Thursday, May 5, 2022

We are less than a month removed from tax season, which means that we have recently spent a lot of time talking about planning and how it can help you avoid surprises. This week, though, I wanted to write a little bit about the surprises that you can’t do much about, and how planning even helps with those.

These thoughts occurred to me when I saw a Forbes article musing on whether the increased amount of people working from home would hurt city budgets. I won’t get into the minutiae of what the article says here, for the premise is obviously sound enough to at least warrant thinking about (and dare I say some planning).

From there I started to think not only about the budgets of the city themselves, but what about various shops and restaurants located in (what were at least once) areas saturated with businesses. And simply, once there are less people frequenting the area, that is less potential business for those establishments.

That is one of those types of surprises that could not have been planned for. One would have to possess some mystical level of clairvoyance to have predicted the pandemic, the increase of work-from-home situations, and calculate numbers of how that would look for businesses.

If one had already been doing general planning, though, then your books would have been in good enough shape to be make some reasonable general estimates. And from there, you are in a better position to realize when such unforeseen circumstances start affecting your business and can combat it as early as possible.

I am not writing with any actual answers to such a situation here. I am not even saying that every situation like this would have potential answers. Surely there were businesses so affected by what happened over the last couple years that saving things was impossible. What I am saying, though, is that planning – and the state you must keep your books and knowledge of your business in to be able to do so – will at least give you an opportunity.

Because even now when things have achieved some sense of normalcy, the ideas we are imagining involve situations where its effects will continue to trickle into the future. So one must maintain some vigilance, never think that all storms have been weathered, and remain in a position to see problems while there is still time to react to them. And as always, if there is anything we can do to help you get to that space, let us know.

Wednesday, April 27, 2022

Once the regular tax filing season passes, we here take a deep breath of relief as the deadline pressure eases and a much is taken off our plates. This is not the case for everyone, though, as those who did not file can feel the pressure and worry of what happens now since they did not.

Well let’s start off with really good news – if you are owed a refund, there generally will be no penalty for not having filed on time. For people in that situation, the IRS is largely happy if you don’t file, for then it doesn’t have to send you that refund money. So, if you think you may be getting a refund and you just didn’t file, you should, for that money can still be yours.

Of course, most who do not file their taxes on time are not in this position. A lot of people who do not file neglect to do so because they fear they will be unable to pay what they owe at the end of the process. First, know that if you are in this situation, you are only setting things up to snowball. You will face penalties for not filing, interest for not paying on time, and once you ignore this once, it becomes easier to push it off in future tax years – further snowballing the penalties, interest, and total you owe to the IRS.

Not filing your taxes is likely not going to help you avoid the bill, either. If you owe taxes, it’s because you did not pay what you owe on money you received – and all those forms you got that say you received this money, the IRS has those, too. Failing to file is not going to keep those powers-that-be from knowing that you should have done so and what you should have paid. 

In fact, without filing you are only going to owe more in taxes because the IRS may know of all the money you received, but it will not know about all the deductions for which you could be eligible to lower your burden.

Beyond that, there may be payment options that you are unaware of that will enhance your ability to pay beyond what you think it is. We cannot guarantee some wonderful solution to whatever issue you are fearing, but we can guarantee more concrete numbers and possible solutions.

If you are reading this after having not filed your taxes, not filed an extension, hiding, and just hoping that this doesn’t come back and bite you in the future, well, we can’t make you act differently.  But we can offer the opportunity for more clarity and help you get a better grip on where you really do stand. So please reach out if you would like to gain this.

Wednesday, April 13, 2022

As we rapidly approach the end of tax season, it is inevitable that many people have questions about audits. Even if someone has never had to undergo one, it feels like a big, scary thing that everyone wants to avoid. And although there is no way to ensure that you will be forever ‘audit-proof,’ there steps you can take to remain confident your return will hold up to an audit.

The first step here is to be honest. If you report all your income and only claim legitimate deductions, then you have followed the rules and there is nothing to catch you on. The next step, though, is to make sure that you can document all of this, too. It is one thing to have legitimate deductions, it is another to have the receipts and/or paperwork that back it up. Just know as a rule, anything that you cannot back up will be disallowed by an auditor.

