Even though electronic tax filing season will begin January 20th this year, January 31 is the deadline for many of your “Important Tax Information” reports to be mailed to you. You may even have received some of them early. They truly are important for you, but they are a goldmine for identity thieves. That being said….get them out of your mailbox and into a safer place right away.
The reason we are getting them in the first place is that they are also important to the IRS. The IRS gets copies of these forms too. If you happen to forget to include income on your return, don’t worry, the IRS will certainly be contacting you.
A W-2 is the key form for employees. You need to report the wages you earned from each employer you worked for during the year. This form also reports the income taxes withheld from your earnings and other important information.
A 1099-MISC is the key form for independent contractors or business owners. Much like the W-2 for employees, this is the form that businesses report total yearly payments of $600 or more to workers who are not considered employees. If you think you are an employee and get a 1099-Misc instead of a W-2, I’d like to consult with you. If your business has taken the steps to become a corporation or partnership, you may receive a W-2 or a K-1.
Form K-1 is used by various entities to report earnings and other tax return related information. S-Corporations, Partnerships, Trusts and Estates use this form to “pass through” income and expenses to owners, partners and heirs. Your tax return cannot be completed until this K-1 is reviewed. If the business has filed an extension of time to file the business return, you may not get this form until close to, or even after, the April filing deadline for individual returns. If this is the case for you, you will need to file an extension for your individual tax return.
A W-2G is used to report Gambling Winnings. There are different reporting requirements depending on the type of game you won. Just because you were the WINNER does not mean you are ahead “of the game” and had a profit. It means you had a WIN. To avoid an IRS inquiry, report ALL gambling winnings, whether or not you received a W2G. Be sure to keep a log of your Gambling Activity. See my blog on Gambling Winnings and Losses for more information.
1099-G is issued by states when you receive a tax refund of state or local taxes. This refund may or may not be fully taxable to you. Consult with your tax advisor. A separate form of this same number will also report unemployment benefits paid to you. Unemployment benefits received are income taxable and must be reported on your tax return.
Next week we’ll cover more of the 1099 series of forms you need to watch for. We will also cover the newest of forms, the 1095A which has to do with the Affordable Care Act (Obamacare) and your MarketPlace Premium Discount.
The US Tax Code states all income is reportable except that which is specifically exempt from tax. Protect yourself from IRS audit by reporting all of your income.
If you are an employer, you are expected to deposit the taxes you withhold from your employees on a timely basis. If you owe less than $2,500 total for the quarter, you may make this payment with your Form 941 report. This report includes both Federal Income Taxes withheld AND the combination of social security and medicare taxes withheld (known as FICA) from the employees’ paychecks PLUS the employer’s matching FICA amount. If you owe less than $2,500, you could be a business with a small number of employees.
If you are a business that will owe more than $2,500 for the three months in the quarter, you must pay your “trust fund” taxes on a monthly basis. The taxes you withhold from your employees are called “trust fund” taxes because your employees are trusting you to pay the taxes withheld from their checks to the Internal Revenue service for their individual tax benefit.
If you do NOT withhold the proper amount of social security or medicare taxes from your employees’ checks, you could be responsible to pay what should have been withheld. If you do not pay what you are responsible for paying, you could (you probably will) be charged with penalties. Those penalties can be substantial and they can be BIG.
Do not run your business on your employee’s monies. That decision can put you out of business. If you are trusting one of your employees to make these deposits, make sure they are being made. Trusting an employee who is not trustworthy can also put you out of business.
If an employee seems so dedicated to their job that they do not take any time off this could be a warning sign to you. The employee who refuses vacation and sick leave could feel they must be there every minute of every day to make sure their deception, their theft from you, remains undetected.
Yes, we must trust our employees, but we must also be vigilant in conducting our businesses. The newspapers are full of stories of big-hearted people who are taken advantage of by people with self-centered ulterior motives.
Are YOU are the one to sign the reports, to sign the checks, to decide who gets paid this month and who must wait if there is not enough money to pay all of the bills? Do not decide to make the IRS wait for these taxes. The IRS could decide to give you (the decision maker) more time, jail time that is. That can put you out of business, too.
It is not always easy being the business owner. You are the one that can put “The Buck Stops Here” sign on your desk. I wish you only the best in your business. I wish you only the best when it comes to your tax situation. If you need help, consult your tax professional.
I’m not talking vinyl music platters…I’m talking receipts. I’m talking about saving your business butt. I’m talking about saving your personal assets.
