Tax Planning

Droids or Tax Time?

Published on January 23, 2017 in Personal Finance, Tax Planning by RyanLaw

Have you started receiving forms with names that sound like droids from Star Wars?

I’m fairly certain that all these droids will be in Star Wars episode 18:

W-2
1099
1098
W-4P

That can only mean one of two things. Droids are finally making their long awaited arrival on Earth, or it is tax time.

Just in case it is tax time, here are some answers to common questions to help make tax season a little less taxing.

1. How early can I file my taxes?

Wait to file your taxes until you have ALL the tax forms. This includes W-2s, 1099s, Interest statements, etc. Employers and companies have until January 31 to send you everything, so you should have everything shortly after that. Make a list of what you should receive and wait to start until you have it. The most common forms are:

Form W-2: You should receive one from each of your employers
Form 1098: If you paid interest on a home or student loan or paid college tuition you will receive a 1098
Form 1099-DIV: If you received dividends, distributions or capital gains on any investments, watch for one of these to grace your mailbox
Form 1099-INT: Any interest paid to you, such as interest on a CD or bank account, will be reported on this form.
1099-MISC: If you did work as an independent contractor you’ll get one of these.
If you donated to a charity they will either provide you a receipt when you donated, or an end of year statement.

There’s other forms as well, but those are some of the most common ones.

Here’s a great printable checklist from TurboTax:

http://images.turbotax.intuit.com/iqcms/marketing/lib/TurboTax_TaxPrepChecklist.pdf

2. Should I file my own taxes or have someone do it for me?

There’s a few different ways you can file your taxes:

On paper
- I don’t recommend this – calculations can be complicated
Software such as TaxAct, TurboTax or H&R Block at home
- As long as you use top-rated software you’ll find it’s intuitive and simple. You’ll enter your tax forms in and the software will search for possible errors. I personally use TaxAct.
Discount tax preparation services, such as H&R Block or Jackson-Hewitt
- These companies have their place, but can be expensive. Their tax preparers are trained, but basically use similar software that you can use on your own. If you want the peace of mind from having someone do your taxes, this can be a good option.
Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE)
- VITA and TCE volunteers are IRS-certified and will file your taxes for free. You read that correct. It’s free, and there’s no catch. VITA is available for anyone that makes under $54,000, and TCE is available for those over age 60. You can find them here: https://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers. Both VITA and TCE tend to fill up quickly, and many are first-come, first-served.
Accountant or CPA
- Unless you run a business you probably don’t need an accountant or CPA to prepare your return. I have several small businesses, and we still file our own, but if your business starts to move beyond small you should work with the accountant or CPA throughout the year.

3. What is the due date to file my tax return?

It’s normally April 15, but this year it is Tuesday, April 18. Why? The 15^th is a Saturday, and anytime tax day falls on a weekend it is pushed to Monday. However on Monday the 17^th Washington DC has a holiday (Emancipation Day), therefore tax day gets moved to the next business day.

To close up this week’s article, I strongly encourage you to check out one of the VITA sites if you make less than $54,000 a year. Almost anyone who uses a discount tax preparer could have their taxes filed for free instead.

One last note – don’t ever get a Tax Refund Anticipation Loan. Companies will offer to give you your tax refund right then, for a fee that ranges between $30 and $150. Don’t fall for it – if you file electronically you’ll have your refund in 1-2 weeks.

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Small Business Taxes

Published on February 9, 2016February 9, 2016 in Personal Finance, Small business, Tax Planning by RyanLaw

For those of us who run a small business almost nothing causes more challenges and stress than tax time.

Today’s post is meant for those of you running, or thinking about running, a small business, and how you can make tax-time easier.

I want to establish up-front that I am not a tax accountant or tax lawyer, nor do I play one on TV.

My wife and I do, however, run three home-based businesses and I have filed my own taxes for years. My wife runs a business called Hair Springs and I have an insurance business and maintain and host a few websites for some friends.

The key to doing your taxes is to KEEP GOOD RECORDS!

What should I do in order to maintain good records?

There are four steps to maintaining good records in order to make tax time easier.