I am not going to be so na├»ve as to pretend that I don’t know people are fudging some numbers on their returns. I even believe that a lot of fudging is genuine as in – “I made this purchase but don’t have the receipt” or “I made a donation in cash at an event.” That is where the deductions can be legitimate but cannot be proven.  At that point, you are kind of playing the audit lottery, assuming you’ll slide under the radar and not be called out to prove the numbers.

And of course, an overwhelming majority of tax returns are not audited, so much of this passes the without special notice. A lot of this is done with smaller numbers, which makes it easier to slip by. Once numbers start to get beyond the norm, though, that is when they can start to raise some flags.  And if you want a little more view into that process, you can read this recent article from CNBC.

Before I leave here, though, I want to mention the income side of the equation a little more. For sure, deductions can easily be transactions that take place outside the purview of tax forms, which is where a lot of that fudging exists. The money you have earned, though, is essentially already reported to the IRS. If you receive a 1099 for money you didn’t realize was going to be taxed, a form also went to the IRS. It is going to be more difficult to get away with thinking you can simply not report that to avoid the taxes.

In closing, remember the best way to feel comfortable when thinking about an audit is to do things the right way when you file your return.  And if you need any help with that, please do not hesitate to contact us.

Wednesday, April 6, 2022

There are times when we must discuss things that we have discussed before. It is part of the cyclical nature of much of what we do. Things happen year after year and they are big enough to warrant discussion and/or reminding. Now, as we approach the end of tax season, we are reaching one of those conversations again.

The start of the conversation is a bit new (or back to normal), though, for after two wacky years, there is not an extended tax deadline. This means that the regular deadline is fast approaching – less than two weeks away – on April 18.

Of course, with that always comes talk of extensions. And these can be great things for many reasons. There are plenty of legitimate situations that will cause people to not be able to file their taxes on time. Maybe you are having issues with some forms, maybe serious life issues got in the way, or maybe you fit in one of dozens of other stories as to why that deadline has become unmanageable.  No matter which one it is, it is not difficult to get yourself another six months of leeway to get that tax return filed.

Now comes the part that we have to drive home whenever speaking about this, though. When you receive an extension, you are getting an extension to file, NOT an extension to pay any taxes you owe. So of all those legitimate reasons why someone may need an extension, getting more time to pay what you owe is not one of them.

For even if you get an extension and do not file this month, penalties and interest will start accruing on any money you owe once the original deadline is missed.  This means that not only is needing more time to pay not a good reason to get an extension, but it will only result in you owing more money.

No matter where you find yourself in the process, though, know that we are willing to help where we can. Do you need assistance in getting an extension, let us know.  Do you need some guidance on how to handle a tax debt, let us know.

Now, keep in mind that we are in that crunch time and our availability may be limited. So we may need to ask for a little more patience than usual, but know that with a little understanding from both sides we will work to see that you receive what you need. 

Wednesday, March 30, 2022

Next time I put something in this spot it will be April. We are already that far through tax season and it seems a little hard to believe. But see, this is why I started telling you a couple months ago that it really does serve you well to get a start on prepping for tax filing season before it gets away from you.

So yes, to file on time, you are now into the crunch period when any snags you hit become immediate difficult hurdles. This means that you need to start checking in with yourself and what you have done so far (even if what you’ve done so far only involves looking at a pile of mail on a desk).

Do you not remember if you got that one form that you were expecting? Go look and make sure. Many people have digital access to such forms as a W2s, but you probably don’t have that immediate access to everything (or at least would have to work to set it up). You want to be sure you have left yourself some time to get those forms before we reach zero hour.

Beyond that, though, actually open up and look at the forms you have received. Chances are really good that they all look exactly like they should and like you are expecting them to. That doesn’t mean that all the thousands and thousands of pieces of paper sent to taxpayers every year are correct, though, and it is better to find out if there is some discrepancy now than in two weeks.

