The Final Countdown

April 3, 2014

The final countdown to April 15th begins… Remember the story of Cinderella? This beautiful young lady wore glass slippers and rode to the ball in a horse drawn carriage. She met her Prince Charming, but what happened when the clock struck midnight? What will happen to you when the clock strikes midnight on April 15th? Were you one who filed your return early? Did you already have your refund directly deposited into your bank account? Are you scrambling to find your paperwork? Are you rushing to beat that tax clock? Did you know that haste really does make waste. Careless mistakes can cost you money. Will you be filing an extension? Did you know that an extension does NOT give you more time to pay? If you are going to owe tax on your return, file on time if you can. Pay later if you must. An extension is a request for more time to file the paperwork. It is automatically granted, but only if you request the extension. I will be requesting extensions for several of my clients along with filing an extension for myself. Some of my clients plan every year to file an extension. Then our new deadline to file our returns moves from April 15th to October 15th. Most states accept the federal extension, so you may need to tile a second extension for your state. If you will owe money, file on time and pay some of the money you owe on the taxes if you can. The Internal Revenue Service will send you a bill for what you owe and that bill will include interest on the taxes not paid by April 15th. The IRS is required by law to charge, or assess, interest. When you get your bill, pay as much as you can. If you didn’t pay in full, you will get another bill. The IRS will ask you if you want to set up a payment plan. There is an application, or processing, fee to set up this payment arrangement. You will have to supply financial information. You will be dealing with the IRS Collection Division. The IRS Collector is called a Revenue Officer. If you owe money and file for an extension, that extension will be considered not valid. It will be just like not requesting that extra time to file your papers. If you find out when you finish your return that you actually owe money (instead of expecting a refund) file that return as quickly as possible. You may incur a penalty for paying late, but you can minimize the penalty for filing the paperwork late. My IRS experience is in the audit arena, not in IRS Collection. I have colleagues who are former IRS Collection Officers and know exactly how to help you. If that is where you find yourself, I am happy to connect you with someone who can help you. Just let me know how I can help you.

Deducting Medical and Dental Expenses

By Nellie Williams on

March 20, 2014

- Deductions, IRS Audit, IRS Problems, Money, Tax advisor, Tax Audit

Medical Expenses are not the deduction I want you to have. But medical expenses are deductible if you itemize your deductions. Here are 8 tips direct from the Internal Revenue Service and one more from me.

“If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

AGI threshold increase. Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years. .
Temporary exception for age 65. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016. .
You must itemize. You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction. .
Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment. .
Costs to include. You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction. .
Expenses that qualify. You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses. .
Travel costs count. You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013. .
No double benefit. You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.”

And here’s the extra tip from Nellie. If you wonder if your disability insurance is deductible. Yes it is. But I encourage you NOT to deduct this insurance. If your disability insurance premium is about $800 each year and you have enough medical expenses to exceed your AGI threshold, you could deduct this $800. For easy math, if your tax bracket is 25%, this deduction could save you $200 of tax. But if you ever file a claim and collect on this disability insurance, those insurance benefits will be income taxable. And when you are out of work due to disability, do you want to add to your tax bill?

The Ides of March

By Nellie Williams on

March 13, 2014

- IRS Audit, IRS Audit Help, IRS Problems, IRS Tax Problems, Uncategorized

March Forth. March Fourth. Time Marches on. Beware the Ides of March. In this, the month of March, business owners must be aware of the calendar and their tax deadlines. The Internal Revenue Service made us wait until the very end of January before we could file our tax returns electronically. And our tax filing deadline is still April 15th. But there is a little “grace” period for us this week. March 15th is the Ides of March. This year it falls on a Saturday. What’s the big tax deal about March 15th? That is the day corporations, large and small, must file their tax returns or request an extension of time to file before September 15th. March 15th is also the due date for employers to pay their trust fund taxes. Trust fund taxes are those taxes withheld from their employees’ paychecks. Employees trust their employers to send their money to their tax accounts at the IRS. What’s so important about this date being on Saturday? Many businesses are open on Saturdays, but the government is closed. That means we have two extra days to meet the March 15th deadline. IRS is giving us extra days this time. The next time the 15th falls on the weekend is in June. That is another payroll deposit date. It is also the due date for second quarter estimated tax payments. When the 15th is on a weekend or other holiday observed by the federal government, we have until the next business day to meet that day’s obligation. So mark your calendars not for March 15th, but for March 17th. Before you raise too many glasses to Saint Patrick, be sure you get your 1120 returns or extensions filed. Be sure you get your payroll deposits made. If you use the electronic payment service of EFTPS, remember you need to make that payment one day before the due date. EFTPS (Electronic Federal Tax Payment System) allows you to schedule payments whenever you want, 24 hours a day, 7 days a week. You can even schedule a payment as far as 365 days in advance. But remember this: To reach the IRS on time, payments must be scheduled by 8pm ET at least one calendar day before the tax due date. Even individuals can register to receive a pin number that will allow them to pay their individual taxes by EFTPS. Many people who owe tax to the IRS pay by check. Did you know you can have the IRS debit the amount you owe directly from your bank account? It’s like direct deposit in reverse. And you choose the day you want this debit to happen. Taxes can also be paid by credit card. Understand that the IRS does not pay the merchant fee that most other businesses who accept credit card payments do. The taxpayer pays what is called a convenience fee. If you choose to pay your taxes by credit card (maybe you get airline miles or some other benefit) you will know how much the convenience fee is before you actually pull the trigger on your credit card payment.

