Category Archives for "Deadlines or Notices"

I Didn’t File My Tax Return; Now What?

By Mike Jesowshek, CPA | Deadlines or Notices , Taxes

There are a lot of perfectly reasonable reasons for not having filed your income taxes. Many people who fail to file are new to the job market, and never having filed before may simply have been unaware of the requirement to do so. Some people know but are too overwhelmed with other life events, including illnesses, death, or job loss. Whatever your reason and whether you’ve only missed one year of filing or several, there comes a point when you either remember on your own or are prompted for a request for a copy. Now, what do you do? And how much trouble are you in?

Here’s the Good News

First of all, if you’re the one who realized that you haven’t filed rather than getting a notice from the IRS or your state tax authority, then you’re probably not in too much trouble. Even if you’ve gotten a notice, there’s a specific legal process that gets followed when a taxpayer hasn’t filed a return, and it is a perfectly reasonable procedure that can be addressed and managed. There is no reason to panic, as nobody is going to break down your door and haul you away. Filing taxes is a matter of paperwork and payment. If you haven’t been in compliance, you simply need to amend the situation and pay some penalties, and possibly some interest.

As A Matter of Fact …

You may not even have been required to file a return.

There are plenty of taxpayers whose circumstances are such that they aren’t required to file a tax return, and when that’s the case, the state frequently follows their lead (which is a good thing, as many times the penalties that a state charges for failure to file tax returns are higher than those imposed by the federal government.)

The best and easiest way to find out whether you are one of those who didn’t need to file is to visit the IRS website, where there is a handy tool called “DO I NEED TO FILE A TAX RETURN?” Plug in your relevant information about the tax year in question, your income, household composition and filing status for a quick answer. You may be in for a pleasant surprise unless you fall into one (or more) of the following categories:

• You earned at least $400 in profit from being self-employed. This can include any job for which you received a 1099, and anything from doing freelance work as a writer to providing landscaping services for your neighbors. Driving for Lyft or Uber counts too.
• You sold your house, even if it was a break even or loss and you had no income that year
• You received unemployment benefits
• You are a worker who earns tips and they weren’t reported to your employer. Even if you reported them you may have to file a tax return if they didn’t submit payroll taxes for them.

In each of these situations, you are required to file a tax return, regardless of how much or how little you earned and whether you paid taxes on those earnings or not.

Fortunately, filing a tax return is always possible, though you may have to pay a penalty.  On the flip side, you may actually have a refund coming which obviously will benefit you to file.

Did the Government Do It For You?

Though the IRS doesn’t always catch every time that a taxpayer fails to file a tax return, when they do they will send out a notice. And if your Social Security Number was linked to any type of document or paperwork that they received, whether that’s a W-2, a 1099 or any other type of form, they also probably filed a substitute tax return to make up for your oversight. These substitute returns represent a bare minimum of information. They don’t enter any of the information that you might have provided in order to minimize your tax liability – they use the standard deduction and personal exemption, then record the income information that they have. It’s also what they’ll use to figure out your penalties, interest, and fines owed.

There are a lot of reasons why you should take action to get a real tax return in for yourself instead of the substitute return that the government provided, but one of the best reasons is that when you’re asked for a previous year’s tax return so you can take out a loan, the substitute won’t satisfy the lender’s requirements.

Better Late Than Never, But It Has to be Right

When you’re filing a past-due tax return, you want to make sure that every “t” is crossed and every “I” is dotted. This is no time for making mistakes or leaving out important information. Even if your returns are generally simple, you’d be wise to work with an experienced tax professional in getting your papers turned in to the federal and state authorities. They will look out for your best interest, helping you to avoid any potential pitfalls and acting on your behalf to address complex questions and offering authoritative explanations of your inaction if necessary.  In some circumstances a tax professional can even get your penalties abated or minimized.

Can’t Pay Your Taxes by the April Due Date?

By Mike Jesowshek, CPA | Deadlines or Notices , Taxes

If you aren’t one of those lucky Americans who gets a tax refund from the IRS you might be wondering about your options for paying off your tax liability by the April due date.