Both of those are situations that occur every year, but as you have heard a lot during the past two years, we are currently living in unprecedented times. This has trickled down to your tax return, so there is going to be some information you need to have that you have not before. This includes knowing if you received any economic impact payments last year and how much if so. This is not the most difficult information to track down, but it’s going to simply feel better to do now than in two weeks.

Finally, many taxpayers with children also received advance payments of their child tax credit. If so, you are also going to need to know the total number of that money received.

And if this feels like a lot, well, depending on your situation it could be. And when things feel like a lot, that is when we don’t always want to deal with them, but it is also exactly why we should. So consider this a little confidence boost telling you that you still have time to do this if you can get on it now and a promise that you will feel better once you do.

Wednesday, March 23, 2022

Last week, I took what I thought would be a quick detour into the workings of the IRS as the agency set out to hire thousands of new workers. This is just a piece of what’s going in that organization, though, to the point where I feel I have to continue this week to give a more complete picture.

So first, there is this negative look at how difficult it may be for the IRS to fulfill its goal of hiring 10,000 workers. But hey, even if they only meet 2/3 of the goal (as the article intimates), that would still be more than 6,000 new hires, and that can only still help in the end, right?

Then when it comes to further help, we also got word last week from the agency itself that it is looking for around 200 new technologists to help with its trend to modernization. This is an inevitable push that will only have to continue, so it is heartening to see the IRS putting some muscle behind its words claiming that it is looking to modernize. One could certainly argue that it is still far behind where it should be in this arena based on how the current world works, but again, let’s give some credit for moving in the right direction.

And then there was also news of a funding increase for the IRS last week. And no matter how negative your view of the entity is, it would be really difficult to imagine it doesn’t do SOMETHING good with new hundreds of millions of dollars, right?

Now again, I know that such stories are not exactly rare (last week, remember?) and dealing with the IRS since the pandemic started has been quite a bear. I am certainly not giving continued space to such news to absolve the agency in any way. I do, however, think that it’s important to know that issues are at least being acknowledged and steps taken to hopefully fix them. And the more that we do know such things, the more we can set reasonable expectations for what dealing with the IRS will involve.

Nothing is currently fixed and nothing has a date on when it will be fixed. But now you know the lay of the land. And if you need to traverse any of that land because of issues you are currently having, do not hesitate to reach out to us.

And now on to hopefully something different next week … 

Wednesday, March 9, 2022

Every tax season comes with us delivering surprises to tax clients. Granted, some of these can be nice ones when people find out they will be receiving money they were not expecting. But some of them are unpleasant when people find they must pay money they were not expecting. Sometimes this happens because people didn’t know that money they received was going to be taxed and did not plan for it. So this week, I just wanted to give a little rundown of some of these types of income.

Of course, probably the biggest is freelance work for which one receives a 1099.  This may not always be so much of a surprise, but it can be something that people did not plan for. After all, when you get paid, one can see many places where that money would be helpful that aren’t into an account where it waits for an eventual tax bill. This is also a type of income that an increasing number of people is receiving.

If this is a situation you are still working through and have questions about, I will point you to this recent article, which gives a very good overview. It also has a strong conclusion that warns how easily the IRS can know you made some of this money even if you choose not to report it on your taxes.

Also in the realm of “the new” is virtual currency. The IRS asks about it right on Form 1040. Of course, this is also something that people are dabbling in more and more, many of them for the first time. And if you dabble well, you can make some money from it. As it always does, though, the IRS wants to know about all money that you earn. And with this being such a new area where people do earn, the agency is working to try to find ways to make sure that it is captured and makes it something else that you cannot avoid reporting.

Finally, this is nowhere near as new a concept, but any money received through tips should also be reported on your tax return. Now granted, this is an area that can get a little grayer, because it can be more difficult for others to track money received in cash. But if this is something that is coming to your attention as an area you are not handling well, then the sooner you work on turning that around (instead of just hoping it never catches up to you), the better.

For overall, the better you are at keeping track of all monies you receive – and assume you will be taxed on it – the better handle you will have on your overall situation and the better chance you have at not receiving any bad surprises when tax time comes.