Six things for extension filers to remember
Oct. 15 is almost here, and it’s the last day to file for most people who requested an automatic six-month extension for their 2017 tax returns. These taxpayers should remember that they can file any time before Oct. 15 if they have all their required tax documents. They can also pay their tax bill in full, or make a partial payment, anytime, by visiting IRS.gov/payments.
As extension filers prepare to file, here are some things they should know:
- They can still use IRS Free File. Nearly everyone can e-file their tax return for free through IRS Free File. The program is available on IRS.gov now through Oct. 15. IRS e-file is easy, safe and the most accurate way for people to file their taxes. E-file also helps people get all the tax benefits they’re entitled to claim.
- A refund may be waiting. Anyone due a refund should file as soon as possible to get their money. The sooner someone files, the sooner they’ll get it. Don’t forget to use Direct Deposit. It is the best and fastest way for taxpayers to get their tax refund electronically deposited for free into their financial account.
- They should consider IRS Direct Pay. Taxpayers who owe taxes can pay them with IRS Direct Pay. It’s the simple, quick and free way to pay from a checking or savings account. Taxpayers can just click on the ‘Pay’ at IRS.gov.
- Here’s what taxpayers should do about a missed deadline. Anyone who did not request an extension by this year’s April 17 deadline should file and pay as soon as possible. This will stop additional interest and penalties from adding up. IRS Direct Pay offers a free, secure and easy way to pay taxes directly from a checking or savings account. There is no penalty for filing a late return for people who are due a refund.
- Taxpayers should remember the Oct. 15 Deadline. Taxpayers who aren’t ready to file yet should remember to file by Oct. 15 to avoid a failure-to-file penalty. Taxpayers who owe and can’t pay their balance in full should pay as much as they can to reduce interest and penalties for late payment. They can use the Online Payment Agreement tool to apply for more time to pay or set up an installment agreement. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty.
- More Time for the Military. Members of the military and others serving in a combat zone get more time to file. These taxpayers typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.
From IRS Website: #IRSTaxTip: Six things for extension filers to remember
If your business happens to be located in the area of Middleton, WI, you very likely experienced a flood like we’ve never seen before in this area. During a 24 hour period of time beginning at 7am on Monday, August 20th through 7am on Tuesday August 21st, the Madison/Middleton area received an unofficial record downpour of 13 inches of rain. At some points, rain was coming down at a record pace of 2-4 inches per hour. Nature is amazing, that is until it decides to invade your business. And as a couple of my clients in the area discovered – nature can be very costly too.
Which leads me to this blog post… Do you know if your Commercial Insurance package covers your business for water damage? Turns out for my clients affected by this flood, their policies have ZERO coverage, I mean we are talking upwards to $100,000 in damages per client! Would your business be able to recover from this? Could you replace your inventory, furniture, computers, walls and flooring if nature decided to come inside? Turns out if you just have a standard commercial package, you may not be covered for floods!
Because I’ve never, nor have my clients, needed to use flood coverage, we never realized that unless your business is located in a defined “high flood risk” zone or unless you have a Mortgage – you most likely are not required to carry flood insurance. The only thing that can even possibly help out financially in this situation is if the area gets declared a Federal Disaster then, although the cost is still yours, there is usually assistance programs to help get you loans to help get you back up and running. However, this is still completely coming out of YOUR pocket.
Now, I’m not going to advocate here for any one particular insurance provider because the intricacies of insurance should be left to the Insurance professionals but what I will tell you is that there are policies out there called “Commercial Flood Insurance” that you can buy for your business to cover your Business in the event of a flood. After seeing the damage done to one of my clients businesses, it’s something that would be well worth the added expense to ensure that something like this doesn’t end your business.
What should you do…
- First, get on the phone now with your Insurance Agent and have them determine if you have flood insurance. Do you have coverage for Water Damage at all? Don’t wait until the flood comes to you to ask about if you are covered. That will be too late.
- If it’s determined that you Do NOT have coverage, do a web search for Commercial Flood Insurance. I promise, several names/providers will come up in your search.
- Then ask your Insurance Agent about any/all of these coverages before you buy. Be sure you understand what would and wouldn’t be covered should that creek behind your business become a lake (seriously, that’s exactly what just happened).
