Tag Archives: filing taxes

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

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.

Tax Preparation

Preparing For Tax Season

True, it’s still 2012, but that doesn’t mean that you need to wait until the last minute to prepare for your 2013 tax returns. Before we get into that, we’d like to remind you of our previous posts Trip Expenses You Can Deduct and Are You Preparing For Next Years Taxes Yet.

Here are some highlights we’d like to remind everyone about:

Child Tax Credit is $1,000 per child now, but decreases to $500 in 2013.

Earned Income Credit up to 3 children has a maximum credit of $5,891. This year there’s certain proof you have to provide to qualify for the credit which includes school records, medical records, utility bills, and property tax records. Check out the new form to see what’s specifically required of you.

Business mileage for 2012 is 55.5 cents a mile, and in 2013 it goes up to 56.5.

There’s no increase in capital gains taxes for 2012, but in 2013 it increases to 20%.

Student loan interest gives a deduction up to $2,500.

The electronic filing date has been pushed back until January 22nd in 2013; no real idea why, but last year some people waited longer than normal for their refunds so maybe it’s related to that.

If you had a lot of medical expenses and kept all your receipts, make sure to bring them in to see if you might qualify for some write-offs.

More changes for 2013? No one knows yet. You’ve probably heard “fiscal cliff” until you’re sick of it but no one knows what’s coming just yet. We know that someone will have increased taxes but unsure of who. We also know that more changes will come to health care in 2013, though the bill officially doesn’t kick in until 2014, and we’re unsure what that might mean financially right now either.

Overall, just be prepared for anything, and of course don’t wait until the last minute to get your information to your accountant or tax professional, as corporate taxes this year are due on March 15th.