Starting a New Job as an Independent Contractor
A comment left on the post "What's Form W-9?" caught my attention in this regard. The question deserves a fuller response, and you might have some advice to add yourself.
The question asked was this:
"Hi, I am a fresh grad with no idea about this income tax thing. I joined a website [...] where people hire you online. My problem is the site is asking me to submit a W9 form and I don’t know what it is for. I have never been employed and I don’t have any ideas what will happen if I pass that form. Will I be doing income tax returns when I submit that form? Will I be he one to compute my income tax? Sorry for being stupid but I really need help."Read more...
Dealing with Identity Theft, Debt and Tax Collection Issues
- complex procedures for responding to identity theft cases,
- identifying how canceled debt income from foreclosures will be processed by the IRS,
- trends towards more aggressive collection activities by the IRS,
- whether outsourcing collection services to third-party firms has created inefficiencies, and
- concerns over lingering tax debts caused by incentive stock options.
Claiming Bank Deposit Losses
And what if the worst happens and you do lose your money in the bank? You can deduct the loss on federally insured bank deposits as a casualty loss deduction. Casualty losses have limits built in and may be further reduced by the overall limitations on itemized deductions.
Because of these limitations on how much could be deducted, it would be safer to diversify deposits among multiple financial institutions to make sure the deposits are fully insured.
More information:
- Losses on bank deposits (from IRS Publication 529)
- Casualties, Disasters, and Thefts (IRS Publication 547)
- Frequently Asked Questions about Deposit Insurance (from the FDIC)
The Zero Percent Capital Gains Tax Rate
This zero percent rate comes with some opportunities to plan ahead. First, you can plan to hold on to profitable investments long enough to qualify as a long-term gain. At minimum, this means holding on to the investment for at least a year and a day. Investments held for a shorter period of time will be taxed as short-term gains at the regular tax rates. Second, tax rates are determined in part by your taxable income, which is your income after all deductions. Accelerating deductions will lower your taxable income, and thus help to keep you in a lower tax bracket.
More information: Capital gains and losses Capital gains tax rates Planning for the 2008–2010 Zero-Percent Adjusted Net Capital Gain Rate (The CPA Journal)
Deciding to Withdraw Money from a Retirement Plan
Here's one scenario, emailed to me by an About.com reader,
"I am thinking about taking an early withdrawal from my traditional IRA account Read more...
Increased Scrutiny over Foreign Assets
The reporter also mentions the ongoing investigation of offshore banking practices at UBS in which wealthy clients allegedly are using foreign accounts to hide income from the IRS.
In my own practice, I more often meet people who are genuinely confused about how to report the income. Sometimes, people don't even realize they are earning significant amounts of money in an overseas account until they, or their accountants, start asking the right questions. One reader shared exactly this sort of situation in the tax forum, relating that he's trying to figure out how to determine how much income he earned from an inheritance left to him years ago by his uncle. It's not that this reader didn't know about the money, because he did. The issue is the banks seem unable to provide the documents he needs to accurately calculate how much income he earned on the investments. And that's going to make filing his taxes much harder, especially with the intense scrutiny the IRS is sure to bring on this and similar situations.
The best advice is to keep track of your investments yourself, and to report all income annually to the IRS, including foreign investments. Also, it's a good idea to report all your foreign bank accounts you own or have signature authority over.
Making a Mid-Year Tax Projection
Then you can do some quick tax math using the 2008 tax rates and the 2008 standard deduction and personal exemption figures to help you get a good idea of how much tax you'll be responsible for this year. Be sure to compare this tax liability against your projected withholding. You may need to adjust your paycheck withholding or make estimated tax payments if your projections show you might have a balance due. On the other hand, your projections could show that you'll have a significant refund. You'd then be able to adjust your withholding to have less taxes taken out of your paycheck. The IRS has a withholding calculator on their web site to help you figure out how many withholding allowances to claim. But you'll need first need a good estimate of your income, deductions and credits for the year before using the calculator.
This may also be a good time to organize your financial documents or start using personal finance software such as Quicken or Microsoft Money or the free utility GNU Cash. These software programs can help you keep track of your tax-deductible expenses throughout the year, making it easier to print out a report of your deductions at tax time.
Standard Mileage Rate Increases by 8 Cents
The standard rate for charitable driving remains unchanged at 14 cents per mile. That rate is set by law under Internal Revenue Code Section 170(i).
More information:
IRS Drops Interest Rate on Late Payments
Additional resources:
- Interest Rates Drop for the Third Quarter of 2008 (IRS.gov)
- Previous IRS Interest Rates (TaxAlmanac.org)
Questions About the Mortgage Deduction Limits
This is exactly the scenario that one reader emailed me to ask about: Read more...