Step One: Open a checking account that you only use for your business. Get checks and a debit card.

Step Two: Download business accounting software. For a long time, QuickBooks was the only player in this market, and for years they offered a free version for those running home-based businesses. This ended a few years ago, though, and the cheapest version is now $10 a month. QuickBooks holds over 90% of the market, and is a great choice for many businesses.

If you have less than 9 employees, though, you should check out WAVE, which is free. You can find it here: https://www.waveapps.com/accounting/.

Step Three: Make all purchases and pay all expenses with your business account, and make all deposits from sales into this account.

Step Four: Get a receipt for EVERYTHING, and anytime you make a sale print up a receipt. Enter all sales and expenses into your accounting software.

If you plan to use a professional tax preparer, that is pretty much all you need to do. This person can handle all the accounting details for your company and they will file your return and other taxes for you.

The IRS has a post that discusses in detail what type of records you should keep. You can find that here: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/What-kind-of-records-should-I-keep

How do I figure out how much I need to pay in taxes?

Most home-based businesses will file an annual tax return and you will do so with your regular tax return. Your business income and expenses will be entered on Schedule C, then your profit or loss is transferred to Form 1040.

You are going to either have a business loss or profit. If you have a profit (which is the point of having a business) you are going to pay self-employment tax of 15.3% plus income tax. To figure out if you have a profit or loss you deduct all business expenses from your business income. If the number is still positive, you have a profit. If the number is negative, you have a loss.

A profit gets added to your income and a loss can actually lower your income, meaning that you will owe less in taxes.

NOTE: The IRS understands that you may have a loss for a year or two when starting up, and occasionally you may have a bad year. The point of having a business, though, is to make a profit. If you don’t make a profit at least 3 out of every 5 years the IRS will classify your business as a hobby, which means that losses are only deductible up to the amount of profits, and you may have to pay back the taxes you avoided by taking a loss.

15.3% plus income taxes can add up to a big number. Many experts recommend setting aside 25-30% of your income for taxes. I think this is wise advice!

Do I have to pay quarterly taxes?

When you are an employee your employer withholds part of your check and sends it to Uncle Sam. As a self-employed individual, though, no one is withholding anything. The government wants their money regularly, so you may have to pay quarterly taxes.

If you are in your first year running a small business, you don’t need to pay quarterly taxes. After year one, though, you may need to pay quarterly taxes if:

You paid more than $1,000 in taxes the previous year
You expect to pay more than $1,000 in taxes this year

If you paid no income tax last year you probably don’t need to pay quarterly taxes this year. It still can’t hurt to set some aside for later taxes, though.

A rule of thumb is that is you are going to make more than $15,000 in your business you probably need to pay quarterly taxes. I personally feel that it can’t hurt you to pay quarterly taxes, regardless of how much you are going to make.

To determine how much you should pay, get last year’s tax return and find how much tax you paid (Line 78 of Form 1040). Multiply that amount by .90. If you paid $10,000 in taxes last year you would get $9,000. Divide that number by four ($9,000/4 = $2,250). This is the amount you should pay each quarter.

You pay estimated taxes on Form 1040-ES.

If business slows down (or you do better than expected) you can adjust the amount you are paying.

Quarterly taxes are due April 15, June 15, September 15 and January 15.

As you can see, filing taxes can be quite complex. There are a number of other things to consider as well, such as:

What type of business structure to use (sole proprietorship, LLC, etc.)
If you are going to keep working full-time or part-time at another job, and how withholding there will affect your business taxes
How much of a deduction you can take as a home-office deduction

If you run a very small business you might be able to do this all yourself, but for many people you should strongly consider hiring a tax professional to help you maintain your books throughout the year and file your tax return. Tax professionals understand the tax code and are likely to find deductions you may miss.

You still need to maintain great records, and you should know exactly what your tax professional is doing and why they are doing it. Make sure they take the time to educate you.

Even though I don’t mind filing my own taxes, my business income is getting complicated enough that it’s probably time for me to consider hiring someone to do my taxes for me. A good tax professional is worth their fee.

For additional tax help for your small business, the IRS actually has a helpful page: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center.