The IRS encourages taxpayers to pay the full amount of their tax liability on time, and it imposes significant penalties and interest on late payments. Thus, if you are unable to pay the taxes that you owe, it is generally in your best interest to make other arrangements to obtain the full funds to pay your taxes so that you are not subjected to the government’s penalties and interest. Here are a few options to consider.

• Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
• Credit Card – Another option is to pay by credit card by using one of the service providers that works with the IRS. However, as the IRS will not pay the credit card processig fee, you will have to pay that fee. You will also have to pay the credit card interest on the payment. Caution: Depending on the amount owed, it may be less expensive just to pay the IRS penalties and interest rate on the unpaid balance rather than the normally higher credit card interest rates.
• Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement that allows you to make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. In addition, interest will also be charged at the current rate, and you will have to pay a user fee to set up the payment plan. By signing this agreement, you agree to keep all future years’ tax obligations current. If you do not make payments on time or if you have an outstanding past-due amount in a future year, you will be in default of the agreement, and the IRS will then have the option of taking enforcement actions to collect the entire amount that you owe. If you seek an installment agreements exceeding $50,000, the IRS will need to validate your financial condition and your need for an installment agreement through the information you provide in the Collection Information Statement (in which you list your financial statements). You may also pay down your balance to $50,000 or less so as to take advantage of the streamlined option.
• Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because it jeopardizes your retirement and because the distributions are generally taxable at the highest bracket, which adds more taxes to the existing problem. In addition, if you are under age 59½, such a withdrawal is also subject to a 10% early-withdrawal penalty that compounds the problem even further.

Whatever you decide, don’t just ignore your tax liability, as that is the worst thing you can do. If you are a business owner getting nailed with self-employment taxes yet again this year, contact us immediately so we can discuss how we can implement a system NOW to avoid that in 2018.

1099-MISC Rundown for Fitness Studio Owners

By Mike Jesowshek, CPA | Deadlines or Notices , Taxes

At the start of every January, small business owners around the country are scrambling to understand what the requirements are behind the 1099-MISC form and what they have to do.  To help make things easier for you, I have broken down the basics behind the 1099-MISC form.

Who do I need to send a 1099-MISC to?  Any individual, company, contractor, vendor, etc. that you paid $600 or more to throughout the year in your business.  This can include payments for rent, services, prizes, legal, etc.  Any personal payments you made are not reportable.

Are there any exceptions? Yes, there are some instances in which you paid a person or company $600 or more but you do not have to issue them a 1099-MISC and those are:

• Payments to C or S Corporations
• Payments for merchandise, freight, or storage
• Payments of rent to real estate agents or property managers.  Note: If you paid rent directly to the property owner then it would still be required unless another exception was met.
• Payments made via credit/debit card or PayPal
• Payments made to employees — These would be reported on a W2 instead

Note: The C or S Corporation exception does not apply for payments to attorney’s.

How do I get the payee information? You might be getting ready to start filling out a 1099 and wondering where you find the required information from your payees.  The IRS has a Form W-9 that you can request your payee to fill out.  This will be extremely useful for you because it will provide you with the legal name, address, EIN/SSN, and indication if they meet the C or S Corporation exception.  You can download a copy of the W-9 form here.

When to file? You must have your 1099s mailed or given to your recipients and submitted to the IRS by January 31st.

What if I don’t file? You can be hit with a per form penalty depending on how long past the deadline you are.  If you intentionally do not file, the penalty can be much higher.

Tips Moving Forward

If after reading this you are starting to scramble contacting all of your previous year vendors asking for a W9, you are not alone.  However, take this as a lesson so that you can be better prepared for this time next year.  Here is a quick hit list to help relieve some stress next January:

1. Have a Solid Bookkeeping System – Make sure your books are in good order. This can be helpful in determining who might be eligible for a 1099 when January comes around.
2. Always Collect a W-9 Up Front – Do not wait until you hit $600 or next January to request a W-9 from your contractors/vendors. Ask them for this up front when your relationship first begins.

If you have any further questions regarding the 1099 Form or any other bookkeeping/tax related items, send me a message, I would be more than happy to chat.  Our firm also handles 1099 processing so if you need any help on that end, do not hesitate to reach out.