Fair Tax, Inc.is a locally owned and operated tax and bookkeeping company in business since 1989. Since our inception, we have grown to become the largest, non-franchised tax preparation firm in the Dakotas. We prepare tax returns for individuals and businesses as well as provide a broad range of financial services for small- and medium-sized businesses.

We are an IRS-authorized e-file provider and also offer Ready Refund!!® loans, where you can receive your cash in as little as one day.

Our staff is comprised of some of the most experienced tax preparers and bookkeepers in the region. And we are here to serve you year-round.

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School’s out and many students will be starting summer jobs. The Internal Revenue Service reminds students that not all the money you earn may make it to your pocket. That’s because your employer must withhold taxes.

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on www.irs.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

•  You are in the business of delivering newspapers.
•  All your pay for these services directly relates to sales rather than to the number   of hours worked.
•  You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

Contemplating A Jackson Hewitt After Bankruptcy

July 08th, 2011

Jackson Hewitt’s business model will change once it exits from bankruptcy. The only question is how.

I will not speculate on the likelihood that some potential possibilities – such as more kiosks or more focus on digital – will occur.

I can say that people should be ready to watch how this bankruptcy alters the relationship between Jackson Hewitt and Republic.

A reorganization is a hiccup that can upend any existing commitment. Jackson Hewitt’s relationship with Republic is no different. Jackson Hewitt will have the opportunity to renegotiate its program agreement with Republic Bank.

Re-negotiation is not without precedent. With Republic and Jackson Hewitt, it is actually a somewhat normal course of business. Their program agreement runs through 2015, but it is regularly amended. It was amended last week, in fact.

Republic will be in the driver’s seat. In an odd way, OCC and FDIC regulatory intervention has helped their business. The competition has been withered away and now they are the only game in town. This could change, but for now, Republic is in a sweet spot. This means that they have bargaining power to maximize their position with their RAL partners. Last year, Republic changed the terms of their agreements with tax preparers. Preparers had been able to generate rewards for bringing bank products to banks. The terms were restructured to end that generosity.

Republic could do something in the save vein for the upcoming year. They could add fees or decrease their liabilities for any loans that sour.

One caveat is that any of these new arrangements are subject to the actions of the FDIC. There won’t be any loans next year if the FDIC is able to win this fight in the September hearing.

Charitable contributions are generally pretty straightforward, but you can get tripped up on occasion.

Remember that only qualified charities count for deductions.  Donating $20 to a family in need or a person fighting cancer is a very good thing to do, but in the eyes of the IRS they’re not deductible.  Typically these events have a sponsoring entity.  The easy workaround is simply to donate the $20 to the sponsoring entity (if they qualify) and specify that it be used for the person being helped.  For example - your church is helping a family that lost it’s home to a fire.  Don’t make your check out to the family, make it to the church and specify that it’s for the family.

Another  point to remember is that cash contributions don’t count unless you have some sort of receipt.

Finally - purchasing a good or service from a qualified entity is only deductible to the extent that the purchase price is greater than the retail value.  For example - you buy a print from Duck’s Unlimited for $250.  The print is valued at $200.  You can only deduct $50.

Amendments are not for the faint of heart.  They’re a bit confusing, particularly if you’re adding or subtracting dependents.  This is one form where you really should seek the help of a professional.  I believe you should always seek the help of a professional, but this one in particular is confusing.  There are lots of good reasons and a few not so good reasons for amending.  Once the amend is prepared and sent off - be prepared to wait.  It can take up to 12 weeks to see your money and longer if the amend is not completed correctly.

My wife and I had a semi-heated discussion about the Cash for Clunkers program.  Her argument is that it’s good for the economy and good for the environment.  I countered that it’s bad for the economy long-term and that the accountability and oversight of the program is lax.  Congress is getting set to approve another $2 Billion for this program, but when pressed, the OMB can’t/won’t give up numbers about the specifics of the program.  I still smell a rat.  I believe it’s one of those politically expedient programs that really has a limited financial impact but tremendous political impact.  I heard a pretty good quote about the Cash for Clunkers program.  I didn’t write it down, but essentially the writer said that adding another $2 billion to the program is less than the federal government spends in 1/2 of a day.  That put it in perspective.

