Important tax tips for businesses and individuals
By Scaringi & Scaringi P.C.
Death and taxes.
It is no coincidence that these two banes of human existence are linked in this cliché. No one wants to think about either, but when tax time rolls around, it is best to claim what is justly yours and pay only what is owed.
Instead of settling for a bare-bones retail tax preparer or the latest tax software program, you may need added help to understand the full sweep of IRS tax law — especially if you recently experienced a major life change, such as a divorce, or you have been contacted by the IRS, owe back taxes or are contemplating a bankruptcy filing.
Someone who understands tax law can help individuals and businesses avoid the following common mistakes’
3 tips for individuals:
1. Blowing the April 15 deadline
Some people are born procrastinators; others have legitimate reasons for being tardy with their taxes, including record-keeping mix-ups and late or missing tax forms from employers, banks or stock brokers. The IRS liberally grants requests to extend the tax-filing deadline by six months, as long as you file the necessary paperwork.
A filing extension, however, will not give you extra time to make payments on any taxes owed. Your estimated tax liability will still be due April 15. If you are late paying, the IRS charges a penalty of up to 25 percent of the net taxes due.
2. Losing track of your generosity
A personal check is the easiest way to track and record your tax-deductible charitable contributions. By taking full credit for your generous heart, your adjusted gross income will drop in direct proportion, resulting in a lower overall tax liability.
Of course, some personal filers simply claim the IRS standard deduction on their returns. But if you don’t track your deductions, you’ll never know when itemizing is to your advantage. If you have medical expenses, mortgage or student loan interest, along with considerable charitable giving, you might be leaving money in the IRS’s pocket.
3. Bigger is not always better
Beware the tax preparer who promises the largest tax refund, bar none. Shopping around for the biggest refund can become a “save-now, pay-later” proposition.
They often don’t warn you that you could be on the hook for back taxes, interest and penalties, should any of their creative credits and deductions turn out to be bogus. When the IRS claims what it is owed, it can go so far as to attach your wages and Social Security and even place liens on your property.
3 tips for businesses:
1. Panicking over the Affordable Care Act
Despite fears about the impact of the Affordable Care Act on business’s bottom line, most will be untouched by the reporting requirements and employer shared responsibility provisions that are being rolled out this year.
Only so-called “Applicable Large Employers” (ALEs) – businesses with at least 50 employees during the previous tax year – will be penalized by the employer shared responsibility provisions if they fail to provide the minimum coverage to full-time employees and their dependents at an “affordable rate.”
If coverage would cost the employee more than 9.5 percent of his annual household income, it is deemed unaffordable. If an ALE fails to provide coverage, the business may be responsible for a “shared responsibility payment.” This happens when the employee gets coverage from the Health Insurance Marketplace at a lower rate than the employer’s, with the employee also receiving a premium tax credit. These employers also have tax reporting requirements regarding the insurance they provide.
2. Failing to appreciate depreciation
Did you buy new office furniture? A fleet vehicle? With depreciation, you can reduce your company’s taxable income for the next 10 years, based on purchases you would likely make anyway. But if you depreciate incorrectly, you’ll raise eyebrows at the IRS. With differing rules for various business expenditures, beginning with Schedule E on the 1040 IRS form, it pays to consult a professional.
3. Quarreling over quarterlies
When you own a business, the IRS likes to see its tax money every quarter. Businesses file form 1040-ES when submitting estimated taxes every three months. This helps business owners avoid large tax bills at the end of the year. It also keeps businesses off the hook for certain penalties and interest. If you expect or experience a big change in business income, you may need to recalculate your quarterlies.
And a tip for everyone: Face your tax debt
It’s no coincidence that Al Capone went away for income tax evasion. Sooner or later, the IRS will come for you. That is why it is always best to respond immediately to any IRS correspondence. Sticking one’s head in the sand or going “off the grid” to avoid the IRS simply isn’t an option – either for individuals or businesses.
The current IRS interest rate is 3 percent, compounded daily, and the rate is subject to change every three months. Additionally, there’s a late payment penalty of 0.5 percent of the taxes owed. This penalty is added each month to the unpaid amount, and the penalty doubles once the IRS issues a final notice of intent to levy or seize your property.
A lien can make it difficult or impossible to sell your property, preventing you from seizing a new job opportunity or complicating your divorce because tax liens block equitable distribution.
With help, you can work out payment arrangements. Sometimes, this plan is paired with a personal bankruptcy filing, which cannot discharge tax debt, but can re-order your other finances and debt.
To learn more about how Scaringi & Scaringi P.C. attourney can help you, call the firm at 717-657-7770 or visiting www.scaringilaw.com.