Plan Now for Next Year’s Taxes

7 Great Ways to Be Ready for Next Year

Most people stop thinking about taxes after they file their tax return. But, there’s no better time to start tax planning than right now. And, it’s never too early to set up a smart record keeping system. Here are six tips to help you start to plan for next year’s taxes:

1. Take action when life changes occur — Some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When these events occur during the year, you may need to change the amount of tax withheld from your pay. To do that, you’ll need to file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. You can use the IRS Withholding Calculator  to help you fill out the form.

2. Report changes in circumstances to the Health Insurance Marketplace.  If you enroll in insurance coverage through the Health Insurance Marketplace for  2016 coverage, you should report changes in circumstances to the Marketplace when they happen. Report events such as changes in your income or family size. Doing so will help you avoid getting too much or too little financial assistance.

3. Keep records safe — Put your tax return and supporting records  in a safe place with your other tax documents. That way, if you ever need to refer to your return, you’ll know where to find it. For example, you may need a copy of your return if you apply for a home loan or financial aid. You can also use it as a guide when you do next year’s tax return.

4. Stay organized —Make sure your family puts tax records in the same place throughout the year. This will avoid a search for misplaced records next year. Print and keep a copy of this year’s tax return and supporting records together in a safe place. This includes W-2 Forms, Forms 1099, bank records and records of your family’s health care insurance coverage. If you ever need your tax return or records, it will be easier for you to get them.

5. Shop for tax preparation services — If you are thinking about hiring a professional tax firm to help you with tax planning, start your search now. Choose a tax preparer wisely – you are responsible for the accuracy of your tax return no matter who prepares it. Find tips for choosing a preparer from Carpenter Evert.

         Not sure if you need professional help? Take this short quiz to find out.

6. Think about itemizing — If you usually claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. A donation to charity could mean some tax savings. See the instructions for Schedule A (Form 1040),   Itemized Deductions, for a list of deductions.

7. Stay informed. Gather as much information as you can throughout the year, especially as tax and health care issues change. Subscribe to Carpenter Evert’s monthly newsletter to stay on top of the latest tax changes. The IRS also offers tips about tax law changes, how to save money and much more at IRS Tax Tips.

A little tax planning now can pay off big at tax time next year. Not sure where to start? Contact a Carpenter, Evert and Associates tax expert at(952) 831-0085 and we will point you in the right direction.

It’s Small Business Week! Resources for Small Business Owners

The U.S. Small Business Administration is celebrating National Small Business Week this week.

Small Business Week from Carpenter, Evert and Associates

Image from Small Business Administration www.sba.org

The SBA is an independent agency of the federal government. Their mission is to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.” In short, they are a valuable resource for all small businesses, whether you are just starting out or have an established, successful business.

A few of the resources available at www.sba.gov available year-round include:

To celebrate Small Business Week, the SBA is offering a series of free webinars this week:

5 Fabulous Habits of Local Business Champions
Presented by YP
May 3, 2017 | 2:00-3:00 pm ET
Register here

Grow Your Business Online
Presented by Google
May 3, 2017 | 4:00-5:00 pm ET
Register here

The Future of Small Business Innovation
Presented by Salesforce
May 4, 2017 | 2:30-3:30 pm ET
Register here

How to Write Your Email Content in 15 Minutes or Less
Presented by Constant Contact
May 4, 2017 | 3:30-4:30 pm ET
Register here

Find the Hidden Money in America
Presented by Chase
May 4, 2017 | 5:00-6:00 pm ET
Register here

Carpenter, Evert and Associates specializes in services for small businesses, including outsourced accounting, tax planning and preparation, and a wide range of consulting services. Contact us here or at (952) 831-0085 for a free consultation.

The 2016 Tax Season by the Numbers

135.6 million
The number of tax returns the IRS has received as of April 18.

17 million
Procrastinators who waited until the last 24 hours before the due date to file.
   Why do people wait until the last minute to file their taxes?

$268.3 Billion
The amount of tax over-paid by Americans through 2016, resulting in 97 million refunds.

$2,763
The average tax return amount this year.
   Is getting a tax refund really a good thing?

11.6 million
The number of extensions filed by US taxpayers, which allows you to hold off on filing your tax return until October 16. (any tax due should have been estimated and paid by April 18.)
   More about tax extensions from CEA. 

60%
Percentage of electronic tax filers who used a professional tax preparer.
   How do you know if you need professional tax help?

Over 300 million
Visits to IRS website this season.  See for yourself the wealth of information you can find at www.irs.gov.

You’re Late! What to Do if You Haven’t Filed Your Taxes

Filing your taxes lateTax day has come and gone, and there are still some people who haven’t filed their returns or extensions. There is one important thing to know if you haven’t filed your taxes yet – file them as soon as possible, EVEN IF YOU CAN’T PAY ALL THE TAX YOU OWE.

