The IRS wants you to voluntarily file your tax return and pay your taxes. Recognizing that taxpayers may be struggling, particularly those who have experienced unemployment, the IRS has introduced a program to eliminate “failure to pay” penalties. Additionally, the IRS has changed some payment options to encourage taxpayers to meet their tax obligations.
All taxes on 2011 income are due on April 17, 2012. If not paid on time, the IRS levies a “failure to pay” penalty. This penalty is a half percent per month with a cap of 25 percent. Under the “Fresh Start” program, a taxpayer may receive a six month extension for payment of taxes due with no “failure to pay” penalties being assessed during the six months. Interest on the tax due will accrue over the extension period.
The taxpayer must meet the following criteria to be eligible for the extension and penalty relief.
• The 2011 tax liability must be less than $50,000, and
• The adjusted gross income must be less than $100.000 for single ($200,000 for married filing jointly), and
• The taxpayer or spouse must be a wage earner who was unemployed for 30 consecutive days between January 1, 2011 and April 17, 2012 or self-employed whose 2011 income decreased by 25% or more as compared to 2010 business income.
To receive the extension a new form must be filed (Form 1127-A) by April 17, 2012.
Getting the extension will give you some breathing room, but the taxes still have to be paid. Part of the IRS Fresh Start program is an expansion of the installment payment plan, Tax liabilities of up to $50,000 may be paid via installments, the payment period has been expanded to 72 months, and the financial information required to qualify for an installment payment plan has been streamlined based on tax liability level.
The IRS also has more flexibly with its “Offer in Compromise” program. An Offer in Compromise is an agreement between the IRS and the taxpayer that settles the tax liability for an amount less than owed. The IRS looks at the taxpayer’s financial situation to determine what amount of the liability can be paid.
Although you may be struggling due to unemployment or reduced self-employment income, you are still obligated to file a tax return and pay your taxes. If you can’t pay, do not skip filing. The penalties (failure to file and failure to pay) will make the burden worse. The IRS Fresh Start program may help with payment extension, penalty relief, and payment plans. Our office can determine your eligibility and develop a plan for you to meet your tax obligations.
Tuesday, March 13, 2012
Saturday, February 18, 2012
Organization for an Accurate Tax Return
It’s tax season. Now is the time we scramble to find forms and receipts. We wonder if we should have done something to help in lowering our taxes. It’s a good time to plan for 2012 while pulling together the information to complete the 2011 return. There are some things we can still do for 2011 and certainly now is the time to start preparing for 2012.
Let’s talk about organization. At a minimum you should have a folder, envelope, or yes, even a shoe box to store pertinent receipts as you get them. But going through that pile of receipts will take time, cost money (if done by your CPA), and likely result in errors. The IRS, your CPA and tax software all step through tax preparation from income to deductions to payments. Your files should be organized the same way.
For income:
• Keep pay stubs until you receive a W-2.
• Keep bank statements and brokerage statements until you receive a 1099.
• If you are self employed keep all income and expense records related to the business separate from your personal expenses. Vehicle expense records should be maintained during the year. Keep a notebook in the vehicle to record business usage.
• If you rent part of your home or use it for your business, records of expenses to maintain the home should be kept.
• If you rent property, keep those income and expense records in its own folder.
If you’ve maintained income records all year you can verify that you received each W-2 and 1099 that you should have. Having the IRS discover missing income forms could significantly change your return.
For deductions:
The best way to save supporting documents is in folders or envelopes by category – medical expenses, charitable contributions, education expenses, etc. At a minimum, keep all receipts, write an explanation on the receipt and save. Although the IRS doesn’t require copies with the return, you must be able to provide supporting documentation for every deduction if you are audited. If you don’t have the documentation, the deduction could be disallowed.
OK. You’ll make a resolution to get organized for 2012, but you weren’t for 2011. What now? Start digging. Make sure you have a W-2 for each job you had. Make sure you have a 1099-INT from each of your banks, a 1098 from your mortgage company. Look at the 2010 return. Are there items reported on the return that occurred again in 2011? Do you have the form? Look for deductions. Did a child start college? Did you pay for child care? What about medical costs? Chain pharmacies can provide reports of prescription costs. Were you looking for a job? Job search expenses may be deductible. Did you buy a house or refinance a mortgage? Did you contribute to an IRA? This is one step you can still make and impact your 2011 taxes. The more you find, the more accurate your return.
Committing to treating tax preparation as a year round activity could save you money (no lost deductions). It will certainly save you time and anxiety when facing the filing deadline.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
Let’s talk about organization. At a minimum you should have a folder, envelope, or yes, even a shoe box to store pertinent receipts as you get them. But going through that pile of receipts will take time, cost money (if done by your CPA), and likely result in errors. The IRS, your CPA and tax software all step through tax preparation from income to deductions to payments. Your files should be organized the same way.
