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Last Post 11/19/2011 2:21 AM by  Leland
Per Diem-report on tax forms?
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lizmcgee
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11/11/2011 1:43 PM

    A friend, who worked for Pilot this year told me that when she receives her w-2 it will only show her taxable amount, but not the per diem she received. Will she have to provide the per diem amt to the IRS? and if she does not provide this amount to the IRS and get audited for some reason, will she have to pay back a portion of the 20,000?    She said based on her last check stub,  she made more than 50,000 taxable and 20,000 in per diem which was not taxable.  She also said her expenses/deductions to be claimed on the schedule C will be more than 20,000.00   Thanks! in advance for your help.

     

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    K ung Fu tzu
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    11/15/2011 10:47 AM
    Pilot is paying you a per-diem that should correspond with the federal per-diem allowance for the particular area you're working. You don't pay taxes on this amount because it's 'reimbursed employee expenses", unless the amount they pay you is more than the amount you can legally claim and then you pay taxes on the difference. Another example would be if someone paid you $1.00 a mile to drive and the federal allowance was .55. You'd have to pay taxes on .45.

    Before you fill out your schedule C form or unreimbursed employee expense form, make sure you're not double-dipping. Receiving a per-diem limits your ability to deduct expenses.
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    lizmcgee
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    11/15/2011 3:43 PM

    So if she will be claiming expenses/deductions of $25,000,  which is more than the 20,000 in per diem, then she will be  ok and not have to pay anymore addtional tax?

    also, how can a single person with no dependents, no interest on home to claim an no other deductions get ahead in this business in regard to taxes; the federal govt takes so much!!!     Thanks for your response!

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    K ung Fu tzu
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    11/16/2011 7:28 AM
    You had mentioned that she was paid with a W-2, so expense forms go on a form called a 2106 which will limit severely the expenses she can deduct. Are you sure it's a W-2 and not a 1099? If it's a 1099 form, she can use a schedule C form to deduct expenses not included in the per diem, like license fees, mileage, office expenses, etc. After you obtain a net amount on your schedule C, the figures moves to the front page of your 1040.

    To answer your rhetorical question about how to get ahead; welcome to reality and be careful. You'll hear many people in the industry talking about how they are able to hide income in expenses and limit the amount of taxes, etc. etc. While there are some benefits in being self employed, there is still a heavy tax burden. If you're not paying taxes, you're either not making any money or you cheating on your taxes. Depending on the state you live in, the tax burden for most people is close to 50%.

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    CatAdjusterX
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    11/16/2011 8:06 AM
    Posted By elizabeth on 15 Nov 2011 03:43 PM

    So if she will be claiming expenses/deductions of $25,000,  which is more than the 20,000 in per diem, then she will be  ok and not have to pay anymore addtional tax?

    also, how can a single person with no dependents, no interest on home to claim an no other deductions get ahead in this business in regard to taxes; the federal govt takes so much!!!     Thanks for your response!

    .........................................................................................................

    Ms. Elizabeth,

    Generally, amounts Pilot or other employers pay employees to reimburse them for substantiated business expenses are not subject to income tax or employment tax. For reimbursements for expenses for meals and other incidentals associated with business travel, employees get this exclusion for reimbursements for each day of travel up to the federal per diem rates without having to actually substantiate the amounts of the expenses. However as Kung Fu stated, if an employer pays expense allowances that exceed the federal per diem rates, the excess amounts are subject to income tax and employment tax if they are not repaid to the employer, unless the employee actually substantiates all of the expenses covered by the per diem allowance.

    In this case as it relates to Pilot who is paying you as an employee, it will essentially be a NON issue in that the per diem will not expose you to additional taxation.

    Quickly as for 1099'd IA's,

    1099'd independent contractors can normally deduct the daily living expenses( per diem) on Schedule C and count the per diem as part of their taxable compensation. If expenses exceed the per diem, they pay less tax. Simply stated, the IC uses the per diem dollar for dollar to reduce their AGI 

    There is one glaring caveat to the above employee example,If Pilot or ANY company for that matter routinely pay per diem allowances in excess of the federal per diem rates, but do not track the allowances and do not require the adjusters (employees) either to actually substantiate all the expenses or pay back the excess amounts, and do not include the excess amounts in the employee’s income and wages, then the entire amount of the expense allowances is subject to income tax and employment tax,NOT just the per diem in excess of federal guidelines.

    As far as the employee who is a single person with no dependents or any significant deductions and is looking to reduce their tax burden to keep more of their income, that is indeed a bitter pill to swallow.