The IRS can apply two different penalties for late filers/payers. The first is a failure-to-file penalty for not filing on time. The second is a failure-to-pay penalty for paying late. While it might seem counter-intuitive, it will actually cost you much more in penalties for not filing on time than it will for not paying on time. The penalties are:

Can't pay taxes? File anyway. Carpenter Evert and Associates

Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes (maxes out at 25% of your unpaid taxes).

Penalty for late filing.  The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month that a tax return is late (not to exceed 25% of your unpaid taxes).

Combined penalty per month.  If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

Let’s look at an example. Joe and Joanna Johnson owe an additional $5,000 in tax because of a change in income that they hadn’t accounted for. Joe freaks out and wants to ignore their taxes until he gets his work bonus in five months and they have the money to pay the taxes. Joanna is more practical, and knows they should file now, even if they can only scrape up $500 of what is due.

If they go with Joanna’s plan, this is what it will look like. (If you file after April 18, figure in a daily late filing penalty of about $8.00 a day.) The penalty for late payment is .5% of unpaid taxes per month for 5 months, totaling $ 113 in penalties.

Joe’s scenario would look like this if they wait until October 16 to file and pay the taxes they owe. The penalty for late payment and late filing is 5% of unpaid taxes per month over 5 months, totaling $ 1,250 total penalties (and they haven’t even paid the taxes yet!)

The Johnsons will save well over $1,000 in penalties by filing now, even though they can’t pay all their tax until September. If you are in a similar situation and need help completing your return, contact one of the tax experts at Carpenter Evert. We can help you get your return filed and save you money. But remember that every day counts, so whether you call us or file on your own, do it now so you can stop the penalties from adding up.

For more information from the IRS, go to the IRS Collection Procedural Q&A.

Late Tax Filing and Late Tax Payment Penalties

Can't file taxes on time Carpenter Evert and AssociatesGet the facts about late tax filing and late tax payment penalties from the IRS.

Here are seven important points about penalties for filing or paying your taxes late:

  1. If you requested an extension to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a late payment penalty. However, you must pay any remaining balance by the extended due date. IRS Direct Pay is an electronic payment option that allows you to schedule payments online from your checking or savings account with no additional fee and with immediate payment confirmation. It’s secure, easy, and much quicker than mailing in a check or money order. ——————–
  2. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options, such as getting a loan or making an installment agreement, to make payments. The IRS will work with you. For example, you can apply for an Online Payment Agreement if you owe $50,000 or less in combined tax, penalties and interest, and filed all required returns. You may also qualify for a short-term agreement if your balance is under $100,000. ——————–
  3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes. ——————–
  4. If you do not pay your taxes by the tax deadline, normally you will face a late payment penalty of one-half of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month the tax is unpaid. It starts accruing the day after the tax-filing due date. ——————–
  5. If both the 5 percent late filing penalty and the one-half percent late payment penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent. ——————–
  6. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $205 or 100 percent of the unpaid tax. ——————–
  7. You will not have to pay a late-filing or late-payment penalty if you show reasonable cause for not filing or paying on time. ——————–

Some people can get more time to file without having to ask for an extension. They include:

  • U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file and pay any amount due without requesting an extension. ——————–
  • Members of the military and others serving in Afghanistan or other combat zone localities generally can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3, Armed Forces’ Tax Guide.——————–

For more information about penalty and interest charges, refer to Part One, Chapter 1, Filing Information, of Publication 17, Your Federal Income Tax for Individuals.

Can’t Get Your Taxes Done by April 18?

Can't pay taxes on time, can't file taxes on timeIf you panic when you think about April 18, it’s probably due to one of two reasons:

1. You don’t have enough time to get your taxes done and filed on time, or

2. You don’t have enough money to pay the taxes you owe.

If either of these applies to you, the most important thing to remember is, DON’T PANIC. And don’t ignore it. The worst thing you can do is not file at all.

Extending the time to file your taxes:

If time is the issue, you can file an extension that will give you six more months to file your taxes. Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return, must be filed by midnight April 18 and can be done on paper (get a printable copy of Form 4868 here) and mailed, or filed electronically at the IRS Free File site.  DIY tax programs like Turbo Tax also have extension applications built in to them.

It is important to know that filing an extension is only extending the time you have to file your return. IT IS NOT AN EXTENSION OF TIME TO PAY. If you think you will owe additional tax, you need to estimate what you will owe and include that amount with your extension application. Any amount owed that is not paid by April 15 will be subject to interest and possibly penalties for not paying on time. You can mail a check with your paper extension or pay online at IRS.gov.

