally, a taxpayer or their spouse must have earned income to contribute to an IRA.

2. Distribution. The amount that someone withdraws from their IRA

3. Withdraws. Taxpayers may face a 10% penalty and a tax bill if they withdraw money before age 59 ½, unless they qualify for an exception.

4. Required distribution. There are requirements for withdrawing from an IRA:
-Someone generally must start taking withdrawals from their IRA when they reach age 70½.
-Per the 2019 SECURE Act, if a person's 70th birthday is on or after July 1, 2019, they do not have to take withdrawals until age 72.
-Special distribution rules apply for IRA beneficiaries.

A. Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA are not taxed until they are withdrawn.

B. Roth IRA. This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions:

-A taxpayer cannot deduct contributions to a Roth IRA.
-Qualified distributions are tax-free.

C. Roth IRAs do not require withdrawals until after the death of the owner.

D. Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers.

E. Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees' retirement. The employee owns and controls a SEP.

Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.

08/14/2021

For student and parent who pay college fee and education expenses !

The American Opportunity Credit and Lifetime Learning Credit can reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund. Learn more here:
https://go.usa.gov/xFxVT

08/12/2021

What taxpayers need to know about making 2021 ESTIMATES TAX PAYMENTS

Small business owners, self-employed people, and some wage earners should look into whether they should make estimated tax payments this year. Doing so can help them avoid an unexpected tax bill and possibly a penalty when they file next year.

Taxpayers who earn a paycheck usually have their employer withhold tax from their checks. This helps cover taxes the employee owes. On the other hand, some taxpayers earn income not subject to withholding. For small business owners and self-employed people, that usually means making quarterly estimated tax payments.

Here are some details about estimated tax payments:

1. Generally, taxpayers need to make estimated tax payments if they expect to owe $1,000 or more when they file their 2021 tax return, after adjusting for any withholding.

2. Aside from business owners and self-employed individuals, people who need to make estimated payments also include sole proprietors, partners and S corporation shareholders. It also often includes people involved in the sharing economy.

3. Corporations generally must make these payments if they expect to owe $500 or more on their 2021 tax return.

4. Aside from income tax, taxpayers can pay other taxes through estimated tax payments. This includes self-employment tax and the alternative minimum tax.

5. The final two deadlines for paying 2021 estimated payments are September 15, 2019 and January 15, 2022.

6. Anyone who pays too little tax through withholding, estimated tax payments, or a combination of the two may owe a penalty. In some cases, the penalty may apply if their estimated tax payments are late. The penalty may apply even if the taxpayer is due a refund.

07/27/2021

Tax tips for students working summer jobs

During the summer many students focus on making money from a summer job. They may want to gain work experience, earn some spending money or help pay for college. Here are some facts all student workers should know about summer jobs and taxes.

Not all the money they earn will make it to their pocket because employers must withhold taxes from their paycheck.

New employees: Employees – including those who are students – normally have taxes withheld from their paychecks by their employer. When anyone gets a new job, they need to fill out a Form W-4, Employee's Withholding Allowance Certificate, and submit it to their employer. Employers use this form to calculate how much federal income tax to withhold from the new employee’s pay. The Withholding Estimator on IRS.gov can help a taxpayer fill out this form.

Self-employment: Students who take on jobs like baby-sitting, lawn care or gig economy work are generally self-employed. Money earned from self-employment is taxable, and these workers may be responsible for paying taxes directly to the IRS. One way they can do this is by making estimated tax payments during the year.

Tip income: Students who earn tips as part of their summer income should know tip income is taxable. They should keep a daily log to accurately report tips. They must report cash tips to their employer for any month that totals $20 or more.

Payroll taxes: This tax pays for benefits under the Social Security system. While students may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. If a student is self-employed, Social Security and Medicare taxes may still be due and are generally paid by the student.

Reserve Officers' Training Corps pay: If a student is in an ROTC program, and receives pay for activities such as summer advanced camp, it is taxable. Other allowances the student may receive – like food and lodging – may not be taxable. The Armed Forces' Tax Guide on IRS.gov provides details.

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