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Need a Tax Extension? Last-Minute Tax Solutions

Bob Jennings, CPA — Thu, 12 Apr 2012 12:00:34 +0000

Tax day is almost here, with the tax deadline being April 17, but if you’re not ready or don’t have the money to file with the IRS yet, you can try to get an extension; Bob Jennings, CPA, EA, on how to go about it

Procrastinators of America – it’s your time! Once again, tax day is upon us and many of us have not filed our tax return. Maybe we haven’t gotten around to it, or we have what we believe is a good excuse, or we are waiting on information or maybe, just maybe, we plain don’t have the money to pay what we expect to owe on the tax return this year. What can we do?

First, maybe you aren’t really late. Because April 15 falls on a Saturday, the tax deadline this year is not until midnight Monday, April 17. Set aside the weekend and get those returns done! No more excuses.

But what if we just can’t get them done for whatever reason? Here is what you do. Go to www.irs.gov and type “4868″ in the search bar in the upper right corner, then click on “2011 Form 4868.” This will take you to a fill-in form to extend the filing due date of your return for six months until October 15. Remember, if you expect to owe you are still expected to pay any balance due when you file this extension. If you have no clue as to whether you will owe or not and just haven’t gotten around to it yet, file the extension anyway. Late filing penalties total 5 percent per month apply if you don’t! Although it is an expensive choice, if you just don’t have the money to pay, file or extend anyway – you will avoid the late filing penalties but will still be subject to a late payment penalty of .5 percent per month.

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How do you make a payment with the extension? You can always write a check, or pay via credit card with a fee is one option. If you are using the IRS free file program or a paid preparer, you also have the option of electronic funds withdrawal. The IRS also has an EFTPS program available to transfer money directly from your checking account. This program requires enrollment to use.

Don’t forget your state return. Most states accept the IRS extension, but check to make sure and remember to pay any balance due.

This year, the IRS also has a new late payment program for certain folks. If you were unemployed for at least 30 consecutive days in

2011 or 2012, you get an extra six months to pay the tax due. Self-employed taxpayers whose income in 2011 was at least 25 percent lower than 2010 also get this same deal, but both groups must have less than $200,000 income (joint) or $100,000 (single). File Form 1127-A by April 17 for this deal by going to www.irs.gov/pub/irs-pdf/f1127a.pdf . You will be charged interest, but no late-payment penalty.

Bob Jennings

If you can file your return but just don’t have the money and don’t meet the exceptions, there is one other deal available this year. If you owe less than $50,000 and have not been late or in trouble with the IRS in the past, you can get a six year installment payment program automatically from the IRS. This online payment agreement requires you to allow the IRS to debit your bank account every month. Get in this program by going to https://sa2.www4.irs.gov/irfof/lang/en/eiaTPstatus.jsp.

Finally-don’t let this happen again. As a CPA who has prepared tens of thousands of returns over 30 years, I have heard every excuse, and very few stand up. We have had filers who are in nasty divorces, family emergencies, major diseases, impending death, natural disasters, business failures and more file on time, so you can, too!

Bob Jennings CPA, EA, CFP is President of Jennings Seminars, a national continuing education company for tax professionals, and operates his tax practice at www.thecloudcpa.com . He can be reached at taxspeaker@gmail.com

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Self-Employed and Preparing Your Own Taxes? How to Do it Right

Bob Jennings, CPA — Wed, 04 Apr 2012 12:00:37 +0000

Tax season is upon us. Self-employed and thinking about doing your own taxes? Bob Jennings CPA, EA, CFP and President of Jennings Seminars, on tips on how to file properly

Tax software is a wonderful thing, and a terrible thing. Let’s look at some reminders when preparing your own return online, but some common sense is in order first.

Start by figuring out what you think your own time is worth per hour. Is it $10? $25? $50 $100. Let’s say you choose $25 per hour. If it is going to take you more than a few hours to do your return, go to a professional – it is cheaper in the long run, particularly when you add in the cost of your own lost time, software, state software, e-filing and worry. Second, if your return involves more complex tax issues like home office deductions, depreciation, early pension plan withdrawals or a lot of travel, go to a professional because the laws are too complex to figure out in a reasonable manner. Finally, don’t look at user boards online and then think you have “researched it on the Internet.” Tax research is not performed by rumor, blog or post; it is performed by reading the Internal Revenue Code and Regulations, court cases and IRS rulings and procedures.