I hope this blog turns out to be helpful. We/I never, ever thought that this would happen where it did but nature decided otherwise. So, I learned a valuable lesson about my Insurance Coverage and I’m hoping this possibly helps you mitigate any potential future disaster you may face. Stay dry!
This last month has been a devastating time on our side of the planet. Two Large Cat4/5 Hurricanes in Texas and Florida along with am 8.1 Earth quake along the Mexican Coast. Like so many, you may want to help give to Charities and Organizations that can help so many displaced people get back on their feet… But some things you need to know when you give.
When giving to Charitable Organizations, please be aware that in order for those donations to be tax deductible, an organization much be an Eligible Organization registered with the IRS. Just because an organization is asking for funds, does not mean that they are deductible for tax purposes. But don’t necessarily let that stop you from donating either, just be careful the donation is not a scam. Giving to registered organizations protects you more than giving to just anyone who pops up a GoFund me campaign. That doesn’t mean that these aren’t registered, just be careful that your money is going where you want it to go. If you donate, you should be aware of what you can and can not deduct on your Income tax returns.
There are essentially 2 kinds of donations – Cash donations and Goods donated.
- The Cash Donations are pretty straight forward. So long as you do not get any benefit from the donation, the donation is 100% includable on your tax returns (see below on those rules).
- Then there’s the Cash contributions where you donate but you get something in return – a Trip, a Dinner, 2 tickets to a sporting event – these donations are limited to the amount that EXCEEDS the Value of what you received. Example, you go onto an online auction that is benefiting a charity you like – let’s say the Humane Society – They have 2 tickets to your favorite sports team up and you bid and you win. Your bid was $500, the Fair Market Value of those tickets was $400 – your deduction is limited to $100 (Your $500 less the value of $400). Now let’s say your bid was $300 and you still won – you would have no donation value as the tickets FMV was more than what you purchased them for. Now that doesn’t mean that your $300 didn’t go to the Charity, someone bought the tickets and someone donated them and your purchase goes to the charity – however the person who donated the tickets gets the donation, but not you – you get to go see your favorite team win 🙂
- The other side of this then is the person who donates the goods for the event. If you are donating something of value that you can’t prove the FMV, get an appraisal before you donate the antique, painting or other tangible good. There are more rules on this, but that is not the topic of this blog so I’m going to stop here on this for now, just know that you can’t just give that item to a Charity and claim it to be a famous Picaso.
- Maybe you just want to go and help clean up. First get yourself registered with an Organization that can coordinate where and if they need you. If they do need you, Only your Out of Pocket Costs can be deducted. You can not deduct for your time or lost wages.
So how do you know who is and isn’t eligible? The IRS has an online Exempt Organization Search Tool where you can search the database or download the Extensive (yes, over 900,000 entities) list.
IRS Tool: https://www.irs.gov/charities-non-profits/exempt-organizations-select-check
Master List: https://www.irs.gov/charities-non-profits/exempt-organizations-business-master-file-extract-eo-bmf
Keep in mind, even if the Organization qualifies, you may not be able to take advantage of the donation you make. Here are some general rules:
- First you must be able to Itemize your deductions vs taking the Standard Deduction. Donations are only deductible on your personal tax return if you can itemize.
- If you are an LLC or S-Corp, these contributions will pass thru to the Owners on their respective K-1 forms and are NOT business Deductions. Only C-Corps (entities that are considered independent from the Stockholders) may claim the deductions on their returns.
- Be sure you have written proof from the Charitable Organization for any Contributions totaling over $250 in a calendar year. The Organization is required to provide this to you and you must keep this with your tax records
- If you donate Non-Cash Property (ie Antiques, Paintings, Jewelry) be sure you get an appraisal if your donation has a value of over $5,000.
- You may also donate vehicles but keep in mind, there are special rules that limit you to a deduction for the value that the Organization receives for that donation if/when they sell it.
- Also, it’s important to understand that if you charitable donation is more than 20% of your adjusted gross income, your deductions may be limited.
First and foremost – DO YOUR HOMEWORK before you donate. If you are not donating to a long standing organization like Red Cross or United way, be sure that the organization is legitimate. When these catastrophes happen, scammers also surface to take advantage of the situation. For additional information, below is the link IRS Publication 526 for detailed information. Or feel give us a call too.
