We have just celebrated the end of the “1040 Marathon”. But that does not mean that income tax season is over. Have you filed your return or are you “on extension?” Or maybe you are just going to file your tax return later this year.
This blog is “a day late and a dollar short” for filing 2012 tax returns. But it is right on time for 2013 tax planning!
Even if you are afraid you will owe tax, I do recommend you file your return before April 15th. Especially if you are going to owe tax. When you owe more than $1000 when you file your return, the Internal Revenue Service will assess you a late-filing penalty of 5% per month. That’s 5% of the tax due. The only good news about this is that the maximum penalty is 25%. Well, 25% of $1000 is $250. PLUS the IRS must charge you interest on top of the penalty.
If you think you are going to owe tax and you request an extension of time to file, pay some money with that extension to keep that extension valid. If you don’t pay your tax by April 15th, the IRS must assess that late penalty.
Here’s a tip you can start using right away. If you are self-employed it is up to you to estimate your taxes. You make quarterly estimated tax payments. If you don’t pay enough, and you don’t pay enough on the date the quarterly estimated tax payments are due, you can be assessed a late-payment penalty. This is different from the late-filing penalty I talked about earlier.
If you are an employee, you should have taxes withheld from your paycheck. That income tax withholding is considered paid evenly throughout the year. If you have more withheld in November and December than in the earlier months, your total withholding for the year is still considered paid evenly all through the year.
You can adjust your withholding any time during the year. Does your payroll department restrict how many times they will adjust your paycheck? Just be careful that if you are not taking enough out in the first part of the year, that you don’t run out of paychecks before the end of the year. You want to have enough withheld to make your total enough to cover your tax bill on April 15th. Once January comes around you are already into the next year.
You may have other income that is taxable, like interest or dividends, rental income or sale of property. You might want to or need to make estimated tax payments. Estimated tax payments are due April 15th, June 15th, September 15th and January 15th. If you want more information on how to estimate your taxes, shoot me an email.
Remember this. Failing to plan is planning to fail. Nobody ever PLANS to pay more than they have to. So keep you eyes open on your own tax situation to keep the IRS out of your wallet.
Always to your lowest legal tax,
Nellie T Williams, EA
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Can you “fix” your tax return?
I don’t mean toy with the numbers. Not THAT kind of fix. I mean repair or correct a return that has already been filed.
Yes, you can fix a mistake on your tax return. This is called AMENDING your tax return. You file an amendment to your tax return. This is an amended tax return.
Form 1040X is the special form used to file a change to an original 1040 series return. Use the 1040X to “fix” a 1040EZ (the easy form), a 1040A (the short form), a 1040 (the long form) or even a 1040NR (the form used by non-residents with income from the United States).
Some of my clients are frustrated when I wait to finish their tax return. And that turns out to be the BEST thing we could have done. Because while they think we’re finished and ready to file, later comes a corrected form or a late-issued form that usually means more tax is due. If we had filed the tax return early in the season, we would be filing an amended return now.
Amended returns are not just for current tax year returns. They are not just for the 2012 tax return you are filing in 2013. Sometimes there is a balance due the IRS. Sometimes the IRS owes YOU a refund.
Tax returns have a time limit for the IRS to review what you have voluntarily filed. Tax returns also have a time limit for you, the taxpayer, to file a claim for refund. You can file an amended return for any tax return that has not run out of time, or “the statute” has not expired.
You might be like one of my clients. We are filing for a solar water heater credit on their 2012 return. AND we are filing a 1040X, amended return, for 2009 to claim the credit for qualifying windows they installed that year. If we waited until after April 15, 2013, we would have run out of time to file that 1040X for 2009 and they would have lost their chance to “claim” that year’s energy credit.
Another client is new to me this year. He is retired from the fire department. He has his health insurance premiums withheld from his pension benefits. I learned that this qualifies for a special treatment on his tax return. The preparer he used the last three years didn’t know about this special treatment. So I am amending his 2009, 2010 and 2011 returns to claim a larger refund. That 2009 1040X will be filed before April 15, 2013 so he doesn’t lose his refund for that year. The other years will be filed now, too. They will each go in their own separate envelope to the IRS.
Another client is going to have to amend his 2011 tax return for additional income he just found out about. In this case he’ll have to pay more tax. But by coming forward voluntarily, he will avoid some penalties that IRS would definitely assess if they had to tell him that he owed money. IRS punishes you with penalties when they have to hunt you down.
There are many different situations that will cause you to file an amended. Can you think of a reason why any of your tax returns should be changed? Did you realize you claimed too much of one deduction? Did you realize you have MORE deduction you are allowed to claim. Did you find out something you didn’t know when you first filed your return?
