Category Archives: Tax Preparation

Tax Preparation

Anxiety At Tax Time

I don’t know many people who don’t get some kind of anxiety at tax time. Whether you think you have money coming back to you or whether you think (or know), you’re going to owe money, it’s a tough time of the year when you know it’s filing time.

Did you know it’s estimated that around 8 million people a year don’t file their taxes, either on time or at all? That’s a fantastic figure, and it’s estimated to cost the government $83 billion a year. Think about it; this includes people who are getting money back.

Why don’t people do their taxes? The figure isn’t all that high for those who don’t believe in the tax system, the ones who believe the government doesn’t have the right to tax them.

The top two things are people just forget about it and people are scared because they feel they’re going to owe and won’t have the money to pay for it. Since both of these are common but only one of them is something we can help you with, we’re going to talk about the second issue.

Here’s a dose of reality for you; it’s always better to know. Even if you think you owe, you need to know what it is because that’s the only way you can possibly do something about it. As we wrote 2 years ago, the IRS will work with you to help you pay back your taxes. Depending on how much you owe, you could end up paying them as little as $25 a month if that’s all you can afford. It always depends on your circumstances, but they’re willing to work with you.

Going to an accountant for tax help might be better than going to a tax service. One of our client’s wives was told that she owed almost $4,500 in taxes because she’d worked a part time job that didn’t take much in taxes out. By coming to us, we were able to combine her and her husband’s taxes (they’d filed separately because he worked independently) they were able to bring the combined liability down to under $500.

It’s not that accountants are doing sneaky things to keep their clients from paying their taxes. It’s that they know some things even tax preparers might not know. Often tax preparers are temporary workers who go through a class, pass a test and man a table during tax season. It’s hard to compare that to someone who’s literally doing tax work all year long.

Don’t sit home scared of finding out if you’re going to owe something to the IRS or not. Go see a professional and take a major step forward in controlling your life.
 

Tax Preparation

Why I Needed An Accountant – A Client Story

My name is Mitch Mitchell, and I’m an independent consultant.

Many years ago, I was used to doing my own taxes. My income wasn’t anything special at the time, so it was pretty easy to do. However, even though it was easy, my wife and I were getting creamed on taxes. Still, we were able to pay them, so we continued going along like normal.

Then I had a really good year. Once again, I did my own taxes, and thought I’d taken care of everything. That is, until I got a letter from the IRS saying I owed them just over $25,000. I couldn’t believe it, based on how much I’d paid out, and I was in shock.

I knew that times had changed, and I really needed a professional. Terri and I were part of a training class and I’d gotten to know her very well. I was comfortable with her so I presented my issue to her and asked if she as an accountant could help. She said absolutely, and that began our association.

I ended up stringing two very good years together, but I hadn’t hired her soon enough to prevent my owing a lot more to the IRS after the second year. Per her recommendation, she said I need to be incorporated, which would allow me certain tax breaks. She also counseled me on how to maintain my receipts for expenses, and told me other things I could claim, since I was traveling a lot at the time.

She also recommended a financial analyst to help me put some money away. That worked very well also.

By being incorporated my tax liability issues went away. As a matter of fact, my expenses turned out to be so high that I for a few years I didn’t owe any taxes whatsoever; that was nice. What was even sweeter is that two years ago my wife also went independent, and last year we got our first tax refund ever! Without having an accountant, I doubt we’d be having the kind of success we’ve had.

If you’re in business on your own and you’ve been doing your own taxes, stop! At the very least meet with an accountant and let them see if they can do more to help you protect your income and your assets while lowering your tax liability. It’s much better than taking a once a year trip to the mall and allowing a tax company to do your taxes. Trust me, I did that once and my wife and I weren’t close to getting a refund.

Tax Preparation

Business Tax Information You Need For 2014

As we come to the close of another year, we’d like to highlight a few things you might need to know as we head into 2015. A quick disclaimer up front is that some of this information is geared towards New York state residents.

* New York state’s Corporate Minimum Fixed Dollar amount is based on gross receipts. Extensions should be filed by the beginning of March. A few things to know regarding this are:

  • Fixed dollar minimum tax for general business taxpayers under $100,000 is $25;
  • More than $100,000 but not over $250,000 is $75;
  • More than $250,000 but not over $500,000 is $175

* The penalty for those who don’t have health care coverage will be paid out in 2015. The minimum penalty amount is $95 for singles, upwards of $1,000 for married couples with dependent children. It’s all based on your tax return. You need to know that this counts as income, not what you’ll actually have to pay so don’t panic. Still, it’s something to look at for 2015 because the rates will be much higher come 2016. Also, if you paid for health care insurance through the program this year, didn’t get any upfront adjustments and didn’t have any of it paid by an employer, you’re probably going to get a nice deduction, as well as be qualified to write off other health care expenses.