Ok, so this tax seemed to be getting an awful lot of bad press lately. Certain VERY Wealthy Think Tanks have been doing their best to get you to believe that this tax is unfair and needs to be abolished. But does it really?
First, you need to understand exactly who and how this tax is calculated. I’m going to be throwing a lot of numbers at you to help show how this works so try to stick with me. Now I admit, when I was younger and not doing this for a living, I thought this was a horrible tax too, but then I learned how it worked.
The Estate Tax, intentionally misnamed the Death Tax by it’s opponents, only affects about 0.2% of the population. Most American’s (and their heirs) will NEVER, EVER pay this tax so long as the current exemption limit stays where it is at. In December 2010, President Obama signed the “Unemployment Insurance Reauthorization and Job Creation Act” which permanently (well, permanently until congress changes it) set the Personal Estate Tax Exclusion amount to $5,450,000 if the taxpayer is Single or $10,900,000 if married. When a spouse passes, the spouses exemption can pass to the surviving spouse allowing the surviving spouse to take the entire $10.9M exemption in his/her estate upon their passing.
So how does this work then? Ok… let’s say you are a single person with 1 child (this is also an important piece). You own a house which you bought for $25,000 (it was your childhood home). When you passed, your home was worth $200,000. You also had the following additional assets: Stocks worth $1,000,000 (which you paid $100,000 over your lifetime); Land purchased for $50,000 now has a Fair Market Value (FMV) of $2,000,000.
When her final tax return is completed, her Assets are Revalued at the FMV at the Date of Death. In this example, this person’s Assets are valued at $3,200,000 with a cost of $175,000 – not too bad right. Her assets have a GAIN of $3,025,000. When her final tax return is done (form 1041) she will report $3,200,000 of Asset Value less the cost of $175,000 and the Capital Gain on those assets is $3,200,000 LESS the $5,490,000 exemption leaving NOTHING to tax for the Estate Tax. Why because the FMV of those Assets is LESS than the Exemption. Her child will inherit these assets at the FMV of those assets at the date of death and His/Her Gain on these assets (for their Final Return) starts upon their parent’s death or the date they inherited the property.
So far, this all seems fair and makes sense right. The parent never really used or touched those assets they just stayed in some account or the parent used the home and land like they have since they purchased it. Now let’s look at why the Anti-Estate tax people want to eliminate this. Simply put – because they will end up paying taxes on any Gain on those assets over the Exemption Amount (remember that’s upto $11 Million). So you’re probably saying well that’s not fair. But wait.. here’s why it’s important.
Let’s say you are an uber wealthy Real Estate developer who has Buildings all over the world. One building in particular you bought for only $500,000 but it’s now worth an FMV of $5,000,000. A couple years ago you decided you wanted the Equity from that building (Equity is defined as FMV Less any loans on that Asset). You go to the bank and take out $3,000,000 and enter into Mortgage on that building – Cash in Hand – NO TAX IMPACT ON YOUR TAX RETURN THAT YEAR but you just got $3,000,000 to spend any way you want to!! So why no tax impact? Because you still own the building and it’s a LOAN, something you contract to pay back. Unexpectedly you pass away before you pay back the loan. Now, here is why estate tax is so important. Remember this person already received the cash equity from this building, maybe even gave some to their children but NEVER paid taxes on that $3,000,000. By eliminating the Estate tax they never would pay taxes on it either!! They have literally just received $3,000,000 in FREE MONEY! Their kids could just stop paying the Mortgage and the bank takes the property… but the money, it’s gone. The Tax Code says their children inherit the Building at the $5,000,000 FMV at the date of their parent’s death. And let’s say they decide to just sell the building for $4,950,000 – which represents a LOSS on their taxes; the children would still end up with another $1,450,000 of TAX FREE MONEY because they sold the building at a loss and that free money, well that was part of their parent’s estate.
