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.
Monday, December 31, 2012
December 31, 2012
Here it is the end of the year. The end of 2012. Time to celebrate, I guess.
I waited until the last minute to write this entry to see what Congress would do with the "fiscal cliff". It seems they are not too concerned about slowing the U.S. growth and then the whole world. That is if predictions are true. Predictions are often not true.
Recently my daughter asked me about economics. That is a very difficult subject. I took a class in economics when I was in college at the University of Tennessee. All I remember was a lot of formulas and graphs trying to predict how people would make purchases. Supply and demand.
But it seems to me that economics is all that and more. The "more" are people. Who could have predicted a run on pet rocks? We all know if we have the patience to wait, the newest electronic device will drop in price. It will certainly drop in price right before the newest model is released. But if we all wait for this price drop, if no new devices are sold as we all wait patiently for a good buy, then there won't be a new one because the old one didn't sell. That's also economics.
So, what did I tell my daughter? I told her economics was an attempt to explain by numbers the emotional buying behavior of large groups of people. I think that's what it is. Blind men groping around in the dark looking for the sharpest item while wearing very thick gloves. It's a guess what will happen on January 1, 2013.
Well, not completely a guess. Taxes are going to rise. Spending cuts are going to happen. Congress will act in January and claim they have saved us all and don't we want to re-elect them to do more of this same job? I don't want to get political. That's not the purpose of this blog, so I'll change the subject in the next paragraph. It will be an abrupt transition so I'll prepare you for it here.
Right now go out and check the odometer on your work vehicle. If you don't have a work vehicle then you can skip this task. But if you do have a work vehicle you will need to know this number. If you keep accurate and detailed travel records then you'll have this number already recorded in your log.
If you haven't yet purchased W-2 forms, then you don't need to. You can file your W-2s directly with the Social Security Administration. The added benefit of this is that you'll know immediately if the employee name and Social Security number match because the web site won't let you enter the information if it doesn't.
This coming year of 2013 will see massive new changes - in many ways - but I mainly speak of taxes. This year the New Health Care Act will begin to be fully implemented. That will change so many things I can't begin to predict what they might be.
I will leave you with this. Your next major tax dates are January 15, 2013, to make your final estimated tax payment for 2012 if you are self-employed. And January 31, 2013, is the deadline to file and pay the 4th quarter and year end payroll taxes. But I'll speak more about that in January.
As always, if you have any questions or suggestions for future blogs, let me know. Happy New Year.
I waited until the last minute to write this entry to see what Congress would do with the "fiscal cliff". It seems they are not too concerned about slowing the U.S. growth and then the whole world. That is if predictions are true. Predictions are often not true.
Recently my daughter asked me about economics. That is a very difficult subject. I took a class in economics when I was in college at the University of Tennessee. All I remember was a lot of formulas and graphs trying to predict how people would make purchases. Supply and demand.
But it seems to me that economics is all that and more. The "more" are people. Who could have predicted a run on pet rocks? We all know if we have the patience to wait, the newest electronic device will drop in price. It will certainly drop in price right before the newest model is released. But if we all wait for this price drop, if no new devices are sold as we all wait patiently for a good buy, then there won't be a new one because the old one didn't sell. That's also economics.
So, what did I tell my daughter? I told her economics was an attempt to explain by numbers the emotional buying behavior of large groups of people. I think that's what it is. Blind men groping around in the dark looking for the sharpest item while wearing very thick gloves. It's a guess what will happen on January 1, 2013.
Well, not completely a guess. Taxes are going to rise. Spending cuts are going to happen. Congress will act in January and claim they have saved us all and don't we want to re-elect them to do more of this same job? I don't want to get political. That's not the purpose of this blog, so I'll change the subject in the next paragraph. It will be an abrupt transition so I'll prepare you for it here.
Right now go out and check the odometer on your work vehicle. If you don't have a work vehicle then you can skip this task. But if you do have a work vehicle you will need to know this number. If you keep accurate and detailed travel records then you'll have this number already recorded in your log.
If you haven't yet purchased W-2 forms, then you don't need to. You can file your W-2s directly with the Social Security Administration. The added benefit of this is that you'll know immediately if the employee name and Social Security number match because the web site won't let you enter the information if it doesn't.
This coming year of 2013 will see massive new changes - in many ways - but I mainly speak of taxes. This year the New Health Care Act will begin to be fully implemented. That will change so many things I can't begin to predict what they might be.
I will leave you with this. Your next major tax dates are January 15, 2013, to make your final estimated tax payment for 2012 if you are self-employed. And January 31, 2013, is the deadline to file and pay the 4th quarter and year end payroll taxes. But I'll speak more about that in January.
As always, if you have any questions or suggestions for future blogs, let me know. Happy New Year.
Friday, November 30, 2012
End of Year Review
Tomorrow is December 1, and a good time to make a end of year plan. If you are a cash basis tax payer, and many small businesses are, then you only have until December 31, to pay any expenses or take any action to modify your tax picture for 2012.
I know it's a difficult time with Congress seeming to march over the dreaded Fiscal Cliff and taxes set to rise on January 1, if they do. But you can't trade on futures or worry about tomorrow. Today's problems are sufficient for today, to butcher a very nice quote.
What can you do today? Begin to summarize your income and expenses. If you have a general ledge program and are using it to enter your income and expenses, now is the time to start running reports and looking at you annual financial picture. Are you going to be fortunate enough to have a profit? Can you lessen that profit and therefore you taxes by buying a new asset you need to increase business in 2013? Don't buy anything you don't need or can't use just to lower your taxes.
What about employee Christmas bonuses? Gifts of money to employees need to be treated as payroll. But small gifts such as bottles of wine, a ham, a gift card of $50 or less do not need to be treated as payroll.
Even if you don't want to pay your taxes until the last minute - April 15, according to the IRS; October 15, if you don't mind a little penalty and interest - it's a good idea to get started on pulling tax information together. It will give you time to find information you need to prepare, or have prepared, a good tax return and keep you from pulling your hair out at the last minute.
I hope everyone has a Merry Christmas and a happy holiday season. I'll keep writing and we'll all keep working and hoping for a great 2013.
I know it's a difficult time with Congress seeming to march over the dreaded Fiscal Cliff and taxes set to rise on January 1, if they do. But you can't trade on futures or worry about tomorrow. Today's problems are sufficient for today, to butcher a very nice quote.
What can you do today? Begin to summarize your income and expenses. If you have a general ledge program and are using it to enter your income and expenses, now is the time to start running reports and looking at you annual financial picture. Are you going to be fortunate enough to have a profit? Can you lessen that profit and therefore you taxes by buying a new asset you need to increase business in 2013? Don't buy anything you don't need or can't use just to lower your taxes.
What about employee Christmas bonuses? Gifts of money to employees need to be treated as payroll. But small gifts such as bottles of wine, a ham, a gift card of $50 or less do not need to be treated as payroll.
Even if you don't want to pay your taxes until the last minute - April 15, according to the IRS; October 15, if you don't mind a little penalty and interest - it's a good idea to get started on pulling tax information together. It will give you time to find information you need to prepare, or have prepared, a good tax return and keep you from pulling your hair out at the last minute.
I hope everyone has a Merry Christmas and a happy holiday season. I'll keep writing and we'll all keep working and hoping for a great 2013.
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