It's about time to get those tax statements out to employees and sub-contractors. These need to be mailed by the end of January but don't have to be filed with the IRS (for 1099s) or the Social Security Administration (for W-2s) until the end of February. The reason for this? If there are errors in name, address or ID number, in either the 1099 or W-2, the recipient of the form will let the sender know. A corrected form can be generated and the documents needed to be sent to to the taxing authority can be corrected before the forms are sent in. That's the easiest way to do it.
The other reports that need to be sent in by January 31, no extension on these forms, are the 941, the 940 and the state unemployment. These have to be sent in by the end of the month. The main thing to remember about these reports is that they all need to balance to each other. The four quarterly 941 reports need to match the the W-2s in gross payroll. The gross payroll total of the 941s need to equal both the quarterly state unemployment reports and the total payroll for the annual 940 or federal unemployment. If these reports don't match, you will find out about it years later and have to dig through your old files to figure out what the error is and how to correct it. Best to get it right the first time.
Now let's take a look at the W-2. New this year on the W-2 is the requirement to include the value of health insurance. Small employers are exempted from this requirement. Only large employers need to worry about this. In any event, this amount is not taxable to the employee but is included for information purposes only, to let the employee know the value of health insurance paid on his behalf. If the employer can't afford health insurance for the employee, then there is nothing to include.
That's a brief overview, except to let you know that there are a multitude of 1099s - miscellaneous, interest, dividends, mortgage interest (actually a 1098), and a host of others. So don't forget any of them. You still have time to get them out. Have fun.
Monday, January 28, 2013
Wednesday, January 23, 2013
Link on blog to TN Corporation Annual Reports
I have just added a link to filing the Tennessee Corporation Annual Report on line. You can pay online with a credit card - I believe there is an extra charge for that - or you can fill out the form, print it and mail it in with payment. Unless there are changes made, the fee is $20.00 annually. Once your corporation is registered with the state, you will receive a notice each year with your control number on it. With the control number, you can gain access to your annual report. If you lose the notice, you can call the Secretary of State's office. The number for the Business Services Division is 615-741-2286.
Wednesday, January 16, 2013
New Link to TN Business Taxes
I have added a new link to my list of tax pages. This one is for the Tennessee Business Tax. With this link you can pay your Tennessee business tax on line. You can find out what category you business falls under so you'll know when to file your taxes and what the tax rate is. The only thing you can't do is apply for the business license. The business license is what you renew each year when you pay the business tax. To start the business tax process you need to get in touch with your county or city clerk and pick up a form. The clerk can help you figure out your business classification as well, if you don't want to go on line. On the business tax page you can also find out if your business is exempt from the license and the tax, in which case you won't have to bother seeing the clerk and picking up a form. Accounting is a business exempt from business tax, for example, along with lawyers, doctors and a host of others. Many of those exempt from the business tax, such as accountants, have to pay a professional privilege tax, which is business tax by another name.
Any questions? If so, leave a comment and I'll get back to you.
Any questions? If so, leave a comment and I'll get back to you.
Should you amend a tax return?
In my last blog I ended by stating the I didn't always recommend that a client amend a tax return to apply for the full refund to which he or she might be entitled. Why would I do that? Why wouldn't I want my client to have every penny of their hard earned money refunded by the government? What kind of CPA am I?
I'm a cautious CPA. First let me say that I always do what the client wants, as long as it's legal. But here are some reasons why it might not be the best idea to amend a prior year's tax return.
Every tax return carries a statute of limitations based upon when it was filed. That time period for personal taxes or 1040s is three years. If you file, that is submit your tax return to the IRS, on April 15, 2013, for tax year 2012, the IRS has until April 15, 2016, to question the return. After that date, no more questions. Unless fraud, that is out right lying on the return, is suspected, then these rules don't apply. But for this discussion we're going to assume no fraud.
How do you know for certain when the statute begins? The IRS will have a record of when the tax return was received and you'll know that as well based upon the date on your copy of the return. You can go to the lengths of sending your tax return via return receipt if you wish but I've never had a client do that unless they were really worried or under the gun by the IRS for some reason. Of course, if you file electronically, which is becoming more and more popular, then you know exactly when the return was received and accepted by the IRS.
