Category Archives: Tax Preparation

Tax Preparation

Tax Credits & Other Information For 2016

This is a summary of some of the things regarding taxes for 2015 I sent out to my clients by mail as we head into the new year. Some of it only applies to New York state residents while others are federal tax related. This post will be in bullet form:

* New York state’s corporate minimum fixed dollar amount is based on gross receipts. If you need to file an extension it should be filed by the beginning of March to allow time for processing by the state.

* Hopefully you had insurance coverage in 2015. If not, there’s a penalty of $325 if you’re single and as much as $2,000 or more if you’re married with dependent children. Hopefully you’ll receive Form 1095-B which proves you were covered for the year. You’ll only get this form if your company isn’t covering your insurance and you have to report it on your own. We want to clarify that you won’t be paying these amounts; they count as income, and will be taxed along with whatever you earned for the year.

* The Capital Gains tax rate is 20% for taxpayers in the 39.6% tax bracket, 15% for everyone else.

* The 179 Depreciation Deduction (a business deduction for capital equipment and software) has been reduced to $25,000 as of now; this could change before the end of the year.

* The business mileage rate for 2015 is 57.5 cents per mile. Medical and moving is 23 cents and charity is 14 cents.

* If you have kids in college, the American Opportunity Credit is still available up to $2,500. Of that amount, 40% might be refundable up to $1,000. This credit is set to expire in 2017. The Student Loan interest deduction is still limited to $2,500 per year.

* The maximum Earned Income Credit for 3 children is $6,242 and $5,548 for 2 children.

* The following credits or deductions have expired:
– Educator Credit $250
– Sales tax deduction on Schedule A Itemized instead of state & local income tax
– Above the line tuition deduction and related expenses
– Mortgage Insurance Premium Interest (MIP)

As we always reiterate, we hope you’ve kept all of your receipts for the year so we can determine just how much you get to deduct to reduce your tax liability.
 

Tax Preparation

Three Things To Know About State And Federal Tax Arrangements

A couple of years ago we wrote a post recommending that, if you owe money to either the IRS or the state, that you call them and make payment arrangements with them. They’re pretty easy to work with in setting up the arrangements, and you can also do this online. However, there are some caveats you should know before you start the process.

The first is that you don’t want to wait until the last minute to try to reach them on the phone. That’s because you’re not going to be the only person trying to reach them, which means you will either have a very long wait or, believe it or not, you won’t even get through.

If the IRS determines your wait time might be longer than an hour, they’ll actually tell you to call them later and hang up on you; how rude! If you keep trying to call them within that time period you can bet you’re going to keep being rejected. You could end up calling for many days before you get through.

Truthfully, the best time to call them is the middle of the afternoon, after 3PM; at least you’ll probably get on the waiting list, which will still be long. Most people are trying to get the IRS on the phone first thing in the morning, thinking they’ll be able to beat everyone else to the punch; you can imagine the numbers of people clogging up the lines.

So far, we haven’t heard of anyone calling the state and having them hang up on you, but you could easily be waiting a long time to talk to someone.

The second thing to know is that you have to set an amount to pay off your claim in a certain amount of time. It’s based on how much you owe and who you owe.

The IRS will work with you if you owe a very high amount. They’ll often let you set a rate where you’ll have your balance paid off within 20 years if it’s high. Otherwise, they’d like you to have it paid off within 5 years.

The states are a different animal. Depending on which state you’re in, they’ll want the balance paid off any time between two and four years, which means you’ll have to find a way to fit your requested monthly payment into that slot. Luckily, state taxes are rarely all that high for most people and businesses, so it’s a lot easier on you to address them.

The third thing to know is that if you have a payment arrangement in one year and you end up owing the second year and can’t pay, you can have your agreement altered to include both years. However, you only get to to this once; if you have a third year they’ll consider you in default and you’ll have bigger problems to deal with.

If you’re the state, the rules differ. Since we’re based in New York we’ll talk about our rule. If you need a second year, the first thing the state does is reports to the credit bureaus that you’re in default for the first year. Then they’ll allow you to add the new amount to your previous balance. However, the deed is done because that’s a bad thing to have on your credit record until it’s paid off.

You’ll have a hard time getting any credit during the period you have an open balance with them. Once it’s paid off, when you get the letter saying it’s been taken care of you can send that to each credit reporting agency and ask them to remove it; however, there’s no guarantee that they will, though most people report that they usually do.

As we recommended two years ago, it’s always better to be proactive in these instances. These agencies are willing to work with you; it’s their job.
 

Tax Preparation

Why You Should File Your Corporate Taxes

This is a true story of someone we know regarding corporate taxes and why it’s important to file them.

This particular person has some interesting breaks that most people don’t get. He’s retired from the military so he gets tax breaks. He’s also retired from a state job so he gets a few other breaks. He gets his military pension and is only a couple of years away from adding his pension from the state, as well as going on Medicare.