    Let me ask you this, if you owned a bank, would you  structure a loan for a client  and charge said client a 0% interest rate? Of course you wouldn't!! If you did, you and the bank wouldn't stay in business very long. But Ms. Elizabeth that is EXACTLY what you do every pay period, you are giving the federal government an interest free loan from your earnings withholding. At the end of the year,we get it back (tax refund) and whilst it is often a sizable chunk of money, it comes back to you interest free.

    What you can do to keep more of your money and actually make your money work for you by increasing your wealth little by little by earning interest of your tax withholding money.

    In the past , an SINGLE employee could fill out their W-4 (Withholding) and claim married and 10 dependents without the employer notifying the IRS and said employer would withhold the amount by giving it directly to you  every pay period as opposed to sending YOUR MONEY to the federal reserve.

    Well the rule has changed, the employer will NOT report to the IRS what you are withholding out of your pay check regardless of what you are claiming.

                   THERE IS NOTHING ILLEGAL ABOUT THIS WHATSOEVER

    So now each pay period you are keeping more of your money. Take the additional money that normally goes to the feds and put that money to work for you throughout the year by putting it into a 1 year T-bill or something similar. When it comes to tax time, you will NOT get a refund anymore. Now it's time to pay the IRS. You will pay them based upon you being single with no dependents.It doesn't matter what you claim during the year or how many dependents or if your married. All that matters is when it's time to pay the feds, you will pay what you owe as a single person with no dependents. That amount will be sizable, but since you invested that money, you will pay the feds and you will have earned the interest from the year that money was invested.

    Warning, Do not put that money into some get rich scheme, put it into conservative SAFE money havens (federal Tbills etc..) .Do NOT look at the additional money you are keeping every pay period as an excuse to go to the mall, because you OWE the IRS most of that money. Heck even putting that money into a simple savings account will bring you a small return.

    All you are doing is simply instead of receiving your tax return every year, you are spreading that return out through every pay period and letting the money earn interest as opposed to earning NOTHING whilst the feds hold it.

     

     

    Robby Robinson 

     

    "A good leader leads..... ..... but a great leader is followed !!" CatAdjusterX@gmail.com
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    lizmcgee
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    11/16/2011 8:50 AM

    K ung Fu tzu  and  CatAdjusterX, I really appreciate the info and explanations you guys have provided!  The important things to do in this industry is to handle your money wisely and to make sure you pay the IRS!  I hope all newbies  read the info you guys have provided here.   Thanks

     

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    HuskerCat
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    11/16/2011 9:43 PM

    CA-X:

    As to the 1099'rs, you left out the part about estimated quarterly's to be paid.  If you are working on a 1099 basis, and making any substantial amount of money you'd better have a CPA retained to file your quarterly's, depending on when the income was earned/paid.  Right now you have time, due to the timing of Irene...unless you also worked the early tornado stuff.

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    ChuckDeaton
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    11/16/2011 10:43 PM
    Accepting and following accounting and tax advice from unqualified, unlicensed persons posting on this or any other internet site is hazardous. Whether you are paid on a 1099 or W-2 basis hire a licensed, qualified professional to assist.

    "THERE IS NOTHING ILLEGAL ABOUT THIS WHATSOEVER" sums this up.

    No telling what else is missing HuskerCat!
    "Prattling on and on about being an ass with experience doesn't make someone experienced. It just makes you an ass." Rod Buvens, Pilot grunt
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    Jud G.
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    11/17/2011 8:05 AM
    Chuck's right. I wouldn't take it to the bank, but it is good advice coming from unlicensed professionals. The good thing about this forum is that it gives you guys a lot of good points to go over with your CPA. Don't go to one of those cookie cutter stores or attempt to do this yourself. The tax softwares out there will not uncover all of the benefits you have as a 1099.

    The issues that have been discussed here are just a few that my CPA is readily familiar with. Every year he comes up with a quick synopsis of tax law changes that help me in my unique pay situation.

    Don't be afraid to spend a good grand for a good CPA to do your taxes.  As a 1099 receiving checks from multiple vendors, states, and methods, the money is well spent.



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    CatAdjusterX
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    11/18/2011 6:49 PM
    Posted By Mike Kunze on 16 Nov 2011 09:43 PM

    CA-X:

    As to the 1099'rs, you left out the part about estimated quarterly's to be paid.  If you are working on a 1099 basis, and making any substantial amount of money you'd better have a CPA retained to file your quarterly's, depending on when the income was earned/paid.  Right now you have time, due to the timing of Irene...unless you also worked the early tornado stuff.

    .............................................................................................

    HuskerKat and Chuck,

    you both are 100% correct

    HuskerKat- I left out the quarterly % of payments due to the IRS and just gave the brief basic info as it relates to per diem

    Chuck- I was just answering her question and I added the caveat to NOT substitute my info for qualified competent licensed professional opinions.