So let’s say that I did not scare you off. What should a self-employed person look for when they do their own return with tax software? Start by recognizing that as a self-employed person you are responsible for all of your own income tax by paying quarterly tax payments. If you underpay by much, you will owe a penalty. Second, recognize the “shock factor” of self-employment tax, which is the most unplanned for tax bill for self-employed folks. This tax is a 13.3 percent additional tax for Social Security and Medicare over and above federal and state income tax.

With these things in mind, what else should you be looking for?

As a self-employed person, you will usually be filling out at least two forms that most Americans do not complete: Schedule C for sole proprietors, and Schedule SE to pay self employment tax. If you have a home office you will be completing another form, but we professionals see many mistakes on this form, so watch out. If you want to try to determine depreciation, fill out Form 4562, but a word of warning here because bonus depreciation, Section 179, MACRS lives and AMT usually will send you screaming into the streets searching for tax help.

The next thing we suggest is the tool that every decent tax professional in the country follows: Check every entry at least twice. After more than 30 years of tax practice, I still find that many tax return errors are caused by simply entering information incorrectly.

Bob Jennings

If you do decide it is too tough to prepare your own return, one last piece of advice: If you go to a tax expert and ask them to “look over” your return, they will usually charge more than if they did it for you. The IRS requires them to sign the return as a paid preparer, which means they need to review everything you have done, take full responsibility for the return, and incur professional liability.

Finally, what if you decide to go to a professional, what should you look for? Look for a CPA or IRS Enrolled Agent (EA), both of whom are required by law to pass difficult licensing exams, as well as meet pretty stringent continuing education rules every year. Ask your friends for a referral, check the web sites of firms in your area and ask some of the local businesses you deal with for referrals. Oh, and good luck!

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Secrets from the Tax Back Room: Tips for the Self-Employed

Bob Jennings, CPA — Wed, 21 Mar 2012 14:24:36 +0000

Tax season is upon us; taxpayers have until April 17 to file their tax returns. For Americans who are self-employed, doing your taxes may seem unwieldy and confusing; CPA Bob Jennings of Jennings Seminars on tips for tax preparation for the self-employed.

So you owed an unexpected amount of money on last year’s tax return and, unlike Warren Buffet, you don’t want to pay more this year. What are some of the secrets the experts use to legally lower their total tax bill?

It all starts with a goal of taking something that you have to pay for anyway and turning it into a tax deductible item. No, we aren’t talking about fraudulent schemes like writing off your car because you put magnetic signs on the door or your dog as a security system. Let’s open the door to the secret tax “back room” and discuss three great, legal deductions that a self-employed person should utilize:

1.) Pay your kids. Do you have kids? Do you pay them an allowance or are you trying to save for their college education? Let’s teach them a life lesson, and write it off as well! Set your kids (under 18) up as a real employee with job descriptions, time records, hourly pay, actual paychecks, the whole shebang. When you pay the kids, you deduct their salary and save both income and Social Security tax for yourself, and they can earn several thousand dollars before they even have any tax due. Force them to save a large portion for their own college tuition, or, even better, fund a Roth IRA with the paycheck, and you have taken non-deductible allowances and turned them into tax-deductible college savings plans with a life lesson!

2.) Hire your spouse. Generally the Number One expense a self-employed person has other than housing is medical costs. For the self-employed person with a spouse there is a very simple, secret solution. First, hire your spouse for a valid work purpose and treat them as a real employee. Then, set up an health reimbursement account (HRA) to reimburse the spouse for any medical costs that the family incurs, and all medical expenses become valid, real business deductions as an employee fringe benefit. Try this free calculator to see if it works. You need a written plan, but we use a national company for ours, and they even take care of the minor payroll forms that are required, as do some other providers.

Bob Jennings

3.) Don’t forget the house. Look at that house deduction. Many self-employed people are missing the home office deduction because they mistakenly believe that an entire section of the house must be used for business use. Actually, if you have one part of a room (basement/bedroom/etc…) that you use exclusively for business (including storage), then you are allowed to deduct a portion of utilities, insurance, repairs, taxes, depreciation on the home and many other home-related costs. The greater the square footage, the greater the amount of your home expenses that you can write off.

OK, we’re closing that door to the back room now. A good tax professional should know what we are talking about here, and you can’t get these tricks from online software, so make sure to ask a tax expert CPA or enrolled agent.

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