It seems that the IRS makes its presence known in everything you do in your life. Getting married, getting divorced, having a baby, transferring to a new job, buying a home and even purchasing an energy efficient car have tax implications. The effects of alimony on your withholding tax and the forms of IRS assistance on this matter will be discussed in this write-up.

Paying federal income taxes can be done using any of the two: estimated tax or withholding tax. The self-employed usually utilize the estimated tax. "Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well," describes the IRS. Employees, however, settle their taxes by withholding, meaning their employers withhold income tax from their monthly salaries. Whether taxes are taken from your job or other forms of income like pensions, gambling winnings, bonuses and commission, they will always be filed under your name.

Your salary and specific data in your W-4 (including details on whether you are withholding at the single rate or the lesser married rate, how many withholding allowances you can claim, and whether you want any additional income withheld) determine the amount that will be withheld from your pay. Using the IRS's Withholding Calculator will make the computation of your taxes easier.

Alimony adjustment is one way of changing the amount that is withheld from your pay. To apply for this, you need to accomplish a new W-4 and forward it to your employer. All you have to do to avail of this is forward to your employer a newly-accomplished W-4.

Alimony payments are among those considered as taxable income. Thus, to update your income records, you must accomplish a new W-4 if you are a beneficiary of these. Doing otherwise might leave you with more taxes to settle at the end of the year.

On the contrary, if you are the one paying for the alimony, then this expense is tax deductible.  For alimony to be qualified as a tax deduction, it has to be given in cash, through a check or through money order. If you have worked out a deal with your ex-spouse and agreed to directly settle certain bills for her/him, this arrangement is not considered as alimony. Again, you just need to fill out a new W-4 to reflect your expenses of paying for alimony.

Life changes are inevitable and some of them are more drastic than others.  When they do come your way, do not forget to adjust the amount of income you have withheld from your paycheck.

The Law Offices of Darrin T. Mish is a tax problem resolution firm, located in Tampa, Florida. Mr. Mish is an experienced, nationally recognized tax attorney who has been practicing tax law for over a decade. He has an AV rating by Martindale-Hubbell and has been honored with a listing in Martindale-Hubbell’s Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers, and with that in mind, he travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is also a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

The Effects of Life's Changes on Your Federal Withholding is a post from: IRS Tax Problem Solver Blog - IRS Help

Yesterday, President Barack Obama was quoted as saying, "Ultimately it's important for the administration to send a message that there aren't two sets of rules. You know, one for prominent people and one for ordinary people who have to pay their taxes."

He said this on the heels of three Cabinet level nominees who have been found to have IRS problems. Timothy Geithner, who was ultimately confirmed as the Treasury Secretary, Tom Daschle who was nominated but later withdrew from the nomination for Health & Human Services and then Nancy Killefer who withdrew her candicacy for Chief Performance Officer. The truly shocking aspect of these revelations is that these prominent, high income earning individuals were so cavalier and careless in their rather transparent attempts to avoid paying their taxes. There is a big difference between "avoiding" taxes lawfully and "evading" taxes in an unlawful and sometimes criminal manner.

Avoiding taxes is the lawful  planning to avoid paying more than one's fair share of tax. Prominient jurist, Judge Learned Hand said, "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

This is NOT what transpired in these three individuals cases. In Geithner's case, he owed the liability for some period of years after failing to remit self-employment tax for his work at the International Monetary Fund. Incidentally, money that the IMF gave him specifically to pay the aforementioned self-employment tax. But hey, he was really busy.

In Daschle's case, it never occurred to him that the services of a private car and driver would be taxable. Nevermind that the guy served on the Senate Finance Committee for many years. Who do you think makes changes to the tax code every year anyway? And lastly, in Killefer's case, it's not clear but she did have a tax lien filed by the District of Columbia for $946.69 that took her five months to clear up. Big deal you say? If it was only $946 why did it take five months to pay off? You're right, she was probably busy too.

The point is that there are two tax systems but these folks actually weren't smart enough to take advantage of the system for "prominent" people. You see, the tax system rewards those who plan well and penalizes those that don't. Self-employed individuals pay the highest tax because they haven't implemented the rather simple step of incorporating. They pay extra for the fact that they failed to adequately plan. And there are any number of actions that can be taken by the smart taxpayer that wishes to arrange his affairs so as to pay as low tax as possible. It takes planning; it takes thought; and it takes a bit of money but not as much as stands to be saved. I provide this as food for thought and as validation to Mr. Obama's premise that he doesn't want you to know and realize that there are two tax systems. One for those who know what to do and one for those too slothful to educate themselves as to what TO do.

Are There Two Tax Systems? One For the Prominent & One For “Ordinary” People? is a post from: IRS Tax Problem Solver Blog - IRS Help