Daylight Saving Time – begins March 9, 2014

By Nellie Williams on

March 5, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS penalties, IRS Problems, IRS Tax Problems

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.

But Wait There’s More

By Nellie Williams on

February 27, 2014

- IRS Problems, IRS Tax Problems, Tax advisor

This is not just a come-on TV pitch. This now applies to taxes, too. If you have interest income of $10 or more, you will get a Form 1099 INT showing you the interest you earned during the last year. If you made less than $10 of interest income, you will not get a 1099 INT. Your total interest earned for the year will be shown on your last bank statement of the year. Bank tellers will tell you correctly, that if your interest is less than $10 you will not get a 1099…that is true. What is NOT true is “Don’t worry about it, It’s not taxable.” Americans are taxed on their WORLD-WIDE income. Every dollar is taxable unless it is specifically excluded by law. Remember, bank tellers are in the banking business, NOT the tax business. If you own stocks in companies that pay dividends to their shareholders, and you have dividend income of $10 or more during the last year, you should get a Form 1099 DIV. This 1099 will show many things and that is why your tax preparer will want to see the actual form. You may not have received any actual cash – your dividend may have been used to purchase additional stock. That is still dividend income that needs to be reported on your tax return. You may have interest income or dividend income from tax-exempt sources. While these may be exempt from federal income tax, they may be taxable on your state tax return AND you must still report this on your federal 1040 tax return. Income tax is not the only tax that is collected from the Form 1040. Some taxpayers must also pay what is called Alternative Minimum Tax (AMT). Tax-exempt investment income is used to help calculate this AMT. Most taxpayers pay a regular tax that is above the minimum. They just don’t know that their regular tax is more than the minimum tax This is not because the tax is figured incorrectly. When a taxpayer has a large amount of itemized deductions, and may have tax exempt income, and perhaps has other tax-favorable events on a tax return, that person may have taken their income below the minimum tax level. That is when the AMT will kick in and raise the lowered tax up to the minimum regular tax. When I started this article I said, “Wait, There’s More”. If you are an investor with a brokerage account that contains mutual funds. you may not have the final income picture when your 1099B is issued. Originally these forms were to be issued on January 31st. Brokerage accounts were rarely able to meet this deadline so the IRS allowed them until February 15th. Why did they get this extra time? Because the IRS understood that the mutual fund companies needed to finalize their number crunching. The mutual fund companies are invested in multiple different stock companies and if every company waited until January 31 to file their reports, there was no way the brokerage account could also meet that January 31 deadline. But wait, there is even more. When you get your 1099B in mid-February for the year before, they may tell you to expect an amended 1099. They are letting you know that the companies they are invested in also may need more time to finalize their numbers. What a vicious cycle! Be prepared to delay the completion of your tax return until after mid-March. If there are changes to the income reported on your 1099B, it is often better to wait a few weeks, than to file your tax return in February and then have to amend it later for the corrected amounts.

Tax Season – The Good, The Bad and The Ugly

By Nellie Williams on

February 20, 2014

- Deductions, IRS penalties, IRS Problems, IRS Tax Problems, Money, Tax Audit, Tax Credit

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.

It’s Official! Finally, Tax Season Has Begun

By Nellie Williams on

February 13, 2014

- Deductions, IRS Audit, IRS penalties, IRS Problems, IRS Tax Problems, Tax advisor

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.

