IRS Opens January 19 for filing 2015 personal tax returns

The IRS has announced that the tax extenders legislation will not slow the start of tax season.  The IRS will be open for business on January 19, as planned.  On this day personal tax returns, 1040 forms, can be electronically filed.  All 1040s will begin to be processed at that time so sending in a paper return before that date will not speed up the process.  Paper returns will be held until January 19 and processed at that time.

Tax season will end on Monday, April 18, 2016, because Washington, D.C. will celebrate Emancipation Day and when D.C. closes and the IRS takes a break, it slows down the end of tax season.

The IRS urges tax payers to make certain all tax filing forms have been received before filing a tax return, this included W-2s, 1099s and the new form 1095-A from the Marketplace for tax payers who plan to take the premium tax credit.  I will be writing a separate post on these forms which are new.

E-file and direct deposit are still the quickest and safest ways to file returns and claim refunds.  You can do this yourself, sometimes for free if certain qualifications are met, or for a small fee.  You can also use the services of a tax professional if you prefer.  If you have any questions, please post a question and I'll do my best to supply an answer.

The IRS is open for business and so am I

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The IRS will be open for business on Tuesday, January 20, 2015, to begin processing 2014 tax returns.  Below is some information copied directly from the IRS web site about filing and using electronic filing.  If you don't file electronically, I urge you to do so.  It's quick.  It's easy.  It's free (sometimes).

Contact me if you need me. 

IR-2015-03, Jan. 15, 2015

WASHINGTON — The Internal Revenue Service announced the on-time opening of the nation’s 2015 filing season and highlighted a growing array of online services, including features that help taxpayers understand how the Affordable Care Act will affect them at tax time, along with the availability of the Free File program.

Taxpayers have until Wednesday, April 15, 2015 to file their 2014 tax returns and pay any tax due. The IRS expects to receive about 150 million individual income tax returns this year. Like each of the past three years, more than four out of five returns are expected to be filed electronically.

The IRS Free File program, available at IRS.gov, will open Friday for taxpayers, and the IRS will begin accepting and processing all tax returns on Tuesday, Jan. 20.

This year’s return will include new questions to incorporate provisions of the Affordable Care Act (or ACA). The majority of taxpayers - more than three out of four – will simply need to check a box to verify they have health insurance coverage. For the minority of taxpayers who will have to do more, IRS.gov/aca features useful information and tips regarding the premium tax credit, the individual shared responsibility requirement and other tax features of the ACA.

“Our employees will be working hard again this season to help the nation’s taxpayers,” IRS Commissioner John Koskinen said. “We encourage people to use the tools and information available on IRS.gov, particularly given the long wait times we anticipate on our phone lines. As always, taxpayers can benefit by filing electronically.”

Koskinen announced that taxpayers can begin preparing their returns using the Free File system on Friday, Jan. 16. Available only at IRS.gov, Free File offers two filing options:

• Brand-name software, offered by IRS’ commercial partners to about 100 million individuals and families with incomes of $60,000 or less; or
• Online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels and especially useful to people comfortable with filling out their own returns.

E-file, when combined with direct deposit, is the fastest way to get a refund. More than three out of four refund recipients now choose direct deposit. People who e-file make fewer mistakes, and it costs nothing for those who choose Free File.

In all, 14 software companies will be participating in this year’s Free File program. Additional details about the specific Free File offerings will be available tomorrow on the front page of IRS.gov when Free File becomes available.

Taxpayers who purchase their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically. In addition to Free File, commercial software companies also are currently available for taxpayer use.

The IRS will begin accepting and processing all returns — whether e-file, Free File or paper tax returns — on Jan. 20.

Like last year, the IRS expects to issue more than nine out of 10 refunds within 21 days. Again, the fastest way to get a refund is to e-file and choose direct deposit. It takes longer to process paper returns and in light of IRS budget cuts resulting in a smaller staff, it will likely take an additional week or more to process paper returns meaning that those refunds are expected to be issued in seven weeks or more.

Koskinen said, “If you haven’t already, you should consider filing electronically. It’s fast, accurate and the best way to get your refund quickly.”

Koskinen also strongly encouraged taxpayers to visit IRS.gov as a first stop for information ranging from the status of their refunds to basic tax information. He cautioned taxpayers that recent budget reductions will mean long wait times on the phone, routinely topping 30 minutes.

Information on IRS.gov and using tax software and e-file are among the options that can help people with questions about the individual shared responsibility requirement included in the Affordable Care Act, which is new to the Form 1040 this filing season.

BEST for Small Businesses - Get Started & Keep Going

You'll notice that I've added a new page to the right.  On this page you'll find all the information you need about my first small business seminar - Get Started & Keep Going.  If you don't find everything you need to know, post something to this blog entry and I'll answer your question.