To conclude, I want to stress again the vital importance of maintaining good records. Nothing will make tax time more difficult than incomplete or inaccurate records. Set up a separate account, download business accounting software and enter all income and expenses into the software.

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Making tax season a little less taxing

Published on January 26, 2016January 26, 2016 in Personal Finance, Tax Planning by RyanLaw

by Ryan H. Law

Politicians love to talk about how long the tax code is and compare it to how long the Bible is. I found quotes of politicians who said it ranged anywhere from 2,500 pages to 1.3 million pages.

It’s actually 13,458 pages (and growing every year), and if you want to order a copy of it you can purchase all twenty volumes of the code and regulations for just $10 for your Kindle device!(1) What a bargain!

In what has to be one of the greatest marketing strategies of all time, the U.S. Government Publishing Office, where you can order a printed copy of the tax code, encourages you to “Cozy up with a book from our latest Catalog,” or in the case of the tax code, cozy up with 20 books. Happy reading!

Here’s answers to common questions to help make tax season, well, a little less taxing.

Q. How early can I file my taxes?

A. Wait to file your taxes until you have ALL your tax forms. This includes W-2s, 1099s, Interest statements, etc. Employers and companies have until February 2 to send you everything, so you should have everything shortly after that. Make a list of what you should receive and wait to start until you have it. The most common forms are:

Form W-2: You should receive one from each of your employers

Form 1098: If you paid interest on a home or student loan or paid college tuition you will receive a 1098

Form 1099-DIV: If you received dividends, distributions or capital gains on any investments, watch for one of these to grace your mailbox

Form 1099-INT: Any interest paid to you, such as interest on a CD or bank account, will be reported on this form. If you get a pink one of these, you actually win $1,000(2)

1099-MISC: If you did work as an independent contractor you’ll get one of these.

If you donated to a charity they will either provide you a receipt when you donated, or an end of year statement

There’s other forms as well, but those are some of the most common ones.

Here’s a great printable checklist from TurboTax:

http://images.turbotax.intuit.com/iqcms/marketing/lib/TurboTax_TaxPrepChecklist.pdf

Q. Should I file my own taxes or have someone do it for me?

A. There’s a few different ways you can file your taxes:

On paper
I don’t recommend this – calculations can be complicated.

Software such as TaxAct, TurboTax or H&R Block at home
Most of the top-rated software packages are simple and intuitive to use, and they are made for consumers (not accountants). You’ll enter your tax forms in and the software will do the calculations, search for possible errors, and file your taxes electronically. I personally use TaxAct.

Discount tax preparation services, such as H&R Block or Jackson-Hewitt
These companies have their place, but can be expensive for what they provide. Their tax preparers are trained, but use similar software that you can use on your own. If you want the peace of mind from having someone do your taxes, this can be a good option.

Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE)
VITA and TCE volunteers are IRS-certified and will file your taxes for free. You read that correct. It’s free, and there’s no catch. VITA is available for anyone that makes under $54,000, and TCE is available for those over age 60. You can find them here: https://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers. Both VITA and TCE tend to fill up quickly, and many are first-come, first-served.

Accountant or CPA
Unless you run a business you probably don’t need an accountant or CPA to prepare your return. I have several small businesses, and we still file our own, but if your business starts to grow you should work with your accountant or CPA throughout the year.

Q. What is the due date to file my tax return?

A. It’s normally April 15, but this year it is Monday, April 18. Why? Basically it’s because Washington DC has a holiday (Emancipation Day) on Saturday, April 16, and by law when that holiday falls on Saturday or Sunday it is observed the Friday before. A federal holiday on Friday, April 15 means that tax day gets moved to the following Monday.

To close up this week’s article, I strongly encourage you to check out one of the VITA sites if you make less than $54,000 a year. Most people who uses a discount tax preparer could have their taxes filed for free instead.

(1) http://www.amazon.com/Complete-Internal-Revenue-Federal-Regulations-ebook/dp/B006KS43L8/ref=sr_1_2?ie=UTF8&qid=1453835893&sr=8-2&keywords=irs+code+26

(2) Just kidding.

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