So what does all this have to with amending a tax return to get back more money? When a tax return is amended, the statute of limitations is extended. That's not usually a problem but it is a consideration. If the amount to be refunded with an amended return is $50, the tax payer might not want to extend the time the IRS could examine the return for that small amount.
Another consideration is cost to prepare the amended return. As far as I'm concerned, if I made the mistake, then I correct it for free. For example, if the client brought in the information and I failed to get it onto the tax return, then after I explain everything to the client - that is my mistake and the statute of limitations - if he or she wants to proceed, then I prepare the amended return for free. On the other hand, if the reason for the amended return is that the client forgot to bring me some information, then they have to pay for the preparation of the amended return. And that brings us to the second reason for not requesting the refund.
It takes a lot of time to prepare an amended return. It might cost $200 to prepare the amended return to receive a $50 refund. Not very cost effective, however, I did have a client with this situation and he insisted that I prepare the amended return even though he would be paying me more than he would be getting back from the IRS. His reasoning was that the government wasn't going to keep a penny of his money that it didn't deserve and he didn't care how much he had to pay me to get it all back. I didn't agree with this reasoning but if that's what he wanted to do, I was happy to collect the fee.
There you have it. My two main reasons why I don't always suggest preparing an amended return to get back a refund. Next blog: How much should I be paying to have my taxes prepared or do CPAs really read 900 pages of tax law or maybe I'll talk about year end payroll taxes and W-2s? If any of my readers want one topic more than the other, let me know in the comments sections. Until next time Happy Taxes!
I'm a cautious CPA. First let me say that I always do what the client wants, as long as it's legal. But here are some reasons why it might not be the best idea to amend a prior year's tax return.
Every tax return carries a statute of limitations based upon when it was filed. That time period for personal taxes or 1040s is three years. If you file, that is submit your tax return to the IRS, on April 15, 2013, for tax year 2012, the IRS has until April 15, 2016, to question the return. After that date, no more questions. Unless fraud, that is out right lying on the return, is suspected, then these rules don't apply. But for this discussion we're going to assume no fraud.
How do you know for certain when the statute begins? The IRS will have a record of when the tax return was received and you'll know that as well based upon the date on your copy of the return. You can go to the lengths of sending your tax return via return receipt if you wish but I've never had a client do that unless they were really worried or under the gun by the IRS for some reason. Of course, if you file electronically, which is becoming more and more popular, then you know exactly when the return was received and accepted by the IRS.
So what does all this have to with amending a tax return to get back more money? When a tax return is amended, the statute of limitations is extended. That's not usually a problem but it is a consideration. If the amount to be refunded with an amended return is $50, the tax payer might not want to extend the time the IRS could examine the return for that small amount.
Another consideration is cost to prepare the amended return. As far as I'm concerned, if I made the mistake, then I correct it for free. For example, if the client brought in the information and I failed to get it onto the tax return, then after I explain everything to the client - that is my mistake and the statute of limitations - if he or she wants to proceed, then I prepare the amended return for free. On the other hand, if the reason for the amended return is that the client forgot to bring me some information, then they have to pay for the preparation of the amended return. And that brings us to the second reason for not requesting the refund.
It takes a lot of time to prepare an amended return. It might cost $200 to prepare the amended return to receive a $50 refund. Not very cost effective, however, I did have a client with this situation and he insisted that I prepare the amended return even though he would be paying me more than he would be getting back from the IRS. His reasoning was that the government wasn't going to keep a penny of his money that it didn't deserve and he didn't care how much he had to pay me to get it all back. I didn't agree with this reasoning but if that's what he wanted to do, I was happy to collect the fee.
There you have it. My two main reasons why I don't always suggest preparing an amended return to get back a refund. Next blog: How much should I be paying to have my taxes prepared or do CPAs really read 900 pages of tax law or maybe I'll talk about year end payroll taxes and W-2s? If any of my readers want one topic more than the other, let me know in the comments sections. Until next time Happy Taxes!
Tuesday, January 8, 2013
New Year and a New Tax Season Begins
Happy New Year!!! For most people the change from December 31 of year 2012 to January 1 of 2013 is just an excuse to have a big party and drink champagne. But for many CPAs and accountants it's the signal that a fast paced few months of increased revenue is about to begin. Old accounting years end and new accounting years begin. Books of account are closed and reopened. Non accountants begin waiting for their tax documents to come in the mail so they can prepare and file their 2012 tax returns.