So what the Estate tax actually does is RECOGNIZE the PASSIVE INCOME (or Appreciation) that was locked up in ASSETS during the Taxpayers lifetime. Think of it as a “GAP” Tax rather than an Estate or Death Tax. As this tax catches all the Passive Earnings that you’ve never been taxed on. Most of us only get paychecks or maybe we run a small business and get Earnings from that business but that money is literally taxed every year on our tax returns. If we are among those fortunate enough to buy Investment Assets, we still get an Exemption on that value but only when we exceed that Exemption do we pay taxes on those Investments. Everyone gets the same exemption – EVERYONE GETS $5,490,000.
So, have I convinced you yet why having the Estate tax is Fairer than NOT having the estate tax? And don’t take to the argument that the money was worked for… it’s not, that money has already been taxed. This is a tax on the PASSIVE or better yet, APPRECIATION of the asset that each of us would recognize if we sold it BEFORE we passed away… only then, it’s called CAPITAL GAIN!
I hope this helps shed some light on how this tax works. I hope it helps explain how eliminating this allows only those seriously wealthy people to avoid paying taxes while the vast majority of us will pay tax on almost every dime we make.
Well.. Once again, we made it through the 1099 filing season without too many issues. But it does seem that EVERY year there is one or two vendors that outright REFUSE to provide the Tax Payer Information so that you, as a business, can get your 1099s out by the January 31st filing deadline. Having completed these information returns for over 20 years, it always surprises me when I get that one vendor that becomes belligerent about providing the information. The first thing that pops in my head is that they don’t want the IRS or the State Revenue Department knowing that they are getting income from someone. Now, if it’s on a personal level, the IRS doesn’t require INDIVIDUALS to issue 1099s to the Plumber, the Carpenter or the Landlord that you pay in your personal life. But if you are a BUSINESS, in order to deduct those same expenses on your business tax return, you AS A BUSINESS, are required to issue those pesky 1099-MISCs indicating that you paid someone $600 or more during the calendar year.
So, what do you do when you encounter one of these vendors.
First and foremost – CHANGE YOUR INTERNAL POLICY!! Make it a policy in your business that if you issue payment to ANYONE for services, that you do not issue a check until you collect the W-9 Form from them! It’s so much easier to just tell them that your system doesn’t allow for payments to be issued UNLESS this information has been entered into the software. And you can of coarse use the “My accountant won’t let me issue checks without this” excuse. Let us take the heat if that’s easier. But get the W9 form upfront! It will also make the payee much less uncomfortable providing the info when it’s a payment they seek. If/when you ask for that information a year later, they may not even remember doing business with you in the first place.
But ok, you’ve already paid them so now what? I typically use a 3 step process….
First attempt, I start with calling, emailing or faxing to collect the information from them. 99% of the time, this is all I need to do. Most businesses understand that they are required to provide you with this information and don’t make a fuss about it. Sometimes it may take 2-3 attempts, but normally they will send the information. THAT BEING SAID… If you are the RECIPIENT… Don’t just send the W9 out because you get asked! Be sure that you actually did do business with the Person/Business that is requesting the information. Remember that ID thieves will try any number of methods to obtain your information so just take a bit of caution before you just send this out!! And if, you don’t feel comfortable giving us, the accounting firm, the information, just indicate to the requester (if it’s not the business owner asking) that you gave it to your customer. We, the accounting firm, will understand and can the get the information from our client.
Second attempt, I send another email or call indicating that if they don’t provide the information that the IRS REQUIRES the payee to withhold 28% of all payments because they failed to provide the information. This is right on page 2 of the W9 form, and usually, this is more than enough of a deterrent for the provider to give in and provide the information – again, to the recipient… if you don’t feel comfortable giving it to someone just because they say they are an accounting firm… give it to your customer and tell the accounting firm you did so!
Third and final attempt, make my last communication much more stern. I indicate to the recipient that this is something that they are required to do, that the IRS requires that they provide this information and if they don’t provide it, I am required to send a 1099 anyway to the IRS with the words “Refused to Provide” where the tax ID is supposed to go on the form. Have I had to do this? Yes unfortunately. It amazes me to no end that someone would think that I’d waste my valuable time trying to collect something that I really truly didn’t need. Now, back to my first step, do I get that they are being cautious when I, an outsourced accounting firm calls…. YES, but they could just give the info to their customer and let their client give it to me. I’m good with that, just don’t outright refuse to do this!