He’s also in business for himself, a S-corp instead of a C-corp, a photographer as well as doing a few other things to make money. He’s not rich by any means, but being incorporated and former military, he qualifies for a lot of tax breaks.

The problem? Because he knew that if he filed his taxes he would qualify for a refund, he didn’t file on time, figuring that any penalty would be taken out of his refund. He was good with that. He was so good with it that he went more than 2 years without filing. He told his accountant to file an extension for him, figuring that would alert the IRS and the state that he wasn’t ignoring them. Yet, he never made a payment and didn’t pull his papers together for his accountant for more than two years.

When he was finally ready and had everything together, his accountant wasn’t ready. It was after tax season, but accountants do more than taxes. So he had to wait another month before his accountant could look at his paperwork.

What happened? My was partially correct. Because of all his tax breaks he basically “pushed”. In other words, he didn’t get a refund because of the lateness but he didn’t owe much either; around $25. That sounds like a pretty lucky deal doesn’t it?

It wasn’t. Turns out there are penalties for not filing one’s corporate taxes. After 60 days, there’s an automatic $100, and it’s added monthly. On top of that are penalties and fees that can eventually reach 47.5% interest, especially if personal taxes weren’t filed either; unfortunately, these things usually go hand in hand.

This guy went from the possibility of a refund to owing the IRS more than $5,000, and the state more than $2,200. His accountant filed the taxes finally, but he wasn’t in a position to pay even a small portion, let alone the full amount.

Luckily, both the state and the IRS allows you to get on a payment plan, which he’s going to do. He’s also planning on making sure to file his taxes next year to take advantage of his tax status, but unless he’s fully paid up he’ll end up with the state and federal government keeping whatever he might have gotten back.

It’s a double edged sword when it comes to paying one’s taxes, even if you know you’re getting a refund. We can’t stress enough how important it is to at least file your taxes on time so you can avoid penalties, whether you owe or not. The penalties are never worth it, as this gentleman realized.
 

Tax Preparation

Four Ways To Help You Stay Organized With Your Business Expenses

Those of us in business know it can be a challenge to keep tabs on everything we need to so we can increase our expenses to go against our income for taxes. It definitely takes a conscious effort just to do it. Yet, it doesn’t have to be the struggle it seems to be with a few tips behind you.

tracking business expenses

One, purchase a small file pocket of some kind to toss your receipts in. You can decide if you want to carry it around with you in your car or not. In any case, having a place to throw them in and knowing that’s what it’s for is a lot easier to deal with than throwing them in a box where you might throw lots of other things.
Continue reading Four Ways To Help You Stay Organized With Your Business Expenses →

Tax Preparation

Are You Someone Who Doesn’t File Your Taxes On Time?

This is an interesting phenomenon we come upon every once in a while. It seems that there are a high number of people who don’t file their taxes on time. Not only that, but they might go 2 or 3 years before filing them.

While this seems odd to us, it turns out that there are two schools of thought on this.

The first is that some folks pay extra on their taxes from their paychecks. They know they’re going to get a refund back but, for some reason, decide they don’t need it immediately. So they “let it ride” and don’t worry about it.

The second are those folks who work for themselves. Some of them pay quarterly taxes, some don’t. Some of them send the letter for an extension while some don’t bother. Those folks just don’t care; it’s not that they’ll never pay their taxes, but for whatever reason they’re not in the mood to deal with it at the time taxes are due. It doesn’t matter whether they’re getting a refund or not; they have other things they feel are more important.

One of the strange things that happens is that many of those people don’t get a notification from the IRS or the state asking them where their statement is. This is probably for two reasons.

First, unless there are indications that they’ve been receiving payment for services, the IRS might not even think about sending them anything. This can happen if someone is self employed and gets paid mainly cash. It also helps if no one paying them files a 1099.

Second, if taxes have been paid, it’s possible that either state or federal taxing agencies, both of which have been reducing staff over the past few years, deal with what they already have on their plate without trying to add more work to it.

In either case, there are a few things each type needs to consider.

There will be penalties, whether you’re owed money or not. Sure, the interest rates are fairly low, so either way the penalties might not amount to much. But they might; it’s worth considering.

Second, if you owe money, not only could it be seen as tax evasion but it might trigger an audit on past years. Of course if you haven’t filed anything for all those years it might make it a bit more difficult for them, but they may have enough bodies to get into it. Also, they can go back 7 to 10 years if need be; why go through all that grief?

Whether you’re getting a refund or might owe the government something, this isn’t a good practice to continue doing. You never know what could happen and, as some people like to say, “the government doesn’t play”. Even if you owe and can’t pay, it’s better to file and wait for them to contact you. That could be a while on its own, but at least you won’t look like you’ve been dodging them.