I was shocked when training with the Internal Revenue Service to find out that you (and me, too), the taxpayer, are considered GUILTY until you PROVE YOURSELF innocent. That was so against what I had grown up with in this great country of America, the land of Superman and Perry Mason.
Do you have what it takes to prove yourself innocent? How do you do that? Well, it’s very simple. It can also be considered boring drudgery, but it is your best defense. It’s called record keeping.
Did you know that thermal paper receipts will fade over time. It is guaranteed! That printed strip of paper showing the date, the place of purchase, the item purchased and the amount you paid is so clear when you first get it. But when you look at it later it has begun to fade. And if you need it to show the IRS one or two years later, it could be completely blank.
So how do you protect yourself with this paper that you need so badly? Put it in a copy machine and make a photocopy. Or scan it into your computer. If you have a paper copy, you will want a file folder or envelope or box to organize your papers. If you use a scanner, you will want to set up a folder on your computer so you know how to go back and find what you need later.
Is this necessary for everyone? Yes. If you own a business or are self-employed you have a business tax return to file. And every person who owns a business must also file a personal tax return.
It is important to keep your business records separate from your personal records. It is important to keep the records for one year separate from the records for another year.
Did you know that the biggest gangster in Chicago during the Roaring Twenties, the 1920s, did not go to jail for moonshining, or drug running, or gambling or prostitution? Elliott Ness of Untouchables fame, was really an IRS Agent. This famous gangster, Al Capone. went to jail for tax evasion. He did not keep track of his income and expenses. Or did he? He just didn’t put all of the right numbers on his tax return.
Years ago, on the 10pm TV news they used to say, “It’s 10 o’clock. Do you know where your children are?” And today I submit to you, It’s the last quarter of this year. Do you know what your numbers are? Do you know where that receipt is?
I’ll be asking my clients for all their numbers come tax season. Get a jump on it. Catch up on what you could have done earlier this year. I’ll be asking you for your true numbers and I want you to be ready. They are your best audit defense.
It is election time again and everybody has their hand out. They want your money. They want your contribution. That is natural.
We just had our primary elections to determine who will be on the ballot in November. Candidates often spend a TON of money and there is not even a guarantee of winning. (Or there shouldn’t be.) Everyone is asking for money, but you need to know this: contributions to political candidates and political campaigns are NOT deductible. Those $1000 a plate dinners are NOT deductible.
Just what is a contribution? It is a donation or a gift made voluntarily with no expectation of receiving anything in return. It is a donation or gift to a qualifying organization or to be used by a qualifying organization. You must itemize your deductions on Schedule A of the Form 1040 Individual Income Tax Return in order to claim these deductions, but don’t let the requirement to itemize keep you from giving where you feel moved to give.
We are a nation of givers…some are more generous than others. The INTERNAL REVENUE SERVICE knows that some of you also tell tall tales when it comes to your deductions for charitable contributions. A few bad apples have spoiled it for everyone; in other words, you need to be sure to document your deductions. Safeguard yourself with good record keeping. That might sound boring now, but how glad will you be when your return is audited and you have EVERYTHING you need to keep you from owing more tax.
Not every contribution is deductible. But don’t let that stop you from giving to someone in need. If you want to keep it just between you and God, and don’t have the receipts to support your deduction, then keep this donation from the Internal Revenue Service, too, and leave it off your return.
How do you know if yours is a qualifying organization? The IRS has a list of most of them in their Publication 78 found at www.irs.gov. You can search by the organization name, city and state. It is easiest to search if you know the EIN or Entity Identification Number of the organization. If they have a number, they were qualified once. If they are still on the IRS list, and you have your proof of giving, then you can safely claim that deduction.
Don’t let the tax laws rule your life. Just let the tax laws rule your tax return. Don’t let the tax laws keep you from giving where you want to give. Just know when it can go on your income tax return and when it cannot.
The IRS’ Dirty Dozen has nothing to do with eggs or outlaw motorcycle gangs! The IRS’ Dirty Dozen has everything to do with tax scams. Taxpayers who get involved in illegal tax scams can lose their money. They can face stiff penalties, interest and even criminal prosecution. We’ve all heard, “If it sounds too good to be true, it probably is.” This time the Internal Revenue Service really is your friend. They want you to be safe and informed.