     



    "A good leader leads..... ..... but a great leader is followed !!" CatAdjusterX@gmail.com
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    CatAdjusterX
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    11/18/2011 6:52 PM
    Posted By CatAdjusterX on 18 Nov 2011 06:49 PM
    Posted By Mike Kunze on 16 Nov 2011 09:43 PM

    CA-X:

    As to the 1099'rs, you left out the part about estimated quarterly's to be paid.  If you are working on a 1099 basis, and making any substantial amount of money you'd better have a CPA retained to file your quarterly's, depending on when the income was earned/paid.  Right now you have time, due to the timing of Irene...unless you also worked the early tornado stuff.

    .............................................................................................

    HuskerKat and Chuck,

    you both are 100% correct

    HuskerKat- I left out the quarterly % of payments due to the IRS and just gave the brief basic info as it relates to per diem

    Chuck- I was just answering her question and I added the caveat to NOT substitute my info for qualified competent licensed professional opinions.

    ....................................................................................

    Chuck,

    Oops, I failed to add the caveat here on CADO, I thought I had but it was only on my site and not here.  





    "A good leader leads..... ..... but a great leader is followed !!" CatAdjusterX@gmail.com
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    Leland
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    11/19/2011 2:21 AM
    I was always taught that you won't have a penalty for underpaying estimated quarterly taxes if you paid an amount based on what you earned the previous year. So basically, if you paid taxes of $12,000 on $50,000 of income for the 2009 tax year, and had an increase in income to $190,000 for 2010, you could make 4 estimated payments of $3000 each ($12,000 total) to not be penalized on your 2010 tax return. Obviously you would need to pay any additional tax due by April 15th of 2011. So if your total tax liability for 2010 was $60,000, you could make $12,000 in estimated payments just like the previous year, and another $48,000 payment on April 14, 2011. You would NOT BE PENALIZED.

    However, in 2011 if your income stayed up at $190,000, and your tax bill was equal to or greater than the 2010 $60,000 figure, you would need to increase the esimated payments to 4 x $15,000 each, in order to avoid penalties for underpayment.

    In a nutshell, you get a break the first year that your income jumps, but not for two years in a row.

    Cat adjusters have very "lumpy" income, ie. one year with low income and the next with high income, so CAT adjusters can take advantage of this rule. You still have to pay the tax you owe, you can just do a larger portion at the last minute.

    For those who dare, here is the page from the IRS that only a tax geek could love:

    http://www.irs.gov/publications/p505/ch02.html

    From Turbotax (in plainer English):

    The safest option to avoid an underpayment penalties is to aim for "100 percent of your previous year's taxes." If your previous year's adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay in 110 percent of your previous year's taxes to satisfy the "safe-harbor" requirement. If you satisfy either test, you won't have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.

    If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a little safety net.

    If you expect your income this year to be more than your income last year and you don't want to end up owing any taxes when you file your return, try to make enough estimated tax payments to pay 100 percent of your current year income tax liability.

    ------------------------------

    So Robbie is right, you can bank the money you have budgeted for taxes and pay it at the last minute, but you can only do it the first year your income jumps. However I would like to point out that there aren't really any suitable (safe/liquid) investments paying any kind of return to make that strategy worthwhile.

    Rates right now are very low.

    Here is a recent auction price of a U.S. Government Treasury Bill auction (http://www.treasurydirect.gov/RI/OFBills)

    26-WEEK 11-17-2011 05-17-2012 0.040 0.041 99.979778 9127955N7

    If you paid $9997.97 for the 26 week bill it would increase $2.03 to mature at par of $10,000.00

    Maybe you could double your return with some other liquid investment and make a whopping $4.00.

    A much larger tax advantage could be obtained from other strategies such as:

    buying a vehicle and depreciating it

    using retirement accounts, such as IRAs, SEPs, money purchase/profit sharing, defined benefit etc.

    and many other strategies your CPA can advise you on.



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    Leland
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    11/19/2011 2:21 AM

    I hit enter twice so perhaps I should do the standard disclaimer where my doubled post used to be:

    This information is provided for entertainment purposes only. Do not rely on this information. Your situation may be different than the examples provided. In fact, in this economy, you may not even have enough income to need to file a tax return at all.   Past performance does not predict future returns. If you want a good investment idea, call your Congressperson, they have the inside track. Most importantly, be nice to your spouse. Divorce will take far more than the worst stockbroker recommended by your uncle ever could.Consult with a competent adviser regarding any questions you have about anything, ever. All work and no play makes Jack a dull boy. Life is to short to take yourself too seriously. Be just serious enough and no more.

     


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