If you requested an extension to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a late payment penalty. However, you must pay any remaining balance by the extended due date.

What to do if you can’t pay:

If you don’t have the money to pay your tax debt on time, don’t file an extension. Instead, file your tax return on time and pay as much as you can, even if it is a small portion of the taxes you owe. According to the IRS, by doing this you will avoid a late filing penalty, which is higher than the penalty for not paying all of the taxes you owe on time.

Once you have filed, go to IRS.gov to learn more about payment options. The IRS offers online payment agreements, installment plans, and exceptions for people with financial hardships. Just remember, DON’T IGNORE IT. Things will only get worse if you don’t file on time, and the IRS really is willing to work with you to get your tax debt paid.

Find out more about late filing and payments here.

Last Minute Tax Tips

Tax Tips Carpenter Evert and AssociatesJust getting around to doing your taxes?    

You are in good company – as of today, nearly 40 million taxpayers have yet to file their returns for 2016.

But don’t worry. There is still time to get your taxes done correctly and filed on time. “With the tax deadline approaching, taxpayers shouldn’t panic. The IRS has many options available to help people as they finalize their tax returns or if they need to get extra time to file,” said IRS Commissioner John Koskinen.

The IRS has tax help, publications and information on IRS.gov to help last-minute filers. Additionally, IRS telephone lines will have a special Saturday opening on April 15 from 9 am to 5 pm to help taxpayers with last-minute issues.

Carpenter Evert has put together a list of last-minute things to remember to help you get your taxes done right and on time.

  1. Filing Date. You have a few extra days to file this year – the due date is typically April 15. If the 15th lands on a weekend, the due date is moved to the following Monday. As an extra bonus this year, Monday is a legal holiday in Washington DC called Emancipation Day. The holiday pushes the tax deadline one more day to Tuesday, April 18. Emancipation Day celebrates President Lincoln’s signing of the Compensated Emancipation Act in 1862, freeing over 3,000 slaves in DC.
  2. Check for mistakes. Even simple mistakes can hold up the processing of your tax return. Take the time to review your return for errors, and use electronic filing if possible. Read Common Tax Filing Errors to Avoid for more information.
  3. Taxable and Nontaxable Income. It’s important to know the difference. Taxable income includes money you receive, such as wages and tips. It can also include income from property or services such as bartering. All taxable income needs to be included on your tax return, even if you did not get a W-2 or 1099 form. There are some nontaxable categories of income, like life insurance proceeds, scholarship money, and gifts. Read the details here.
  4. Saver’s Credit. You may qualify for the Saver’s Credit for eligible contributions you make to an employer-sponsored retirement plan or IRA. You have until April 18, 2017, to make IRA contributions for 2016. Find out more.
  5. Earned Income Credit. Find out if you’re eligible for this tax credit that assists middle and low income earners. See if this applies to you. 
  6. Tax Benefits for Parents. One place kids can actually save you money is when you file your tax return. The most common deductions for parents are – take children as dependents, claim the Child Tax Credit, child and dependent care credit, adoption credit, higher education credits, student loan interest, and health insurance deductions.
  7. Tax Benefits for Higher Education. Higher education costs paid in 2016 can mean tax savings when you file your tax returns. If taxpayers, their spouses or their dependents took post-high school coursework last year, they may be eligible for a tax credit or deduction. There are two tax credits available to help taxpayers offset the costs of higher education. The American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of income tax owed. Use Form 8863 to claim the education credits.
  8. Gifts to Charity. Don’t forget to include items or money you gave to charity last year. Clothing, household goods, and cash donations are all deductible. IRS Publication 526  has further details on making gifts to charity, including what records you need to have.
  9. Medical and Dental Expenses. If you have had a rough year with out-of-pocket medical or dental expenses, you may be able to qualify for a significant deduction. For examples of limitations and costs you can and can’t deduct, see IRS Publication 502, Medical and Dental Expenses.
  10. Health Care Tax Reporting. While most taxpayers will simply need to check a box on their tax return to indicate they had health coverage, there are also lines on your tax form related to the health care law. Visit IRS.gov/aca for details and updates.
  11. Watch out for scams. It’s especially important to be aware of online and telephone scams during the tax season. Read the article IRS Warns Taxpayers of Surge in Automated Phone Call Scams for more details. If you have been approached by scammers, the IRS has a system to report phishing and other online scams here.
  12. Use IRS Online Tools. The IRS has many useful online tools. The Interactive Tax Assistant tool provides answers to many tax questions. It gives the same answers that an IRS representative would give over the phone.