A couple of weeks ago I wrote about fraudulent phone calls. Phony phone calls are just one of the rotten eggs the Internal Revenue Service wants to warn you about. Telephone scams are number two on this list.
Identity Theft tops the list. An identity thief uses YOUR identity to illegally file a tax return and claim a refund. If you or someone you know has fallen victim to identity theft, contact me for further help.
Phishing is a term used to describe unsolicited emails or fake websites that appear to be legitimate. Scammers will try to lure you, trick you, into providing them with your personal and financial information. Know that the IRS does not begin contact with you in this way. They will send you a letter by US Mail. Then YOU get to respond. Once you contact them, they may telephone you back because YOU will have given them your contact information.
False promises of “free money” or inflated refunds is another common tax-season scam. Scam artists often pose as tax preparers during tax time. They lure their victims in by promising large refunds. Taxpayers who buy into this kind of scheme often end up paying back the refund PLUS interest PLUS penalties. Take care when you choose someone to prepare your return. Ask them questions to help you feel comfortable helping you with this important matter.
The IRS has said that about 60 percent of taxpayers use professionals to prepare their tax returns. Most return preparers, like myself, provide honest service to their clients. But there are rotten eggs in the tax business. Dishonest preparers take advantage of unsuspecting taxpayers. The result can be refund fraud or identity theft.
Be sure you only use a tax prepare that will sign your return. They must also enter their Prepare Tax Identification Number, or PTIN. If you pay them, they must sign as the paid preparer. If not, they are as dirty as a motorcycle outlaw.
Other tax scams involve hiding income offshore, out of the country. Claiming false income, expenses or exemptions is committing tax fraud. How much money is enough to go to jail?
Other tax protesting citizens claim zero wages. They take frivolous arguments in defense of a losing positon on their tax return. Sometimes they set up abusive trusts to hide their income.
Of course, it is impossible to predict what the next and newest tax scam will be. Your best defense is to remain vigilant. You sign your tax returns under the penalty of perjury. What is your freedom worth to you? Mine is priceless.
How else can I nicely say this is not good?
I am always trusting my technology. I have a technology guru that I rely on. He is my go-to guy. Right now my computer is sick. That is the nicest way to say I think I have a virus. The good news is that it can be fixed. I have Patrick and Tara to help me.
What happens when your tax return has a virus? We don’t usually think of tax troubles this way. But this is just one way to understand something is wrong and needs to be fixed.
Our friends at the Internal Revenue Service work all year long. Their hours are not 24/7 but it can seem like it to us. They have private parties every day. Have you gotten your personal invitation? I hope not.
That personal invitation is a welcome letter to a tax audit. I have talked about tax audits before and I’ll talk about them again. I want to help you avoid that audit.
Today I’m talking about AMENDED TAX RETURNS. If you find you have made an error on your original return, you can head that invite off at the pass. You can stop it in its tracks before it ever gets started.
If you find you have omitted income, you certainly want to “fess up” and correct your tax return. You will owe more tax, but you can minimize interest and penalties. The IRS is required by law to assess interest. They have some discretion on whether or not they assess some penalties.
If you have omitted income and wait for the IRS to notice your forgetfulness, you will pay more. More time will have elapsed from the date of your original filing and the date the IRS gets around to your perhaps negligent return. How much money did you leave off? How much “too much” deduction did you take? Either way you did not pay in enough tax and IRS wants all of their share.
Did you forget to claim a deduction that was allowable? Did you not realize your expense was deductible? if this is your situation, be sure to include copies of the receipt showing what you bought, when you bought it, and how much you paid.
Yes there is a time frame for submitting your amended return. A safe rule of thumb is within 3 years of the original due date or the date you filed your return, whichever is later.
For example, if your return was filed March 1st, the due date is April 15th. File your amendment before 3 more April 15ths go by. If your return was filed May 1st, the due date was April 15th, but you filed late. So you must submit your amended return before 3 more May 1sts go by. The IRS must have your amended tax return in their office before the amended due date (statute expiration date) arrives. Mail your returns so they are received BEFORE the statute expiration date.
Don’t forget your state return, if you live in a state that has an income tax. Most state’s tax returns begin with the information from your federal return. If you make changes to the Federal return, you will want to make changes to your state return, too.
Contact me if you need help.
What does this have to do with taxes? You’d be surprised.
Here in the United States, we have four time zones: Eastern, Central, Mountain and Pacific. Living in Arizona, we are one of the few places that does NOT observe Daylight Saving Time. Most cities and towns in Arizona stay on Mountain STANDARD time all year long.
