Author: Traci Fitting

Have you received a Form W-9 and wondered “What do I do with this?” It is a question we hear frequently.  The simple answer is, “Fill it out, and save yourself a lot of potential headaches down the road.”

There are certain times when payers of monies are required to fill out and submit information to the IRS. One type of these informational forms is called a 1099, and it reports various pieces of information to the IRS, such as what type of money was paid, who it was paid to, and how much was paid. The IRS uses this form to verify that the recipient is reporting income and the payer is deducting the correct amount on their respective income tax returns.  One example of this would be for prize winnings.  If a person wins $600 or more in prizes or awards in a year, the payer is required to report that person’s name, address, and Identification number, such as their Social Security or Federal ID number on a 1099-MISC.  Failure on the part of the payer to fill out and submit Form 1099 to the IRS when required can result in penalties.

One way for payers to obtain the correct reporting information from the recipients is to give them a Form W-9, Request for Taxpayer Identification Number and Certification. This form is available at www.irs.gov along with instructions. If you are given a Form W-9 and you don’t fill it out and return it to the requester of the information, you could be subject to a $50 penalty.  The requester is then obligated to start backup withholding on any payments they give you.  In other words, for every payment they make to you, they would be required to withhold 28% of the payment and submit it to the IRS.  You would then get credit for the withholding on your income tax return when you file it.  For the payer, it is prudent that the W-9 be given to the recipient before the money is given to them.  Getting a W-9 filled out after payment is already made can be difficult.  People sometimes move or they simply don’t want the IRS to know that they received the money.  If a reporting form is not properly issued to the IRS, it can lead to the loss of a deduction by the payer for the expenditure, as well as potential penalty assessment by the IRS.

The following are some of the types of payments made in the course of a trade or business that would require a Form 1099 to be filed, hence the need to have a W-9 on file for the recipient of the money. Rents of $600 or more; gross royalties of $10 or more; prizes, awards and other payments  of $600 or more; medical and health care payments  of $600 or more made to a physician, supplier, or other provider of medical or health care services; and fees, commissions, and other forms of compensation performed by nonemployees that amounts to $600 or more.

If you would like to discuss the W-9 or if you have specific questions regarding the complex nature of Form1099 reporting, please contact the professionals at Ketel Thorstenson. We are happy to assist you.

Here we are in the summer of 2016 already.  If you have children or grandchildren in pre-school, elementary-school, middle-school or even high-school, you may or may not be thinking about their college education yet, depending on their age.  It is never too early to start planning, however.  The cost of higher education can be daunting, to say the least.  According to the website collegedata.com, the average yearly budget for an in-state public college is $24,061 and for a private college is $47,831.  This includes such things as tuition, fees, room and board, books and supplies, as well as transportation costs.  These numbers can cause many to hit the panic button, especially if there is more than one college-bound student in the family.

So, with the rising cost of education, is all lost?  Not at all!  There are various resources and options available to consider.  This article will look into a few of those options.

One option available is merit-based aid.  This is aid based on academic or talent-based performance and not financial need.  These scholarships can come from the school itself, outside scholarship providers, employers, and service organizations.

Another option available is need-based financial aid.  For some families, this is a major source of college financing, but not all families will be eligible.  This may include aid such as federal or state-sponsored scholarships, grants, etc.

A third choice is student loans.  There are Stafford loans, Federal Direct PLUS loans, and private loans.  Stafford loans have lower interest rates and, if subsidized by the government, the interest does not start accruing until the student is out of school.  Federal Direct PLUS loans are loans available to parents of dependent undergraduate students and to graduate students.  They are based on the borrower’s credit.  Private loans, such as a mortgage, should be considered last after the other loan sources have been exhausted.  Qualified student loan interest is an above-the-line deduction on your tax return and mortgage interest is deductible on Schedule A as an Itemized Deduction, if certain qualifications are met.

Then there are Qualified Tuition Programs (QTPs or 529 plans) and Education Savings Accounts (ESAs).  These are savings plans to help cover the cost of education.  Both provide for tax-free earnings and have contribution limits.  Contributions to these plans are nondeductible for tax purposes and monies taken out of the accounts are nontaxable, if the funds are used for qualified higher education expenses, such as tuition, fees, room and board, books, supplies and equipment.  QTPs do not have an income phase-out for contribution purposes, but ESAs do.

Once you have decided how to pay for college, keep in mind the tax benefits available.  The American Opportunity Credit (AOC) is a great credit to take advantage of if you meet the requirements for claiming it.  The AOC credit is up to $2,500 per student and 40% of the credit is refundable.  The other 60% is used to offset tax liability.  The AOC is available for a student’s first 4 years of post-secondary education.

There is also the Lifetime Learning Credit (LLC) available.  This nonrefundable credit is 20% of up to $10,000 of qualifying expenses and limited to $2,000 per return.  Unlike the AOC, which is only allowed for the first four years of undergraduate schooling, the LLC is available for most qualifying education.

The Tuition and Fees Deduction is another tax savings vehicle to consider.  It is an above-the-line deduction of up to $4,000 of qualifying expenses paid.

Many of these credits and deductions should be compared to determine which is best to take advantage of on your tax return.  Claiming one does not necessarily negate the others.  There are many rules that must be taken into account before claiming a credit or deduction on your tax return.  Many items have income limitations.  The items discussed in this article may seem simple on the surface, but there are many variables and factors to consider.  Please contact one of our knowledgeable tax professionals for further assistance or guidance.