Question: I've just started working as a real estate agent, and the company I work for doesn't withhold income tax. I know I must file quarterly tax estimates -- but I really have no idea how much I'll earn this year. How do I handle this?
Answer; The first thing you must do is make the best guess you can about your anticipated earnings for the year. You might ask your office manager what the company's experience has been in first-year earnings for other agents.
Remember to subtract estimated expenses during the year -- license fees, multiple listing service and association dues, car expenses, etc. Only net earnings after expenses are subject to tax.
Use this net earnings figure, plus any other expected income, as a starting point for the Form 1040-ES worksheet. Don't forget to add to your income tax bill 8.1 percent of your net income as an agent to cover Social Security taxes as a self-employed individual.
File Voucher No. 1 of Form 1040-ES by April 16. Then when you file for succeeding quarters (June 15, Sep. 15, and Jan. 15 of next year), you can refine one original estimate -- up or down -- to reflect your earning experience as the year progresses.
Q: Through a computer error, my employer failed to withhold enough taxes, so now I have a big tax bill to pay. Isn't he responsible for making up the difference?
A: No. The income was yours, and the tax liability goes with it. If through a computer error, your employer had withheld too much, would you want to turn over your refund check to him?
It would be nice to believe in a perfect world; but we both know that mistakes will be made. The person with the original tax liability retains it regardless of who made the mistake.
Incidentally, "computer error" is a handy catch-all phrase -- but the computer rarely makes an error. The mistake was made either by the person who wrote the pay- roll program or the one who entered your particular payroll data.
About the only thing you can do is pay the bill, and make sure the problem is straightened out for 1979 so that you don't run into the same thing again next year.
For all the rest of you out there, don't just assume your pay check is right. You should check out the numbers once in a while, particularly if the amounts don't seem reasonable. Your payroll office should have a copy of IRS Circular E ("Employer's Tax Guide") with all the tax withholding tables.
Q: What's the best way to keep track of gasoline purchases to get the maximum tax deduction?
A: I've always used the IRS gasoline tax table in the instruction booklet. I simply note the odometer reading on Dec. 31 each year, then take the table allowance for the number of miles driven.
The table is based on about 12 miles to the gallon. I suppose if you get substantially poorer mileage than that, it would pay to keep a record of gallons purchased, either in a diary you keep in the car or by saving credit card purchase slips.
For most people, it probably wouldn't be worth the trouble. In any case, don't bother any more (except for business mileage). The itemized deduction for gasoline taxes was eliminated effective Jan. 1, 1979, along with the tax credit for fuel used in off-road vehicles and power equipment.
Q: My son worked last summer and earned a few hundred dollars. Now he has to file a tax return to get back the few dollars withheld in taxes. Is there a way to avoid this hassle?
A: Yes, there is. If a person had no income tax liability for the preceding year and expects to have no liability this year, he or she can claim exemption from withholding.
There is a line on the Form W-4 filed with the employer for specifying "exempt." The employer then will not withhold income tax; but liability for FICA (Social Security) tax is not affected and must be withheld if the work is in covered employment.
You understand that this will not excuse your son from filing a tax return if it turns out that he has earned enough by the end of the year to make him liable for a return.
For 1978, the filing requirements for a child who is eligible to be claimed as a dependent on his or her parents' return were unearned income (such as interest or dividends) of $750 or more or gross income of $2,950 or more.