In the Spring, the rest of the country “Springs Forward” advancing their clocks one hour. They change their clocks from 8am to 9am and experience more daylight in the evening hours. Since the clocks in most of Arizona remain unchanged, we effectively “fall back” an hour. We are neighbors to California and I say to others that during Daylight Saving Time (DST) we are now on Pacific Time.
Pacific time is three hours behind Eastern time which makes a difference when we are trying to contact businesses located east of us. When it is 8am in Phoenix, it is already 11am in New York and Washington, DC. When it is 8am in Phoenix, it is already 10am in Chicago and St Louis. And when it is 8am in Phoenix, it is already 9am in Denver and Las Vegas. Wait a minute, Phoenix and Denver are both in the Mountain Time Zone. But when it is DST, Denver is Mountain DAYLIGHT Time and Phoenix is Mountain STANDARD Time. And now when it is 8am in Phoenix, it is 8am in Los Angeles and San Diego.
The Internal Revenue Service has always been aware of the differences in our time zones. That is why their Customer Service offices are open past 5pm. But they are not open 24/7.
Now that they have developed a “modernized” electronic filing process, the IRS processes our e-filed tax returns continuously around the clock. But what happens on April 15th? A return filed after midnight will be considered LATE. But which midnight must I pay attention to? My midnight or IRS midnight?
March 15th is important for businesses returns. Corporation returns are due March 15th. Like an individual, if a corporation cannot file their return by the due date, they can request an extension of time to file. But this request must be filed by March 15th.
When it comes to these time sensitive and very important deadlines, I do not wait until the last possible minute. I want to file at least one day before. If I can’t be one day early, I want to get as much as I possibly can get done before 6pm on that deadline night.
Everyone else who waits until the last possible minute is risking a bottleneck of electronic paperwork. And it you are delayed by this bottleneck, your tax return or your request for more time could be delayed.
Uncle Sam doesn’t just want you. Uncle Sam wants your money. And when you owe money and you pay that money late, Uncle Sam wants even more money.
So watch that clock. Time is a-ticking and it waits for no man.
The Good, The Bad and The Ugly is a catchy phrase and makes reference to one of the most popular “spaghetti” western movies. This phrase seems to describe lots of situations we experience. In this case….Income Tax Season.
In January, I talked about the different tax forms you need to watch for. Most will come to your mailbox while others will be sent to you electronically. You may even be able to download them yourself from secure websites.
Some of my clients last year didn’t really understand why I couldn’t finish everything in progress by April 15th. Sometimes it is just not possible. There are only 24 hours in any one day. No one person can work well without sleep day after day..
The clock ticks away every minute. We simply run out of time. I tell everyone in my first letter of the tax season that I may file an extension for returns not completed by April 1st.
What does “extension” mean? Quite simply, it is a request for more time to file a tax return. An extension is not automatic. And it is not a request for more time to PAY your taxes.
It is important to know that if your taxes are not paid in full by the due date of your return, the extension will not be valid. In other words, if you owe tax on April 15th and do not pay that tax by April 15th, no request for more to time to file will be valid. In other words, your return will be considered late, or delinquent. Interest and penalties may apply to that balance paid after April 15th.
How can you change this undesirable position? Even if you have given your preparer everything necessary to file a proper return, you may still want to file an extension. The key is having your tax paid in full. You can send a payment in with your extension request. Realize this is a request, it is not automatic. An extension will only give you more time to submit your tax return.
Do you need to increase your paycheck withholding? Do you need to adjust the amount you pay with your quarterly estimated tax payments? Did you have something unusual happen during the year that caused you to owe more tax this year than in earlier years?
The bottom line is, if you know for certain you will not owe taxes on April 15th, you can request that extension for more time to submit your return without penalty. Be sure to mark your calendar so you remember your new extended due date. Any return filed after that date will be considered delinquent. And a late return with taxes due will cost you interest and penalties.
When our Congress shut down the government last fall, even the program developers at the Internal Revenue Service had a couple of weeks of involuntary vacation. I say vacation because they were ultimately paid for these layoff days. I thought these people would have been considered indispensible.
The Internal Revenue Service is the ONLY branch of the government that actually brings money IN. I thought, certainly, their tax return form designers and processing system programmers would be considered essential.