Finally, when every attempt has failed and the supplier/vendor/service provider just outright refuses, I send the 1099 just as I indicated I would with the words “Refused to Provide” in the box labeled Recipient’s Identification number. I then send this 1099 and a letter to the IRS explaining that this business refused to provide the tax identification number. You may be wondering, why do I bother to do this? I do this because the fines to my clients could be SO huge that I want to be sure that we have done everything that I am required to do to ensure that my client does not end up with the fines. After all it wasn’t their fault that their vendor refused causing them to not have the information they needed.
Moral of the story…. Get the W-9 form before you even give them the check! It’s so much eaiser.
So not to scare you.. ok, maybe to scare you a little bit, every time the Republican’s have had a Super Majority in American Government (House, Senate & Presidency) they have crashed the Economy. So far in history that’s 3 for 3 or 100% of the time! In 1907/1908 during the Banking Panics; 1928 when the GOP gained power, the Stock Market Crashed in October 1930 and created the Great Depression from 1929-1937; and finally the 2007/2008 credit crisis crash that lead to thousands losing their jobs and homes. Honestly, there a lot of CPA’s out there keeping it neutral, but I’m thinking I’d rather go out on limb, be proactive to help people rather than reactive giving advice after the fact. We could be headed for a fourth time in the next 2 years, some of the signs are already there (discussions about eliminating Dodd-Frank, reducing Banking Regulations, Trade rhetoric and fair pay/minimum wage) are just a few of the issues that cause alarms to go off for me.
Now I hope I’m reading the signs wrong, but I was correct about the housing crash and the indicators I saw then. So, here’s my suggestions and you can take them for what they are worth, or not, it’s up to you.
1st, resist buying things you don’t need and pay off as much of your Credit Card debt as you can NOW! Currently your rates are protected by the Frank-Dodd Act which the GOP has whole-heartedly set out to dismantle which means we could be going back to the days of 29.99% credit card interest (that was just 8 short years ago btw).
2nd, Refinance you home if you don’t already have a low FIXED interest rate. Once you are locked in, unless you’ll need to refi for medical or other emergency reasons, you should be ok with your Mortgage with what could be another housing fiasco (again due to the Wall Street Lobbyists on the new Administration). If you have an ARM (Adjustable Rate Mortgage) refinance out of it into a Fixed Rate as soon as possible. This will stabilize your cash flow and hold your payments steady in the event interest rates climb. And if you are planning or buying a new home, shop for that best rate – and don’t take out more than 80% of the value of your home on the Mortgage and always find a FIXED RATE so that you can count on a steady repayment amount. Otherwise, sit tight and enjoy your current home.
3rd, Don’t SPLURGE on spending, but don’t stop spending altogether either. Remember the economy is only sustainable if/when there is demand from consumers for products. Without demand, supplies increases, prices drop and layoffs happen which leads to less disposable income in the economy which will begin to spiral the economy into a downward spin. This is one of the things that happened in the early 2000’s – Sunbeam comes to mind.
4th, BUY LOCAL WHENEVER POSSIBLE! One of the things that will help support our communities is to keep as much in the local economy as possible… Use SMALL LOCAL Credit Unions or Community Banks vs Large Corporate Banks (remember these guys are the ones who got drunk on Wall Street and taxpayers ended up needing to bail out). Buy American if you can’t buy local. Obviously we don’t have Car Manufacturers in all our neighborhoods but we can support other local communities by sticking to American Made goods. This not only helps American Manufacturing plants but also helps the downstream suppliers and local businesses that depend on that plants employees.
5th, be cautious of Phantom Profits in the Stock Market. Phantom Profits are essentially Speculative gains on the value of the Stocks and are not based on REAL earnings of an entity. This was one of the things that happened during the Banking/Credit Crisis of 2007 where approximately 30% of some stock’s value was phantom earnings. When the Market corrected, thousands lost their life savings. Stick with a LONG-TERM strategy – there is no getting rich quick, but you can certainly gamble it all away overnight on something that’s not consistent and not a sound, tested long standing company.
Finally… if you have a good job with good benefits… consider whether or not now is a good time to change. Granted sometimes you can’t help it, but by keeping your life constant through the next couple years, you will have a better chance of getting through possible crises unscathed.