For income:
• Keep pay stubs until you receive a W-2.
• Keep bank statements and brokerage statements until you receive a 1099.
• If you are self employed keep all income and expense records related to the business separate from your personal expenses. Vehicle expense records should be maintained during the year. Keep a notebook in the vehicle to record business usage.
• If you rent part of your home or use it for your business, records of expenses to maintain the home should be kept.
• If you rent property, keep those income and expense records in its own folder.
If you’ve maintained income records all year you can verify that you received each W-2 and 1099 that you should have. Having the IRS discover missing income forms could significantly change your return.
For deductions:
The best way to save supporting documents is in folders or envelopes by category – medical expenses, charitable contributions, education expenses, etc. At a minimum, keep all receipts, write an explanation on the receipt and save. Although the IRS doesn’t require copies with the return, you must be able to provide supporting documentation for every deduction if you are audited. If you don’t have the documentation, the deduction could be disallowed.
OK. You’ll make a resolution to get organized for 2012, but you weren’t for 2011. What now? Start digging. Make sure you have a W-2 for each job you had. Make sure you have a 1099-INT from each of your banks, a 1098 from your mortgage company. Look at the 2010 return. Are there items reported on the return that occurred again in 2011? Do you have the form? Look for deductions. Did a child start college? Did you pay for child care? What about medical costs? Chain pharmacies can provide reports of prescription costs. Were you looking for a job? Job search expenses may be deductible. Did you buy a house or refinance a mortgage? Did you contribute to an IRA? This is one step you can still make and impact your 2011 taxes. The more you find, the more accurate your return.
Committing to treating tax preparation as a year round activity could save you money (no lost deductions). It will certainly save you time and anxiety when facing the filing deadline.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
Wednesday, December 14, 2011
10 Year-End Tax Tips
1. Review your portfolio. Consider taking a loss if you have substantial capital gains.
2. Max out your retirement plan contributions. 2011 maximum IRA contribution is $5,000 (plus $1,000 if age 50 or over). 2011 maximum 401(k) contribution is $16,500 (plus $5,500 if age 50 or over).
3. Consider contributing to a 529 Plan if you have children. For example, New York allows a deduction up to $5,000 (or $10,000 for married filing joint filers) for contributions made by an account owner to an account belonging to New York’s 529 College Savings Plan.
4. Use up your flexible spending plan.
5. Save receipts for medical supplies and equipment such as insulin testing supplies, canes, braces, orthotics, eyeglasses, contact lens and hearing aids, etc. Medical expenses that exceed 7.5% of AGI are deductible.
6. If you’re self-employed, stock up on supplies.
7. Prepay your state and/or local taxes.
8. Make charitable donations and be sure to get a receipt. If you are age 70 ½ or over and have an IRA, consider a direct transfer to an eligible charity of up to $100,000 per year. Such a transfer is not taxed and may be used towards your required minimum distribution for the year.
9. Save receipts that include sales tax on big ticket items, such as a car, boat, etc.
10. Save receipts for job search expenses, if you looked for a job in your present occupation. Resume preparation and mailing and travel are examples of deductible expenses. The portion of these expenses that exceed 2% of AGI are deductible.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
2. Max out your retirement plan contributions. 2011 maximum IRA contribution is $5,000 (plus $1,000 if age 50 or over). 2011 maximum 401(k) contribution is $16,500 (plus $5,500 if age 50 or over).
3. Consider contributing to a 529 Plan if you have children. For example, New York allows a deduction up to $5,000 (or $10,000 for married filing joint filers) for contributions made by an account owner to an account belonging to New York’s 529 College Savings Plan.
4. Use up your flexible spending plan.
5. Save receipts for medical supplies and equipment such as insulin testing supplies, canes, braces, orthotics, eyeglasses, contact lens and hearing aids, etc. Medical expenses that exceed 7.5% of AGI are deductible.
6. If you’re self-employed, stock up on supplies.
7. Prepay your state and/or local taxes.
8. Make charitable donations and be sure to get a receipt. If you are age 70 ½ or over and have an IRA, consider a direct transfer to an eligible charity of up to $100,000 per year. Such a transfer is not taxed and may be used towards your required minimum distribution for the year.
9. Save receipts that include sales tax on big ticket items, such as a car, boat, etc.
10. Save receipts for job search expenses, if you looked for a job in your present occupation. Resume preparation and mailing and travel are examples of deductible expenses. The portion of these expenses that exceed 2% of AGI are deductible.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
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