The ex-banker in me cringes at this one but as a tax preparer, it’s a great way to save a lot of $$.  When a bank writes off a debt they give you one last present in the form of a 1099-C.  The amount of the 1099-C is then added to your income.  The thinking is that you don’t have to pay back the debt so it’s treated as taxable income.  Makes sense but when you have a loan written off or written down, the last thing you probably have is extra cash for the additional tax burden.  So it’s a bit of a double whammy.  Congress in it’s infinite wisdom said that if you have some or all of your home loan written off or written down that you do not have to treat it as taxable income.  They figure you have other bigger problems.  The only goofy part is that up to $2,000,000 qualifies.  $2,000,000!!!  Do you really need help if your mortgage is $2,000,000?  Holy smokes Batman

The Cash for Clunkers program is a smashing success (pun intended because the clunkers have to be scrapped).  Here’s the problem.   The program is approximately one week old and has run out of money.  The program has $1 Billion earmarked for it.  Being a tax weenie, I ran the numbers through my calculator.  $1 Billion divided by $4,500 (the max amount of the credit) equals 222,222.22.  222,222 x 52 weeks equals 10,566,666 cars.  That’s more cars than were sold in all of 2008.  Pardon me if I’m a bit hesitant about the whole thing.  I understand that the credit is either $3,500 or $4,500 and I understand it’s approximately 1 week, but somehow I doubt that every single car sold in the past week and by extrapolation every car sold in the U.S. has a trade-in of a Clunker.  It doesn’t pass what I call the sniff test.   Email me at info@fairtaxinc.com if you think I’m all wet.

The W-4 is a lousy form.  It’s very confusing.  My recommendation is to always ignore the top half and fill out the bottom with 1 or 2 exemptions.  Most people prefer getting a refund.  The fewer exemptions you claim, the larger your withholding and consequently the larger your refund.

You can really get in trouble if you work a part-time job.  The withholding tables don’t work very well when you work more than one job or have other things going on with your 1040.  I generally tell people to fill out Single  (or married but withhold at the higher single rate) and 0 with any part-time job.  You may even want to go so far as to have extra withheld if you have a number of part-time jobs.  Just remember - if in doubt, claim FEWER exemptions, not more.

Every year we get at least newlywed that is confused about how to file their return.  The rules are simple - your filing status is determined as of 12-31.  If you’re married on the last day of December, your filing status is Married Filing Joint/Separate.  It doesn’t matter about the previous 364 days.

If you change your last name, you need to file a SS-5 with the Social Security Administration.  Depending upon the timing, you may need to use your maiden name when filing your taxes.  It takes a bit of time for the name change to work its way through the SSA and onto the IRS computers.

Random thoughts about starting a business…

Most folks are best served by starting out as a sole proprietor.  Create the more sophisticated entities (Sub S, Corp, Partnerships, LLC) if things take off.  Save yourself the time and expense of incorporating until after the company is established.

Partnerships rarely work out.  Something like 8 out of 10 partnerships don’t make it.  I highly recommend a single decision maker.

You only need an Employer Identification Number (EIN) if you create a partnership, Limited Liability Company or Corporation or you’re a sole proprietor who pays wages (rare).

Most folks start off using the cash accounting method.  Accrual entails a level of bookkeeping competence most folks don’t have.

Profit is NOT the same as Cash Flow.  You can go broke making money.  Call me at 605-336-1669 for an explanation.  This is fundamental to understanding and running a successful business.

Uncle Sam REALLY gets mad when you don’t pay employment taxes.  They’re not nearly so tough on income tax.  ALWAYS pay your employment taxes