Tag Archives: taxes

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.
 

Accounting

Operating At A Loss Even When You’re Making Money

Whether you’re a small or large business, sometimes your business runs at a loss. Many times that’s the sign of growing pains and potential long term problems with a business, and it pays to have an accountant helping you figure things out.

However, there are times when your business might actually be making pretty good money and you might think your business isn’t running at a loss and yet it really is. Those are the times when it’s even more important to have an accountant helping you along the way because it could end up saving you lots of money when it comes to taxes, including not owing anything at all, and only your accountant will understand all the nuances.

For instance, if your business runs at a loss in one year the IRS allows a carryover into the next year. If you run your business at a loss multiple years in a row, you get to apply it to future years as long as your revenue and income doesn’t overly supersede your expenses.

You may also incur a lot of expenses in your business even if you’re making pretty good money. If you’re some kind of corporation and the expenses are high enough you might find yourself officially running at a loss, even if things are looking up. If you’re traveling and paying your own expenses you can pretty much write everything off, even if you might not get 100% credit for it, such as for meals.

It’s a very complicated business trying to figure it all out and there’s no reason to try to take it upon yourself. That’s what accountants live for, helping other businesses find ways of protecting their businesses and themselves. The little bit of money you’ll pay your accountants could save you thousands on the back end.
 

Tax Preparation

Don’t Wait Until The Last Minute To Do Your Taxes

We’re in the final countdown to another tax season and, if you’re like half the population, you probably haven’t even started putting anything together to give to your accountant, or if you don’t have an accountant are worried that you might owe money so you’re putting off the bad news until the last minute.

We’re a “wait until the last minute” society and that means we’re either not disciplined or are usually expecting the worst. People who expect good things always get to them as soon as possible so they can get on with having fun, or at least being comfortable.

When it comes to taxes, you might as well face the fact that you still have to report them by April 15th (although in some states it gets delayed a day and of course one can always file for an extension, even though by rights you’re still supposed to pay something if you think you might owe). It’s in this regard that we list some things you should think about that may or may not encourage you to get to your taxes earlier.

1. You might be getting a refund. We’ve never been able to figure out why people who know they’re getting money back won’t get their taxes in sooner. If you’re a millionaire we might understand but for the rest of us, which is close to 95%…

2. You might owe something. This is what people fear but the truth is that the IRS is probably one of the few agencies in the country where they’ll work with you on paying down outstanding debt, and the interest rates aren’t really all that high. Still, it’s possible that if you do your taxes earlier and you see there’s an amount you owe that you can save up and either pay the entire thing off on the 15th or pay something toward your balance; the IRS likes that.

3. If you’re not planning on doing your own taxes the availability of someone to do them gets severely tested. In January many accountants or tax preparation companies have people just sitting around waiting for you. As it gets close to the magic date you’ll often see lines and, in some cases, you’ll have to make an appointment to see some of these folks. Talk about anxiety levels!

4. If you’re doing your own and you’ve just bought the software you could find yourself getting confused. If you have any questions at all and need to reach out to someone you’re probably going to get put on hold and have to wait while they deal with all those other people who waited until the last minute to use the software to do their taxes.

As we like to say around here, it’s always better to know than not know. If you haven’t addressed it yet… well, what are you waiting for! 🙂
 

Tax Preparation

Working With The IRS On Tax Liabilities

Do you owe the IRS tax money? Is it kind of high? Are you scared and worried because you’re unsure how you’re going to pay them because you already have so many other bills?

You’re not alone, but here’s a reality. Most of us think of the IRS as this almighty bully looking to take us down. Like most governmental agencies though, they’re not really like that. As a matter of fact, the majority of people you talk to at the IRS are willing to work with you, no matter what your situation is, to help you pay your bills. That is, if you’ve at least filed your tax return, whether you actually paid them or not.

Of course your first step is to make sure everything’s correct. You should either run your taxes through an accountant, a tax service, or a tax attorney. On that last one, only go to an attorney if you think you’re going to owe $10,000 or more; otherwise it’s not really worth it.

You’ve probably received a letter in the mail from the IRS, registered or not, to get the process started. Your first step is to pick up the phone and call them. Have your courage ready; not that you necessarily need it but what happens sometimes is you could be on hold for longer than 30 minutes. Many people will find a way to talk themselves out of staying on the line and waiting for someone; that’s fear talking and you have to shut it out. If you call again, the process starts all over.

Once you get someone on the phone you’ll have to confirm the amount you owe. If you believe your balance should be different they will put a hold on your account of 14 to 30 days and do a full review. If you have any extra information for them they’ll ask you to send it to them.

If you know you actually owe the amount requested they’ll ask you if you want to set up a payment arrangement with them. If you have circumstances that make it hard for you to make big payments they’ll work with you on smaller payments.

The caveat here is twofold.

One, they’ll tell you that you have to make sure you pay all the taxes for the previous year so that you don’t have the same thing happen the next year. You might find that hard to do but try to keep up. They will work with you again, but they won’t tell you that initially. As long as your overall outstanding balance stays below $25,000, you’ll probably be okay as long as you prove you’re trying.

Two, you’ll continue building up interests and penalties. Both are actually much lower than any credit cards you’d ever have, but it’ll make them set up a payment so that you’re actually paying down the balance instead of allowing it to increase. Still, don’t make an agreement for an amount that you know you can’t pay; that’ll look bad on your record if you miss a later payment.

As with most things, the fear goes away when you make that first call. People do have jobs to do but most of them understand that people have financial struggles. It’s always better to face these types of things upfront.