Preparing the 1040X form is a little more complicated than preparing a return the first time. Don’t be afraid to get some help with this one. IRS will take a close look before they send you money. You’ve waited this long. You don’t want to run out of time to claim the money you are entitled to.
Always to your lowest legal tax,
Nellie T Williams, EA 
December 31st marked the end of the fourth quarter of the calendar year. Not only do you have the fourth quarter employers reports due by January 31st. You also 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 also 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.
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.
IMPORTANT NOTE: The 2% “Payroll Tax Holiday” that employees enjoyed these past two years expired on December 31st. Effective January 1, 2013 the employees’ responsibility for Social Security and Medicare taxes returns to 7.65 percent of their wages. Medicare taxes are withheld on every dollar of pay, but the 2013 maximum earnings subject to Social Security tax is $110,100 for both employees and self-employed people.
According to the IRS, “Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than February 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.” So we have a little grace period here to “catch up” on the proper amount that should be withheld beginning January 1st.
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 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. Unemployment tax is generally paid on the first $7000 of wages paid to a covered employee. Remember to take into account any deposits you made during the earlier quarters for federal unemployment taxes.
To recap:
By January 31, 2013:
1. File Form 941 for the 4th quarter 2012 OR Form 944 for the whole year 2012
2. File your state’s 4th Quarter 2012 income tax withholding tax reports
3. File your state’s 4th Quarter 2012 unemployment tax report
4. File Form 940 for the whole year 2012 federal unemployment tax report
5. Give Forms W2 to your employees
6. Give Forms 1099 to your independent contractors
By February 28, 2013 :
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.
Always to your lowest legal tax,
Nellie T Williams, EA 
FIRST: Do you use your car for business? If you have not already done so, go out right now, or as soon as safely and reasonably possible, make a note of your odometer reading.
Why? Because if you do this like I do, every New Year’s Day, you will have an accurate reading of your car miles at the very BEGINING of the year. This beginning reading is also the reading for the END of the previous year. This will allow you to prove the TOTAL number of miles driven on your car. And then each trip you drive for business purposes you will enter into your AUTO LOG, the date, where you went and the number of miles driven to get there. Remember, commuting is not deductible.
(as soon as possible). Set up your account to generate statements on the last day of each month. Keep your bank statements for EVERY MONTH so you can match your business income with your bank deposits. It will also allow you to see the debits, the checks written. You will have a clear picture of your money in and your money out.
THIRD: 
get their copy of your W2s and your 1099 forms. If you are a homeowner and pay a mortgage, you should be getting a Form 1098 showing how much interest you paid on your mortgage. Do you have interest and dividend income? If so, you’ll get a 1099INT or 1099DIV. If you bought or sold stocks, you will get a statement from your broker. Depending on the size of your portfolio, this statement can be many, many pages per account.
Your tax adviser is going to want you to bring EVERYTHING in to your appointment. If they are good, they want to save you money just like I do.
Always to your lowest legal tax,
Nellie T Williams, EA
This is the end of the year, not the end of the world. I thank my God every morning I awake.
Before we rush away from this festive season, I hope you all had a very Merry Christmas, a happy holiday, and I wish you all a very happy New Year!
Time marches on whether we plan for it or not. And TOMORROW is THE last business day of the year!
Tick, Tock, Tick, Tock!
Have I ever told you about the time line that the INTERNAL REVENUE SERVICE is bound by? There are due dates. There are many of them.
Most of us are calendar-year taxpayers. That means our tax year ends December 31st. And when we file an individual income tax return, a Form 1040, that is due April 15th of the following year. At one time the 1040 was due March 15th, but so many people asked for extra time the due date was changed to April 15th. Even today, many people still ask for extensions. Not too long ago the extension gave us two additional months to file the return. And so many people asked for a second 4-month extension that the 2nd extension was eliminated and IRS now gives us one six-month extension. This means that if you REQUEST an extension of time, your April 15th due date has been extended to October 15th.
An extension of time only gives us time to file the paperwork. It does not give us any more time to pay our tax. The tax is still due by April 15th. If on April 15th you think you will owe tax with your tax return, you can make a payment with your extension and still get more time to finish your paperwork to file a correct and accurate tax return. If you wind up owing tax when you file that extended return, the extension will not be valid. Interest will be charged from April 15th until your taxes are paid in full. Penalties will also be assessed for late-filing and for late-paying your tax. This is not a pretty picture.