Standard or Itemized: Choose the Tax Deduction Method That’s Best for You

Tax deductions Carpenter Ever and Associates

 

Most people claim the standard deduction when they file their federal tax return. But did you know that you may lower your taxes if you itemize your deductions? Find out if you can save by doing your taxes using both methods. Usually, the bigger the deduction, the lower the tax you have to pay. You should file your tax return using the method that allows you to pay the least amount of tax. The IRS offers these tips to help you choose:

Figure your itemized deductions.  Add up deductible expenses you paid during the year. These may include expenses such as:

  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses

Know your standard deduction.  If you don’t itemize, your basic standard deduction for 2016 depends on your filing status:

  • Single $6,300
  • Married Filing Jointly $12,600
  • Head of Household $9,300
  • Married Filing Separately $6,300
  • Qualifying Widow(er) $12,600

If you’re 65 or older or blind, your standard deduction is higher than these amounts. If someone can claim you as a dependent, your deduction may be limited.

Check the exceptions.  There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if you are married filing a separate return and your spouse itemizes. In this case, you can’t claim a standard deduction. You usually will pay less tax if you itemize.

File the right forms.  To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

Other IRS Resources:

  • Publication 501, Exemptions, Standard Deduction, and Filing Information
  • To learn about exceptions to these rules, go to Publication 17, Your Federal Income Tax.

Above-the-Line Tax Deductions

Above the Line Tax Deductions from Carpenter Evert and AssociatesThere are a series of income adjustments you can take on the bottom of page 1 of your Form 1040 or Form 1040A. These adjustments, which reduce the taxable income you’ll declare, are known as above-the-line deductions—you enter them just above the last line on the page, where you report your adjusted gross income (AGI).

Above-the-line deductions offer two key advantages. First, you are allowed to take the deductions regardless of whether you itemize deductions on Schedule A of your tax return.

Second, above-the-line deductions reduce your AGI and, in many situations, also reduce your modified adjusted gross income (MAGI). A lower AGI or MAGI can provide tax savings on various tax return items. For instance, most taxpayers now can deduct medical expenses only to the extent they exceed 10% of AGI. With a lower AGI, you may qualify for a larger itemized medical deduction.

There are more than a dozen categories of above-the-line deductions:

IRAs. You can make contributions for 2014 until April 15 of 2015. Although many taxpayers won’t be able to deduct IRA contributions because of income and participation in an employer plan, some people might qualify for deductions.

Example: Alice Baker is a homemaker with no earned income in 2014; her husband, Carl, is employed and participates in his company’s retirement plan. The couple’s MAGI for 2014 is over $116,000, so Carl cannot make a deductible IRA contribution for that year. However, if the couple’s 2014 MAGI is less than $181,000, Alice can make a fully tax deductible contribution of up to $5,500 ($6,500 if she is 50 or older).

Other retirement accounts. Contributions to such accounts also reduce your AGI. Plus, if you had self-employment income in 2014, you can contribute to a simplified employee pension (SEP) plan until the due date of your 2014 tax return. And, with a filing extension, the SEP deadline can be October 15, 2015. You generally can contribute nearly 20% of your self-employment income, with a SEP contribution cap of $52,000 for 2014.

Health Savings Accounts (HSAs). With certain high deductible health insurance plans, you can make tax-deductible contributions to an HSA; you can tap these accounts for health care costs without owing income tax. Again, if you qualify for a 2014 HSA contribution, the deadline is April 15, 2015. Contribution limits go up to $7,550 for someone age 55 or older with family coverage.

Self-employed health insurance. Self-employed individuals can deduct the premiums paid for any medical insurance, dental and long-term care insurance. Policies also can cover the worker’s spouse, dependents, and non-dependent children who were under age 27 at the end of last year. What’s more, the IRS has said that Medicare premiums paid by self-employed individuals can be taken as an above-the-line adjustment to income. There are some conditions that must be met to claim this deduction..

Alimony. Amounts you paid to a former spouse under a divorce or separation decree that qualify as alimony for tax purposes are deductible here.

Need help planning for next year’s taxes? It’s never to early. Call  the tax experts at CEA – (952) 831-0085.

 

Capital Gains and Losses – What you Need to Know at Tax Time

Arrows - blue red metalWhen you sell a capital asset, the sale results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 important facts you should know about capital gains and losses:

  1. Capital Assets.  Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.
  2. Gains and Losses.  A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
  3. Net Investment Income Tax.  You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. For details visit IRS.gov.
  4. Deductible Losses.  You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
  5. Long and Short Term.  Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.
  6. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.
  7. Tax Rate.  The capital gains tax rate usually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gains.
  8. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
  9. Carryover Losses.  If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened in that next year.
  10. Forms to File.  Often, you will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return.

For more information about this topic, see the Schedule D instructions and Publication 550, Investment Income and Expenses on the IRS website.

Contact Carpenter, Evert and Associates to find out more about our tax and accounting services. (952) 831-0085 or click here.