As we begin the year with resolutions made, celebrations and get-togethers over, we get back to routine time. So … what comes to mind? “That time”of the year. Yes it’s that time of the year where Uncle Sam knocks at your door, reminding you to do your part in filing your tax return.
This year, the deadline for filing your tax return for the 2016 return for the individual taxes is April 17th 2017 and for the Corporation taxes it is March 15th 2017. So as the time to file gets closer, here are a few reminders to better prepare you and consequently help to reduce your stress during this year’s tax season.
If you have not already done so, gather all your tax records. This includes receipts, cancelled checks and other records that support your income, deductions or tax credits that you claim. If you are not sure whether you will need the information or not, keep the paperwork until you consult with your accountant or tax expert. In this case more is better, it’s better to be safe than sorry. Let the experts do the scrutinizing and sorting.
These include your wage statement (also called your W2) issued by your employer/s during the tax year. However, do not forget that other forms of income need to be reported also. This includes all income earned through independent contracts (1099 income), interest earned from bank deposits, interest earned from dividends and capital gains or stocks (1099 B) and your winnings at the slot machine, that is any gambling income. (W2 G) If you own rental property and have a management company that issues you a statement of rental earnings, (1099 Misc) be cognizant of including the amount in your tax return.
Although it is the responsibility of the employer / issuer of the income statement to report your income to the IRS, it is also your responsibility to inform your employer, bank or issuer of 1099 about a change of address. Use the IRS change of address form (8022) to inform the IRS about a change of address. Do not forget that if you were unemployed, your unemployment check is income and needs to be reported. Also, there are clear deadlines for issuance of W2s and 1099s by the employers. So if you have not received your income statements by the beginning of February, it may be a good idea to contact your employer/previous employer. Do not assume they are organized and have done their part. Small businesses are not very different from individuals in that they often procrastinate or cut costs by not hiring an accountant. They may be great at running their business and paying you but may have not done their own paperwork.
Do Not Procrastinate
Putting off anything until the last minute is not a good idea. When it’s about your finances and income, it’s never a good idea. Rushing to meet the deadline could not only cause you pre- tax day stress and worry (which is absolutely unnecessary) but more importantly, it could cause you to overlook potential tax savings and will likely increase the chance of you or your accountants’ to make errors. A great way to handle this is to make an appointment with your accountant as soon as you get your tax documents in the mail. Or make an appointment for the first week of February, make a reminder on your phone two weeks prior to that and if you haven’t got your W2 by then, you know it’s time to call your employer.
If you are unable to pay taxes you might owe, do not panic. If you are facing situations beyond your control, see your accountant immediately. Filing your return by the deadline is important. Pay as much as you can to avoid penalties and interest charged to you. Avoiding doing your taxes is tax evasion. Not filing your taxes implies your intent to not pay and that is a criminal offense for which we can (we are not but we can) be put behind bars. Moreover, talking to the experts helps. You may not owe as much as you think you do. Also, you may be eligible for an installment agreement using an online payment agreement, or have other payment options. If you were advised by your accountant to pay an installment on estimated taxes, make sure you pay them using the ES 1040. If you have misplaced your forms just pick up the phone and call your accountant. He has the ability to print you a new one. The important thing for you is, to do something about your situation rather than nothing at all.
Requesting an extension is also an option. An extension can be requested until mid-October for individuals and mid September for corporations. However, keep in mind that the extension is for time to file the return – you must pay on time. If the deadline is ticking and you are unable to get to your paperwork due to illness, being out of the country or otherwise, the automatic extension must be filed and postmarked by the April 17th deadline. Do not forget though that this extension of time to file does not give you more time to pay any taxes that are due. If you have not paid at least 90 percent of the total tax due by the April deadline, you may be subject to an estimated tax penalty over and above your tax amount due.
Your tax preparer will need some information from you to prepare your taxes. When you go for your appointment take your wage/income statements, social security card or ITIN , drivers license ( you need your correct name on your tax return) last year’s federal and state tax returns, your health coverage documentation, interest and dividend income statements, unemployment income, social security income, mortgage or home equity loan interest paid, real estate personal and property taxes paid, medical , eye care and dental expenses, cash or non cash charitable deductions, state income tax refund amount, casualty or theft losses, self employed business income and expenses, sales of stocks and bonds, income from partnerships, S corporations, Trusts and Estates, Income and expenses from rentals, estimated taxes vouchers information, alimony paid or received, pension or retirement income record of purchase or sale of resident, lottery or gambling winnings, or losses, IRA contributions, child care expenses and provider information, state and local taxes paid, unreimbursed employment related expenses, Job related educational expenses, tuition and education fees, student loan interest, moving expenses and or Foreign taxes paid, any addition or subtraction in the family – children born, dependent parents added or a family member passed on or a divorce., any information on a change of status- social security issuance, ITIN , cash payment, Green card or such. The list may seem overwhelmingly long but remember each case is special and must be treated in its individual unique way. So, I suggest that you spill the beans with your accountant as honestly as you can and let him do the counting!
Organization is the name of the game. If you are old school and like to maintain a file, start with your tax return every year and keep adding all the paperwork to your folder or file. If you are computer savvy there are many inexpensive or sometimes free tools and applications that can be accessed through your smart phone.
For small business owners, Mile IQ is a great way for recording/logging your automobile mileage for tax usage. It is not free but is considerably inexpensive. File this is a valuable tool that is free and helps in organizing documents for tax time and other uses. Mint, an INTUIT based program enables you to categorize your expenses (helpful in budgeting – no need to write your expenses in a little log book or try and remember them) directly from your online bank account. QuickBooks is an extremely user friendly accounting program that enables organization and categorization for individuals and businesses. There is an online version of QuickBooks available now. Our office provides information and training on all of these and other business tools.
Last but not the least; do not forget to review your tax return. Regardless of who has prepared your return, it is very important to ensure that there are no errors- names spelled correctly, numbers not inverted and all income included. Mistakes slow down your tax refund and processing. E filing is becoming more acceptable but if you prefer paper returns, you are not alone. Be aware thought that some states such as New York apply a penalty if you file your tax returns on paper. File your return whichever way you are comfortable, after all its about your money. If you are getting a tax refund, use direct deposit. The fastest and safest way to get your refund is to combine e-file and direct deposit. Data shows that using this method, as long as there are no erroneous returns, the IRS issues nine out of ten refunds in less than 21 days. Remember it’s your money; get it as soon as you can!
Chose your accountant/tax preparer wisely. You wouldn’t want a doctor who does not have the time to talk to you and explain things to you, so it is with the accountant. Make sure the accountant is organized himself and does not lose your papers in his mountains of paperwork. Also ensure that he has the time for you. Too busy of an accountant may ignore what to him are “small fry” or may rush through your paperwork due to paucity of time and file an erroneous return or miss deadlines. Lastly, ensure that you find an accountant with whom you feel comfortable sharing your most personal details – income, business losses, bankruptcies garnishments, divorces are after all personal matters.
Remember, as a wise man once said, “When you fail to plan, you plan to fail”. We wish you a stress-free tax season this year and always.
Gautam Kumar, CPA is with Fact Professional, Inc. Feel free to reach us at (818) 406-0792 or visit our website: Gautam Kumar CPA.com.