If you have a business and file a corporate return, whether it be a “C” Corporation or an “S” Corporation you may have a calendar-year entity or a fiscal year entity. Both “C” and “S” corporations have income and expenses. They have Income Statements and Balance Sheets. They have Schedules of Depreciation for assets like equipment and buildings. A “C” Corporation files an 1120 return, can have a tax liability on income greater than expenses, and the corporation would pay that tax. If you elect for that corporation to be treated as a small or “S” corporation, it files an 1120S return instead and the income greater than expenses, or profit, passes through to the shareholder (or shareholders) on form K1. The shareholder includes their share of the corporate profits on their 1040 tax return along with their other income. To keep it simple, if the corporation uses a calendar year, then that corporate return is due March 15th. And, like a personal 1040 return, can elect a 6-month extension that for the corporation ends September 15th.
Whether business or individual, you must request an extension. They are not automatic. And they are only good for filing the paperwork, the tax returns.. Any taxes due must be paid by the due date to avoid interest and penalties.
Have you ever heard the expression, “The shoemaker’s son goes barefoot.”? Lots of times I feel like the shoemaker’s son. My own tax returns are always on extension. Could I file them early and avoid the rush? Sure, but what would be the fun in that? I must really love the adrenaline rush. I am all about time management. But last week was truly “Just in Time! Management.” Did you ever stay up late studying for an exam? Did you ever pull an “all-nighter” where you didn’t get any sleep at all? I did. I did in college and I did last week, too. In some ways I am a lot like some of my own clients. I was busy finishing clients’ business returns and getting ready for an out-of-town business trip, and I found myself staying up all night to file my own business return before leaving for the airport for my business trip. tick, tock, tick, tock….
If you miss the extension deadline that return is just flat out delinquent. And I cannot be late and stay in business for you! So I missed a little sleep.
It is still September. But October is right around the corner! Like many of you, I, too, must finish my personal 1040 return before October 15th. Even though we have a deadline to meet, I encourage you to take the time you need to do a good job of getting your figures together. It is so much better and easier to file correctly to begin with. Remember, you are signing under penalty of perjury that you are filing a correct and accurate return.
If you do later find you need to amend a tax return, there’s a form for that. And the 1040X Amended Return has its due date too. Often you may file what you think is an accurate return only to get an additional form that you forgot about or didn’t even know you should have waited for. This often happens when you are the heir of someone who has passed away and you inherit something taxable. In that instance you will owe tax with that amended return. It is so much better to file that amendment than to wait for the IRS to tell you about your additional income and tax due. If you wait too long to file on your own, the IRS will start that ball rolling.
Maybe you find you left something off that is to your benefit, that would lower the tax you already paid, that would generate a refund for you. Here is where the timing is really important. You only have so much time to file that request for refund. Generally you must file the 1040X within three years of the date you filed that original return. This due date can be tricky, so be sure to consult your professional for advice on your 1040X.
Well, back to extended 1040s due October 15th. Since you and I will be getting our 2011 tax return information in order, may I suggest it is also a good time to start organizing our 2012 (this year we are in) data? Do you hear it? tick, tock, tick, tock …
To our lowest legal tax,
Nellie Williams, EA
Your Income Tax Return is More than Just 1, 2, 3…
Your Income Tax Return is also A, B, C, D…
When you start your tax return, after the heading with your name, address, Social Security Number you will eventually get to the lines that allow you to voluntarily report your income.
Ours is called a voluntary system because you voluntarily report your different sources of income. In other countries the government has an agreement with employers to withhold their required taxes. Our voluntary system does not allow you to decide to file one year and not file another year. It is not that kind of voluntary.
AND if you decide not to voluntarily report your total income, ALL of your income, the Internal Revenue Service has it’s own ways of determining you have been less than totally truthful.
Page one of your 1040 Income Tax Return shows gross wages, interest and dividend income, net business profits and other sources of income. Your net business profits come from Schedule C – another form! Your interest and dividend income come from Schedule B – another form!
Page two of your 1040 Income Tax Return has a space, a line, for you to report your total itemized deductions. Finding your total itemized deductions takes work, but it can be worth it in saving you tax! There are several categories of itemized deductions. They are reported on Schedule A – ANOTHER FORM!
Unless you are filing a 1040 EZ, the simplest of income tax returns, you will have more than one page to your tax return, more forms before you are finished. And when your tax preparer asks you questions, it is not because they are nosy (maybe they are nosy) but they want to find every tax benefit for you. Yes, a good preparer will charge you for saving you money, but I hope you believe that paying that tax preparer to help you pay your lowest legal tax is a very good investment.
Schedule A, Itemized Deductions is not for everybody. The biggest deduction is usually interest paid on a home mortgage. If you do not own your own home you may not be itemizing. But the government has special gift for you. You do not have to do anything extra to take advantage of this tax saving gift. That gift is called the Standard Deduction. The amount varies depending on your filing status (see my blog on filing status 
