As your tax preparer starts the preparation of your income tax return you probably think that wages and salaries are some of the easier items to enter on the tax return. However, even the basic W-2 can offer some surprises. Here are some tips and reminders of things to watch out for and let your tax preparer know about if they apply to you.
Starting at the beginning, you should get a W-2 from each employer you worked for during the year. These will be issued to you by January 31 after the end of the tax year. Make sure that your employers have the most up to date address for you. As a general rule you need a W-2 to file your tax return if you have earned income, you cannot use pay stubs. There is a limited exception that allows you to use pay stubs but only after you have tried to get a W-2 from the employer and you cannot use the exception until later in the filing season. Your tax preparer can advise you on what to do if this applies to you.
Once you get the W-2s check them to make sure they look correct. Is the name and SSN correct. Does the income look like the amount you were paid. If you have any queries ask your employer and get them to correct the W-2 before you prepare and file your tax return.
In some situations you may not get a W-2 for earned income but will still need to report that income on your income tax return. Here are some that may apply to you:-
- Foreign Wages and Salaries – If you worked overseas you need to report the income even though if it is a foreign employer you don’t get a W-2 from them. Remember, if you are a US Citizen or Resident (includes Green Card holders) you need to report your Worldwide income on the tax return. Your tax preparer will let you know if you qualify to apply the Foreign Earned Income Exclusion to reduce the amount of foreign earned income that is taxed.
- Tips – If you received tips during the year and did not report them all to your employer then you need to include those as part of your earned income. Try to keep a tip book where you record the tips you receive each day so that you have evidence to show the IRS if your return is audited. Give your tax preparer a summary of the tip book so that they can work out the correct amount to enter on your tax return.
- Household Employee – If your earnings as a household employee were less than $1,700 the employer may not have issued a W-2. The amount you received needs to be entered as wages on the tax return.
- Scholarship and Fellowship Grants – If these are not reported on a W-2 they may still be taxable if they are not used for education expenses such as tuition and course fees. Your tax preparer will be able to work out how much of the grants needs to be entered on the tax return as earned income.
- Dependent Care Benefits or Adoption Benefits – If you have entries in box 10 of your W-2 or box 12 with code T your tax preparer will need to complete some additional tax forms for you to work out if any of these benefits are taxable.
One final point on W-2s. If the Statutory Employee box 13 is checked and you have business expenses to claim then the W-2 income and the expenses should be reported on a Schedule C. This will apply to full time life insurance salespeople, some agent and commission drivers, traveling salespeople and some homeworkers.
If you have all of your W-2s and are ready to prepare your income tax return call us on (480) 363-4808 to book an appointment. If you live in Chandler, Tempe, Mesa or Gilbert, AZ we will come to you to prepare your income tax return. If you live elsewhere we can prepare the tax return using information you upload to our secure client portal or mail to us. We look forward to helping you prepare your income tax return.
Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.
Posted By Mark Smith
Mark Smith, EA is an Enrolled Agent and accountant with over 30 years tax and accounting experience. He is the owner of Cranmere Accounting and Tax Services LLC. He can be contacted on (480) 363-4808 or by email at firstname.lastname@example.org if you need assistance with any of the above.