Are you looking for someone to prepare your taxes? Planning on using the same person or organization as last year? Doing your own taxes with a program either purchased or on line? Is this your first year to file your own taxes? What to do???
Any of these choices are fine. Recently I saw an ad on TV, which will be prevalent for the next few months and then die away until next year, from a rather large national tax preparation firm asking for clients to bring in the last three years of tax returns. The ad suggests that there may be an error on the prior years' returns that, once rectified, would yield large tax refunds missed by the previous preparer. And that might be true. It occurred to me that this request for prior tax returns might need some explaining.
Is this usual practice? Yes, it is. I always want a new tax client to bring in the previous three years tax returns for my review. Do I think the prior preparer has made a mistake or missed something? No, not really. There are a lot of things I'm looking for when I review a new client's tax returns. Read on to see what I hope to discover.
First of all I'm looking to see what the client reported for the last three years so I can continue in the same manner. No need to upset the IRS with changes that don't need to be made.
Second I'm looking for anything that might be missing. If interest was reported from a certain bank in prior years and there is no interest from that bank now, I want to ask about it. It could be the account was closed and therefore no interest income for the current year or it could be the tax payer forgot to bring in that 1099. I also want to check to see how certain items such as installment sales and depreciation were handled. The list is long and extensive and I won't try to list everything here.
So, if you are going to a new preparer or to a preparer you've used before, it's always a good idea to bring along the previous years tax returns. Some preparers might not need that since they will be keeping everything on file and can find it themselves. I'm that way. A continuing client doesn't need to bring in the previous years tax returns because I keep copies and look back on them if I need to answer a question.
Why only three years? Why not four or five or ten? There is a statute of limitations on taxes which means after three years the tax payer can't make any changes and neither can the IRS. After all, if no error has been found in three years, it probably won't be found.
Am I also looking for errors that might help my new client to receive more money from the government ? Yes, I am. Do I always tell a client about these? Yes, I do. Do I always suggest that the client act on receiving these refunds? No, I don't and in the next blog I'll tell you why.
Remember if you have an idea about a blog topic, let me know. I'm here to respond to what my public wants to read.
Are you looking for someone to prepare your taxes? Planning on using the same person or organization as last year? Doing your own taxes with a program either purchased or on line? Is this your first year to file your own taxes? What to do???
Any of these choices are fine. Recently I saw an ad on TV, which will be prevalent for the next few months and then die away until next year, from a rather large national tax preparation firm asking for clients to bring in the last three years of tax returns. The ad suggests that there may be an error on the prior years' returns that, once rectified, would yield large tax refunds missed by the previous preparer. And that might be true. It occurred to me that this request for prior tax returns might need some explaining.
Is this usual practice? Yes, it is. I always want a new tax client to bring in the previous three years tax returns for my review. Do I think the prior preparer has made a mistake or missed something? No, not really. There are a lot of things I'm looking for when I review a new client's tax returns. Read on to see what I hope to discover.
First of all I'm looking to see what the client reported for the last three years so I can continue in the same manner. No need to upset the IRS with changes that don't need to be made.
Second I'm looking for anything that might be missing. If interest was reported from a certain bank in prior years and there is no interest from that bank now, I want to ask about it. It could be the account was closed and therefore no interest income for the current year or it could be the tax payer forgot to bring in that 1099. I also want to check to see how certain items such as installment sales and depreciation were handled. The list is long and extensive and I won't try to list everything here.
So, if you are going to a new preparer or to a preparer you've used before, it's always a good idea to bring along the previous years tax returns. Some preparers might not need that since they will be keeping everything on file and can find it themselves. I'm that way. A continuing client doesn't need to bring in the previous years tax returns because I keep copies and look back on them if I need to answer a question.
Why only three years? Why not four or five or ten? There is a statute of limitations on taxes which means after three years the tax payer can't make any changes and neither can the IRS. After all, if no error has been found in three years, it probably won't be found.
Am I also looking for errors that might help my new client to receive more money from the government ? Yes, I am. Do I always tell a client about these? Yes, I do. Do I always suggest that the client act on receiving these refunds? No, I don't and in the next blog I'll tell you why.
Remember if you have an idea about a blog topic, let me know. I'm here to respond to what my public wants to read.
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