Attention Employees

By Nellie Williams on

February 6, 2014

- Tax advisor, Tax Audit, Tax Audit Help

Attention Employees: This is the blog I promised you. . You are required to attach your W2 to your tax return when you file this important once-a-year tax form. Every year you have the chance to “look yourself in the eye” and sign your tax return under penalty of perjury that it is correct and accurate. .. If you don’t already have your W2 for 2013, you should be getting this important form very soon. Employers are required to issue their W2 forms by January 31st. .. Did you move since you were first employed? Does your employer have your correct current address? Did your employer go out of business during the year? Did they pay their accountant in advance to issue the year-end W2 forms? They probably did not. On payday did you get a paystub showing the cumulative, or year-to-date income earned and taxes withheld? Did you keep track of these numbers yourself? Most people won’t but it is a good idea. .. Did you have more than one job during the year? Do you have a W2 from EACH of your jobs? You must report your total income from all taxable sources. What can you do if you don’t have this required for filing form? .. If you have not received your W2 by February 14th, you can call the IRS for assistance. When you dial 1-800-829-1040, be prepared to wait on hold. It could be a long wait. This is a toll-free number and they get a lot of callers. The assistor at the Internal Revenue Service will ask you for your name, your address with zip code and your social security number. (Remember YOU called them. DO NOT (and I MEAN EVER!) give this confidential information to any one who calls you. Protect your identity.) The IRS will also ask for your employer’s name, complete address, phone number and your dates of employment. IRS will contact your employer for you (if that is possible) and will request the missing form for you. Form 4852, Substitute for W2, was designed for just this purpose. When you call the IRS to request their help, they will send you this form. There are blanks for you to fill in your wages and withholdings. It will ask you how you determined the amounts you are entering. It will also ask you to describe what you did to try to obtain your W2. If you did receive a W2, was it correct? If you think it was not correct, contact your employer and request a corrected one, a W2-C. If you filed your tax return using Form 4852 and then received a W2 or W2-C showing different amounts, then you must file Form 1040X to amend your return. This amendment may result in you owing more tax or it may result in you getting a refund. Consult your tax professional for help filing this more complicated form.

Attention Employers: W2 Forms and 1099 Forms are due out by January 31st!

By Nellie Williams on

January 30, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS penalties, IRS Tax Problems

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.

To recap:

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.

Watch Your Mailbox for Important Tax Forms! Part Two:

By Nellie Williams on

January 23, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS Problems, IRS Tax Problems, Tax Audit, Uncategorized

For those that can file the simplest of tax forms, you may have your W2 and are ready to file. Last week I talked about W2, W2-G, 1099-G, 1099-Misc and K1 forms. Today I talk about more of the common forms you need to complete your proper tax form. 1099-R is used to report distributions paid to you from your pension plan, your retirement plan or our Individual Retirement Account or IRA. If you have a distribution that is not taxable, it must still be taken into account in filing your proper tax return. 1099-INT is sent to you when you earn $10 or more interest on a bank account or certificate of deposit. You should get one of these forms for each account that generated $10 or more of interest. If you have more than one account at a single branch, they may report each account separately on a single, or consolidated, statement. Some banks show each account and provide the total earnings for all accounts. Whether or not you withdrew the interest, or had it in your hot little hands, this is taxable income that must be reported. If you earned less than $10 you are still required to report the interest earned, you just won’t get the Form 1099-INT to remind you. In this case, you’ll need to check your account statement that includes December 31st. 1099-DIV reports to you earnings of $10 or more in dividends paid on stocks, bonds and mutual funds. Like 1099-INT, you are responsible to report all earnings even if you had less that $10 and do not get this form. 1099-DIV also includes capital gains paid on these investments. These capital gains are for activity within you account, not for the sales of stocks from your account. Both ordinary dividend and capital gain dividend numbers are important in calculating your proper tax. Your tax professional will see that you don’t overpay your tax. 1099-B reports your sale of stocks, bonds or mutual funds. You receive Form 1099-B from your broker or mutual fund company. This form can be one page or multiple pages depending on the size of your account. For each sale this report will tell you the name of the stock or fund account, how many shares were sold, the date of the sale and the sales price. Some brokers issue a preliminary report to meet heir February 15th deadline to issue this Form 1099-B, but they will tell you to expect a corrected or final statement later in the tax season. Provide EVERY page of this report to your tax advisor. 1099-C reports Cancellation of Debt income which must be reported on your tax return. This income may or may not be taxable to you. It can be issued because you were unable to pay a debt, perhaps credit card or mortgage debt. Be sure to share this information with your trusted tax advisor. 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.

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