* Business mileage for 2014 is 56 cents a mile. The minimum allowable payment for meal expenses is $46.

* If you have kids in college, you can still get the American Opportunity Credit up to $2,500, which can be used for the normal 4 years it takes to get a bachelor’s degree. Out of that, 40% of it may be refundable. The student loan interest deductible is still $2,500 a year.

* The maximum Earned Income Credit for 3 children is $6,143 and $5,460 for 2 children.

There are many other changes this year, which includes many deductions taken away. As always, we recommend seeing an accountant to try to get the maximum benefit possible.
 

Tax Preparation

Writing Medical Bills Off Next Year’s Taxes

It’s never too early to start looking at expenses that can be written off taxes, and this time around we’re going to look at medical expenses.

One reason medical expenses might be a bit different this year is because of implementation of the Affordable Care Act. While there has been no official notification of changes to last year’s policy, it’s possible that more people will have the ability to write off something this year.

The policy last year was that in order to write off anything on taxes regarding medical expenses you had to have paid at least 10% of your income. This meant that if you earned $50,000 for the year you had to have spent at least $5,000 to get any benefit.

This year, since more people have purchased insurance via government exchanges, more people are probably going to get close to that threshold, if not surpass it, especially if they didn’t qualify or accept any government adjustments. Since most plans across the country started around $425, this means many people will have paid at least $5,100 in premiums alone. Add to that anything paid out of pocket towards medical bills and there could be significant adjustments allowed this year.

That’s if last year’s 10% holds, and right now it seems to still be out there, although it’s possible there could be an adjustment. It’s doubtful the adjustment would go up, so if the percentage amount goes down even more people would qualify for a tax benefit.

Also, if you’re self employed you get to write off health premiums as a business expense, which is a greater benefit even if you paid it out of your personal bank account.

By the way, medical expenses cover a few things you might not have thought of such as long term care insurance premiums, hearing aids, glasses, contact lenses and solutions, costs for prescription drugs and even band-aids. This means you should keep receipts for almost everything you spend, including dental bills. If you want more information on the types of things you might be able to write off, click here.
 

Tax Preparation

The Thing About Estimated Tax Payments Is…

Anyone who has their own business or works independently knows that there’s this thing known as estimated tax payments. They know that they have to make these payments by certain dates 4 times a year.

What no one really knows is why.

If you take a good look at the IRS page on estimated tax payments, you’ll see that they tell you to make these payments by the assigned dates (without telling you what those dates are on that page), and that, if you either don’t make payments by those dates, or don’t pay enough on those dates, that you could incur a penalty.

Does that sound ominous or scary? I wouldn’t ever go that far but it does sound like government lawyer speak, which in essence is nonsense.

In essence, there are a couple of reasons why the federal government wants you to make estimated tax payments.

The first is because if you were working for a large corporation someone else would be taking money out from you and making those payments. So, because you’re self employed and there’s no one else doing it for you, they want you to do it; kind of a self reporting.

The second is more selfish. They want your money so they can earn interest off it instead of letting you do it, if you were predisposed to do so. This makes more sense because our government always seems to be in a deficit, so it needs to find other ways to generate income. Also, they know that not many employees know that they can actually add more than just the number of dependents in their family and, in essence, pretty much hold onto all of their money until tax time. This means individuals and families can do what the government does; it’s just riskier doing things that way.

The truth is that it makes sense to make some kind of payments, but how much? This one I can’t answer for you because it depends on a number of factors. One is your income. Another is your expenses. The last is how your income is generated.

Income itself is easy enough. You might know that you’re going to make a specific amount based on the previous year, thus it’s easy to estimate how much you might want to pay each quarter.

Expenses is a wild card because often smaller business generate income but because of expenses run their business officially at a loss. In these instances the business might not have to make any tax payments at all or minimal, and you end up getting money back or having your accountant tell you that you’re good. However, it’s dicey because even in a normal year you might have to buy some expensive equipment that helps your bottom line, or maybe you have lots of travel expenses this year as opposed to the previous year, even though your income is the same.

How your income is generated is another tough one to deal with. If your income is project based, it’s possible that maybe you get two large contracts a year that last only a couple of months each time. This means you might want to make two large payments a year instead of something every quarter, or maybe you figure out what your normal yearly income is and spread out the payments. But what if you get one less contract or fit one more in? The fewer contracts might mean you paid too much, the more contracts might mean you didn’t pay enough, in which case the IRS tells you to figure out your income again and make adjustments.

What are the penalties? Who knows? Truthfully, unless you’re making six figures on a consistent basis there probably won’t be any penalties at all. Also, if your business often runs at a loss you probably won’t have anything to worry about either. In either case, it pays to have an accountant looking at your income on a regular basis and following their advice. They’re not going to steer you wrong because it would make them look bad, and their advice could keep you penalty free or even put money back in your pocket.

Those aren’t bad choices.