The Internal Revenue Service claimed that this interruption of work made it impossible for them to be able to accept any tax returns before January 31st. We used to start filing returns electronically the second Friday of January. The government has shaved three weeks off our already time-compressed income tax season and while the start date was extended, the due date was not.
Individual 1040 series tax returns are still due April 15th. Corporation returns are due March 15th. Partnership returns are due April 15th.
What if YOU need more time? That is why we have the ability to request an extension to file. These requests are never turned down. The IRS automatically says YES to your request for more time to file, but you MUST file the paper to let them know you are extending your tax return due date.
The extension only gives you more time to send in the paperwork. The extension does not give you more time to pay any tax that might be due with your tax return. So it is important that you estimate how much you expect your taxes will be. If you don’t have enough federal income tax withheld from your paycheck, you can make an Estimated Tax Payment. I’ll talk more about Estimated Tax Payments in my next blog.
Who signs your tax return? You sign your tax returns under penalty of perjury. You are swearing your return is correct. If you paid someone money to prepare your return, they must also sign your return. They are stating they have done everything they can to apply the tax laws properly. They are attesting they have prepared an accurate return. If you pay them and they don’t sign the return, then they are breaking the law and you need to find a reputable advisor. The IRS will want to put them out of business because you deserve someone on YOUR side. You certainly do not want someone working to put you on the INSIDE – inside the “tax jail”, that is.
Just because you pay someone to prepare your return, and just because they sign your return right under where you sign, YOU are still the one responsible for paying your correct tax. YOU are the one the IRS will call to collect the tax.
So take the time you need to collect your tax data. “Haste makes waste” and can cost you interest and penalties. Be sure to report all of your income. Take the deductions you are allowed to take. Don’t guess about your numbers. Be accurate. Double check your numbers. Review your return. File electronically.
Are you ready to file these required forms? The LAST thing any employer wants is to be delinquent in the employer’s tax filing requirements. What is required and when?
December 31st marked the end of the fourth quarter of the calendar year. Fourth quarter employers’ reports due by January 31st. You must give your employees their W2 forms by January 31st. You must also give any independent contractors their Forms 1099 Miscellaneous by January 31st. Caution: Do NOT make the costly mistake of treating an employee as an independent contractor! Attention Employees – the next blog is devoted to YOU!
In addition to the W2 forms given to the employee, you must also send a copy to Social Security Administration (SSA) with the transmittal Form W3. If you withheld state taxes for the benefit of your employee, you must send a W2 copy to your state (with your state’s W3 equivalent). Form W3 must be filed with SSA by the last day of February. I tell my employer clients there is no penalty for filing early. If you file the W3 at the same time as you issue the W2 forms, you are more likely to file it on time. There is no real benefit in waiting to file these forms.
Most employers file the quarterly report Form 941 to report the taxes withheld from the employees’ paychecks. The taxes withheld include the employees’ federal income taxes, Social Security taxes and Medicare taxes. PLUS the employer matches the Social Security and Medicare taxes. If you are self-employed you are considered both employer and employee and you pay the full 15.3 percent of earnings.
You may be a small employer that has been given permission from the IRS to file an annual Form 944 instead of the quarterly Form 941. Form 944 is due by January 31st for the preceding calendar year’s wages paid.
In addition to Form 941 (or Form 944), Forms W2/W3 and state equivalent forms, you must also file (and pay) by January 31st, your 4th Quarter state income tax withholding report, file (and pay) your 4th Quarter state unemployment tax report, and file (and pay) your annual federal unemployment tax report Form 940. Only the first $7000 of wages paid to a covered employee is generally all that is subject to Unemployment tax. Remember to take into account any deposits you made during the earlier quarters for federal unemployment taxes.
By January 31, 2014:
1. File Form 941 for the 4th quarter 2013 OR Form 944 for the whole year 2013
2. File your state’s 4th Quarter 2013 income tax withholding tax reports
3. File your state’s 4th Quarter 2013 unemployment tax report
4. File Form 940 for the whole year 2013 federal unemployment tax report
5. Give Forms W2 to your employees
6. Give Forms 1099 to your independent contractors
By February 28, 2014 :
1. Send Form W3 with Copy A of all Forms W2 to Social Security Administration
2. DO not mail the W3/W2 to IRS, it goes to SSA
3. Mail Form 1096 with IRS copy of Forms 1099 to the Internal Revenue Service.
4. 1096 is the form that goes to IRS
5. I’s OKAY to file these transmittal forms in January. You don’t have to wait till February 28th.