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January 25, 2014

Prepare for the Taxman: Get paperwork ready to send to the IRS

By Shirley O'Shea Contributing Writer
The Daily Star

---- — “Let me tell you how it will be …”

George Harrison, “Taxman,” 1966

Taxes, taxes. Many Americans really hate them. 

In fact, as most U.S. middle-school students are taught, one of the reasons the colonies revolted against the British Crown and created a new nation was their resentment of Britain’s perceived burdensome taxation of the colonists. And yet taxes remain with us, to fund the country’s functioning — its interstate highways, its schools, its defense.

George Harrison, an Englishman and highly compensated Beatle who found himself subject to his country’s 95 percent supertax, penned “Taxman” in a fit of pique. His song, which opens the album “Revolver,” is played on radio and TV on the days before Tax Day — April 15, because, as Harrison himself said, “There’s always a taxman.”

While taxes remain a constant of an organized society’s common life, tax laws change.

For instance, according to Donald Benson, a certified public accountant who has practiced in Oneonta for more than 30 years, several tax cuts for high-income people expired this year, and there are “major changes for (those who earned) $250,000 or more. Tax brackets are higher and many deductions (have been) phased out,” Benson said.

“The tax laws are more complex than ever before,” said Benson. It pays, sometimes literally, to review carefully IRS literature on the IRS Form 1040, more commonly known as the federal individual income tax return, and in some cases, to consult a tax professional before filing.

“Many people do their own returns erroneously,” Benson said. “It’s worth thinking about going to a pro.”

One of the most important documents a tax filer must have to complete his or her — or their, in case of married people filing jointly — return is IRS Form W-2 “Wage and Tax Statement.” W-2 includes information about the taxpayer’s employer, the total income paid, and the amount of federal and state income taxes withheld during the tax year. Social Security benefits recipients receive Form W-2 also. Note that a Form W-2 should be issued by each employer of a tax filer during the tax year, so that if the tax filer worked for three different employers during the year, he or he should expect three Forms W-2.

Tax filers should review their Forms W-2 to make sure the information it contains is correct. Of especial importance is that the taxpayer’s Social Security number is stated accurately. Taxpayers may compare the amount of income paid and taxes withheld as reported on W-2 to that stated on the last paycheck stub they receive for the year, which reports this amount as it has accumulated throughout the year.

Form W-2 must be issued to taxpayers by Jan. 31, Benson said. 

While taxes can be filed before Jan. 31, the Internal Revenue Service will not begin processing those returns until Jan. 31. 

But what should a taxpayer do if he or she does not receive W-2 in a timely manner?

“You must contact your employer,” Benson said. This usually involves speaking with the employer’s payroll department or representative. If the taxpayer has not received his or her W-2 by Feb. 14, Benson said, the taxpayer should contact the IRS at (800) 829-1040 for assistance. 

“They will make efforts to contact the employer,” Benson said. 

When calling, the taxpayer should have his or her Social Security number on hand, as well as the employer’s name and address and the dates of his or her employment. Also, according to the IRS’s website,, the taxpayer should have at hand an estimate of his or her wages and federal income tax withheld, based on the year-to-date information on his or her last pay stub.

Even if the W-2 is not issued after such efforts, the taxpayer must file his or her 1040. He or she should use IRS Form 4852 “Substitute for Form W-2,” with the estimated amounts of income and tax withholdings and attach it to the 1040. If the taxpayer does receive his or her missing W-2 eventually, and there are discrepancies on the amounts of income and withholdings reported, he or she must file IRS Form 1040X “Amended U.S. Individual Income Tax Return.”

Another important form that taxpayers need to look for is IRS Form 1099, which reports different kinds of income. 1099-MISC “Miscellaneous Income” is used to report income received from a variety of sources, such as rental income, royalties, crop insurance and fishing boat proceeds, and something known as excess golden parachute proceeds. Freelancers (which fall under the category “other income”) must obtain 1099-MISC to prepare their 1040.

Other Forms 1099 include 1099-R, for reporting distributions from a pension, annuity, retirement and profit sharing plans and IRA, and 1099-B “Proceeds from Broker and Barter Transactions.”

If a taxpayer is paying college tuition and/or interest in excess of $600 on a student loan, he or she should look to receive Form 1098-T “Tuition Statement,” issued by the educational institution, and Form 1098-E “Student Loan Interest Statement,” issued by the lender, respectively. The amounts reported on these forms may result in “huge credits potentially” for the taxpayer, according to Benson.

Most of these forms must be received by the taxpayer by Jan. 31, Benson said.

A question often pondered by taxpayers is whether to file the 1040 or 1040 “long form,” on which the taxpayer(s) may itemize deductions on a document, attached to the tax return, called “Schedule A.”

Taxpayers are entitled to take the “standard deduction” on their 1040, depending on their age and filing status, Benson said. This deduction is granted for living expenses, Benson said. “The standard deductions has never been as high as they are now,” Benson said.

According to IRS Pub. 17 “Your Federal Income Tax,” the standard deduction reduces a taxpayers taxable income. “It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions and (other) taxes on Schedule A.” 

For the 2013 tax year, the standard deduction of a single person or married people filing separately is $6,100. For a married couple filing jointly, it is $12,200, and for a head of household, the amount is $8,950. Standard deduction amounts are higher for taxpayers older than 65 or blind. Each year, usually, the standard deduction amount is adjusted for inflation.

According to Benson, the high standard deduction amounts may eliminate the need to itemize on Schedule A. The taxpayer must decide whether itemized deductions will exceed that available through itemizing. Hence the need for those 1099s and 1098s, as well as accurate record keeping of medical expenses. Note, for example, that medical expenses may be deducted on Schedule A only if they exceed 10 percent of the taxpayer’s adjusted gross income (or 7.5 percent if the taxpayer was born before Jan. 2, 1949.)

“Most don’t itemize due to high (standard) deductions,” Benson said.

If any of that leaves readers grumbling, consider another line from Harrison’s song:

“Be thankful I don’t take it all, cuz I’m the taxman.”