You'll also notice some buttons for pay pal through which you can pay to attend the seminar.

You don't need to pay for a manual unless you want one printed out on paper.  You will receive a free PDF manual via email when you sign up for the seminar.  You can print your own pages from that.  But if you really want me to print one for you, I will do that for $20.

I hope you plan to come.  Sign up early, it's cheaper and there's a limit to how many can come.

W-2s, 1099s and Year End Payroll Reports

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.

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!

Drain the Fat.

I'm no cook.  I can boil water and operate a microwave, but cook a meal from scratch?  The 20 minute meal takes me several hours and leaves me too tired to eat it.  That is if my attempt is edible.  The simplest instructions stump me.  Take last night for example, one simple line, drain the fat.

All right.  How?  Into what?  The pan is hot.  The broken up hamburger is steaming and popping with its own hot oil.  The fat itself is rather dangerous to my skin and, I think, maybe to my drain pipes.  What am I to do with the stuff?  And really, what if I make a mistake?  What if I don't do it exactly right or as fast as an experienced cook?  It's only cooking.

Many people can throw together a meal, drain the fat, and cook a casserole.  They don't give it a second thought and if they mess it up a bit, no one cares.  Taxes aren't that way.  Do 'em wrong and people care.  IRS Agents care a lot and they'll let you know about it, too.  Don't worry.  You'll have directions on what to do and how to do it.  Directions that are obtuse, overly complicated and rarely on point.

But taxes to me are like cooking to an experienced cook.  Just as a good cook scans a recipe and automatically begins mentally listing the first steps and size of pan he'll need, I do the same with tax information.  Based on the informational forms the taxpayer presents, I begin to plan the tax forms I need.  1099 - better check it to see what income is being reported - rents (Schedule E), interest or dividends (Schedule B), K-1 partnership or S-corp (Schedule E page 2), 1098 (Schedule A).  Since the Schedule A is already in play, how about real estate taxes, medical bills, state taxes, contributions?  W-2, self-employed, retired?  Depreciation, vehicle expenses, employee benefits?  Each tax client is different just like a recipe.

I can't cook a meal but I can prepare a tax return with one had tied behind my back.

Well, not too tough with one hand and a computer.

How did I get this way?  Was I always strange and slightly crazy?  Well, maybe, but it could be years and years of experience.  Yep, that and growing up with a CPA.  My father ran a small one man shop.  Just like a good cook brings the children into the kitchen as babes to begin learning through observation and prep work, so it was in my childhood home with taxes.

My father's cottage industry involved the whole family from January to April.  My first job as a child was to read the appointment schedule to see who was coming in next.  Then pull the taxpayer's file to find out which forms had been used the year before.  After I had my stack of forms I wrote the taxpayer's name and ID on every one.  I put these in a folder and placed the folder on my dad's desk.

After my father prepared the tax return, my grandmother proofed his addition.  After he corrected any errors, my mother typed the tax return.  After my sister proofed her typing, the client was contacted to pick up the tax return.

The process was repeated in our house 100 to 150 times a year, every year.

Then around 1979, my dad bought a personal computer with some basic tax software and life changed forever.  Proofing and printing became a lot easier but knowing which forms to use and where to put the numbers required the same high level of knowledge.

Make a few mistakes in a recipe and you might have to eat a meal that's a little less tasty than you'd hoped, but probably not fatal.  And while making a mistake preparing a tax return isn't fatal either, it sure feels like it when that letter from the IRS arrives - usually two years after the return was filed - asking for an explanation about an entry the taxpayer doesn't remember making.

Many people begin to prepare their own taxes, just like I try to make my own meals, and get stumped by the instructions.  What does that mean?  How do I do that?  What form do I use?  It can be scary and it can be difficult, but it's not impossible.  Maybe you'll never prepare your own taxes, but by reading this blog you'll be more educated and organized when you sit down with your CPA and she starts asking questions.  Maybe your tax prep fee will drop because you bring the correct documents and information to the interview the first time and the CPA doesn't have to call you repeatedly to get the information she needs to finish the tax.  Maybe your anxiety level will drop and you'll gather your tax information without breaking into a sweat or screaming at your spouse and children.

Maybe you'll just read the blog because you can't believe anyone would write about something as boring as taxes.

I plan to write a new blog each week and discuss a topic that I find interesting or timely.  If my readers have questions or problems or confusion or fear, they can ask questions or make comments and I may use those for future posts.  Don't be shy.  I'm a real CPA licensed to practice in Tennessee.  Outside the state of Tennessee, my state specific information will be spotty, but if you're in the United States, my federal information will apply to all.  Until next time, keep cooking.